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April '24 Farmer Fertilizer Focus - Urea

By: Josh Linville, Vice President- Fertilizer

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April '24 UREA
 
Josh Linville
Fertilizer - Vice President
StoneX Financial Inc. - FCM Division
josh.linville@stonex.com
Major Global Urea Export Location Price Graphs

The intention of the below graphs are not to use to say "my price should be X based on this graph".  These prices are derived from an FOB price point average.  The intent is to show major global price movement trends.  Your values will likely have significant basis difference (similar to your local grain price being different than the traded market price).

This graph is labeled as MT in USD currency.

image-20240401095925-1

What everyone wants to know first, what do we think will happen going forward
GLOBAL
The biggest test of the global urea marketplace is happening right now in the form of the India urea purchase tender.  We have already seen values sliding in anticipation of lower offers being submitted...but is that where it ends?  From my POV, it is going to be tough to paint a bullish picture moving ahead as we are quickly moving into the dead demand period for the world.
Our POV is that following India, barring any surprise demand popping up, prices should stay under pressure.  China's anticipated May return only pushes that POV further.
NORTH AMERICA
Unfortunately, U.S. January import data was not as large as hoped.  It does not mean that we are in deep trouble with no way of getting ahead of it.  Just means there is more work to be done.  Also, last week's report that corn acres are only expected to be 90M dropped a lot of overall N demand.  
All in all, nearby prices should continue to hold a premium with tight supplies, but the outlook appears bearish moving later into the spring.  Then it is a matter of if those cheaper tons can make it inland in time...
CME Futures Settlement Indications

While the fertilizer futures market is far from as liquid as its grain counterparts, it is still active and gives us an insight into what the market is thinking.

Please note that the values below can and will change daily.  This is merely a look at where they are as of writing:

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General Global Urea Information
image 73009
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What has happened in the last 30 days?
India tender finally gets announced
The announcement the urea world was agonizing over was finally announced.  India stepped forward and put the world on notice.   The biggest thing that stood out to me was the shipment date.  They announced that this tender would receive shipments all the way until May 20th.  This did multiple things to set a bearish tone:
  • It stressed that they were not desperate for product nearby
  • It gives plenty of time for producers to make product to ship
  • It extends beyond the period when Chinese producers are expected to return to the export marketplace
  • It extends long enough to force offers to consider the ramifications of missing (i.e. carrying product into the summer demand lull season)

As such, we have seen global prices declining as a result and offers have reflected the same.  The lowest price for the west coast is $339 and east coast is $347.70.  More important is how tight the offer range is.  There are over 1M tons offered within $10 of the lowest west and east coast price which should indicate that offers will be willing to drop their price to participate.

As any tender, we have to wait for the final details but for those that have been hoping for softer pricing, this has been exactly what was wanted.

