Anhydrous and Urea Recover From Rogue Pricing -- Tables by the Pound N

August 14, 2013 07:06 AM
 

Nitrogen pricing has taken a turn toward the downside in the last few weeks as retailers and suppliers set the marks for near-term pricing. Anhydrous finally gave some ground in earnest, while urea has been moving lower for almost the entire last year. I have included tables below which outline the year-over data. I have also included a line chart that shows the pricing movements of both during the period July 1, 2012 to January 1, 2013 for reference.NitrogenNH vsUrea2012

There is good news and bad news with the line chart. Neither of these acted in a typical fashion during the period indicated. Scheduled maintenance in Trinidad & Tobago and other unspecified natgas difficulties elsewhere crimped the ammonia supply through December 2012 and beyond, elevating the price of anhydrous. Declines in Chinese coal pricing and production above 90% capacity in China have urea oversupplied, and the imbalance dramatically chased prices lower starting in July 2012.

This chart was intended to help you understand the outlook based on year-over pricing movements, but what it really shows is just how far anhydrous and urea strayed from standard pricing during the late summer and fall of last year.

Outlook -- The outlook is for more declines in anhydrous and urea. The industry has been saying for weeks the urea price has bottomed, but it continues to shave off dollars each week. The decline certainly has slowed, but China continues to enjoy wide production margins on favorable coal and is adding several million tonnes of urea production capacity. Add to that a relatively stable Ukraine, and we expect mild declines ahead for urea.

Anhydrous has the most room to give to the downside here. NH3 moved higher through the first of the year in 2012 before a nod to the downside in December and sideways movement until April 1. At that point, anhydrous moved higher until just a few weeks ago when the bottom fell out, and prices arrived at their present mark. While we expect larger declines for anhydrous than for urea in the coming weeks, many pricing points have already been set, and price reductions before fall applications will be mild. Now is not quite the right time to jump in to some fall NH3, but it is time to start thinking about it. Check your local pricing and look for an ALERT from your Inputs Monitor in the coming weeks.

Anhydrous -- Anhydrous fell just two cents year-over in our index when priced by the pound of N, and despite last season's elevated numbers, Ohio, Indiana and Michigan all moved higher year-over. Part of this has to do with supply chain logistics, and we do expect declines to catch up with these states. It is rumored that Indiana and Ohio will have some of the best corn of the season this year, and NH3 pricing may partially reflect that sentiment.

Anhydrous $lb/N
August 2012
Change
Current Price
Iowa
$0.47
-$0.02
$0.45
Illinois
$0.49
unchanged
$0.49
Indiana
$0.50
+$0.03
$0.53
Wisconsin
$0.49
-$0.01
$0.48
Minnesota
$0.48
-$0.03
$0.45
South Dakota
$0.54
-$0.11
$0.43
North Dakota
$0.50
-$0.04
$0.46
Nebraska
$0.44
-$0.04
$0.40
Missouri
$0.48
-$0.07
$0.41
Kansas
$0.45
-$0.05
$0.40
Ohio
$0.52
+$0.06
$0.58
Michigan
$0.52
+$0.02
$0.54
Index Average
($805.42/st) $0.49
(-$33.48/st) -$0.02
($771.94/st) $0.47

 

Urea -- Our advice has been consistent on urea for a while now -- HOLD. No-one expected to see the level of decline the last twelve months displayed. As I said above, the Chinese will build onto the current overhang, and the result will be a market with very little upside potential. Even if prices pop, we are currently nearly $110.00 below year-ago pricing, making it hard to go wrong by waiting. All states in our index moved lower on urea year-over including a 19 cent dip in Michigan, 18 cents in Ohio and 20 cents/lbN in Wisconsin.

Urea $lb/N
August 2012
Change
Current Price
Iowa
$0.72
-$0.09
$0.63
Illinois
$0.78
-$0.15
$0.63
Indiana
$0.67
-$0.04
$0.63
Wisconsin
$0.69
-$0.20
$0.49
Minnesota
$0.60
-$0.07
$0.53
South Dakota
$0.64
-$0.14
$0.50
North Dakota
$0.61
-$0.09
$0.52
Nebraska
$0.70
-$0.12
$0.58
Missouri
$0.69
-$0.16
$0.53
Kansas
$0.67
-$0.13
$0.54
Ohio
$0.81
-$0.18
$0.63
Michigan
$0.77
-$0.19
$0.58
Index Average
($623.92/st) $0.69
(-$108.93/st) -$0.12
($514.99/st) $0.57

 

Perspective -- We expect mild, corrective declines in anhydrous pricing before fall. Prices are very favorable right now in Iowa, South Dakota, Nebraska, Missouri and Kansas. One could certainly do worse than current pricing in those states, and you may want to consider booking a short percentage of NH3 for fall now if your local price looks good.

Urea shows no signs of near-term upside potential and we see no need to rush here. The current low mark is in Wisconsin at 53 cents/lbN, followed by The Dakotas. Look for urea to move sideways to slightly lower in the coming weeks with a potential demand response closer to spring. Not a bad idea to check in on local pricing right now to see where your preferred supplier is at.

In all of this, remember the union of corn futures and fertilizer pricing. December corn is the bellwether of fertilizer pricing and today, ZCZ13 stands at $4.63 1/4, and the outlook there is for prices to remain well below year-ago until harvest -- barring a Sept. 1 frost. That will keep a lid on fertilizer pricing. If we see a late season rally, this could be a banner year as fertilizer bought in a down corn market will look almost free if corn can claw back above $6.00. Look for December corn to light the way, and if there is a rally in corn futures, look for fertilizer to move higher to keep up.


 

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