The NFiles: Nitrogen Steady on an Improved Outlook

November 13, 2015 10:59 AM

11132015NH3Story

  • Anhydrous $69.50 below year-ago pricing -- lower $1.82/st this week at $648.43.
  • Urea $78.99 below the same time last year -- lower 75 cents/st this week to $415.40.
  • UAN28% is $21.84 below year-ago -- higher 22 cents/st this week to $298.09.
  • UAN32% is priced $25.34 below last year -- higher 48 cents/st this week at $327.51.

Nitrogen prices basically held steady over the week. Anhydrous was our biggest mover, falling $1.82 while urea fell 75 cents and UAN solutions were up a combined 70 cents. The margins between our nitrogen products widened just slightly as a result of the slightly lower NH3 price.

11132015UreaNatural gas prices are expected to remain low and nitrogen producers have been able to lock in feedstock natgas prices well below last year's. That will limit upside risk in N for the time being and as domestic production continues to come online, growers will find greater availability at more attractive prices for spring as winter goes on.

That suggests the spring nitrogen price may wind up below the fall price. UAN will still carry the most upside risk, but, as we have said before, what is good for ammonia and urea is good for UAN. Demand for sidedress will support higher UAN prices when the time comes for that, so in the meantime, we will look for indications of a price floor and book for spring delivery accordingly. We have already booked 50% of our spring nutrient including urea, NH3 and UAN but will hold off for now and wait for either another round of price pressure or for the markets to find a reason to firm.

11132015UANOn another note, I attended the National Association of Farm Broadcasting convention this week and had the opportunity to talk with a number of event exhibitors from the fertilizer industry. They expressed to me that nitrogen has as much downside potential as any of the fertilizers we survey. They also noted that to expect fertilizer prices to follow corn prices may be misguided. We are fortunate that fertilizer this year has narrowed the revenue gap between itself and expected new-crop revenue significantly since the same time last year.

But on the subject of fertilizer following corn, they asked, "Do we expect the price of new cars to follow gasoline price trends, or for machinery prices to follow the price of iron?" A great point, and that makes the currently narrow gap between inputs and production returns seem all the more significant.

December 2016 corn closed at $4.01 on Friday, November 6. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $631.68 with the eNCR15/NH3 spread at 16.75 with NH3 at a premium to December 2016 corn futures. The spread widened 9.94 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 11/13/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.39 3/4
$0.46 1/2
$0.52 3/4
$0.50 3/4
Year-ago
$0.43 3/4
$0.54 1/2
$0.56 3/4
$0.55 1/4

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

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (NH3)
0
39 3/4 cents
0
0
Urea
NH3 5 cents
46 1/2 cents
6 3/4 cents
1 3/4 cents
UAN28%
NH3 12 cents
52 3/4 cents
13 cents
1 cent
UAN32%
NH3 10 cents
50 3/4 cents
11 cents
1 cent

 

11132015NIndexes