Brazilian producer announces stoppage due to high input costs
In an announcement that took us by surprise, Brazilian based nitrogen producer Unigel announced that they were ceasing production at their locations in Camacari and Laranjeiras which combine to product approximately 1.1MMT of urea annually.  The reason for the stoppage was due to high cost natural gas making them unable to profitably sustain production.
Now, on the global scale, 1.1MMT per year is not much...but for that local market, this is a big change that will see local buyers being forced to find new supplies to meet their demand.
Chinese exports continues to be expected to return
This isn't exactly a new story this month but is important enough that it needs attention.
In recent months, it has been heard that the Chinese government was loosening its export restrictions on urea.  This would/will be a huge event for the urea world.  Typically, China accounts for over 5MMT of exports per year, or approximately 10% of the global export volume.  Unfortunately for world buyers, the Chinese government stepped in during the worst of the last few years and restricted exports with the idea of keeping more tons home to maintain adequate supplies and lower prices for Chinese farmers.  Now that the world has "normalized", it seems these restrictions are being loosened.
Assuming nothing changes, and we always have to watch for changes, we should see them return on a wider scale early May.  They will be returning during the period when global demand slows to its lowest level which combines for a rather bearish scenario.
Again, we have to watch because as with everything with China, there is no telling exactly what will be done.  We could see these returns get squashed and restrictions put back into place.  Let's just hope that doesn't happen...
Baltimore bridge collapse should impact local urea marketplace
No doubt by now you have heard the details of what has happened in Baltimore.  A ship departing lost power and ultimately rammed into a bridge which caused a complete collapse.  Lives were lost and the shipping lanes normally used by vessels (including fertilizer) were blocked.  The situation is still so fresh and dire that efforts to find those that were lost have been delayed.  There is simply too much danger in the waters.
So what could this mean for Baltimore and the surrounding ag region?
It should come down to how the government approaches the clean up effort.
Hopefully we will see an all-hands on deck quick approach to cleaning up at least the vessel shipping channels.  These ports are outstandingly important to the local economy and every day that is lost is a lot of economic impact.  Unfortunately, when it comes to the government, logic doesn't always work...
From a fertilizer POV, most of the nitrogen that flows into this area is UAN.  However, as you can see by the red parts of the bars below, there is some urea that transits thru.  The chart below for 2024 only reflects January data as the U.S. keeps a 60 day delay on information.  Still, it shows that a large amount of spring needs still need to arrive.
If you are reliant on Baltimore for your nitrogen needs, it is going to be very important to stay in contact with your supplier while this story plays out.
image-20240401154549-1
Where are current values in relation to the past

NOLA/New Orleans, Louisiana 

Number 3 global importer in 2022

image 83787

Price comparisons

Vs 30 days ago - -10% or approximately $40 lower

Vs 90 days ago - +18% or approximately $55 higher

Vs 6 months ago - -15% or approximately $63 lower

Vs 1 year ago - +16% or approximately $50 higher

image-20240401095940-2

U.S. Midwest Average

Vs 30 days ago - +3% or approximately $15 higher

Vs 90 days ago - +31% or approximately $109 higher

Vs 6 months ago - -3% or approximately $13 lower

Vs 1 year ago - +24% or approximately $89 higher

 

U.S. Southern Plains Average

Vs 30 days ago - +8% or approximately $35 higher

Vs 90 days ago - +37% or approximately $133 higher

Vs 6 months ago - +1% or approximately $3 higher

Vs 1 year ago - +17% or approximately $73 higher

 

U.S. Northern Plains Average

Vs 30 days ago - +3% or approximately $14 higher

Vs 90 days ago - +21% or approximately $81 higher

Vs 6 months ago - -1% or approximately $4 lower

Vs 1 year ago - +24% or approximately $89 higher

 

Middle East

Number 1 exporter (as a region, not as individual nations)

image 83722

image 83723

image 83724

image 83725

Vs 30 days ago - -14% or approximately $55 lower

Vs 90 days ago - +1% or approximately $3 higher

Vs 6 months ago - -16% or approximately $60 lower

Vs 1 year ago - +9% or approximately $28 higher

image-20240401095953-3

Egypt

Number 4 global exporter in 2022

image 83726

Price comparisons

Vs 30 days ago - -14% or approximately $54 lower

Vs 90 days ago - -2% or approximately $7 lower

Vs 6 months ago - -22% or approximately $94 lower

Vs 1 year ago - -1% or approximately $2 lower

image-20240401100004-4

 

Black Sea

Number 1 global exporter in 2022

image 83727

Price comparisons

Vs 30 days ago - -10% or approximately $35 lower

Vs 90 days ago - +8% or approximately $23 higher

Vs 6 months ago - -16% or approximately $60 lower

Vs 1 year ago - +20% or approximately $50 higher

image-20240401100015-5

China

Number 9 global exporter in 2022

image 83729

Price comparisons

Vs 30 days ago - -5% or approximately $18 lower

Vs 90 days ago - -10% or approximately $38 lower

Vs 6 months ago - -16% or approximately $63 lower

Vs 1 year ago - -4% or approximately $15 lower

image-20240401100028-6

Brazil

Number 2 global importer in 2022

image 83788

Price comparisons

Vs 30 days ago - -13% or approximately $50 lower

Vs 90 days ago - +6% or approximately $20 higher

Vs 6 months ago - -17% or approximately $70 lower

Vs 1 year ago - +10% or approximately $30 higher

 

