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October 2013 Archive for Inputs Insights

RSS By: Davis Michaelsen, Pro Farmer

Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.

Nitrogen Bottoms, P&K Pause and the LP Cow Gets Out

Oct 25, 2013

I made an appearance on today's AgDay talking with Chip Flory about fertilizer and fuel prices. Nitrogen, phosphate and potassium have shown us some strong signs of bottoming in the last week and chart data shows anhydrous bottomed in September, two weeks behind last year's floor. Rumors of potash wars in the Former Soviet Union (FSU) had the entire supply chain in standdown, waiting as long as possible before locking in tonnage prices.

But the real drivers of nutrient pricing in 2013 have been urea and, as always, December corn futures. Urea overshot declines by several percentage points year-over and despite the influence of potash turmoil in the FSU over stock prices in potash producing companies, nitrogen has paid the closest attention to urea. This makes urea the price leader and suggests that as goes urea, so goes nitrogen.

Fertilizer poses upside risk --

Urea hinted at bottoming as much as three weeks ago when your Monitor noted the first increases of the year. A few more gasps to the downside yielded an upside move across the board for nitrogen products. Urea, UAN28% & 32% and anhydrous ammonia all ticked notably higher in this week's Inputs Monitor Regional Index.

We have watched nitrogen pricing waffle around urea's downward trek with anhydrous bottoming awhile ago in response to December 13 corn futures. UAN28% & 32% both took turns falling and climbing from week to week beginning with the fall in the December corn price, trying to sort out its margins. This week, all nitrogen moved higher in concert, suggesting the perfect time to get in was actually a few weeks ago. But there is no shame in looking for a clear floor before pulling the trigger.

Urea looks an awful lot like it has hit bottom and with year-over declines so deep across the nutrient board, a dead cat bounce looms. However, if December 14 corn finds some strength -- today opening at $4.83 -- the dead cat bounce will look more like a move to follow futures. Uncertainty in both the corn market and in nutrient mark the path ahead, and we have advised hedging 20% of spring inputs costs against potential price increases.

Fuels -- cow 9 l

We touched on fuels just a little as well. The big story came today from the State of Iowa who's governor joined Minnesota and the Dakotas in extending the hours propane delivery truck drivers can spend at the grindstone in a given day. This is in response to transport delays for LP resulting in wait times up to two weeks for LP deliveries. Wisconsin expects a similar declaration today and the forecast for Michigan is wet and cool suggesting high demand for dryer fuel ahead for areas of the Corn Belt north of St. Louis.

Much of the corn pulled out of the field will need to spend some time in the bin and as dryers run around the clock to dry down this crop, LP demand has spiked dramatically and trucks are now being mobilized from other parts of the Cornbelt to service deliveries. The trouble is, that may make the problem spread to other areas of the Corn Belt.

We told AgDay, "On LP, if you are not covered on winter needs and especially LP needs for dryer fuel, you need to catch up now, that cow is already out of the barn. Prices are well above year-ago, running 15 cents above last year." With fresh news of delivery delays, not only is the cow out of the barn, the whole barn is now on fire. Get ahold of your LP supplier TODAY and if you can, have your guy come and top off LP tanks while he still can. An official from Minnesota's propane association told the Monitor yesterday he expects delays to last at least two weeks and that the increased overtime for drivers may push LP prices as much as 15 cents higher by next week. Hank Hill, where are you when we need you?

Farm diesel becomes a concern this time of year as well, but distillate supplies are very strong right now and farm diesel has almost fallen back into our 'go-zone' after weeks of upside movement. We would like to see another dime come off this price before we pull the trigger on a springtime hedge, but if you can get farm diesel with a $3.30ish handle, pull the trigger and get 20% covered on spring needs. Cooler weather will increase competition between #2 fuel oil for home heat and farm diesel, putting ruby red at risk for price hikes on shared distillate demand.

