The NFiles: September Swoon Due to End

October 1, 2015 11:39 AM

 

  • 1012015NH3Anhydrous $40.36 below year-ago pricing -- lower 52 cents/st this week at $660.44.
  • Urea $75.77 below the same time last year -- lower $7.83/st this week to $432.23.
  • UAN28% is $24.98 below year-ago -- higher $1.86/st this week to $309.26.
  • UAN32% is priced $11.42 below last year -- lower $9.12/st this week at $338.74.

History tells us that by the first of October, anhydrous ammonia prices have placed a harvest low. Last year, that was at $700.00 even and from there, prices spent the winter about $20 per short ton above that mark. UAN solutions have traced a similar path although, according to the three-year average, prices have failed to firm post-harvest suggesting opportunities may lie ahead to book for spring at -- or possibly below -- today's price. Urea is much harder to pigeonhole as Chinese exports have kept almost constant pressure on U.S. retail urea prices since June 2013 with the exception of late winter 2013-14 when prices firmed into spring, beginning about the first of the year.

1012015UANIf history has anything to tell us about what is ahead for nitrogen pricing, NH3 is likely at a low with this week's price with upside potential through the winter. UAN may well be at a low this week as well, but in years past, UAN has firmed the least during the winter of all of our nitrogen products surveyed. Expect steady pricing through the winter on UAN with a tepid upside bias. Urea prices will be driven by Imports from China which will come to an end once the Mississippi River shipping lanes close for winter.

Last year, urea didn't fully bottom until January (2015) and then firmed slightly from there into spring. The downtrend can only last for so long, but according to our margin analysis, UAN and urea are all overpriced compared to NH3. Since we know that NH3 wants to firm for winter, if UAN and are want to hold in lace or even soften slightly, there is the potential for our nitrogen products to arrive at parity. The trouble is that parity has not been much of a concern for nitrogen over the past two years. Given that, it is hard to know what parity will mean for the market beyond the fact that all nitrogen products would be priced correctly in relation to each other.

1012015UreaAnd then there's the corn price. Parity with the corn rice has been just as hard to come by, but if yields fall short of expectations -- both for USDA and traders -- it is not out of the question the we could see cash corn prices nudge up against nitrogen prices. This week, nitrogen is priced for an average cash corn bid of $3.94 per bushel. A basis bump would help as well, but an actual cash corn price around $4.00 or even a few cents higher would give growers a little budget breathing room, and help support wider production margins in the coming crop year.

We have most of our fall fertilizer purchased by now and recommend from here on out growers book hand to mouth. I fully expect this week to mark the end of the September swoon, and not just because we flip the calendar to October. Seasonal studies show nitrogen price lows have often been placed in September, and we expect this year to be no different.

December 2016 corn closed at $4.11 on Friday, September 25. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $646.55 with the eNCR15/NH3 spread at 13.89 with NH3 at a premium to December 2016 corn futures. The spread narrowed 15.50 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.94 per bushel.

Nitrogen pricing by pound of N 9/23/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.40
$0.48 1/4
$0.54 3/4
$0.52 3/4
Year-ago
$0.43
$0.56 3/4
$0.59 1/2
$0.55

 

The Margins -- Anhydrous is still underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 3 1/4 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 2 3/4 cents; UAN32% solution is also 2 3/4 cents 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
40 cents
0
0
Urea
NH3 5 cents
48 1/4 cents
8 1/4 cents
3 1/4 cents
UAN28%
NH3 12 cents
54 3/4 cents
14 3/4 cents
2 3/4 cents
UAN32%
NH3 10 cents
52 3/4 cents
13 3/4 cents
2 3/4 cents

 

1012015NIndexes