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August 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.

August in Charts: Nutrient Slides as Fuels Perk Up

Aug 30, 2013

Nutrient moved decidedly lower over the course of the last month. The charts below tell the tale. The most solid declines came in phosphate and potash while the only increases came from fuels and a mid-month turnaround in September natural gas. The outlook is for more downside action across the nutrient board and for fuels and natural gas to continue to creep higher.

--The charts below represent retail pricing movements in regionwide averages as recorded by your Inputs Monitor from July 29, 2013 through August 30, 2013.

August nitrogen13Nitrogen - Urea made headlines for nearly a year, falling $165.00/ton from July 1, 2012 to July 1, 2013. This was due to Chinese oversupply which continues today with capacity additions in Chinese Urea production in the works for this year. The real story has been the falloff in anhydrous pricing over the month and while some states fell more than others, we expect the entire Corn Belt to see prices fade farther.

August price slide -- Anhydrous fell $34.29 to a regional average of of $752.62. The nationwide low here is in Kansas at $661.94/ton. Urea fell $16.92, slowing its downward trajectory to $508.77/ton with the low in the state of North Dakota at $444.23/ton.

Solutions emerge from late season demand with UAN28% down $31.55 to $355.67/ton and 32% $18.22 lower to $393.81/ton. Nutrient management may see UAN solutions gain popularity in the next few years as growers look to increase N efficiency, and sidedress becomes a staple application on more farms.

P K Auguast13P&K -- Phosphate and potash are under the greatest amount of pressure of all the products we survey. Phosphate is pressured by declines in the Indian currency, the rupee, and as the world's largest phosphate buyer looks to utilize phosphate stocks already on hand, very little product is moving at present. Declines in ammonia as a feedstock for phosphate production are widening margins for U.S. producers, and 90% of the phosphate applied in the U.S. will be from domestic stores.

Potash is a mystery. A lot of guys believe the demise of the Belarus Potash Company at the hands of Uralkali will force potash prices $100.00/ton lower. But the Belorussians have captured Uralkali CEO Baumgertner and intend to try their Russian former partner for abuse of power. Baumgertner faces up to 10 years in prison. Others from the Uralkali syndicate are sought for arrest and Belarus says it will pursue damages from Uralkali in the amount of USD $100 million. Stock in Uralkali fell an immediate 4.3%, and if this episode slows Uralkali's plans to win marketshare away from Belarus through high volume, global potash price declines will be limited.

August price slide -- DAP fell $30.00 even to $583.33/ton with Wisconsin posting a regionwide low of $499.92/ton. MAP moved $19.81 lower to $610.45/ton with the low observed in South Dakota at $583.49/ton. Potash fell $19.98 to $538.25/ton with the regionwide low in the state of Wisconsin at $484.82/ton.

Fuels August13Fuels -- We have observed price increases in farm diesel, natural gas and LP over the past month and we believe the annual upward trend for farm fuels is underway. Last year we saw similar movement in which fuels moved higher through harvest and gave a little ground again right around Christmas. We have advised to book fuels before they get away from us, and this month's increases suggest time's-a-wastin'. A wet harvest is expected and will increase demand for dryer fuels like LP and natgas. disstuss8 30

Distillate stocks are at the bottom end of the five-year average and I know it seems early to point out the competition between home heating oil and #2 diesel, but with stocks so low against the five-year, competition for home heat will support higher diesel pricing starting at the first frost.

natgas8 30The same is expected of natural gas, but if WTI crude spikes on a U.S. led attack on Syria, traders will look to cash in on the spike and a round of high level profit taking could eliminate any gains injected into WTI by the fear factor. This would raise the price of natural gas proportionally to the ensuing WTI downside move.prstuss8 30

Propane stocks are good, but not great and a surge in demand could easily elevate prices here in a hurry. Propane supplies are currently dead center in the five-year average, but down 9.5 million barrels from the same time last year. Home heat will hold sway here as well, but stocks are higher than they are for farm diesel. We expect LP prices to continue to move higher from here on out.

