The NFiles: Nitrogen Spreads Thin on Mixed Price Action

November 6, 2015 12:38 PM


  • Anhydrous $67.68 below year-ago pricing -- lower 82 cents/st this week at $650.25.
  • Urea $76.10 below the same time last year -- lower $4.43/st this week to $416.14.
  • UAN28% is $24.10 below year-ago -- higher $2.83/st this week to $297.87.
  • UAN32% is priced $25.11 below last year -- higher $2.97/st this week at $327.04.

Between slightly lower urea and anhydrous and slightly higher UAN solutions, this week, nitrogen is basically flat. UAN32% slipped to 3/4 of a cent out of parity but urea came 1/2 cent closer. Overall our margins improved on the week as the total outstanding spreads generally thinned. That gives clues that nitrogen as a whole may be poised to follow corn prices more closely in the coming weeks.

1162015UANAnother, perhaps more important spread also narrowed this week to encouraging levels. Our expected new-crop revenue/anhydrous spread thinned to just 6.81 this week. That spread is an indication of NH3's affordability when compared to prospective new-crop returns. Months earlier, that spread was well above 100. We had been expecting corn futures to do more of the heavy lifting in righting that relationship, but anhydrous, along with the rest of the nitrogen segment, has softened sharply driving the narrowing of the corn price/fertilizer price spread.

Nitrogen demand forecasts may have an upward impact on fertilizer prices however, and leading U.S. nitrogen producer CF Industries has joined the chorus of market watchers who predict a rise in planted corn acreage in 2016. The company predicts a 2.1 million acre increase in corn plantings to 90.5 million acres. CF also foresees a 1.2% rise in U.S. nitrogen demand over 2015 as a result of the increase in corn acres. At the same time, CF notes that its natural gas costs for manufacturing have fallen 37% from the prior year. That will keep production margins in the black and allow the company, which has recently completed an expansions project at its Donaldsonville production complex, to manufacture adequate supplies near-term..

1162015UreaLower urea and ammonia prices will also weigh on UAN prices although demand for sideressed N will be high. We have a portion of our UAN for spring/summer already filled to guard against higher spring prices.

Between narrowing spreads in the N segment and a closer reflection of current corn prices amid favorable production and demand prospects for manufacturers, even with an increase in 2016 planted corn acres, nitrogen prices in the near-term appear to have limited upside risk.

December 2016 corn closed at $4.08 on Friday, October 30. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $643.44 with the eNCR15/NH3 spread at 6.81 with NH3 at a premium to December 2016 corn futures. The spread widened 8.40 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.84 1/4 per bushel.

Nitrogen pricing by pound of N 11/5/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.46 1/2
$0.52 3/4
$0.50 3/4
$0.43 3/4
$0.54 1/4
$0.55 1/4


The Margins -- Anhydrous is still underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 1 1/2 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 3/4 cent; UAN32% solution is also 3/4 cent ahead of NH3 on price.

Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
40 cents
NH3 5 cents
46 1/2 cents
6 1/2 cents
1 1/2 cents
NH3 12 cents
52 3/4 cents
12 3/4 cents
3/4 cent
NH3 10 cents
50 3/4 cents
10 3/4 cents
3/4 cent