Nitrogen Offers A Mixed Bag of Expectations: Summer Guidance

July 18, 2013 06:07 AM
 

In-stream nitrogen in the past year added up to 23.3 million tons of product, and with USDA raising its planted acreage to corn by 2.5 million acres, the U.S. holds a position of slight oversupply with roughly 100,000 lbs of actual product material in surplus. This is a surplus sweet spot as growers had plenty of N on hand, and producers realized favorable profit margins. Production is expected to continue at its current pace to slightly higher, as the industry builds in a 3% assumed annual global increase in demand for nitrogen.

Anhydrous and 32% look a little surly moving forward, and we see the most upside potential between these two. In general, nitrogen pricing is expected to struggle to find demand through the rest of the summer as the application season is all but over -- we see this every year. The uncertainty lies in fall pricing, but we do not expect any surprises, and indications from other experts and upstream producers agree.N7 18

Below we provide a table outlining current nitrogen pricing by the pound of N.

Anhydrous -- currently at $848.77/short ton or 51 cents/lbN

Supply constraints are making anhydrous look a lot like a specialty product here in the Midwest, but the expectation is for anhydrous to soften before fall. Production curtailments in Trinidad put a crimp on U.S. supplies last fall and the undersupply elevated prices. These disruptions have since been cleared, and ammonia into Tampa is moving sideways week-on-week. But Trinidad holds a lot of cards when it comes to anhydrous pricing, and reliance on this single source for a large proportion of ammonia can be problematic, and disruptions there could throw pricing out of whack.

Ammonia has been bullish for an entire year, however, averaging $797.67 last year at this time -- $51.10 below today's price. The suggestion is for anhydrous to move lower in the coming month, but declines may be slight as ammonia, at 51 cents/lbN is still the best N value for the money. If there were more sharing between urea and ammonia, anhydrous would have a better chance of coupling with the low urea price, but for most, urea vs anhydrous is an 'either-or' scenario and that sentiment will add strength to anhydrous pricing.

Urea -- currently at $544.35/short ton or 59 cents/lbN

All indications are that urea prices will continue to slide. The falloff from the same time last year is, however, leveling off. The price per ton last year at this time was $139.65 higher than the present price -- currently averaging 59 cents/lbN today compared to year-ago at 76 cents/lbN. Downside action like that cannot last forever, but we are hard pressed to find anyone who believes urea will move notably higher before fall.

The Chinese export window is expected to have an increasing impact on the market and as the tariff window opens the floodgates of product, wholesale suppliers seem to be waiting to see where prices actually land before resupplying. Wholesalers report a slight uptick at Yuzhny (Ukraine), the Middle East and at NOLA, but retail prices remain firm at current levels.

Nitrogen pricing by pounds of N

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Iowa
$0.50
$0.63
$0.70
$0.79
Illinois
$0.53
$0.62
$0.70
$0.75
Indiana
$0.54
$0.62
$0.73
$0.86
Wisconsin
$0.51
$0.57
$0.70
$0.73
Minnesota
$0.52
$0.62
$0.73
$0.77
South Dakota
$0.54
$0.57
$0.68
$0.80
North Dakota
$0.52
$0.62
$0.70
Not reported
Nebraska
$0.46
$0.59
$0.66
$0.73
Missouri
$0.49
$0.54
$0.71
$0.73
Kansas
$0.46
$0.58
$0.68
$0.77
Ohio
$0.58
$0.63
$0.71
Not reported
Michigan
$0.55
$0.60
$0.68
Not reported

 

UAN Solutions -- Late season demand for solutions was lower than expected this spring/summer and that should have a downward impact on pricing. But with ammonia shipments running sideways and urea still on its downward track, diminished seasonal demand will couple with those factors to keep pricing near current levels. Downstream buyers express the current price is attractive and we are seeing some fresh pricing points being set. Our expectation is for those price points to hold through fall, with mild upside potential.

UAN28% -- currently at $395.99/short ton or 70 cents/lbN

The price per short ton last year at this time was $400.27 -- 71 cents/lbN -- a drop of just $4.28/ton year-over. The flat pricing action suggests 28% is at a level that satisfies both producers and buyers. As long as product flows at its current rate, we expect 28% to look to recapture the $4.28 it has lost over the last year, but upside potential beyond that level is minimal. Look for fall pricing very near today's price.

UAN32% -- currently at $435.97/short ton or 67 cents/lbN

Last year the 32% price per ton was at $502.85 -- 78 cents/lbN -- a $66.88/ton falloff over the past year. 32% enjoys the same balanced supply conditions as 28%, but prices fell much harder here than they did for 28% and as solutions look to recapture that ground, we see upside potential in the neighborhood of $20-$30 near-term. However, a run-up will be in response to demand, and prices may hold firm until spring. We expect moderate upside potential for 32% -- more-so than for 28% -- and production and supply will dictate pricing through fall.


 

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