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Farmer Fertilizer Focus - UAN

By: Josh Linville, Vice President- Fertilizer

UAN (28% / 32%)
 
Josh Linville
Director - Fertilizer
What everyone wants to know first, what do we think will happen going forward
Prices should continue to climb between today and spring time.
There are a few factors supporting this POV:
  • Urea prices are continuing to rise and look to continue that trend
  • Counter vailing/anti-dumping duty case against Russia/Trinidad is more than likely to be won by CF.  That means less available imports which puts CF in control of the price narrative.
  • Inventories were really low coming out of spring.  Really, really low coming out of spring.  That means producers have plenty of places to go with their product.
  • Duty cases means that domestic producers need to lean more toward UAN production.  They do not do this willingly.  The market must be willing to "reward" them to do so.  That means UAN needs to be a premium to urea going forward.

The list could go on but you get the point.  Lot of demand.  Not much supply.  Supply that is there is controlled by relative few production facilities.

Don't shoot the messenger.

What has happened in the last 30 days?
CF asked for a 2 month extension on the A-D/CV duty case and got it
If you put yourself in their shoes, can you blame them?  A 2 month extension means another 2 months where imports are going to struggle to justify coming to the U.S. marketplace.  If you bring imports now, you are subject to the final duty rate at the end of the case.  Without knowing what that rate will be, how  do you know if it will be a profit or loss.
European natural gas costs are skyrocketing
I think the last I had heard, gas prices there were in the $15 - $20/unit range.  That is an incredibly high costs structure for those production facilities.  They will struggle to continue producing at those levels.  Even with duty rates against Russian and Trinidad, we may start seeing a lot more tons imported into that region as it is a better cost to do so.  
For those in North America, if tons can start flowing more freely into the EU region, that means there is less tons around the world begging for a home.  That only supports values.
Short term production loss in the Gulf due to Hurricane Ida
I will not get into the specifics of the hurricane.  I will only say that the facilities got thru mostly unscathed and the market only lost a few days of production.  We were already tight and any production loss will be felt but it wasn't as bad as it could have been....
Where are current values in relation to the past
For UAN, we use NOLA/New Orleans Louisiana as our base point as it is the easiest spot to track.
  • Vs 30 days ago - +3% or approximately $9 higher
  • Vs 90 days ago - +4% or approximately $11 higher
  • Vs 6 months ago - +50% or approximately $104 higher
  • Vs 1 year ago - +164 or approximately $195 higher
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
  • Current inventories are tight – we ended spring on the low side.  We knew we would lose production to plant repairs delayed by Covid.  Now we lost a few days to Hurricane Ida.  
  • Urea prices continue to rise – in order to balance the UAN S&D, we need domestic producers to produce more UAN than urea.  That means UAN needs  to remain a premium to reward the producer to keep the change.  With urea continuing to climb, that means UAN needs to keep pace...
  • More than likely that CF wins the A-D/CV duty case – history tells us that if these cases get past the ITC preliminary decision (as it did), it typically results in a win.  The question today isn't whether they will win, it is more what the duty rate will be.
Bearish Factors
  • Imports are still to be feared – this is becoming less and less of a factor with European nat gas prices rising.  However, we still need to watch for an influx which could change minds in the marketplace.
  • Long time between today and spring application – 12 months ago, you would have cancelled your subscription if I had said in all seriousness that prices would jump almost $200, yet here we are.   It isn't likely that it will fall out of bed by spring...but stranger things have happened.
  • UAN being premium priced should push some demand to NH3/urea – most farmers like to take the cheapest route forward when it comes to N applications.  NH3 and urea both represent savings on the farm and could cause demand to start flowing to them.  If enough demand falls away from UAN, it could see UAN values dropping to rebalance the S&D.
ARE WE BETTER OR WORSE OFF THAN WHERE WE WERE?
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 65 bushels to pay for 1 ton of UAN
  • Spend 35 bushels to pay for 1 ton of UAN
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 UAN 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.
image 16986
image 16987
image 16988
 
 
 
Josh Linville’s Thoughts
  • Assuming the anti-dumping/counter vailing duty case is won by CF, we have to assume that going forward UAN is  THE premium N product.  The last few years, since the EU placed anti-dumping regulations on the U.S./Trinidad/Russia, UAN has been a discount to urea.  That should no longer be the case.
  • A lot can happen between now and spring.  Grain prices could rise or fall drastically.  UAN prices could continue to rally (if urea continues higher) or it could fall thru the floor (doubtful but always lurking).  Just think of where we were 12 short months ago.  Had I said on one of these newsletters that NOLA values would increase from $120 to $300, you would have cancelled your subscription.  While not likely from what we see today, anything is possible over the next 6 - 8 months.
  • If you lock up your fertilizer, sell some grain against it.  If you sell your grain, buy some fertilizer against it.  Today's ratios are not good but they will look phenomenal if you get on the wrong side of the market.
  • Use today's market as a education tool.  12 months ago, corn prices were crap.  However, the relationship between UAN and corn prices were fantastic.  Today, corn prices are up and that is great.  However, the relationship sucks.  Higher grain prices are not always the answer...
 
 
  • Fertilizers

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