Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.
September in Review: Watch Out For Dead Cats
Oct 04, 2013
Its been a heckuva month for nutrient pricing. September saw prices dive amid falling December corn futures and rumors that Russian potash production would pressure potash pricing to historic lows. Word crossed my desk yesterday that Uralkali officials now expect a bounce in potash pricing early in 2014.
We will advise growers to extend coverage if the rumor pans out. But for now, we are keeping our feet at this head fake -- for now. We believe Dec corn will recapture its influence over potash pricing, but at current levels, spring K still has a little downside room to cover before coupling with Dec corn.
Look for an alert to extend spring potash coverage in the next few weeks, and if phosphate wants to follow the inevitable dead cat bounce potash is set up for, we'll jump in to some spring P as well. STAY TUNED.
Meanwhile, farm diesel pricing leveled off and even broke to the downside while LP remains well above year-ago, currently climbing.
The charts below detail pricing moves from Sept. 1 to today as reported to your Inputs Monitor.
Anhydrous moved into our 'go-zone' earlier than many had anticipated and the chart here shows NH3 had already moved higher by this point last year. Nitrogen pricing has been subject to supply imbalances and the past year has had the Chinese keeping the market oversupplied with urea. But anhydrous was sticky at the top of its range through most of the ordeal until NH3 started to give ground in late August. Natural gas difficulties in Trinidad & Tobago along with shutdowns at ammonia production houses in Ukraine will constrain ammonia supplies and threaten higher NH3 pricing by spring.
DAP is also set for its annual move higher and ended the month pretty much right back where it started. The bounce occurred dead center in September and despite industry watchers believing phosphate would follow potash for the duration, DAP bucked the trend and moved strongly higher this month. We expect more of the same ahead, but upside movement will be limited by Dec corn.
Like I said above, we may be pulling the trigger on spring P coverage in the next few weeks, but the industry is squarely focused on potash and the outlook for spring phosphate is muddy at best.
Potash continued to track lower for the entire month of September and we have all but tuned out the rumormill. A report from Uralkali yesterday hinted the floor is near and the supply glut Uralkali expected to unleash on the market has been mitigated by mine closures in Belarus. Two of Belarus' four mine complexes are currently shut down and PotashCorp -- the #1 K supplier to the U.S. -- has already noted it will not play the FSU's volume-over-price game. All PotashCorp needs is an excuse to level prices and stop the bleeding in retail potash pricing.
Here again, we will very likely advise extending spring coverage in the coming few weeks. We have said it before, but with current potash pricing $108.68 below year-ago, you may feel the time is right to reward the setback while you can. We are currently 20% filled for spring K.
Our Index Composite runs all the numbers your Monitor collects through a formula to reveal the general trend in nutrient pricing. This month, the Index bottomed near mid-month and has softened gingerly since, moving mostly sideways. A casual glance at this chart shows nutrient pricing wants to run higher, but without a clear bottom in place for Dec corn, trends suggest nutrient pricing will hold firm with more upside risk than downside potential based on seasonal pricing trends.
Farm Diesel moved higher during the middle of September and reversed slightly late in the month. Last year at this time, demand for heating oil was much higher. The late season declines in farm diesel are due to a rebuilding of distillate stocks and increased confidence that WTI crude will not factor in a fear premium as tensions in Syria and Egypt cool. We look for the setback to follow highway diesel prices, which is in its second week of declines along with gasoline.
Come to think of it, you may want to reward the setback here too by booking some Ruby Red at current prices for spring. Unofficially, consider hedging 20% for spring, and if you have yet to book for fall needs, here's your sign.
LP is 21 cents above year-ago pricing and climbing. Early demand for home heat shows up here first and that coupled with high natural gas pricing year-on-year has LP up this week 8 1/4 cents. National propane stocks have slipped from the top of the five-year average range to the center of the five-year signaling tightening supplies. Current stocks are 8.6 million barrels behind year-ago and will have to make a serious effort to rebuild before more of the nation reaches for the red knob on the thermostat. We see plenty of upside risk for LP.
So as wars and rumors of wars take their toll on nutrient pricing, year-on-year price trends help us separate the rumors from the facts. If you have ever believed in the dead cat bounce, potash is at risk of that right now. With news from the FSU that they believe prices will bounce hard early in 2014, we look ahead warily. The rumor the same folks started that potash pricing will dip has certainly come true. But as potash producers look to stop the bleeding, this may be just another rumor. The proof is in the potash here, and we look to the hook on the chart to signal a clear bottom for K.
If the general slide in nutrient was driven by potash stock pressure, the potash bounce will rule prices on the corresponding upswing. In other words, potash has run away with fertilizer pricing this fall, and when it corrects, the rest of the market will correct along with it. That means higher NH3, higher phosphate and even higher urea by spring. The more non-farm investment money that pours into fertilizer stocks, the more nutrient pricing will be ruled by investor chatter. This adds a complicating layer to the outlook for spring nutrient. The charts above suggest higher prices ahead.