The N Files: Natural Gas Supply Woes Threaten Spring Pricing

November 19, 2013 05:17 AM
 

This week --

A lot of factors are working against nitrogen this week, and most of the trouble revolves around natural gas supply. China announced last week that urea production and other industrial activity would be curtailed until natural gas stores can build into winter. It is not known how long or how much urea production will suffer, but this may give global nitrogen inspiration to mount a recovery. However, the price of urea in China may not impact U.S. pricing until spring on the basis of slow fall demand that will intensify over the winter.putinbox

Meanwhile, a natural gas war is brewing in the Former Soviet Union. The controversy is centered in Ukraine, America's number three supplier of nitrogen fertilizer. Russia's Gazprom says Ukraine has unpaid bills piling up and has stopped the sale of natural gas to Ukraine. Ukraine claims it has enough natural gas to get by for now and has refused natgas sendouts from Russia, but, like China, if natgas runs short, nitrogen production may be cut back in favor of home heat and power generation. This, too could influence nitrogen pricing higher. Working in favor of Ukraine N production is the fact that fertilizer Czar Dmitry Firtash sources natgas for ammonia and urea production from Asian sources, outside the FSU.

However, if Firtash's Asian sources divert natural gas supplies to China, Ukraine would have to shutter N production to make way for home heat and power burn through the winter. If the European and Chinese winters are especially cold, natural gas supplies for fertilizer will have to redirect toward keeping the citizens warm. That would limit N production in both China and Ukraine and that could easily lead to higher prices by spring. Natural gas will be a story to watch all winter.

  • Anhydrous $195.19 below year-ago pricing -- down $1.68/st this week to $671.06.
  • Urea $132.46 less than the same time last year -- up 64 cents/st this week to $450.21.
  • UAN28% $63.47 below year-ago -- down 13 cents/st this week at $315.86.
  • UAN32% $99.74 below last year -- up $6.16/st this week to $347.63.

 

N by the pound -- Anhydrous down 1/4 cent to 40 1/2 ; Urea unchanged at 49 1/2 cents; UAN28% up 1/4 cent to 55 1/2 cents per pound and UAN32% unchanged at 52 3/4 cents/lbN.

The following is an updated table of nitrogen pricing by state by the pound of N.

Nitrogen pricing by pound of N -- 11/19/13

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Iowa
$0.40
$0.56
$0.55
$0.53
Illinois
$0.42
$0.54
$0.55
$0.53
Indiana
$0.43
$0.49
$0.55
$0.64
Wisconsin
$0.41
$0.49
$0.50
$0.48
Minnesota
$0.40
$0.46
$0.54
$0.56
South Dakota
$0.41
$0.46
$0.59
Not reported
North Dakota
$0.39
$0.47
$0.66
Not reported
Nebraska
$0.37
$0.52
$0.50
$0.53
Missouri
$0.38
$0.48
$0.59
$0.47
Kansas
$0.37
$0.48
$0.55
$0.55
Ohio
$0.42
$0.50
$0.55
Not reported
Michigan
$0.47
$0.50
$0.54
Not reported
Average
$0.40 1/2
$0.49 1/2
$0.55 1/2
$0.52 3/4
Year-ago
$0.52
$0.64
$0.66
$0.66

 

Corn -- cornharvested

December 2014 corn opened today at $4.51 -- 24 1/4 cents lower from last week's N Files. At trendline 160bu/acre -- which is now below USDA's new-crop 2013 average yield projection -- and one retail short ton of anhydrous ammonia at $671.06, the ZCZ14-NH3 spread narrowed 37.12 points on the week to stand at -10.54. A negative number here indicates anhydrous is priced below December 14 corn futures and suggests upside potential for anhydrous near-term.

Confidence in the size of this year's crop and unease about EPA's proposal to lower the corn ethanol component of the Renewable Fuels Standard are limiting buying interest in corn and may pressure the Dec 14 lower.

Once again, we are set up for a standoff between the price impacts of global production and deferred corn contracts. Production features suggest upside potential for nitrogen, but corn futures hint a low has yet to be placed. We believe December corn will show the way, and we know fertilizer will not move higher until deferred corn contracts rally -- unless supplies deteriorate dramatically due to natural gas problems.

The overhang in urea and sluggish nitrogen purchases in the U.S. suggest the production slowdown in China and Ukraine may do little more than rebalance the supply side of the market.

Wholesale --

MosaicCo. reports wholesale urea moved higher at all locations with wholesale urea values in the U.S. Corn Belt one dollar higher week-over at $356/MT. Ammonia held firm at Tampa at $480.00/ton.

Near-term Outlook --

We see very little that will inflate nitrogen pricing near-term. Natural gas is a concern globally, but fall N supplies are already in place and prices have been set. Spring nitrogen may reflect a recovery for urea pricing which would drive all nitrogen higher.

Our advice is to stand pat for now with an eye toward hedging a portion of spring N. We are watching the global supply situation very closely and if things get real scary, we will pull the trigger on a portion for spring.

Fall nutrient at this point is best left to hand-to-mouth purchases for immediate application. That may not be the case in two weeks, but by that time, fall applications will already be starting to wind down.


Putin photo credit: World Economic Forum / Foter.com / CC BY-NC-SA

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