August price hike -- Farm diesel added 4 1/4 cents all told during the month of August to end at a regionwide average of $3.421/gallon -- but according to last year's movements, Ruby red still has another 23 cents in upside risk in the next few weeks. LP added 4 3/4 cents on the month to $1.388. September natural gas -- now expired, as the October contract is now in play -- threatens the most aggressive increase adding 14 1/4 cents during the month opening August 1 at $3.477 and opening August 30 at $3.62.

Perspective --

World scale events are impacting nutrient pricing in the United States. Oversupply by Chinese producers, declining currency in India and a potash CEO jailed by Europe's last dictator are all weighing on their respective markets in our favor. Add to that lagging corn futures and we have a recipe for low fertilizer pricing in the short-term. How long the slope will last is unknown, and will likely be dictated by weather and Wall Street.

But much of the industry believes the price slide will continue into January. The opposite is true of farm diesel and LP -- natgas is a bit of a wild card. We expect farm fuels, including natgas to move higher for roughly the same period.

If you have yet to book farm diesel and LP get on it. Natgas has a little more wiggle room in it and if your appetite for risk allows, you may want to hold out and see how the Syria situation pans out for natural gas. But upside risk is real for all three -- if you want to gamble for $2.00 natgas, do yourself a favor and book a portion at current prices in case prices move higher near-term.

As always, local prices vary so check with your preferred retailer, and stay tuned to your Inputs Monitor for the best fertilizer and fuels news and advice.


 

Crop Tour Implications for Nutrient: P&K to Save the Day

Aug 23, 2013

Pro Farmer's Midwest Crop Tour 2013 came to a close last night with a huge Rochester, Minnesota crowd in attendance. Scouts from the eastern and western legs of the Tour reported what they found and while this year's survey tallied yield potential rather than actual yield, we can draw some conclusions based on what the boots on the ground found.7 21 13 111

Dryness was the number one complaint and right now, the thing these crops need is water. As the tour moved toward the center of the country, more and more nitrogen deficiency was observed. This was due to runoff from heavy June rains, and the ensuing ponding, which lasted for weeks in some areas.

We will not know what the actual yield will be until harvest -- don't count your chickens before they are picked -- but we do not need to. We can start to plan ahead on nutrient strategies with or without hard numbers, and even the most general observations from Crop Tour 2013 lend insight on the needs of the soil.

Knife and Fork --

There were several accounts of apparent nitrogen deficiency, and agronomists had warned of this as the rain fell early in the season. On the heels of last year's extreme dryness, the subsoil was the first to recharge and when it pulled rainwater through the soil strata, it took N with it deep into the soil profile.

I remember observing periods of quick recovery for lagging, short corn here in my backyard. Agronomists attribute this to healthy root systems and when root growth was strong enough to reach deep into the profile for nitrogen, plants sprang up like Dr. J. If nitrogen is the bread and butter of crop development, phosphate is the knife and fork. The nitrogen deep in the soil invigorated the plants when the roots grew deep enough to access it, thanks to phosphate.

Phosphate held the key to combating the downward retreat of N into the soil. With significant dryness making a comeback in the central and western Belt, a similar situation could arise in the coming spring and early summer where much appreciated rains become too much of a good thing, forcing N deep into the soil where only the bravest and most daring root systems can find it.

DAP/MAP Outlook --

In this week's Monitor Index -- DAP falls $12.12 to $584.60; MAP falls $6.42 to $617.38. Look for prices to edge lower in the next week or two.

The outlook for DAP and MAP in retail markets is very favorable for growers and despite MosaicCo and others observing strong applications over the past two years, inventories are high against year-ago and the five-year. Declining world ammonia prices along with insulated domestic P production in Utah, North Carolina and Florida will conspire to limit near-term upside risk for phosphate, and we recommend you take advantage. Even if you have banked phosphate over the last few years, the drought of 2012 left a wound that remains evident into this year, even after record or near-record rainfall early on.

Serendipitous K --

Another impact of the spring difficulties was uneven development and this could lead to disease on double cropped fields. As many central Belt fields tasseled unevenly, disease has had a chance to spread and while Tour scouts report little disease pressure on corn in the surveyed areas, the potential is real for some carryover here.

