A host of factors are currently working to support anhydrous pricing in the Midwest. Upside potential has been building for Nh3 since December, when urea and UAN prices began an upside run that continues today. Anhydrous, however, has held firm at prices over $200.00 below year-ago.
Today word comes from points south that an anhydrous supply crunch is blooming. We look to southern states as indicators of upcoming fertilizer demand and as early applications roll out, Nh3 prices are recovering in a hurry. I spoke this morning with a fertilizer purveyor in Missouri who echoed the speculation of dealers in Iowa that supplies headed eastward from production and storage facilities in Texas and Oklahoma and northward from the Gulf are constrained by lagging pipeline capacity.
A source from southeast Missouri told the Inputs Monitor, "We've had to run trucks clear to Oklahoma to get supplies this year. We don't have rail service close by so we have to rely on trucks and pipelines, and they are having a hard time keeping up."
Adding to the transport constraints is a general trend for rail companies to exit the anhydrous transport business due to increasing regulations, and the mounting liability related to moving Nh3 via rail. Add to that Canadian rail bottlenecks, and the northbound pipelines through Kansas and Louisiana have a heavy load to transit.
Demand has also been in question as new-crop revenue is just now breaking even for many growers. As southern farmers are well into preplant applications, the expectation is for anhydrous pricing to rise quickly as fieldwork makes its way northward.
We have already noted ruthless increases in wholesale ammonia into Tampa but suspect much of that will be linked to phosphate production. The factors outside of that wholesale increase are strong enough on their own to pressure prices to the high side for growers, and we have been waiting for anhydrous to find its excuse to rejoin the rest of nitrogen, which is much closer to year-ago prices than is Nh3.
There was a fair amount of carryover anhydrous in the market over the winter, but as one fertilizer dealer told me today, "There's only so much you can store at most elevators and all that is pretty much used up by now."
Transport constraints, pipeline bottlenecks, the end of carry product and anticipation of delayed plantings are all working together to create a supply shortage that will push Nh3 pricing higher near-term. But it does not end there... we had speculated that conflict in Ukraine would also run prices higher, and a fear premium is factoring in to deferred pricing, inflating the April ammonia contract price by $120.00 week-over.
Look for strong upside price risk in areas serviced by ammonia pipelines, which is pretty much everybody. We advised to fill anhydrous on March 4 and reiterated our advice yesterday (click for more) based on strong upside potential before this story even came to our attention. With this added supply bottleneck in southern farm country, prices have double if not triple the upside risk we observed just yesterday.