Nitrogen Outlook Muddy

December 27, 2012 06:15 AM


In 2011, the United States imported 57% of the nitrogen-based fertilizers applied by growers to meet its annual demand of 9 million tons of N. The drought conditions in 2012 pushed returns to farmers for commodities higher and with that in mind, planted acres are expected to rise in the coming season. That will pressure nitrogen supplies here in the U.S. and could push the price of nitrogen-based nutrient higher.

Of the 57% of N the U.S. imports each year, at least 40% of that must make its way up to the Midwest from the Gulf of Mexico. A normal year would have that product floating upriver on Mississippi River barges, but river levels are beyond critical and the water continues to shallow. Officials on the river say the declining water levels in the Mississip are even lower than was once projected, and falling fast. Shutdowns through this arterial shipping lane are suggested to take effect as early as January 3 -- that's at least two weeks ahead of schedule.

Help is on the way as far as domestic N supply goes. A number of nitrogen facilities are being built or expanded in the U.S. as N producers look to profit on soft natural gas, the #1 feedstock for N fertilizers. But these production increases will not be online until at least 2015, pressuring N pricing in the short-term.

The long term outlook for N is generally positive. International plays have China and India looking to improve their middle class segments by improving the quality of the food supply -- that means more protein in the form of beef, pork and chicken, and that means more demand for corn. With increased international demand on corn coupled with high returns on American farms this year and planted acres expected to rise, N demand will encourage production and should see the U.S. becoming a net exporter of N by 2020.

In the short-term, however, N pricing remains dependent on the cost of transport. The Mississippi River is already too narrow to allow for five-wide barge traffic, and the usual 9-foot draft enjoyed by barge traffic has been reduced to a very shallow 8-foot draft. More trips with 40% less cargo per barge means the cost of transporting N upriver will be higher.

Your Inputs Monitor has seen this manifest in the price of Anhydrous which added nearly eight dollars per ton in the last week alone while other nutrients continue trending toward seasonal lows. UAN has moved generally softer through the same period, but any price declines have been small and quickly erased by week-over increases.

The United States is currently 65% covered in snow and the snowmelt will help with river levels in the Mississippi this spring, but a return to more normal long-term precipitation patterns -- across the northern U.S. in particular -- is what the river really needs. Until the Mississippi River is replenished, transport costs will drive nitrogen pricing in the U.S.

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