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May 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.

May In Review

May 31, 2013

snowtill2

All of the nutrients and fuels in your Inputs Monitor Index fell through the end of the month. It is no accident that we have spent a lot of time talking about timing this month. The declines signal seasonal lows may be in place. Farm diesel is a good example as the current regional average is very near the projected 2013 average price per gallon at $3.423. However, some areas lie well below that figure and we advised yesterday to book a portion of farm diesel.

We expect urea's bear run to continue as China, which has oversupplied the global market with urea, will open it's seasonal tariff window on July 1. This should open downside action for urea and wholesale prices could go as low as $300/tonne FOB by mid-summer.bigbearlilgirl

Anhydrous users, however, are finding the price is right to book for fall in some areas. Meanwhile, unused anhydrous in wake of tumultous weather in the Corn Belt will limit demand for some.

UAN solutions are the wild card at present and we expect prices to move slightly higher near-term as agronomists are now recommending another healthy dose of N for crops planted in saturated soils where N has leeched and run off.

 
April Ended
May Ended
Change
Anhydrous
$872.61
$870.70
-$1.91
DAP
$637.31
$634.06
-$3.25
MAP
$659.29
$652.11
-$7.18
Potash
$587.94
$580.79
-$7.15
UAN28
$402.02
$401.84
-$0.18
UAN32
$445.29
$441.19
-$4.10
Urea
$568.15
$562.45
-$5.70
Farm Diesel
$3.473
$3.423
-$0.05
LP
$1.46
$1.449
-$0.011
Composite
464.173
460.893
-3.28

 

Anhydrous fell $1.91 to $870.70; UAN28 down just 18 cents to $401.84; UAN32 down $4.10 to $441.19 and urea slides $5.70 to end the month at $562.45.

DAP gives up $3.25 to $634.06; MAP contributes to the price declines with a $7.18 retreat to $652.11.

Potash fell $7.15 to $580.79 as springtime demand has been very weak for K.

Farm diesel is one to watch as a historical analysis suggests ruby red is due for its annual trip to the upside. Once it takes off, it may take until Christmas for prices to fall back to today's low. Down just a nickel month-on-month to $3.423.

LP moved 1 cent lower and we like pricing here as well, however this market is less certain than farm diesel. Pricing projections expect LP to average $1.43 in 2013. Again, very close to the current price of $1.449.cornemerges 002 (2)

With all of these, prices vary by state and location. Check prices with the Inputs Monitor map and your preferred supplier, but consider filling some fall needs today.

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In Case You Missed It

Despite nutrient pricing hanging at current levels like a sloth in a tree, it has been a big month in inputs news. A lot has been written regarding how to handle nitrogen decisions given the tricky weather. In Former Soviet Union (FSU) news, Russia steals a page from the capitalist playbook. In response, Ukraine and Poland explore their reserves.

The news from upstream is encouraging, but suggests a high degree of uncertainty -- thanks guys. In the news, California Senator Barbara Boxer calls for an investigation into the West, TX explosion, LNG imports get a shot in the arm and Apache Energy helps out Moore, Oklahoma. Meanwhile, corn emerges in the Midwest.

On the Farm --

Is it Time to Book Fall Inputs? -- Check Your Spread, Check Your Gut

U.S. Nitrogen Trade Favors Urea & UAN

Spring Precipitation Reduces N: ISU Soil Test Results

Agronomists Advise a Shot of N for Rain-soaked Soil

FSU --

Russia's Gazprom -- Capitalism Ain't Easy

Ukraine & Poland: The New Face of E.U. Natural Gas Production

FSU Gives China a Taste of its Own Potash

Upstream --

Mosaic -- P&K Shipments Exceed Expectations

Rabobank Releases Global Nutrient Outlook

In the News --

California Senator Urges EPA Investigation of West, TX Explosion

Corn Emerges in Central Iowa

Freeport LNG Terminal Gets DOE Approval to Export

Apache Energy Lends Aid in Moore, OK


The Perfect Time to Book Inputs: Butter First, Then Bullets

May 24, 2013

Last fall, Pro Farmer advised selling corn out of the field as fast as it could be picked. That turned out to be good advice, and many growers sold down to gambling stocks at around $7.40. Corn futures are $2 per bushel less than that now and struggling to find interest. Corn just hasn't done much this spring, but it is early. The first determinant driving nutrient purchases is cash on-hand. Seems pretty simple.

