Nitrogen Margins Align as Declines Threaten Pause

September 18, 2013 09:32 AM
 

Last week we reported that N pricing by the pound will look to correct to historical spacing. We have watched this matrix evolve over the past year and as nutrient barreled lower, price relationships expanded and contracted with each move. Understanding the relationships of pricing for these four key N products lends insight into how prices might move near-term.

Using anhydrous ammonia as our base, Urea is currently ten cents higher by the pound, off one cent from the previous week, and the spread here is within expected margins. 32% comes in 13 cents above anhydrous with 28% 15 cents above NH3.

N Pricing by the Pound
Previous week
change
Current Week
Anhydrous Ammonia
$0.43
-$0.01
$0.42
Urea
$0.54
-$0.02
$0.52
UAN32%
$0.58
-$0.03
$0.55
UAN28%
$0.59
-$0.02
$0.57

 

Anhydrous and urea are currently one cent closer in price by the pound of N than the previous week. This is a comfortable margin for these two products indicating the two will either maintain current levels, or move in tandem to the next level. Should one outpace the other, however, a corresponding correction will be necessary to maintain the proper spread of 10-11 cents per pound N.

Solutions were skewed last week with 28% on top of 32% by a penny. Both slid lower in this week's Monitor Index, and we continue to wait for 32% to recapture its premium to 28%. Were the two solutions switched, with 32% at 57 cents and 28% at 55 cents, the relationship would more closely resemble history.

Given UAN32%'s trend over the past month, there is more downside potential than upside price risk suggesting 32% may pause while the other three correct. However, many believe the floor is in place or near for anhydrous and urea. If NH3 and urea pause, 32% will have to correct a few cents higher while 28% fades slightly.

The table below outlines the expected price relationships of urea and solutions to anhydrous pricing. Example prices do not necessarily reflect either expected prices or actual prices.

N Pricing by the Pound
Expected Margin
Example $/lbsN
Anhydrous Ammonia
0
$0.40
Urea
NH3 + 10 cents
$0.50
UAN32%
NH3 + 16 cents
$0.56
UAN28%
NH3 + 13 cents
$0.53

 

These are 'perfect world' margins, but the tables above demonstrate the relationships between N products and how the spread fluctuates and corrects. As we continue to gather data, these spreads will help predict future N price movements and will help determine when the bottom is finally set in stone for nitrogen.


 

 

 

 

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