The NFiles: Urea Firms Slightly

November 25, 2015 11:30 AM

 

  • Anhydrous $72.69 below year-ago pricing -- lower $3.23/st this week at $645.16.
  • Urea $70.00 below the same time last year -- higher $1.08/st this week to $414.45.
  • UAN28% is $27.74 below year-ago -- lower $2.30/st this week to $293.80.
  • UAN32% is priced $33.99 below last year -- lower $5.66/st this week at $318.47.

11252015NH3sPreadUAN solutions remain very near parity with anhydrous ammonia although urea firmed back to 2 full cents above expected margins this week. China has reportedly slowed urea production slightly and that may account for the disparity, but we cannot expect imported urea to behave in the same way as anhydrous ammonia which is a product largely unique to American agriculture.

A 2 cent divide between urea and anhydrous may be about the best we can hope for, and since the rest of the nitrogen products we survey are priced so near parity by the pound, nitrogen prices are likely to trend more closely along with corn prices.

Working in favor of the downside is the knowledge that farmers will often make purchases ahead of the first of the year in order to improve their tax position. That may add an element of price pressure on the basis of demand discovery. In years when corn returns are higher and the outlook is rosier, this is the time of year when investments are made in new implements and equipment. But since the outlook is sour and returns on this year's harvest have been low in the cash market, growers will opt against that new tractor or pickup truck and cover inputs costs instead.

11252015UANRemember that manufacturers and dealers need to move product. Industry watchers have been lumping fertilizer in with all production inputs expenses, leading to a belief that fertilizer prices are much to high. I would point out that anhydrous this week is priced $72 below the same time last year and that urea is $70 below last year's price. Yes, there is still some improvement needed in the revenue gap between corn and fertilizer prices, but corn prices only need to add roughly another fifteen cents to cash bids to catch up with fertilizer prices.

Production fundamentals are set to keep a lid on N prices through winter both from foreign and domestic sources. Even with a slight increase in corn acreage, nitrogen supplies are strong, and availability is good. If you can find an anhydrous bid for fall below $625 go ahead and book for immediate application. Michigan growers should look for a price below 11252015Urea$700 as we expect prices in that state to be above the rest of the Corn Belt.

Give urea some time to come our way and expect to book spring and summer supplies during the winter when prices post a clear low.

December 2016 corn closed at $3.91 on Friday, November 20. That places expected new-crop revenue (eNCR) per acre based on Dec '16 futures at $619.63 with the eNCR15/NH3 spread at 25.53 with NH3 at a premium to December 2016 corn futures. The spread narrowed 10.00 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.79 1/2 per bushel.

Nitrogen pricing by pound of N 11/25/15

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Midwest Average
$0.39 1/2
$0.46 1/2
$0.52 1/4
$0.49
Year-ago
$0.43 3/4
$0.53 1/2
$0.57
$0.54 3/4

 

The Margins -- Anhydrous is still underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 2 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 1/2 cent; UAN32% solution is 3/4 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 1/2 cents
0
0
Urea
NH3 5 cents
46 1/2 cents
7 cents
2 cents
UAN28%
NH3 12 cents
52 1/4 cents
12 3/4 cents
3/4 cent
UAN32%
NH3 10 cents
49 cents
10 1/2 cents
1/2 cent

 

11252015NitrogenIndex