The N Files: Anhydrous Unimpressed by the Spreads

April 1, 2014 06:12 AM
 

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Urea -- The regional average price firmed $4.88 on the week to $539.68/st. That's after adding just over $2.00 last week suggesting an incremental slowdown in the price recovery. Not much is happening here at the moment, and purchases north of Kansas have been slow. The potential for a late spring planting season has buyers in standdown, and supplies are largely in place, and balanced.

Looking ahead, China has said it will offer tariff reductions again this summer and that will keep pressure on retail prices through the late summer. Given the discount anhydrous holds to urea, many will see NH3 as an attractive alternative, and if end-users pass on urea, we could easily find ourselves oversupplied. That would point to favorable prices in the fall. If we can catch a break then, we will fill at least a portion for spring 2015.

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UAN solutions -- This week, 32% firmed $1.91 by the ton while 28% softened for the second consecutive week. We are currently 80% filled here with 20% still holding out for a spring price break, but even in that event, our expectation is for spring prices above today's. This is a weather fertilizer. Many are speculating about spring application conditions and the extent to which weather difficulties will delay anhydrous applications. If that scenario plays out, UAN will get the nod, and prices will likely run up as demand for sidedress increases late in the application season.

Anhydrous demand will lend cues here and if we note a decline in NH3 movement late into the spring, we will cover our N risk for late applications by filling the remainder of our UAN for spring/summer.

Anhydrous -- Nh3 showed a little more strength this week adding $6.64 per ton. Industry watchers reported wholesale ammonia tenders at a dramatically higher price last week, but oversupply in some parts of the the Midwest may keep prices in check near-term. Picture1

We reported last week on a potential supply crunch and have not heard anything on it since. The trouble was supposed to have been in Missouri, but our survey finds MO anhydrous unchanged this week. Meanwhile, Iowa and Indiana NH3 are each up $20.00 by the ton and Wisconsin, Minnesota and North Dakota are up by $10.00/short ton.

The likely answer is that product has gotten to where it needs to be in Missouri and applications are underway. It could also be that MO dealers are hesitant to post a price on supply uncertainty. Either way, we expect upside risk to be excited as favorable weather conditions work their way northward.

By now we've got the December corn contract above $5.00 and if current corn prices prove sustainable, anhydrous would be silly not to capture the expected new-crop revenue bump. We filled the last of our anhydrous last week and are currently 100% filled for spring and summer.

The Margins -- Also adding upward potential are the margins which has anhydrous ridiculously underpriced compared to the rest of the nitrogen segment. Nh3 shorts urea 14 1/2 cents by the pound of N; solutions are 9 3/4 and 9 cents ahead on price. By the numbers, our 'Outstanding Spread' column should all read zero. This adds an insidious component of upside risk to anhydrous that should not be ignored.

Nitrogen
Expected Margin
Current Price by the Pound of N
Actual Margin This Week
Outstanding Spread
Anhydrous Ammonia (Nh3)
0
40 cents
0
0
Urea
Nh3 +5 cents
59 1/2 cents
+ 19 1/2 cents
+ 14 1/2 cents
UAN28%
Nh3 +12 cents
61 3/4 cents
+ 21 3/4 cents
+ 9 3/4 cents
UAN32%
Nh3 +10 cents
59 cents
+ 19 cents
+ 9 cents

 

This week --

  • Anhydrous $215.82 below year-ago pricing -- firmer $6.64/st this week to $666.18.
  • Urea $29.90 less than the same time last year -- up $4.88/st this week to $539.68.
  • UAN28% $36.59 below year-ago -- down $1.61/st this week at $355.99.
  • UAN32% $54.68 below last year -- up $1.91/st this week to $381.88.

 

N by the pound -- Anhydrous is 1/4 cent higher at 40 cents/lbN; Urea climbs 3/4 cent higher by the pound to 59 1/2 cents; UAN28% is unchanged at 61 3/4 cents per pound and UAN32% is 1/4 cent higher at 59 cents/lbN.

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

Nitrogen pricing by pound of N -- 4/1/14

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Iowa
$0.39
$0.60
$0.59
$0.58
Illinois
$0.41
$0.59
$0.61
$0.58
Indiana
$0.44
$0.61
$0.64
$0.66
Wisconsin
$0.40
$0.56
$0.61
$0.59
Minnesota
$0.41
$0.59
$0.58
$0.59
South Dakota
$0.41
$0.61
$0.66
$0.58
North Dakota
$0.41
$0.61
$0.68
Not reported
Nebraska
$0.34
$0.58
$0.57
$0.58
Missouri
$0.38
$0.60
$0.64
$0.58
Kansas
$0.33
$0.59
$0.59
$0.58
Ohio
$0.44
$0.60
$0.64
Not reported
Michigan
$0.46
$0.61
$0.61
$0.59
Average
$0.40
$0.59 1/2
$0.61 3/4
$0.59
Year-ago
$0.54
$0.62
$0.70
$0.67

 

Corn -- index

December 2014 corn opened today at $4.98 -- 12 1/2 cents above the previous N Files. At trendline 160bu/acre and one retail short ton of anhydrous ammonia at $666.18, the ZCZ14/NH3 spread widened 11.76 points on the week to stand at -90.62. 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.

Let's take this one step farther... ZCZ14 opened today at $4.98, but currently (10:45 CT) the contract is above the five dollar mark at $5.07 1/4. That puts one acre of expected new-crop revenue (NCR) at $771.04. That adjusted figure puts the ZCZ/NH3 spread at -104.86. That means one ton of anhydrous ammonia has 104.86 points toward upside risk.

Wholesale --

MosaicCo. reports wholesale urea moved modestly lower out of the Black Sea and the Middle East again. NOLA and Corn Belt urea were each a few bucks higher by the ton. Tampa Ammonia registered the fresh April price, now $120.00 higher into Tampa at $580.00.


 

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