image-20240401100037-7
Bull/Bear Factors
Because no market is ever guaranteed to go higher/lower, we try to consider the factors that can sway values so that we are able to act when they occur rather than react.
Bullish Factors
  • China could 180 their export return - you never know when it comes to China.  We have a month before they are supposed to return to exporting.  That is 30-days for them to change their minds.  If they do decide to stop exports again, this would help reduce expected supplies and add a bit of support.
  • Last minute spring demand could surge - this is for N.A. and the world.  There is still a decent chunk of spring demand floating out there and if it gets backed into a corner (waited too long), you could see offers take advantage with higher prices.  There are some areas that are still tight inventories and just in time logistics are not cheap.
  • India offers may balk at lowest values, force retender - I'm going to start by saying I do not expect this...but it needs to be watched.  Most of the offers were relatively close to the lowest values which means they "should" drop price to participate.  However, if offers bull up and push against the values, it could force India to retender and give position holders a bit more backbone for round two.
Bearish Factors
  • Looks more and more likely that China is returning - is there a chance that China reverses course again?  Yes, but it doesn't look likely.  If/when China returns to exporting, it will be the return of the global urea boogeyman that keeps everyone awake at night.  When they are out there lurking, offers seem to go a little lower than they would have.
  • Global urea market is looking pretty light on demand - we could certainly see a quick pop of demand, but it is looking less likely by the day.  In fact, once India wraps up their purchase, destination options start to fall off.  That means for those areas still buying product, they have a lot of opportunities.
  • Cutting U.S. corn acres also cut N demand - let's assume last week's report showing 90M acres of corn being planted as correct.  If so, that means a lot of N demand was just lost that the market was expecting/preparing for.  
Where are the current urea/grain ratio values today

We believe that only looking at the flat price of either grains or fertilizer can be misleading:

  • Only selling grain can hurt you if fertilizer prices rise substantially
  • Only buying fertilizer can hurt you if grain prices fall

We look at the ratio "value" to get a better indication of where we are or how many bushels of X does it take to pay for 1 ton of fertilizer.

Would you rather:

  • Spend 135 bushels to pay for 1 ton of urea
  • Spend 55 bushels to pay for 1 ton of urea

When we compare the current ratio value against recent years, we start to see if we are high or low.

YOUR VALUES WILL LOOK DIFFERENT

This graph looks at the NOLA urea price vs the flat grain price. There are no logistics on either product. Your location will look different due to fertilizer logistical costs, grain basis, etc.

 

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image-20240401100056-9

 

image-20240401100110-10

 

image-20240401100118-11

 

image-20240401100125-12

 

image-20240401100133-13

 

image-20240401100141-14

 

image-20240401100150-15

 

 
Josh Linville’s Focal Points
  • N.A. corn acreage/nitrogen demand - last week's report shocked the market, coming in lower than expected.  If it holds, it means a large chunk of nitrogen/urea demand was lost.  However, these acreages can and likely will change, taking nitrogen demand with it.  
  • Chinese export programs - will they or won't they?  Right now, it looks like they are coming back which will add much needed supplies to the marketplace.  However, if they change their minds, it will likely have global ramifications.  Isn't urea fun...
  • Are inventories in the right place at the right time - this is the magic question in front of a lot of buyers right now.  Lot of signs are pointing to lower prices, but that doesn't matter if there is not product nearby.  Right now, what is in place is much more important than stuff to come in weeks/months.

StoneX Ratio Calculation

The ratio calculation is derived from Bloomberg historical grains values as well as fertilizer values from StoneX, NPKFAS, and Argus.

The calculation is simply dividing the fertilizer price by each grain price.

All data was sourced from StoneX unless otherwise noted.

 

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