The NFiles: UAN Lends Opportunity

March 29, 2016 11:38 AM
  • Anhydrous $147.24 below year-ago pricing -- higher $7.92/st this week at $573.42.
  • Urea $96.73 below the same time last year -- higher $4.43/st this week to $371.68.
  • UAN28% is $62.85 below year-ago -- lower $8.34/st this week to $271.64.
  • UAN32% is priced $63.96 below last year -- lower 75 cents/st this week at $304.85.

UANNitrogen prices were mixed this week with UAN solutions a collective $9.09 lower and urea and NH3 a combined $12.35 higher by the short ton. According to our margin analysis, UAN solutions are still slightly overpriced compared to the rest of the N segment, but all are priced within a $20 range on our Indexed basis. An early start to spring fieldwork in the south had threatened to force prices higher in the central and northern plains, but as cooler weather has skidded progress to a halt, UAN demand has dried up too. This is a temporary condition and this week's price action should be considered an opportunity to book UAN before "I" state demand picks up.

Urea prices will vary depending on how much your preferred retailer booked during the offseason when prices were lower than today's. Once that product booked by wholesalers runs out, refill will be at slightly firmer prices although global urea supplies alongside increased U.S. nitrogen production and still strong Chinese production will limit the upside through summer. Illinois, Wisconsin and Ohio all firmed more Ureathan $10 per short ton this week. Minnesota, North Dakota and Missouri were our only three decliners in this week's urea price survey, but those declines were small, bolstering our idea that urea prices have bottomed.

Similarly, downside action in anhydrous ammonia was limited to Indiana, North Dakota and Missouri, all of which fell less than $5 per short ton. Bulls clearly hold the upper hand in NH3 as 5 states firmed more than $10 per short ton with only 2 states unchanged. We take this as a pretty clear indication that prices have bottomed and are headed higher into spring. Consistent with the rest of the nitrogen segment, we expect summer offseason prices to trail lower.

For the time being, if you have been waiting for prices to place a clear bottom, the time to book spring/summer nitrogen is now. Price strength will follow demand for spring NH3applications and as Midwestern temperatures warm, nitrogen prices including NH3, UAN and urea will firm.

December 2016 corn closed at $3.87 on Friday, March 24. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $608.52 with the eNCR15/NH3 spread at -35.10 with NH3 at a premium to December 2016 corn futures. The spread narrowed 4.56 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.43 per bushel.

Nitrogen pricing by pound of N 3/29/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.35
$0.41
$0.48
$0.47 1/4
Year-ago
$0.44
$0.51 3/4
$0.60
$0.57

 

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

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

 

Indexes