By the way, natural gas appears to be immune to LP's delivery constraints and natgas suppliers report no transport delays. Natgas may inflate as WTI pricing frees itself from the war premium. But North American supplies of natural gas are high and today's open price of $3.63 is above where we would normally advise a purchase.

As WTI continues to soften, natural gas will likely respond with upward movement to pivots around $3.91. If you are in a position to need natgas for fall, the future holds a fair amount of upside risk, and we would advise to book supplies for dryer needs right away if you are below 50% full.

Perspective --

Whatever you lack for fall, pull the trigger today. Nitrogen showed us this week it wants to bounce -- that includes urea, anhydrous and UAN solutions. P&K have all but run out of downside momentum and we expect an uptick there.

Our attention turns at harvest away from the December 13 corn futures contract to the Dec 14. Currently, Dec 14 corn holds a 42 cent premium to the Dec 13 contract and the switchover will have fertilizer well underpriced compared to Dec 14 corn returns. That is all the excuse fertilizer needs to run higher after a year of sharp declines and we believe nutrient will be priced as much as 10% higher by spring.

Look to hedge 20% of spring needs for nutrient at current levels. Lets wait and see if we can coax out another dime to the downside on farm diesel before we get crazy here, and for Pete's sake, growers in all states north of St. Louis get in touch with your preferred LP supplier today and top dryer fuels off quick. Click here for our LP alert...

Position Monitor --

Inputs Position Monitor
NH3
DAP
MAP
K
UAN28%
UAN32%
Urea
Farm Diesel
LP
Natural gas
Fall 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Spring 0% 20% 20% 20% 0% 0% 20-40% 20% 0% 0%

Photo credit: Atli Harðarson / Foter / CC BY-ND

 

Acidic Soils Corrode Farmers' Hopes in India

Oct 18, 2013

Suicide rates among farmers in India have been notable since the early nineties and the trend continues through the present day. Hippies are quick to blame 'big-Ag' like Monsanto for GMO seed, and America for global warming. But up to 2,000 lives could be saved in India each day simply by making proper soil nutrition a priority. A farmer in India kills himself every 30 minutes.

A new study conducted by the Kerala State Planning Board has examined the acidity of the soil on Indian farms, taking over 200,000 soil samples. The results show a dramatic nutrient imbalance and increasingly more acidic soils with each new crop. 91 percent of the plots surveyed showed elevated acidity with the cotton belt along the coastal regions struggling the most, both with soil nutrition and farmer suicide rates.Picture2

Advancing Eco Agriculture notes, "The study found that the primary cause for the elevated levels of soil acidification are a combination of the use of chemical fertilizer, the intensification of agriculture through high-yielding crop varieties, and the neglect of the traditional practice of applying lime to neutralize acidity. These elevated acidity levels provide a “stressed environment” for plant growth. Plants are unable to absorb nutrients and the “microbial process responsible for nitrogen fixation and decomposition of organic matter in the soil” is inhibited."

Seeds do not stand a chance in an environment like that, and neither do farmers. Modern crops are more nutrient intensive than in the past and require as much from the soil as they ever have. In the United States, that drives fertilizer applications as part of the regular crop routine. Adequate funding and available capital along with education keep U.S. soils healthy and able to answer the demands of high yielding crops.smile of the adversity l

Monsoon --

Monsoon rains account for watering 70% of India's cropland and most areas lack adequate irrigation. When monsoons are light, soils are prone to dryness, and crops have a hard time making it. Poor yields in dry acidic soils leave farmers unable to repay loans for seed and nutrient and with wives and children to feed, the stigma of failure is too much to bear.

Lagging monsoons have been blamed on global warming, and cyclical climate change plays a role. But last year's drought in the United States still produced a national average corn yield somewhere in the 125-130 bu/acre range. Not great, but certainly enough to cover expenses and with favorable crop economics, for many, a chance to catch up on bills or even buy a new truck. A friend of mine rolled a brand new combine out at harvest this year based on marketing successes from last year's drought crop.

