Nutrient Shows Signs of Bottoming: Alerts in Charts

September 11, 2013 07:05 AM

Nutrient prices have been on a long downward trek with urea leading the way but earlier this week, the falloff showed strong signs of bottoming. The result was a series of advice alerts directing readers to fill fall anhydrous, and fill portions of potash and spring urea. The charts make a compelling case when we compare today's pricing action with last year.

Complicating matters is the fact that upstream buyers remain on the sidelines, waiting out nutrient's bear run. A year-over analysis after the uncharacteristic slides of urea and potash can be problematic. Seasonal movements have been skewed by downward pressure on these key nutrients. In a case like this, we look to reward the setback in nutrient pricing by booking.

Even if prices move lower from here, the savings over the same time last year are strong enough to impact profitability, particularly once corn futures rally.

y oNH3Anhydrous -- We pulled the trigger on anhydrous first as factors on the production side suggest tightening supplies ahead. Of the three charts presented here today, anhydrous is the most reliable for year-on-year comparison. Urea is heavily influenced by Chinese oversupply and plant disruptions in Ukraine while potash was chased lower just recently by fears the breakup of Belarus Potash Company would take the floor out of the market.

Anhydrous has had little of this type of outside influence, however, the plant disruptions in Ukraine in concert with scheduled slowdowns for maintenance in Trinidad and Tobago suggest anhydrous has exhausted the downside, and prices are poised to move higher.

Currently anhydrous is at a regional average of $716.02/short ton. That is $100.98 below year-ago pricing and the chart indicates pricing took off and moved higher last year starting about a week ago. If any of these three year-over comparisons has something to tell us about the future, it is that anhydrous is due to level off at the very least, and if NH3 behaves remotely like last year, higher prices are ahead. We have advised filling the remainder of fall needs at current pricing levels.

y oureaUrea -- This has been nutrient's golden child since June 2012. The dramatic slide in pricing was due to oversupply and the Chinese continue to add to urea production capacity. However, at some point, this tailspin has to meet up with the realities of production margins. The robust production in China has been the result of favorable coal pricing and as natural gas from the U.S. other shale formations around the globe bear an increasing burden of power generation, coal prices will likely stay where they are.

The outside influence on urea pricing has opened the downside and the downward movement has been nearly constant for over a year. Note the uptick from this week's retail survey. Ukraine disruptions will have a degree of sway here, but October first will end the 2% summer tariff window on Chinese exports of urea. The end of the tariff window is the first negative news to hit urea in quite awhile and this spoiled downside traveler is likely to throw a tantrum.

Currently urea is at a regional average of $497.56/st -- $126.86 below year-ago. We understand most urea users avoid fall applications, but prices are at or near their low, and all signs point to upward price risk near-term. If you plan to apply urea in the coming spring, we have advised to book 20% as a partial hedge against upside risk.

y oKPotash -- Common knowledge has it that potash pretty much just lays there. The chart here backs that up and even suggests K is in for a leveling off of its own. The FSU potash joint venture break up had us all hoping that prices would fall to ridiculous levels as a result of FSU competitive oversupply. A CEO is now held captive in Belarus and others are on the run. The Director of Sales and Marketing at Uralkali said in a statement earlier this week that projections of a price falloff were overblown, and the market does not have much more downside to give.

The bulk of U.S. potash comes from Canada and officials there say they have no intention of matching Uralkali's sendout price. Prices there had already been suppressed by China's holdout on summer tenders from Canpotex in 2012. Production and overhang imbalances have been remedied and while prices have fallen as a result of rumors of a potash war, if we are talking 'buy the rumor, sell the fact', the facts are in and both Uralkali and Canpotex are saying the party is over.

Currently in this week's Inputs Monitor, potash is at $511.88/st -- $94.79 below year-ago. Potash leveled off and moved sideways at about this time last year, but if the rumors of upcoming declines in potash pressed K artificially low, the market is due not just to level off, but to correct to the upside. We have advised a partial booking here as well as a hedge against a corrective bounce before harvest.

Perspective -- This is where the fertilizer meets the road. Long bear runs inspired by market correction, FSU bickering and over-enthusiastic urea production has kept buyers on the sidelines up and down the supply chain. These year-over charts from an atypical 2012 show dramatic declines and risk lulling buyers into a doze. All three of these will bottom and, one day, move higher. Better later than soon, but a head's up play here could go a long way to boosting your bottom line down the road.


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