Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.
UAN, Urea, Phosphate Threaten Rally
Jan 17, 2014
... and just like that, the tide turns. We have been awaiting the annual upturn in fertilizer prices and based on a number of conversations today, we have changed our stance on UAN, urea and phosphate. I caught wind of some increases in UAN and urea and pursued the lead by phoning my industry braintrust including wholesalers, retailers and even a New York investment guru.
All indications are that UAN and urea may have bottomed and today we note prices have already started to climb in many Midwestern locations. That prompted an ALERT from your Inputs Monitor to increase spring coverage on UAN, urea and phosphate to 50% with the chance of more aggressive bookings next week.
Corn futures moved higher last week on the barrage of USDA reports that tightened supplies enough to move futures higher. Agrium reports this week that U.S. importers feel they have fallen behind on urea imports and have increased their pace. That demand strength has inflated wholesale pricing, and that wholesale price is now making it downstream. At the same time, domestic nitrogen production has been slow, behind the prior year.
Increases in the urea price have also led to strength in UAN solutions and as I was consulting with my braintrust this morning, a Pro Farmer Member called me to report his local UAN32% price had gone up enough to grab his attention. He wondered if he shouldn't lock in the new price ahead of more increases. The answer was absolutely, yes.
We wrote earlier this week that we are wary of industry headfakes and that we intend to keep our feet in the present environment of rumors and declines. But I cannot argue with the facts. Fertilizer prices are reportedly moving higher at retail depots, and the annual runup appears to be 'on'.
At the same time, phosphate demand from South America, China and Europe has led to a $75.00 per tonne increase in Tampa DAP prices since November. The current commodity climate has growers threatening to cut P&K applications by half -- if they apply at all in the spring. Given the falloff in P prices over the late summer and through fall, phosphate now looks poised to reclaim price strength where it can get it and as inventories ramp up for the coming application season, new pricing points have been set in the context of high export demand.
Another market assumption is lurking behind the scenes. Many have thought a portion of corn acres will be switched to beans until corn prices trend higher. However, soybean futures aren't giving growers much to be enthusiastic about, and Informa's new numbers added back nearly 2 million planted corn acres from previous estimates -- now projected at 93.319 million acres to corn, down roughly 2 million from 2013, and 81.264 million acres to beans, up 4.7 million acres from 2013.
Fertilizer prices in the spring may play a role in planting decisions in the spring. If nitrogen can be bought at a favorable price, the ratio between corn and bean acreages may be impacted. The weight of fertilizer prices at a low on the decision making process is unclear. On one hand, affordable nutrient prices are the result in large part to declines in corn prices. However, production and supply features are taking over UAN, urea and phosphate and fertilizer is now threatening to rally with-or-without corn's approval.
Retailers today reported price increases. Wholesalers are behind schedule on imports, and competition for nutrient on the global scene is high. The standdown that characterized fall demand looks like it has come full circle and importers will now have to race to satisfy nitrogen and phosphate demand for spring and summer. The relationship between expected new-crop revenue is stronger on anhydrous and potash, as we have shown. It makes sense that those two are absent from today's ALERT, and the word is to let NH3 and K bleed a little longer.
But now is the time to manage risk on UAN, urea and phosphate for spring. We do this by booking portions along the way. But another ALERT will appear early next week if prices continue to suggest upward velocity, and given the late hour at which fertilizer has chosen to rally, we expect price increases could be fast and furious, and hold through spring.