Reliable farm credit and solid yields based on balanced soil nutrition are luxuries that advance farming in developed nations like the United States. Farmers in India have no such luxury and when crops fail due to drought and poor soil quality, the Indian farmer is 'out' that money and the bank still expects to be paid. A few failing years strung together and the debt can mount beyond what a farmer is able to pay back in his lifetime. At that point, the stress of failure is too much for the farmer to bear, and the only opportunity for relief is suicide.Picture1

A Learned Behavior --

Young people aged 15-29 are committing suicide in India at an alarming rate as well, even compared to the high suicide rates among farmers. This could be a signal that suicide is becoming a learned social response to failure. The 15-29 yr-old group was raised in the climate of tragic suicide and as adults model this final grave act, the practice becomes not only more socially acceptable -- although taboo in conversation -- but it can seem to hopeless young people like a viable alternative to facing the future.

Estimates have it that India loses up to 2,000 farmers every day to suicide thinning their numbers by 9 million since 2001. But these are only estimates. Many families report suicides as death by illness or accident in an attempt to spare the family's reputation, skewing the tally.

The gap between the urban rich and the rural poor is expanding and the imbalance of wealth is as striking as agronomic imbalances, prompting an attitude of 'succeed or die' among the less fortunate. Young people on the farm, faced with the suicide of their fathers and generational debt often walk the same road their fathers did. But the legacy left behind by suicide is shame, extreme poverty amid overhanging debt, hungry mouths and nothing more ahead than more of the same.

Thank Your Lucky Soils --

John Kempf, Founder and CEO of Advancing Eco Agriculture, the leading provider of regenerative biological agriculture systems commented on the situation in India, “Today, the importance of soil health is often overlooked, or considered less of a priority than crop yields. Soil is the plant’s digestive system. Healthy soil that provides balanced mineral nutrition to sustain healthy microbial populations is vital to plant health and crop production."the village boy l

A series of factors has held farmer suicide rates in India historically high since the early nineties claiming up to a quarter million lives by some estimates. Urbanization, social stigma, mounting debt and generational poverty all conspire to urge Indian farmers toward ending it all. But the key to stemming the tide of suicides on the farm in India is in the soil itself.

Improved nutrition on high yielding crop varieties and the addition of some much needed lime would go a long way to filling the bellies of children on the Indian farm, and keeping growers from ending their own lives.

We are fortunate in this country. We are blessed with fertile soils, access to soil technology, fair, reliable credit and a climate that generally favors crop growth. The legacies we pass on to our children are laced with hope and optimism leaving the generation to follow with the tools of success and a knowledge of best practices. As you pass up and down the rows this harvest, consider your good fortune at having been born a farmer in this great nation, and remember those across the ocean who bear a loathsome burden with little hope for the future.


Photo credit: VinothChandar / Foter / CC BY

Photo credit: dhilung / Foter / CC BY

 

 

Sore Thumbs & Hard Noses

Oct 11, 2013

A lot of charts have come down the pike this week and the technicals indicate the low may be in place for nutrient. Most of these charts appeared at some point during my writing this week and I wanted to put all these big ideas in one place.

We have looked at what we call 'marginal parity' which is really just a college phrase meaning the price differences between nutrient products and December corn futures will move toward established price spacing.ZCZNH310 8

We found that, when imposed over an expected new-crop revenue chart, anhydrous cuts directly through the middle of the charted corn price. This affirms the notion that nitrogen will follow corn prices. The chart at right shows this neatly and I have spent a fair amount of time staring at this in appreciation of how moves above anhydrous are always corrected with a corresponding move in the other direction. You can see clearly here the peaks and dips -- there is even a downtrending  inverted head and shoulders pattern for you chart geeks -- and that anhydrous stayed its course through the ups and downs.