If I need to go to Wal-Mart and pick up some butter and bullets, I know to bring my wallet. The Mrs. wants to bake cookies for the church potluck and I want to load on Sunday and shoot all week. I base my decision on how much butter mama needs and I spend the change on bullets. I've got a pretty good supply of ammo in the basement and if my wife doesn't bring a double batch of snickerdoodles to the potluck, the ladies will talk. So if I only have enough left over for one box of shells, at least I've got the butter covered, and I can plink from my existing supply.

Growers have been banking P&K for the last two years as returns at harvest have been generous. Soil testing, yield calculations and dead reckoning will guide projected NPK needs. Think of the nitrogen as the wife's cookie butter -- its a 'gotta have' item. The P&K here is the stock of bullets I already have. I'd like to get a few more boxes of shells, but I'm in pretty good shape either way.

18% of expected new-crop revenue is the sweet spot for growers when budgeting nutrient. But that is a floating figure, based on the price of December corn. Nitrogen pricing has slid in the past few months like butter dripping off a hot biscuit , but as a percentage of $4.50 corn, that biscuit might not look so tasty. However, if you bump your budgeted NPK percentage up to 20% when corn is low, the math will work out in your favor once corn rallies.

At hypothetical $4.50 corn, 20% of expected new-crop revenue adds up to $136.00 per acre for NPK. That seems like a pretty big chunk of a $680.00 per acre return. But take that same $136.00 per acre of NPK booked when corn was slumping and apply a rally.

The clouds open up and corn finds its way to $6.50. Now that $136.00/acre spent on NPK makes you look like a genius. $6.50 corn fetches $1000.00 per acre and the 20% of expected new-crop revenue spent on NPK at $4.50 slides to 13.6%. Not too shabby.

Let's work it backwards. Lets say you wait for corn to rally before making inputs purchases. We start at $6.50 corn. 18% of that leaves $180.00/acre for NPK. But the market falters and you wind up selling corn at $4.50, and are glad to get it -- it could happen. The comfortable 18% you spent booking nutrient when corn prices were good, has ballooned to 26.5% at a $4.50 selling price.

That kind of return is going to make it tough for me pay for both butter and bullets, and yes, my plinking time would take a hit. Mama could only bring one dozen of her famous snickerdoodles to the church potluck, Sally needs a new pair of shoes -- on it goes.

I have met with lots of growers over the past year and many of our conversations have started the same way. "Fertilizer guy, huh? So when should I book inputs?" The truth is I cannot tell you what level of risk is acceptable for your personal program.

I can tell you that fertilizer pricing has shown a tendency -- and a strong one -- to follow corn. Your barometer is December corn futures. If you have plenty of P&K in the soil, consider forward booking nitrogen based on the price of corn. When corn is low, book essentials -- again, consider your appetite for risk. But nitrogen booked at 20% of expected new-crop revenue when corn is low leads to strong profitability if December corn rallies. If there is no rally, you can base P&K purchases on how much you have banked in the soil -- like a hedge -- and how much you have to spend, but this way, your N is covered.

We have seen some strength in December corn in the past few days, opening today -- Friday -- at $5.33. That adds up to $812.80 per acre in expected new-crop revenue. 18% of that is $146.30/acre for fertilizer. With anhydrous at its current 53 cents per pound of N, a 170 lb/acre application would run in the neighborhood of $90.00 per acre, leaving $56.30 for P&K. Not too shabby.

DAP is running at 68 cents per pound of P2O5 right now. Potash is currently at 48 cents per pound of K. Divide the remainder of $146.30 by two and that leaves room for 19lbs/acre DAP and 13lbs/acre K. The table below lays out our three scenarios.

