The N Files: Affordable Anhydrous by the Margins

February 4, 2014 09:19 AM
 

We advised to 'Get Aggressive' on N last week and as a result we are currently 80% filled for spring/summer on urea and UAN solutions, and 60% filled on spring/summer Nh3 (click here for the ALERT). If you are not booked to these levels, we encourage you strongly to get there before prices run higher. We have left room for gambling -- 20% on UAN and urea. Nh3 is priced so low right now and expected N margins and our ZCZ/Nh3 spread are both screaming upside risk on anhydrous.

But supplies of anhydrous are strong and those supplies are supported by recent declines in wholesale ammonia and expected stable production from Trinidad and domestic sources. We expect this to limit anhydrous prices for the next month or so, but the potential for Nh3 to capture the 7 3/4 cents per pound it currently leaves on the table is real. We have 40% to fill yet before spring and will wait for a clear sign of higher prices before we pull the trigger.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Spread
Anhydrous Ammonia (Nh3)
0
39 1/4 cents
0
0
Urea
Nh3 +5 cents
53 cents
+ 13 3/4 cents
+ 8 3/4 cents
UAN28%
Nh3 +12 cents
59 cents
+ 19 3/4 cents
+ 7 3/4 cents
UAN32%
Nh3 +10 cents
54 cents
+ 17 3/4 cents
+ 7 3/4 cents

 

We had started a margins analysis months ago and this week's N Files resumes that analysis. Above is a table containing expected margins for four nitrogen products by the pound of N. We use Nh3 as the stick to compare the others by, based on current pricing. The 'spread' column indicates how close -- or how far -- each is from the expected margin between itself and Nh3.Picture1

The spread indicates Anhydrous is underpriced by at least 7 3/4 cents per pound of N suggesting upside potential for Nh3. However, carryover product from a fall application season cut short and declines in wholesale ammonia are helping limit upside risk for Nh3 presently, and urea and UAN solutions priced at a lopsided premium to anhydrous suggest anhydrous demand may be high come spring.

Last year at this time, margins had urea at an 11 cent premium to Nh3, and UAN28% & 32% each 13 cents above Nh3.

Supporting this notion is the Nh3/ZCZ14 spread which widened significantly this week and agrees that anhydrous ammonia is underpriced not only in relation to Nitrogen pricing by the pound, but also when compared to expected new-crop returns and Dec. '14 corn futures.

Last year at this time, margins had urea at an 11 cent premium to Nh3, and UAN28% & 32% each 13 cents above Nh3.

This week --

  • Anhydrous $232.67 below year-ago pricing -- softer $3.51/st this week to $646.49.
  • Urea $78.29 less than the same time last year -- up $13.05/st this week to $485.46.
  • UAN28% $42.00 below year-ago -- up $9.05/st this week at $335.25.
  • UAN32% $59.20 below last year -- up $3.70/st this week to $363.17.

 

N by the pound -- Anhydrous unchanged for the third week at 39 1/4 cents/lbN; Urea up 2 full cents by the pound at 53 cents; UAN28% up 1 3/4 cents to 59 cents per pound and UAN32% unchanged at 54 cents/lbN.

The following is an updated table of nitrogen pricing by state by the pound of N.

Nitrogen pricing by pound of N -- 2/4/14

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Iowa
$0.38
$0.54
$0.57
$0.53
Illinois
$0.40
$0.51
$0.54
$0.55
Indiana
$0.42
$0.54
$0.63
$0.64
Wisconsin
$0.40
$0.49
$0.55
$0.55
Minnesota
$0.38
$0.53
$0.66
$0.55
South Dakota
$0.41
$0.52
$0.58
$0.58
North Dakota
$0.40
$0.52
$0.66
Not reported
Nebraska
$0.34
$0.54
$0.55
$0.53
Missouri
$0.37
$0.56
$0.61
$0.55
Kansas
$0.34
$0.53
$0.55
$0.55
Ohio
$0.43
$0.54
$0.61
Not reported
Michigan
$0.45
$0.54
$0.57
Not reported
Average
$0.39 1/4
$0.53
$0.59
$0.54
Year-ago
$0.53
$0.62
$0.66
$0.66

 

Corn --

December 2014 corn opened today at $4.52 1/2 -- 1 1/2 cents above the previous N Files. At trendline 160bu/acre and one retail short ton of anhydrous ammonia at $646.49, the ZCZ14-NH3 spread widened 7.51 points on the week to stand at -37.51. A negative number here indicates anhydrous is priced below expected new-crop revenue per acre based on December '14 corn futures.

A wide spread suggests upside price risk for NH3 as anhydrous will look to couple with expected new-crop revenue.

Wholesale --

MosaicCo. reports wholesale urea moved slightly lower out of the Black Sea, the Middle East and NOLA but moved strongly higher in the U.S. Cornbelt. Tampa Ammonia is lower this week, at $415.00.


 

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