We then adjusted the price of one ton of retail potash as recorded by your Monitor to align with anhydrous pricing according toZCZ k NH31 our marginal parity concept. The result was striking and what we found was that the spacing between expected new-crop revenue, one ton of actual retail anhydrous and our adjusted potash price have arrived at the spacing the three demonstrated in the last week of February 2013. That is the point at which anhydrous and expected new-crop first come together on the chart.

That strongly suggests that fertilizer pricing is where it wants to be. However, nutrient is currently priced below new-crop returns -- can you say buying opportunity? -- and we are left to wonder if corn will move lower, or if nutrient will move higher to reclaim some of its losses. The inaugural issue of our new weekly feature P&K Today talks more about this and the actual impact of the breakup of the Belorussian Potash Company on K pricing.potash2

Speaking of potash, the chart at right shows simply the actual year-to-date price of potash compared to the same time last year. This represents a 17% year-over falloff and now that the rumors of continued declines have given way to the truth of the facts, this image makes a strong case that potash has given up all it intends to, and prices are set to at least level off, and quite possibly move slightly higher to capture expected new-crop revenue.

DAP got a little excited a few weeks ago prompting an Inputs Monitor advice alert to fill remaining phosphate for fall. If you timed this just right, you caught the dramatic dip that threw the DAP/MAP margin out of whack for a time. The chart at right shows how hard DAP is working to fall back in line with MAP. This chart suggests MAP can stay put and all DAP needs to do is level off at current levels.

This is rarely the case with phosphate, however. DAP and MAP have a tendency toPhosphate1 chase each other. We have seen several weeks where retail DAP pricing moved sharply higher while MAP moved mildly lower, and then the next week finds both in corrective positions with MAP scrambling higher and DAP tacitly lower. But note the marginal parity on the downslope. This is roughly the margin we are looking for to signal the two will level off. This coming week could be the one.

Our next chart depicts all seven nutrients in our Index year-to-date and DAP sticks out like a sore thumb. All other products have fallen to roughly the same level and are very near the margins they exhibited in late February. DAP has a little correcting to do and UAN28% looks like it is at the tail end of a corrective bounce of its own. Beyond that, everybody seems to have settled in to a leveling off point.Picture1

Examining these margins is a lot like a basis play for grain marketing. When the spread is right, a buying opportunity is signaled. We believe the current retail valuations expressed here are strong evidence that the bleeding is over. I can't shake the notion at how convenient it was for Uralkali and Belaruskali to break up and ring the price decline bell in a climate of lagging U.S. corn futures and a failing rupee. What I mean is, if the Belorussian Potash Company had stayed afloat, potash would likely have fallen to present levels anyway.

It is urea that has led the price declines shedding 21% from the retail price year over as anhydrous moved 16% lower during the same period. DAP and MAP each dropped 14% year-over, and potash?... potash fell 17% -- roughly the same as everybody else. Many had said that phosphate was underpriced last year and that would account for the 3% difference between P&K.

This is a lesson to harden our noses. One of my advisors told me early on in my career to 'watch for headfakes'... gamesmanship among profiteers. I have wondered out loud on more than one occasion how much impact the BPC breakup actually had on nutrient pricing. Expected new-crop returns have captured a premium to NH3 and potash from a relational perspective and that may be the extent of the influence of the FSU drama. If that is the case, since Uralkali has stopped ringing bells heralding continued declines, we can expect upside action from nutrient in general to capture the difference between itself and expected revenue.

ZCZNH310 8But another look at the NH3/expected revenue chart shows NH3 will allow a certain amount of crossover from corn futures, and will not chase the corn price on a move-by-move basis. There has been so much uncertainty injected into fertilizer pricing it is hard to keep it all straight. But the charts do not lie and we believe the market is exhausted from all the press. The most likely scenario is for nutrient to level off at current levels with the most volatility potential in DAP and 28% near-term.

 


 

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.Picture1

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.

Picture1Anhydrous 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.Picture5

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.

Picture7Potash 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.Picture11

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.

Picture9Farm 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.Picture10

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.


 

 

 

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