The concern again is the persistent dryness reported almost across the board on this year's Tour. Yield estimates for this year are much higher than last year's proven yield, but what will really help this corn crop unlock its full potential in the face of looming drought is a strong supply of soil K. With late season dryness a factor, early season dryness could be just as much a factor next spring. If we do not get significant rain and northern snows produce below expectations, moisture recharge will fall short and plants will need all the help they can get from potash next year.

Perfect! The Former Soviet Union shakeup comes at a good time and news reports from Minsk make it clear the two warring FSU potash producers will not come to terms. Wall Street had it that potash prices would fall dramatically, but Canadian suppliers do not intend to price themselves out of the money by trying to compete with FSU's volume-over-price strategy. PotashCorp CEO Bill Doyle noted in a conference call last week that one company does not set global potash prices. Having said that, he did agree that the oversupply expected out of FSU will continue to limit potash pricing in North America.

K Outlook --

In this week's Monitor Index -- Potash falls $12.73 to $573.80. More downside room expected over the next few months.

Here again we have strong inventories -- 17% above year-ago, but that is skewed because of the tremendous oversupply last year at this time. 17% over way too much is way way too much. Against the five-year, North American potash supplies are 37% above. These are both key indicators of limited pricing ahead, and will likely result in discounts to liquidate product and avoid production curtailments in Canada.

Perspective --

fertilizerYou need nitrogen -- that's an easy call no matter what your situation or where you are. If your N was washed out or sent deep, you will have very little carryover to count on. Those plots that didn't lose N to excess rainfall took N out of the soil the old fashioned way -- with corn. The industry expects weaker demand than last year on P&K which will limit pricing. Capitalize on that. News reports have suggested a plunge in global potash prices, but while sustainability is more of a priority here in North America, we do expect to see prices fall slightly from present levels before autumn applications.

We believe nutrient suppliers are in no hurry this year to refill inventories as prices just keep sliding. But at some point, suppliers and growers alike will have to pull the trigger and get some fertilizer spread. That day will likely come before prices fully bottom as ammonia softens, suggesting softening for DAP/MAP, and the FSU and China work their magic on potash pricing. The best plays will probably find themselves booking nutrient on a downward path, but with corn futures in the tank, that may encourage a larger volume of smaller bookings as growers look to spread the risk.

Deal with the uncertainty of weather concerns and N loss demonstrated on this year's Tour with P&K. Prices will make it a good time to bank phosphate and potassium, and soil conditions, already in need of water and nutrient, affirm the timing. Look to push P&K for the upcoming crop, and prepare for what weather may come.


Photo credit: D. Michaelsen, Inputs Monitor 

 

Energy Independence in Ukraine and the Volume-Over-Price Bears

Aug 16, 2013

The Former Soviet Union (FSU) has been a topic of conversation across news outlets for a few weeks now. A great deal of attention has been paid to the split of FSU potash joint venture BPC which some believe could pressure the price of potash 25% lower in the near-term. In the meantime, Ukraine has quietly been working to reduce its reliance on natural gas imports.

If we look at the BPC split as an indicator of how FSU companies and governments do business, increased energy independence in Ukraine based on domestic natural gas production holds the potential to support the current oversupply on global urea and may add to global ammonia stocks in the same way. Victory through oversupply is the philosophy driving potash production in the FSU, and it is a small leap to imagine Ukraine looking to capture marketshare by oversupplying ammonia in the same way.

Ukraine has found friends in its quest for natgas independence -- in truth, we mean independence from Russian natgas. ExxonMobil, Shell, and Chevron along with a host of smaller exploration outfits have set their attention on finding and acquiring shale gas within Ukraine's borders. Tyrannical natgas curtailments from Russia in 2006 and 2009 have Ukraine anxious to free themselves from future curtailments and high Russian prices.

FSU and the European Union --

The big three FSU nations -- Russia, Belarus and Ukraine -- all have designs on the benefits of full-on European Union membership, but of the three, Ukraine has made the most promising steps. However, jailed former Prime Minister Yulia Tymoshenko remains a symbol of the tyranny that lies just below the surface in Ukraine.

