The View From Upstream -- Correction or Correction?

April 29, 2013 11:07 AM

Wholesale markets have softened almost across the board. This week reports declines or sideways movement in World markets in everything except prilled urea from Yuzhnny, which added two dollars per tonne during the report week. These markets have all turned in favor of upstream production signaling limited upside room for late summer nutrient. With any luck, producers have been making gains toward the national phosphate supply as ammonia, sulfur and phosphate rock all continue last week's downward movement.

Most declines were small, but the majority of values are well below last year's pricing levels. This suggests we are either in a downside correction, or due for a correction to the upside. I believe we are in a downside correction in N and P as pipeline disruptions and unrest in the Black Sea Region elevated natural gas prices, and by extension, ammonia and urea prices. Trinidad and Tobago completed two-year maintenance activities a few months ago, and are cranking out ammonia at a price attractive to Florida and North Carolina phosphate producers.

Wholesale potash moved sideways in Brazil, Southeast Asia and the U.S. Corn Belt but all three are still nearly $100/tonne below the same time last year. Retail markets noted a $2.64 increase regionally to the price of K in the Midwest -- the largest upward movement of any nutrient in our retail Index this week. I believe in this case we are seeing a correction to the upside, however small, to combat the low price set by China for Canadian product at $400/tonne in December.

Urea continues to decline in wholesale action, but the published wholesale Corn Belt price is $324.00 below year-ago. We can attribute this to smooth sailing in the Black Sea Region as well as China's oversupply in 2012. Both of which are expected to continue into the foreseeable future.

Some of these numbers are dramatically lower than year-ago, and that frankly makes me a little nervous. But softening in these markets should make its way down to the end user by the end of summer, suggesting wide production margins upstream leading to easing prices at the co-op. It may go the other way, and prices could realize last year's price in a hurry. This further underscores the need for domestic nutrient production -- phosphate, ammonia and urea in particular. Increased domestic production promises to ease prices and propel the United States down the path of nutrient self-sufficiency.

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