December corn price
Expected new-crop revenue/acre
18%
NH3/$.53/lbN @ 170lbs/acre
Remaining budget for P&K
$4.50
$680.00
$122.40
$90.00
$32.40
$5.33 (Friday's open)
$812.80
$146.30
$90.00
$56.30
$6.50
$1000.00
$180.00
$90.00
$90.00

 

If you expect a rally in corn futures, now is a great time to book nitrogen. Supply and demand forces hint at some downside room for nutrient, but prices are very reasonable at present. If you are bearish on corn futures, and your appetite for risk allows you to hold off, wait to book nutrient until December corn falls into your personal "go-zone". If you expect a $4 handle on corn, nutrient may or may not follow corn to the low -- on the flip side, if you expect a $6 handle, nutrient pricing has shown it WILL respond to upside action and will follow corn. If the uncertainty of the wait makes you nervous, take care of your nitrogen first and plan to lean on your banked P&K if inputs follow corn to the upside through a rally later on.

Determine your appetite for risk. Read Pro Farmer and follow December corn futures closely. If you play it just right, you can have your bullets and eat cookies too.


 

 

 

 

What is the Deal With $3.91 Natural Gas?

May 17, 2013

Natural gas prices moved lower yesterday to support at $3.912. That figure is proving to be a sweet spot for the June contract and despite a few solid attempts to break through, $3.91 has been a hangup level for downside action.

The last time we saw a top at that level was March 14 and the contract has been on a tear ever since, testing support along the way. We observed a strong downside move yesterday and advised subscribers to keep an eye on June natural gas for a move below $3.91. But as it has so many times before, June natural gas found springy support there and moved higher, once again.

nattiechart5 17

Given that strong level of support, downside potential is limited, and today notes that very thing as the contract spiked back above four dollars to $4.06. From the corner office, Chip Flory wondered out loud, "Why didn't we buy that yesterday?" I assured him the contract will be back to $3.91 one day soon, but we may come to realize that natural gas has found a firm near-term bottom at that level.

The tale is told in volume. Trader activity spiked yesterday after the sharp falloff from $4.06 to $3.93. Since then, action came to a standstill and futures moved sideways until late Friday afternoon when natural gas moved 12 cents higher -- once it did, trader interest piqued and another round of profit taking was underway.

Strength in the stock market has diminished interest in the raw commodity sector as a whole and we have seen crop prices suffer as a result. But natural gas has been a trader's playground with tops and bottoms as obvious as Everest.

There is security in understanding, and Wall Street seems to think it has this market figured. That being the case, we can figure it too. I still believe that nattie will break to the downside and I would like to see a violation of support at $3.91. But if traders have come to terms at their 'bread-and-butter' level and feel secure enough to mold this market like play-dough, opportunities to book natural gas will become more clear in the coming weeks.

As always, examine your appetite for risk. If you need to book some natural gas for dryers, or for anything else for that matter, the next move to $3.91 may be the best opportunity you will see until traders find another yard to play in.


 

 

Outlook: Good News From Upstream

May 10, 2013

I've read a lot of encouraging news from upstream this week. A complete breakdown of it all paints an optimistic picture for NPK in America. The Chinese urea oversupply is expected to continue through 2013 by almost everyone in the know. India's latest subsidy numbers continue to favor urea and the resulting price imbalance will keep India on its present urea-centric course for the foreseeable future.

Downstream supplies of NPK are very healthy in North America, and feedstock is presently priced to encourage production.

Domestic nitrogen production has been strongly encouraged over the last several months. Spiritwood, ND, Wever, IA and an expansion to CF's Donaldsonville, LA facility among others are a bit of a wild card, but are not expected to make the U.S. a net exporter of N until 2020 at the outside.

North American phosphate production has been robust as reported by Mosaic. Feedstocks are exploring the downside in wholesale markets, and record sendouts in the first ten months of Mosaic's fertilizer 2012/13 have the phosphate market well supplied downstream.

