Advice in Charts and the Near-term Fuels and Fertilizer Outlook
Feb 07, 2014
This week we look back at fertilizer and fuels in charts with an eye toward our advice. We have indicated our purchases on each chart with green arrows. We have done well so far this year and if you have followed our advice, you are 80% filled on UAN, urea and phosphate for the upcoming crop year. We are also 60% covered on anhydrous and 30% covered on potash.
Market trends suggest the downside is pretty much exhausted and while we wouldn't be surprised to see a few downside gasps here and there, industry experts, supply/demand features, Chinese purchases and even Dec corn futures lead us to believe spring prices across the board will be above that of today's.
Below we chart our positions over the past few months, chronicle our decision making process and look ahead to spring. Keep an eye on your Inputs Monitor and watch in the next few weeks for opportunities to wrap-up bookings for spring/summer.
Potash prices are on our radar and last week's P&K Today suggested go-time may not be far off for spring potash. The Chinese have signed a contract for the first half of 2014 for potash from Uralkali at $305.00 and Canpotex has also reported it has struck a deal for the same time period, noting that the price was consistent with current levels. Despite the lack of specificity on the Canpotex K price, Chinese tenders with the two main global suppliers suggest the floor is in place for potash.
Potash demand may be low, and prices have been on a slide since late July. But this week, the regional average price ticked 11 cents higher and we believe this to be the chart hook we have been waiting for. I will likely pull the trigger on spring potash next week if the uptrend is confirmed.
Urea prices have fallen farther and for a longer period of time than has potash. Chinese oversupply is to thank for the downward pressure, but supply constraints in the northern plains have little product positioned as of today and reports from importers have it that rough seas are slowing the flow of urea into the U.S. from outside sources.
We have seen a strong rebound here already and are 80% filled for spring. As with potash -- this is a a theme emerging -- if we get another week of increases in regional averages, we will complete bookings for the spring and summer of 2014.
UAN solutions will be in demand this spring and summer as sidedress and foliar applications or applications as an additive to a herbicide complex. Nutrient reduction strategies and farm economics will continue to favor UAN solutions because of UAN's versatility, but that increased demand will inflate pricing by spring.
We have seen prices begin to rise and as suppliers resupply for the coming crop year, new price points will be set above today's price. Price weakness may come early in the spring as anhydrous pricing makes Nh3 an attractive pre-plant and early sidedress option, but as the season goes on, look for UAN demand to spike, especially if we have another wet spring, and N makes its way to the tile.
Anhydrous ammonia has been very generous posting the largest and fastest fall of all the nutrients we track. Potash and anhydrous have followed expected new-crop corn returns the most closely of our nutrients, and our figures have anhydrous priced more than $30.00 below expected new-crop returns. That's easy math, even with corn at a $4 handle. We pulled the trigger two weeks ago on a confirmed bounce, and will look to finish booking for spring on confirmation of the floor.
Carry product from fall's narrow application window may limit Nh3 pricing and reports are there is a lot of product consigned, still waiting for a home. Stable production from Trinidad ammonia plants will keep a lid on Nh3 pricing in general, but it will not take much for anhydrous to run higher in a hurry. We are currently at 60% for spring/summer here, but it won't take much convincing for us to finish up booking for spring soon.
Phosphate demand is less in question than that for potash and as nutrient has fallen, of NP&K, phosphate has given the least amount of ground. This may indicate a narrower range and if the fall off was small, the rebound should act in kind. In other words, since P prices didn't completely tank, we do not expect a violent price recovery. Having said that, experts report to your Monitor that current price levels are unsustainable for phosphate and spring prices will be above today's.
We are 80% filled on phosphate and may wait until to see what spring demand holds for P. However, the DAP/MAP chart betrays strong upside potential near-term and if you have not booked at least 80% for spring phosphate, it is definitely time to pick up the phone.
Farm Diesel has been kind this year. While last year's summer price was quite a ways below this year's, by the time harvest rolled around, we found some great spots to cover portions of farm diesel. We are at 50% for spring here and part of me wishes we were farther ahead. Stick with me -- the East Coast is increasing their consumption of heating fuel to power home heat rather than expensive natural gas. If distillate supplies are diverted to keep the East Coast from freezing solid, farm diesel pricing may be impacted this spring, and, like propane, prices would likely remain high until the supply situation resolves.
National distillate supplies are below year-ago and below the five-year average. This, plus increased demand for home heat in the East Coast make me nervous on farm diesel above all others. This week we are at $3.46 -- that's 9 cents per gallon above our August and January purchases, but with just 50% covered for spring, we are compelled to look for a downside nod to increase coverage.
Propane Propane Propane... This has caused more than a few headaches. Agricultural demand for grain drying was four-times what the market expected according to EIA. Exports have ballooned over the past five years, the Cochin pipeline was down during November and December and winter weather starting early in North Dakota made road and rail transport a slippery and dangerous mess. Since the early onset of winter, that icy mess has found its way as far south as Louisiana and most of the country is under some form of hours of service waiver until March.
We noted the annual low in late July and booked at $1.34 at that time. Our recommendation for the coming year is to double your on-farm storage and make some sort of contingency plan for home heat, should the situation get out of control again next year. We will watch this market carefully and get you filled up as best we can, but when the time comes, prepare to fill very aggressively and some will choose to fill their entire winter's supply as early as they can.