The N Files: Anhydrous and the N Margins

March 11, 2014 10:32 AM
 

Picture3 

Urea -- The regional average price firmed $2.19 on the week to $529.73/st and prices have been headed higher since establishing a low in the first week of December. But today's price is edging closer to the year-over peg suggesting the recovery may slow in the next few weeks. We are currently 80% filled on spring and summer urea and will leave the remaining 20% of spring coverage to gambling stocks near-term.

The margins table below demonstrates the expected path of nitrogen. Historically, nitrogen products have worked toward a particular pricing margin, and urea is currently 13 3/4 cents above where it should be in comparison to anhydrous ammonia. This suggests either urea needs to fall, or the more likely scenario, is for anhydrous ammonia to rush to the upside. This is supported by the current spread between 1 acre of expected new-crop revenue and one ton of anhydrous ammonia (ZCZ/Nh3 spread), which widened again this week to nearly $70.00.Picture4

UAN solutions -- We talked in last week's P&KToday about DAP and MAP moving in a seesaw pattern where one will add ten dollars one week while the other just a dollar. In the following week, many times we see the two switch roles with the other adding ten while the first is up only a dollar. We are beginning to notice the same in UAN solutions. Also of note is the expected nitrogen margin table here. We see urea overpriced compared to Nh3 by 13 3/4 cents, but UAN is in a similar boat -- 28% is ten cents overpriced and 32% is 8 1/2 cents fat.

If we add solutions to urea, anhydrous has even more work to do to reestablish expected pricing margins.

This week, 32% firmed $7.00 while 28% rose only 64 cents . We are currently 80% filled here as well with 20% still holding out for a spring price break, but even in that event, spring prices may be above today's.

Picture2Anhydrous -- December corn is up only 1/2 cent since this time last week and anhydrous widened the gap between itself and expected new-crop revenue by falling just over two and a half dollars on the week. (At right, NCR is expected New-Crop Revenue based on December 14 futures, in orange).That marks a partial retracement of strong gains the week prior and we expect this last nod to the downside may be a signal a recovery is about to begin in earnest.

Anhydrous is the mainstay in our expected margins table below. As you can see from the 'outstanding spread' column, according to expected margins, Nh3 is currently underpriced compared to urea by 13 3/4 cents by the pound of N. All four of these will eventually fall in line. Another support for the idea that Nh3 is doomed to head higher is in the year-ago pegs. Urea and UAN are narrowing in on last year's price -- which was above today's price. Urea is $37.00 below year-ago, UAN28 $35, and 32% lags a little at $60.00 below year-ago. But anhydrous is still priced $230.00 below year ago. Part of that was elevated Nh3 pricing at this time last year, but a lot has to do with the falloff in December corn futures.

The point is, no matter which margin you look at, anhydrous is ridiculously underpriced compared to the other nitrogen products and while a $230/short ton recovery would overshoot Nh3's margin with expected new-crop revenue, the suggestion is for Nh3 to at least cut by half the year-over margin. That would add at least another $100-odd dollars to the per ton price to a regional average of $750.00 by the time nitrogen prices even out.

We pulled the trigger last week on anhydrous and we advise you get caught up to 100% filled on anhydrous for spring. Check with your local retailer as prices may vary.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (Nh3)
0
39 1/2 cents
0
0
Urea
Nh3 +5 cents
58 1/4 cents
+ 18 3/4 cents
+ 13 3/4 cents
UAN28%
Nh3 +12 cents
61 1/2 cents
+ 22 cents
+ 10 cents
UAN32%
Nh3 +10 cents
58 cents
+ 18 1/2 cents
+ 8 1/2 cents

 

This week -- IMG 0269

  • Anhydrous $228.29 below year-ago pricing -- softer $2.86/st this week to $654.21.
  • Urea $37.43 less than the same time last year -- up $2.19/st this week to $529.73.
  • UAN28% $34.16 below year-ago -- up 64 cents/st this week at $354.09.
  • UAN32% $60.35 below last year -- up $7.00/st this week to $376.87.

 

N by the pound -- Anhydrous is unchanged at 39 1/2 cents/lbN; Urea climbs 1/4 cent higher by the pound to 58 1/4 cents; UAN28% softens 1/2 cent to 61 1/2 cents per pound and UAN32% up 1 full cent to 58 cents/lbN.

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

Nitrogen pricing by pound of N -- 3/4/14

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Iowa
$0.38
$0.58
$0.61
$0.58
Illinois
$0.40
$0.56
$0.55
$0.52
Indiana
$0.43
$0.59
$0.64
$0.61
Wisconsin
$0.40
$0.54
$0.59
$0.59
Minnesota
$0.39
$0.58
$0.66
$0.58
South Dakota
$0.41
$0.60
$0.66
$0.58
North Dakota
$0.40
$0.60
$0.61
Not reported
Nebraska
$0.34
$0.58
$0.57
$0.61
Missouri
$0.37
$0.60
$0.68
$0.58
Kansas
$0.32
$0.57
$0.57
$0.56
Ohio
$0.44
$0.59
$0.64
Not reported
Michigan
$0.46
$0.60
$0.61
$0.59
Average
$0.39 1/2
$0.58 1/4
$0.61 1/2
$0.58
Year-ago
$0.54
$0.62
$0.68
$0.67

 

Corn --

December 2014 corn opened today at $4.76 1/2 -- another 1/2 cent above the previous N Files. At trendline 160bu/acre and one retail short ton of anhydrous ammonia at $653.21, the ZCZ14-NH3 spread widened 3.66 points on the week to stand at -69.19. A negative number here indicates one short ton of anhydrous is priced below expected new-crop revenue per acre based on December '14 corn futures.

Wholesale --

MosaicCo. reports wholesale urea moved slightly lower out of the Black Sea, the Middle East and at NOLA and $2.00 higher in the U.S. Corn Belt. Tampa Ammonia firmed $7.00 on the week at $460.00.


 

Back to news


Comments

 
Spell Check

No comments have been posted to this News Article

Corn College TV Education Series

2014_Team_Shot_with_Logo

Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!

Markets

Market Data provided by QTInfo.com
Brought to you by Beyer
Close