Day One: Fertilizer New Year -- Where We Are & Where We Are Headed

July 1, 2013 09:24 AM
 

Fertilizer year 2013-14 opens today. The last year saw some deep declines and some late season increases that took the market by surprise. Looking ahead to fert '13-'14 the industry expects declines in urea to continue on Chinese oversupply, and while PotashCorp has announced a summer production slowdown, inventories of K in Saskatchewan are still 20% above the five-year average. Meanwhile, brisk movement and strong applications over the past few years have upstream producers just optimistic enough regarding demand for fall nutrient to maintain current production levels.

It is a good time for fertilizer. Nitrogen continues to seek a floor, phosphate production is supported by declining ammonia prices out of Trinidad, and Canadian potash is in good enough supply to keep a lid on prices. But what is good for fertilizer isn't always good for everybody. We continue to preach that fertilizer pricing is tied to expected new-crop revenue. Today December corn futures opened at $5.06. Great if you have livestock to feed... unnerving if you are trying to turn a profit on corn.

We fully expect a rally in corn, although USDA and a number of other sources have put forth the idea that in the year 2014 corn my wear a $4.00 handle. We may even see that level before harvest here in 2013. But if corn makes a run at the upside, in a year where futures have struggled to gain strength, fertilizer is likely to shadow the move with gusto.

 
NH3
DAP
MAP
Potash
UAN28
UAN32
Urea
July 2012
$794.92
$685.00
$659.08
$633.05
$411.83
$503.50
$717.75
July 2013
$859.57
$628.58
$648.48
$580.50
$399.31
$444.20
$553.30
Change
+$64.65
-$56.42
-$10.60
-$52.55
-$12.52
-$59.30
-$164.45

 

Nitrogen -- Nfert2012

Anhydrous posted the only upward movement year-over of any of the seven nutrients we track. Much of the price reflects the hazardous nature of anhydrous ammonia and the added expense of transport. In addition, a good amount of ammonia comes out of Ukraine. This ammonia services Asian markets, India, China and South America and is based on the FSU natural gas price near $10/MMBtu. This compares to a U.S. Natgas cost below four dollars. New nitrogen production capacity is expected to increase U.S. supplies by up to 6 million tons N annually, but the capacity additions will not be online for at least two more years. This will likely support high ammonia pricing compared to urea in the meantime.

Urea production in China has the industry wondering if the 'off' switch isn't broken. Add that to Ukrainian production -- which isn't afraid to export at a fiscal loss -- and the globe is currently long on urea and UAN. We have seen this evident in pricing action over the past year, and while more downside room is expected to be furrowed out by the oversupply, one wonders how low urea and solutions can go.

P&K -- Phosphate K2012

China left Canpotex in the lurch last fall when it failed to tender shipments of potash, holding out for a discount. Canpotex eventually oversupplied themselves in K and agreed to sell potash to China, and later India, and $400.00 per ton. However, the tables have been turned on China. The reason China was able to hold out was because of FSU potash streaming via rail into China, but curtailments from FSU potash conglomerate Belarus Potash Company may make Canadian potash attractive once again.

Phosphate rock from Morocco and ammonia into Florida and North Carolina producers is priced in favor of farmers and the sense that 2011 and 2012 both banked a lot of P&K on high crop returns will keep DAP/MAP prices from getting away from us. What's more, the industry has clued in that if growers are going to skimp on any nutrients it will be P&K. This will keep the present pricing structure as psychological resistance for upstream producers. In other words, with Dec corn scraping $5.06, upstream producers and wholesalers know they'd best not press their luck with pricing.

Moving forward --.

Expect urea to remain at or below current levels. Ammonia will continue to chase December corn and strength there may translate to increases in NH3. But if the price goes too high, demand may switch to urea. This year will also show UAN solutions' worth. With N swimming through the tile lines and forced deep into the soil profile, sidedress applications will make or break crops. With urea headed lower, UAN solutions will follow once sidedress demand cools off.

P&K are also confined within a pricing range and if anything, we expect mild declines here by fall. Production is strong, inventories are good and demand is projected at the low end of the scale for fall 2013. All of this will keep P&K from running too far to the upside.

Corn will be the wildcard. These price declines have come with corn looking for demand. If December corn rallies, we expect the market to do its darndest to capture the revenue from high crop returns. If a run like the one in 2008 occurs, all bets are off and, no matter what the supply situation, NPK prices may soar. But USDA revised planted corn acreages higher late last week, suggesting a great deal of confidence in the crop's recovery. That one fact is all Wall Street needs as an excuse to stay out of commodities for the time being... but they will be back. What happens to corn futures will depend a great deal on their perception of the new-crop.

The Long and The Short --

The long and the short of it is, we expect nutrient pricing to fall by autumn. Ammonia will likely remain stubborn at the top of its range, but even at present levels, by the pound of N, NH3 is still king. P&K have declined over the year, and we have no reason to expect increases in the next few months.


 

 

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