Tymoshenko was jailed by the current President of Ukraine for a natgas offtake agreement she made with Russian President Vladimir Putin. The current Ukrainian administration believes she overstepped her authority when she made the deal, and cites that as the main reason for her 7 year prison sentence. But many suspect current President Yanukovych simply wanted to detain the charismatic Tymoshenko until after the 2015 Ukrainian Presidential elections -- indeed the length of her sentence would have her released just in time to miss the elections. Despite her imprisonment, however, Ukraine's Fatherland United Opposition Party has already endorsed Tymoshenko as their singular nominee for President.

Meanwhile, pipeline reversals from Hungary, Poland, Slovakia and Romania have accounted for reductions in Ukraine's overall reliance on Russian natgas. During the period Jan.-June 2013, natural gas imports to Ukraine fell 35% compared to the same time last year.

What this means for us is that, while socially still a little sketchy, Ukraine -- among the largest producers of natgas-based ammonia and urea -- may help limit upside action for nitrogen here in the United States. Reports from Kiev are that natural gas prices are already favorable and that will keep N producers humming. Depending on how quickly Ukraine can lay hold of domestic shale gas, it is conceivable that anhydrous pricing in the long term could turn as bearish as Chinese urea.

Success through oversupply --

Anhydrous pricing has fallen very recently, and by the pound of N, remains the least expensive form of nitrogen. If Ukraine follows suit with the rest of the FSU, they will look to capture a greater share of global ammonia revenue via oversupply. The current urea oversupply is based on falling coal prices in China. A Ukraine with a dependable domestic natgas supply may follow Uralkali's lead based on China's 'cheap N from cheap feedstocks' oversupply model.

Competition would lie in North America where CF and others have decided to table select nitrogen projects, and Trinidad where long-term natgas supplies are questionable at best. Give it five years, and robust ammonia production in Ukraine may wind up taking the lead in world ammonia output and sendouts at prices designed to run the competition out of business. This is the FSU way.

This would open friendly trade avenues wide, and help Ukraine buddy-up with the European Union -- all the while, distancing itself from the rest of the FSU. I have said it before, but the E.U. will have to see Tymoshenko released from prison -- paramount among other things -- before allowing Kiev a spot at the table. As Ukraine emerges as 'communism-lite' compared to Belarus and Russia, strong natural gas production coupled with existing infrastructure would position Ukraine among world gas giants.

This, of course, is Friday blog speculation. But wouldn't it be nice if an FSU nation decided to drive the price of anhydrous down 25% -- as is the expected result of the BPC potash war. Look for FSU potash to predict how an ammonia oversupply might affect retail pricing in the United States. If Ukraine puts their natgas resources toward capturing global ammonia markets through the FSU volume-over-price strategy, American growers could enjoy the types of declines in anhydrous pricing we have observed in urea.

Then again, by the time $500.00/ton anhydrous arrives from Ukraine, nutrient reduction strategies and fertilizer explosions may have regulators choking off fall applications of anhydrous altogether, but that is a blog for another Friday.


A World Without Fertilizer -- Hank Jr. was Right

Aug 09, 2013

2369943592 5b9c88b607A quick look at recent headlines is enough to make me nervous. "Victims of West fertilizer explosion ‘captured my heart,’ says U.S. Senator who pushed Obama on chemical safety review" from the Dallas Morning News; "The End of Environment-Destroying Fertilizers Could Be Near" from Care2.com; "Mayors work on safety evacuation plan for residents near fertilizer plants" from KXII news channel 12 in Texas; "Farm fertilizer runoff wreaking havoc" from the Cedar Rapids Gazette.

The global headcount has increased from 1 billion in the year 1800 to 7 billion in just over 200 years. It is estimated that roughly one third of the world's population has fertilizer to thank for their existence. Plants do grow without fertilizer, but the yield from unfertilized crops would do little more than support subsistence farming and small scale animal husbandry. Without the yield building benefits of nitrogen, phosphorus and potassium, along with other select nutrients, soil nutrients and organic matter would quickly dry up leaving the soil unable to support vegetative growth, and unable to support the current population of the earth.