Greenfield potash projects are no longer a possibility for companies who expect to turn a profit, and this may become problematic if China and India decide to remedy their NPK imbalance with increased K demand. They eventually will, but PotashCorp has made mention of some brownfield expansions, and North American K producers are confident they will be able to satisfy N.A. demand for the foreseeable future. Meanwhile, K from the Former Soviet Union (FSA) will be eager to service Asian and Indian markets with the convenience of rail.

Belarus Potash Company --

BPC reports an increase of 21% in potash exports from Belaruskali during the first quarter. BPC, which was founded in 2005, accounts for 43% of global potash exports from Uralkali and Belaruskali, shipped by rail to Asian and Indian markets by partner, Belarusian Railways Company. Strength here should encourage good relations between Belarus, Ukraine and the Putin Administration.

As FSA nations walk the tightrope of international export relations, some hard lessons have been learned. The glut of North American natural gas has diminished U.S. reliance on coal which is now sent to the E.U. which in turn, is less reliant on natural gas piped from Russia, through Ukraine. In 2006 and 2009, Russia closed the natural gas valve, stopping the flow of natural gas to the E.U. through Ukraine as part of a strong-arm approach to FSU relations.

But countries like Bulgaria and Poland, who typically aren't considered big players in international energy, have found new sources of energy, forcing Putin to play nice. This will encourage stable FSU/E.U. relations and a steady flow of natural gas through Ukraine where urea and ammonia production can continue, uninterrupted. (click here for the Monitor's "Capitalism Ain't Easy")

If BPC can keep it together and provide potash to Asian, Indian and South American buyers, Canadian potash will be plentiful in North America and encourage low K pricing here in the U.S.

CF Industries --

CF released glowing news in their first quarter report this week and confirms what we have expected -- this fertilizer season will be spelled out in sidedress. CF cites favorable ammonia and UAN price realization and record shipments of UAN in Q1 2013. That means that CF is 'in the money' and this will encourage production of nitrogen, build N supplies, and keep a lid on pricing for the end user. Meanwhile, storage strategies downstream are in place to keep product on-hand where it is most in demand.

CF has a favorable natural gas margin locked in at its suppliers until July, and the way nattie pricing is headed, their next contract will likely carry a similar price tag to its current contracted $3.57. The report, however states a natural gas price anywhere between $3 and $5 would still allow acceptable returns on production.

CF also announced 41 years without a 'lost time' incident at its Huntington, Indiana Terminal, 12 years at the Courtright, Ontario facility and 4 years accident free at Port Neal. Fertilizer has been demonized a bit since the Texas explosion, but, thankfully, the American attention span is short. Safety and compliance is a priority here, and successful production depends on the welfare of the individual workers.

Mosaic --

Mosaic disclosed last week that 16.4 million tons of P&K had been shipped during the first ten months of fertilizer 2012/13 in anticipation of transport difficulties and increased corn acreage. That constitutes a year-over increase of 15% -- an increase Mosaic calls, "the largest by a long shot since the formation of Mosaic in 2004." Only 3.4 million more tons need to ship to the U.S. in order for Mosaic to realize projected demand. The result is a potential surplus of DAP in the United States.

Steady ammonia prices based on quiet waters in the Black Sea Region, and robust export production in Trinidad will encourage P production not just in Canada, but also in Florida and North Carolina. Phosphate rock from Morocco continues to be a favorable source, and sulfur rounds out the hat trick of phosphate production at the low end of its pricing range.

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This is an awful lot of good news all at once, but producers around the world seem to be waving the same flag. Natural gas will continue to rule these markets and encourage good relations between producing nations and their customers. The situation becomes even more positive with each acre that does not get planted to corn.

Upstream fertilizer producers had been expecting high planted U.S. acres to corn, and produced enough product to satisfy that demand. Shaving off a few of those acres would leave a little NPK in the bin as a hedge against future price spikes, and that is what we believe will be the case. We don't expect a return to the high inventories of pre-2008, but producers seem to have caught their breath, and the market is showing signs it has partially righted itself after that defining year.

