Projected N Pricing by the Pound: Demand is a Dictator

June 5, 2013 09:31 AM
 

There is a lot of talk about declines in urea and UAN ahead. There is also a lot of talk on the ground about supplemental nitrogen applications this spring in wake of heavy rains. Somewhere between projected demand and projected declines, growers have to pull the trigger and write a check. Ample supply is expected from China for the next year and a July export pricing window is expected to pressure urea and UAN pricing lower. The following table illustrates current N pricing as reported to your Inputs Monitor.

N Source
Current Monitor Price/ton
Price/lb/N

Anhydrous

$869.07
$0.53
Urea
$563.51
$0.62
UAN28
$400.86
$0.71
UAN32
$438.54
$0.69

 

The following table puts the projections from the experts on paper for a closer look. Here we assume that 28% carries an 8 cent premium to straight urea. These projections put urea at 47 cents per lb/N and 28% solution at 55 cents. If these prices are realized, the decline in urea pricing would be a staggering $356.89 year-over from June 2012's high mark of $781.89.

Anhydrous has been conspicuously absent from expert opinion, but wholesale ammonia into Tampa is roughly $100.00 above year-ago pricing at present. If we knock $100.00 off of the current retail anhydrous price -- a ham-handed adjustment at best -- it would fall loosely in line with urea based projections and give us a target of $750.00/ton or 46 cents per pound of N for anhydrous.

N Source
Projected Price/ton
Price/lb/N

Anhydrous

$750.00
$0.46
Urea
$425.00
$0.47
UAN28
$310.00
$0.55
UAN32
$360.00
$0.57

 

I do not believe this is a likely scenario. The last year when urea was priced near that level was 2010 at $450.00/ton. It would be nice to return to those levels -- 170 lbs of N from anhydrous at the projected $750.00/ton would total $78.20/acre. But the average price of corn received in 2010 as reported by USDA was only $3.83.

At the current corn price of $5.43, $78.20 for nitrogen would account for 8.8% of expected new-crop revenue. At 2010's $3.83 corn, that same $78.20 N application would have been 13.6% of 2010's expected revenue just for nitrogen, and fertilizer pricing -- as we have noted -- is now coupled with the price of corn. This suggests limited downside room for nutrient based, not on wholesale pricing, but, rather, on the price of corn.

On that basis, a fall to 2010 nutrient pricing levels is unlikely, but upstream experts have high hopes it could happen. We do expect declines but realize that, with corn at $5.45 or $6.50 or even at $5.00, nutrient pricing will look to capture new-crop revenue based on futures pricing. Supply can impact pricing, but demand is a dictator. Read more in Friday's blog as we continue to explore N pricing scenarios.


 

 

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