There is a confluence of trouble in the way the rest of the nation views fertilizer. Combine the tragic explosions witnessed this summer at fertilizer facilities with a public becoming increasingly aware of the eutrophication of the Gulf of Mexico because of N&P runoff, and fertilizer finds itself squared off against public opinion -- a public that understands less about agriculture by the day.

Imagine a world where the American farmer cannot use commercial fertilizer by law. The reductions to the national food supply would be disastrous. An end to state fair corn dogs, corn flakes, tofu -- hippies take note -- bacon, BBQ, commercial bread and pasta -- McDonalds would fold along with Perkins, Stuckeys, and yes, even my beloved Cracker Barrel. Whole Foods Grocery stores would become the new Fort Knox and as supplies of hippie food dwindle, citizens will do anything to feed their urban families. farm tractor and family l

The decline in yield in the event of a fertilizer ban would rewind our economy to somewhere around the time just following the Revolutionary War. Fine if you know how to feed your family from the soil, potentially fatal if you live in a Manhattan apartment.

Ethanol's mitigating impact on U.S. fuel prices would grind the combustion engine to a halt. Now you've really got trouble. Percherons become the new Massey Ferguson and hook & harness are the new PTO.

The world's population would thin as Agri-Darwinism rules the day -- only those with dusty boots survive to reproduce. An unlikely scenario. But consider the ramifications of a U.S. corn crop less than half of what it is today -- a crop grown in soil without the benefit of commercial fertilizer that would decline year after year as soil nutrition declines. An end to export revenues and trade relations, in fact, an end to selling corn at all as farmers would be forced to choose between selling crops or feeding their livestock and children with that golden commodity.

To the good, corn prices would skyrocket, but the best of the crop would stay in the bin, and eventually make its way back onto the field in the form of Bessie's manure. The remaining supplies on the farm would be held until carryover was guaranteed and the crops that might make it to market would be the stale old-crop cast offs after farmers cover their own individual feed needs with the good stuff.1930s united states the great depression 1 l

I have had conversations with my grandma about life during the Great Depression. She does not recall being hungry or destitute or even aware that cityfolk were jumping out of windows in New York. "In fact, I remember, we would get one present at Christmastime and the one year I got a new doll. I was so excited and felt so blessed. We ate chicken and pie and always had bacon and a great big garden...we [the 8 children] didn't know anything was wrong." Grandma said.

I'm talking crazy here. No, I do not expect a total collapse, reviving the idyllic agrarian lifeways of the not so distant past. The above has all been overblown in hopes that those who do not fully appreciate the benefits of commercial fertilizer will realize that, while farmers don't have any problem with restoring the health of our watersheds, and regulations should be in place to stop deadly explosions, banning fertilizer would cancel the prospects of the advancement of the human race. But in that world, I think Hank Jr. says it best, "The interest is up and the stock market's down and you only get mugged if you go downtown, I live back in the woods you see, my woman and the kids and the dogs and me. I've got a shotgun, a rifle and a four wheel drive and a country boy can survive."

 


Photo credit: David C. Foster / Foter / CC BY-ND

Photo credit: gem66 / Foter / CC BY-NC-SA

Photo credit: Ðeni [back..sort of] / Foter / CC BY-NC

Song credit: "A Country Boy Can Survive"  -- Hank Williams Jr. via youtube.com

 

Word Around the Campfire: Pull the Trigger on Farm Diesel and LP

Aug 02, 2013

moonrise over campfire lWord around the campfire is that now is the time to hook into most if not all of your farm diesel, LP and natural gas. Demand for all three is expected to be very high this fall and with crude oil at the top of its range, fuel prices will follow. However the factors that would inflate farm diesel pricing are the same factors that limit upside potential for natgas.

Farm Diesel --

Middle East Tension continues to inject a fear premium into crude pricing, but Brent has deferred the 'anxiety tax' to WTI. OPEC nations are producing well below capacity at present as WTI producers pump oil as fast as they can to take advantage of inflated WTI pricing. Meanwhile, better-than-expected growth in China and the E.U. suggests increased crude demand ahead from those regions. If China and the E.U. are willing buyers at these pricing levels, the WTI discount to Brent could be a thing of the past.

disstuss8 2Many are beginning to suspect we have seen the last of WTI below $100.00/barrel. We will talk more about that another day, but I do not like the amount of time our beloved WTI and Brent are spending so near parity. If WTI wants to play on the world stage and allow OPEC to so greatly influence pricing, domestic oil production will do little to insulate U.S. fuel pricing from reverting to the volatility and upside potential we witnessed through the turn of the century.

