The NFiles: Nitrogen Margins Loosen

June 16, 2016 11:24 AM
  • Anhydrous is $132.50 below year-ago pricing -- lower $2.20/st this week at $583.01.
  • Urea is $93.51 below the same time last year -- lower $1.46/st this week to $370.55.
  • UAN28% is $60.43 below year-ago -- lower 41 cents/st this week to $279.00.
  • UAN32% is priced $64.10 below last year -- lower 56 cents/st this week at $299.13.

NH3As I sat down to write this week's TheNFiles, I began to voice my thoughts on the outlook for nitrogen prices for roughly the next 12 months. I urge you to follow this link to read what turned into a much longer discussion than TheNFiles generally offers. For this report, I will bow to the wise adage, "Brevity good."

Nitrogen prices were lower across the board with anhydrous ammonia leading declines across our fertilizer price survey. Iowa NH3 was our downside leader where anhydrous fell $27.92 by the short ton. Minnesota and Illinois each fell a couple bucks and 5 of the states in our survey were unchanged. Gains were mild as led by Missouri NH3 which firmed $3.53 to a level $25 below our regional average. Kansas added $1.82 and Indiana firmed 68 cents.

ureaUrea was lower on the week as well as led by declines in Wisconsin to the tune of $9.14 as other declines were less than 5 bucks per short ton. Gains were spearheaded by Michigan which firmed $6.91 as four other states posted gains, al of which were less than $2.15 per short ton.

UAN solutions were lower as well, led by declines in Minnesota and South Dakota. Missouri 28% firmed $17.89 as Nebraska led gains in 32%, firming a timid 34 cents.

With demand waning seasonally and nitrogen in good supply, upside risk is limited near-term. As you read today's post titled, "The Nitrogen Outlook Examined," it is important to note that our nitrogen margins are falling apart as corn futures are firming. We have surmised that thin nitrogen margins by the pound of N are a sign that nitrogen prices will UANfollow corn futures closely. Since the margins are widening, this rally in corn may not influence nitrogen prices higher for several months, which would equate to a welcome return to profitability and prosperity on the farm for many.

December 2016 corn closed at $4.30 on Friday, June 10. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $680.80 with the eNCR15/NH3 spread at -97.79 with anhydrous ammonia at a discount to expected new-crop revenue. The spread softened 20.70 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.46 per bushel.

Nitrogen pricing by pound of N 6/16/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.35 1/4
$0.41
$0.50
$0.47
Year-ago
$0.46 1/4
$0.51 1/2
$0.61
$0.56 1/2

 

The Margins -- UAN28% is overpriced compared to anhydrous by 2 3/4 cents; UAN32% solution is 1 3/4 cent above NH3 on price. Urea is at a 3/4 cent premium to anhydrous by the pound of N this week.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
35 1/4 cents
0
0
Urea
NH3 5 cents
41 cents
5 3/4 cents
3/4 cent
UAN28%
NH3 12 cents
50 cents
14 3/4 cents
2 3/4 cents
UAN32%
NH3 10 cents
47 cents
11 3/4 cents
1 3/4 cent

 

NSpreads