The N Files: Vigilante Fertilizer Math

October 1, 2013 08:44 AM
 

Your Inputs Monitor is proud to introduce its latest weekly report, 'The N Files'. This report will include calculations formulated here at the Monitor aimed at predicting trends in nitrogen pricing in U.S. retail markets. These first few weeks will include a measure of explanation -- stick with us here -- to help the reader follow these volatile markets, and try to explain my own brand of vigilante fertilizer math.

We base much of our analysis on the assumption that nitrogen prices and December corn futures (ZCZ) move together. Below, we publish the current relationship between one acre of expected new-crop revenue to the price of one short ton of retail anhydrous ammonia --our ZCZ-NH3 spread.paritybox

December corn at midday stands at $4.38. At trendline 160bu/acre and one retail short ton of anhydrous ammonia at $696.57, the ZCZ-NH3 spread stands at -4.23. A negative number here suggests upside potential for anhydrous as one acre of December corn is priced at a premium to retail anhydrous, and the two will seek parity.

This week --

  • Anhydrous $129.14 below year-ago pricing -- up $12.46/st this week
  • Urea $135.43 less than the same time last year -- down $12.56/st this week
  • UAN28% $61.89 below year-ago -- up $8.24/st this week
  • UAN32% $71.57 below last year -- down $13.38/st this week

 

The following is an updated table of nitrogen pricing by state by the pound of N. For the second straight week, 32% and anhydrous both moved higher as 28% and urea fell. In order to capture expected price relationships, urea still must move higher against NH3 and take 28% with it. (Read more)

Nitrogen pricing by pound of N -- 10/1/2013

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Iowa
$0.41
$0.59
$0.55
$0.56
Illinois
$0.43
$0.58
$0.52
$0.53
Indiana
$0.47
$0.50
$0.55
$0.63
Wisconsin
$0.42
$0.46
$0.48
$0.52
Minnesota
$0.40
$0.47
$0.59
$0.58
South Dakota
$0.42
$0.46
$0.57
$0.53
North Dakota
$0.41
$0.47
Not reported
Not reported
Nebraska
$0.37
$0.51
$0.52
$0.53
Missouri
$0.41
$0.52
$0.70
$0.52
Kansas
$0.37
$0.50
$0.54
$0.53
Ohio
$0.55
$0.53
$0.52
Not reported
Michigan
$0.49
$0.51
$0.52
Not reported
Average
$0.43
$0.51
$0.55
$0.61
Year-ago
$0.51
$0.70
$0.66
$0.66

 

MosaicCo reports wholesale ammonia continued its sideways movement and is fishing for demand. Urea moved higher at the Black Sea, Middle East and NOLA wholesale markets, and slid sideways in the Corn Belt during the week. Retail urea fell $2.92 in prices reported to your Monitor to stand this week at $474.13/st. In a fertilizer year marked by strong declines, one must wonder when the bear run will end. We believe nitrogen will level off at present levels for harvest with upside potential through winter resulting in spring prices at or above today's price.

Near-term Outlook --

The numbers above suggest mild upside potential for anhydrous and the table below reflects the expected margins between our four major N products. This looks a little hairy, but figure NH3 as our baseline. All other N products will align themselves by certain historical margins based on the price of NH3. We provide the expected margins here in the 'Expected Margins' column. The 'Necessary change' column takes what we know about the price relationship of these four N products and makes projections on potential near-term price moves.

In this case, if these four products will look to align according to the 'expected margin' column, Urea must add 2 cents per pound N, UAN28% also needs to correct slightly higher and add 1 cent to correctly align theses products. Meanwhile, UAN32% overshot its target last week and must now soften 2 cents.
 

 

N Pricing by the Pound
Expected Margin
Current prices
Necessary change
Projections
Anhydrous Ammonia
NH3 = $0.43
$0.43
+0
$0.43
Urea
NH3 + 10 cents
$0.51
+$0.02
$0.53
UAN32%
NH3 + 16 cents
$0.61
-$0.02
$0.59
UAN28%
NH3 + 13 cents
$0.55
+$0.01
$0.56

 

The margins between N products are skewed slightly this week, and the question is, will anhydrous and UAN32% correct lower, or will urea and UAN28% correct higher. Based on corn futures, today's deferred contracts faded, suggesting downward pressure on nutrient. But MosaicCo's report of sideways movement in ammonia, and wholesale price increases in urea may be a clue that NH3 and 28% are settling in while 32% and urea must adjust to the standard-bearer, anhydrous.

If you have not yet booked fall anhydrous, we strongly recommend you at least have a conversation with your preferred supplier today. I'm less willing by the day to accept that nutrient prices have downside potential yet to tap, so do yourself a favor and check your local pricing.

If this report seemed a little like the first day of a math class I apologize, and I don't pretend my math is up to Harvard standards. But understanding how these numbers work together in the volatile world of commodities is worth it to the intentional marketer. As we present this weekly report, we will learn what we can from these figures and try to make sense of this vigilante fertilizer math.


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