Nitrogen demand may outrun the expected 3% annual demand increase in the 2014 crop year. The increase comes as fertilizer prices are well below year-ago, but corn prices are in the same boat and by percentage, have fallen farther than fertilizer in the last 12 months. According to Inputs Monitor data, nutrient pricing in our regional composite Index has fallen 16% from the same time last year. Corn prices are off roughly 30% from even just a few months ago, with Dec corn opening today at $4.52 1/2.
Projected planted acreage numbers gathered from sources familiar with Informa Economics provide early insight into projected nitrogen demand for corn, all wheat and cotton. These calculations assume an average application rate of N on corn at 170lbs/acre, 90lbs/acre on wheat and cotton at 120lbs/acre. These are rough averages, but are fair footing for estimation.
We noted increases in plantings to cotton and all wheat, but corn acreage is expected to dip slightly. The expectation has historically been that nitrogen demand will follow planted acres to corn, however, the data shows a 4.7% increase in nitrogen demand on an expected annual uptick of 3%.
If more acres go to soybeans in 2014, rotated crops could depress N demand for the 2015 crop year, and with nitrogen prices at a low this year, the implication is for limited upside potential for nutrient in general. However, as buyers look ahead, demand this spring on the backs of increases in wheat and cotton -- given planted acreage estimates pan out -- should be high.
Throw in a wet fall and a frost without warning to narrow the application window, and intense spring demand could drive prices higher as early as February -- especially if corn rallies in the meantime.
A lot of experts predict downside room for nutrient, assuming prices will fall in perpetuity. I am an optimist, but not here. Ukraine nitrogen production is still struggling, tapered ammonia sendouts from Trinidad & Tobago will limit market ready supplies as routine maintenance takes place there. Wholesale ammonia leveled off last week according to data from MosaicCo, and urea from the Black Sea Region, the Middle East and at NOLA all moved higher with a notable lag in Midwest pricing, which moved sideways on the week.
Having said that, by percentage, corn prices have fallen twice as far as nutrient in the last year. If December corn holds more sway over nutrient pricing than does production/supply, the numbers suggest more downside room for nutrient. But anhydrous has already turned higher after months of tasty declines in Iowa, Missouri, Kansas and Michigan. Declines in anhydrous this week were either small or late and led to a regional average above week-ago for the first time in a long time.
As uncertainty mounts, early planted acreage projections offer guidance on expected nitrogen demand, and according early estimates -- with special thanks to Brian Gerdes for statistical support -- N demand may be deceptively high in Spring 2014. At a casual glance, the industry may just take the cut in corn planted acreage as a sign of weak N demand ahead. But increases in wheat and cotton cannot be ignored, and will impact demand in spring 2014.
Photo credit: D. Michaelsen, Inputs Monitor