This may lead you to wonder, Is it Time to Book Fall Inputs? Click to read more from this week's Monitor...


 

 

April in Review -- Weather Fuels Declines as Application Window Shrinks

May 03, 2013

tractorsnow April didn't turn out the way any of us thought. Cool temperatures and record or near-record amounts of precipitation still have most growers across the Midwest pacing in their machine sheds, waiting for soil conditions to allow iron in the field. We observed some strong moves to the upside in nutrient pricing in Missouri as early fieldwork in that state created a demand push this month and the expectation has been for nutrient pricing increases to follow crop progress northward.

This may not be the case, however, as the late start to spring may leave growers little time for fertilizer applications. Demand will decline as the planting window shrinks, and I expect many growers will look to make up the difference post-emerge with UAN sidedress -- suggesting upside room for UAN solutions ahead.

Dry urea continues to decline after mild increases during the first two weeks of April, but as more growers book nutrient for sidedress later on, 28% and 32% solutions post the largest month-over gains. The largest move to the downside came from anhydrous which was on a generous downward trajectory the entire month.

________________________________________________

Declines in nutrient pricing outweighed gains by a margin of just 42 cents. We expected hand-to-mouth demand to move nutrient pricing higher, but $22.55 in total declines was just enough to edge out $22.13 in gains.

Anhydrous declined $9.39 to end the month at $872.61/ton; Urea moved a modest $2.51 lower to $568.15; UAN28 added $7.77 to end the month at $402.02; UAN32 firmed $10.07 posting the largest increase in this month's index to $445.29.

DAP moved $3.10 lower to $637.31; MAP moved higher, adding $4.29 to end at $659.29.

Potash fell $7.44 to end the month at $587.94. Potash did show some strength during the last week of April adding $2.64 that week, and as the oversupply in Saskatchewan corrects itself, potash may catch an upward draft near-term.

Farm diesel maintained downward movement the entire month, down $0.077 all told to $3.473/gallon.

LP was very flat, offering a 3 1/2 cent decline during the third week of April as the only movement this month. LP down $0.035 to $1.46.

Nutrient/Fuel
4/1/13
4/29/13
Month-over Change
Anhydrous
$882.00
$872.61
-$9.39
DAP
$640.41
$637.31
-$3.10
MAP
$655.00
$659.29
+$4.29
Potash
$580.50
$587.94
-$7.44
UAN28
$394.25
$402.02
+$7.77
UAN32
$435.22
$445.29
+$10.07
Urea
$570.66
$568.15
-$2.51
Farm Diesel
$3.550
$3.473
-$0.077
LP
$1.495
$1.46
-$0.035
Composite
462.566
464.173
+1.607

________________________________________________

A lot happened in the world of nutrient and energy during April. Follow the links below to catch up on what you may have missed in the news, on the farm, upstream and in energy news.

In the news...

Explosion at Texas Fertilizer Facility Claims Lives, Several Injured

California Senator Urges EPA Investigation of West, TX Explosion

Donations to West, Texas Lag Boston

Natural Gasoline Barges Explode in Mobile Bay

On the farm --

Is there Nitrogen in Snow?

December Corn vs Anhydrous -- Thinning the Revenue Gap

Price Comparison -- NPK From Thanksgiving 2012 to Today

Nitrogen Uptake Favors Modern Hybrids

Upstream --

Agrium Shareholders Overwhelmingly Support Incumbent Board

JANA Cries 'Foul' in Scathing Letter

The View From Upstream -- Correction or Correction?

Energy --

Ukraine More Than Doubles Gas Imports From Europe

Up, Up and Away -- Natural Gas Lingers at the Top

How Far Can North Dakota Crude Fall?

EIA Short-term Energy Outlook -- Fuel Efficiency to Outpace Miles Traveled


 

 

 

 

 

 

 

 

 

 

 

 

 

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