The NFiles: Nitrogen on Seasonal Rise

April 27, 2016 03:16 PM

NH3

  • Anhydrous is $116.48 below year-ago pricing -- higher $1.51/st this week at $604.10.
  • Urea is $85.25 below the same time last year -- higher 23 cents/st this week to $375.66.
  • UAN28% is $59.33 below year-ago -- higher 49 cents/st this week to $279.81.
  • UAN32% is priced $64.47 below last year -- higher $4.16/st this week at $308.87.

Nitrogen prices firmed again this week as demand for spring applications continues. Prices are not likely to fall from here as USDA pegged planting progress at 30% complete as of Sunday April 24. We are deep enough into the season that demand is consistently strong. Nitrogen prices have not firmed as sharply as some had expected. That may be due to the quick start to spring fieldwork and farmers booking nitrogen around the February price floor.

UreaSummertime urea prices are on our radar. Favorable rains in India will bring more Indian farmers to market for inputs including urea which could add mild demand-based price support later this year. But urea production in China remains robust and large volumes of exportable supplies would help limit price strength. Urea prices will continue to dominate nitrogen price action and we expect urea's price performance to dictate prices across the N segment through fall applications.

UAN demand will remain consistent between now and July as farmers are using UAN as part of preplant cocktails as well as for sidedress. Expect higher near-term UAN prices with a softer tone heading into fall.

In general, our outlook has changed little for the summer nitrogen offseason. Lower prices through July, August and September with post-harvest price increases in proportion to fall demand. In areas where farmers apply fall anhydrous, expect mild upticks through the fall demand push.

UANGlobally, ammonia supplies may begin to tighten as a result of curtailed production in North Africa, but domestic nitrogen production may counteract price support if enough new production capacity is online by fall. If not, we expect prices to carry roughly a $20-$30 higher price tag until U.S. ammonia producers manufacture enough ammonia to compete with global supplies.

With last week's corn price softness, anhydrous ammonia ended the week at a premium to expected new-crop revenue, but we expect corn prices to rally more readily than anhydrous near-term. The relationship between anhydrous and corn futures will remain volatile and we expect the two to continue waffling around each side of parity through the entire spring season.

December 2016 corn closed at $3.81 on Friday, April 22. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $598.43 with the eNCR15/NH3 spread at 5.67 with NH3 at a premium to expected new crop revenue. The spread widened 13.28 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.52 1/4 per bushel.

Nitrogen pricing by pound of N 4/27/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.37 1/4
$0.41 1/2
$0.50
$0.47 3/4
Year-ago
$0.44
$0.51
$0.60
$0.58 1/4

 

The Margins -- UAN28% is overpriced compared to anhydrous by 3/4 cent; UAN32% solution is 1/2 cent above NH3 on price. Urea is 3/4 cent below 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
37 1/4 cents
0
0
Urea
NH3 5 cents
41 1/2 cents
4 1/4 cents
-3/4 cent
UAN28%
NH3 12 cents
50 cents
12 3/4 cents
3/4 cent
UAN32%
NH3 10 cents
47 3/4 cents
10 1/2 cents
1/2 cent

 

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