The N Files: NH3 Levels Off Below Dec. Corn

October 8, 2013 06:11 AM
 

ZCZNH310 8

We base much of our analysis on the assumption that nitrogen prices and December corn futures (ZCZ) move together. Below, we publish the current relationship between one acre of expected new-crop revenue to the price of one short ton of retail anhydrous ammonia --our ZCZ-NH3 spread.

December corn opened today at $4.48. At trendline 160bu/acre and one retail short ton of anhydrous ammonia at $709.03, the ZCZ-NH3 spread stands at -7.77 A negative number here indicates December corn is priced at a premium to retail anhydrous and suggests upward movement ahead for NH3.

Based on December corn futures, nitrogen is slightly underpriced presently.

This week --

  • Anhydrous $143.01 below year-ago pricing -- down $1.29/st this week
  • Urea $131.82 less than the same time last year -- up $1.11/st this week
  • UAN28% $62.04 below year-ago -- up $2.57/st this week
  • UAN32% $91.86 below last year -- up 91 cents/st this week

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

Nitrogen pricing by pound of N -- 10/8/2013

Anhydrous $N/lb

Urea $N/lb
UAN28 $N/lb
UAN32 $N/lb
Iowa
$0.41
$0.58
$0.57
$0.56
Illinois
$0.43
$0.58
$0.52
$0.53
Indiana
$0.47
$0.50
$0.55
$0.63
Wisconsin
$0.42
$0.48
$0.50
$0.52
Minnesota
$0.40
$0.48
$0.61
$0.58
South Dakota
$0.42
$0.46
$0.57
$0.53
North Dakota
$0.41
$0.47
Not reported
Not reported
Nebraska
$0.37
$0.52
$0.52
$0.55
Missouri
$0.41
$0.52
$0.70
$0.52
Kansas
$0.37
$0.49
$0.54
$0.53
Ohio
$0.55
$0.52
$0.52
Not reported
Michigan
$0.48
$0.51
$0.54
Not reported
Average
$0.42 3/4
$0.50 3/4
$0.55 3/4
$0.55
Year-ago
$0.52
$0.66
$0.66
$0.69

 

Wholesale --

MosaicCo reports wholesale ammonia edged higher week-over. Urea moved sideways at the Black Sea, higher out of the Middle East and NOLA wholesale markets, and slid slightly lower in the Corn Belt during the week. Retail urea firmed $1.11 in prices reported to your Monitor to stand this week at $462.68/st.

Near-term Outlook --

We believe nitrogen will level off at present levels for harvest with moderate upside potential through winter resulting in spring prices at or above today's price.

The numbers above suggest upside potential for anhydrous and the table below reflects the expected margins between our four major N products. Here we figure NH3 as our baseline. All other N products will align themselves by certain historical margins based on the price of NH3. We provide the expected margins here in the 'Expected Margin' column. The 'Necessary change' column takes what we know about the price relationship of these four N products and makes projections on potential near-term price moves.

In this case, if these four products will look to align according to the 'expected margin' column, Urea must add 1 3/4 cents per pound N, UAN28% also needs to correct slightly higher and add 3/4 of a cent to correctly align theses products. Meanwhile, UAN32% overshot its target again this week and must now soften 2 3/4 cents.
 

N Pricing by the Pound
Expected Margin
Current price
Necessary change
Projection
Anhydrous Ammonia (0)
NH3 = $0.42 3/4
$0.42 3/4
+0
$0.42 3/4
Urea
NH3 + 10 cents
$0.51
+$0.01 3/4
$0.52 3/4
UAN32%
NH3 + 16 cents
$0.61
-$0.02 1/4
$0.58 3/4
UAN28
NH3 + 13 cents
$0.55
+3/4 cent
$0.55 3/4

 

If you have not yet booked fall anhydrous, we strongly recommend you have a conversation with your preferred supplier today. I'm less willing by the day to accept that nutrient prices have downside potential yet to tap, so do yourself a favor and check your local pricing.


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