The NFiles: UAN32% Falls in Line with Anhydrous

• Anhydrous $64.29 below year-ago pricing -- lower $4.24/st this week at $657.50.
• Urea $75.36 below the same time last year -- lower $5.19/st this week to $424.72.
• UAN28% is $22.74 below year-ago -- lower $1.89/st this week to $301.38.
• UAN32% is priced $24.51 below last year -- lower $9.60/st this week at $327.44.

Nitrogen prices continued lower this week along with the rest of the fertilizer segment. This is a supply driven decline as much as it is a correction to better reflect wholesale prices. All three “I” states posted lower anhydrous prices this week. Iowa fell $20; Indiana fell $15 and Illinois fell $10. Despite a shakeup in OSHA policy in North Dakota, NH3 in that state was down nearly $5.00 per short ton. Michigan was the only state posting gains in anhydrous this week, higher $4.18. Michigan is our only state still holding on to a $700 handle and is currently priced for a $4.23 cash corn bid. This week may mark the anhydrous price low in the state of Michigan as that state has historically posted NH3 prices above the rest of our survey.

UAN32 is priced just 1/4 of a cent above expected margins with NH3. That is the closest we have seen UAN or urea come to parity with NH3. As wholesale and retail prices come together, we would expect 28% and urea to do the same in the next few weeks. We do expect anhydrous to firm near-term, or at least level off at a price very near today’s. As nitrogen prices narrow their margins within the N segment, those prices continue to more closely reflect U.S. cash corn prices.

By mid-October, prices had already bottomed last year, and we believe it is just a matter of time before nitrogen prices perk up. But if all four of our surveyed N products are to arrive at parity, that will mean firmer NH3 to the tune of about $20 per short ton. That would require urea and UAN28% to hold steady and for 32% to firm slightly along with NH3.

There is, of course the possibility that urea and 28% will fall to meet up with anhydrous prices. That would have NH3 and 32% basically unchanged as 28% and urea fall. There is room for that in our outlook, but the near-term outlook is very murky. For now, we will let prices run for another week and give them a chance to exhaust the downside. My three year comparison shows two of the last three years, nitrogen prices have firmed since the early harvest low, and odds are we will see higher nitrogen prices through winter. Urea could be the nitrogen product that bucks that trend. That will depend on imports and distribution. But at this point in time, urea has the most work to do to achieve parity with NH3 prices.

December 2016 corn closed at $4.07 on Friday, October 9. That places expected new-crop revenue (eNCR) per acre based on Dec ’16 futures at $641.76 with the eNCR15/NH3 spread at 15.74 with NH3 at a premium to December 2016 corn futures. The spread widened 1.85 points on the week.

This week, the average cash corn price built-in to nitrogen prices is $3.88 per bushel.

The Margins -- Anhydrous is still underpriced compared to the rest of the nitrogen segment. NH3 shorts urea 2 cents by the pound of N; UAN28% is overpriced compared to anhydrous by 1 1/2 cents; UAN32% solution is just 1/4 cent ahead of NH3 on price.