Consensus is for farm diesel to move upward from here. There are those who suggest filling all of your farm diesel needs today. Our approach has always been to book portions along the way to remedy price volatility. Current Midwest averages stand at $3.378 -- just below the 2013 projected average of $3.40.

But if experts are correct, and you believe WTI will remain high -- even just a few weeks more -- fill all of your remaining fall and harvest farm diesel needs today.

LP --

The same holds true here -- due to increased WTI production, propane stocks are good. A mild summer thus far has allowed propane stocks to build for a few consecutive weeks, but current supplies lag last year by 6.2 million barrels. Demand is expected to be very high in the fall as we expect a wet crop. That projected demand is starting to figure into LP pricing and we have seen two consecutive weeks of timid increases suggesting LP is looking for a hole in the ceiling, and will move higher when it finds an excuse.8 2

Consider booking more than 50% of fall LP needs today. We can play this market a little looser than farm diesel and we may see prices turn lower again before the end of summer, but warmer temperatures will demand more of propane stocks for power generation and inflate pricing if more Americans reach for the thermostat.

I'm advising a closer look at LP. Check your local pricing as prices will vary, but the overwhelming opinion is that the floor is in place for 2013 LP. If prices are within your 'go-zone', stock up today. If prices are not in your go-zone, give it the weekend and check Monday's Monitor.

We expect increases of a nickel or more. At that point, book it book it book it.

Natgas --

WTI has its fingers all over this market too and increases in WTI pricing have meant increased production of natgas along with crude production increases. This has moved front-month nattie well below expected levels. Of the three discussed here, natgas scares me the least. Demand will be higher this fall to service grain dryers and that will inflate pricing, but the factors that risk elevating farm diesel will limit upside action for natgas. natgas8 2

Prices are too attractive for WTI to slow production and the resulting glut of natgas gives us a little breathing room. Today September futures opened at $3.38 and the industry holds to a 2013 average natgas price of $3.68. Natgas is less scary, but less certain as well.

$3.38 in the face of projections of an annual average of $3.68 means the market will have to correct to the upside to make up for all the time spent below projected averages. We have been lucky here with minimal demand for power generation and air conditioning, but, just like LP, a hotter summer will push natgas prices higher. There is no reason to go crazy here if you feel like gambling. But if you are in no mood to take a chance that natgas goes lower, book a healthy portion of this today. You could do a lot worse than $3.38.

Again, we usually advise to manage the price risk by booking portions along the way. This is a good idea here, but the longer natgas spends at a low, the higher the correction will be and we have seen nattie take 20 cent hops with little or no warning.

By now, regular readers should be about 50% filled on fall natgas needs. If that is the case, throw on another 30% or more. If you are below 50% filled, get at least to that point. If prices continue to fall, you will have a chance later to book the rest at the lower rate, but there is a high amount of upside risk in the next few weeks.

Our recommendation is to have roughly 80% of fall natgas needs filled by the end of next week.

NPK --

By the way, fertilizer pricing continues to bleed and we expect decreases before the end of the month. As always, keep an eye on your Monitor. We update retail pricing every Monday morning. Check there before you do anything in NPK.

Note that an earlier ALERT recommended some nitrogen purchases in select states. We stand by our advice to cover a portion of nitrogen in those areas.

--------------------------------------------------------------------

Trends suggest the time to secure fall needs for LP and farm diesel is now. If you are nervous, book a portion. Everybody wants to hold out for $8.00 corn and $2.00 natgas. You can do that and may end up rubbing my nose in it. I hope it works out for you. Nothing makes me happier than growers saving money on inputs. But the safe money is on spreading the risk.


Photo credit: Steve took it / Foter / CC BY-NC-SA

 

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