The first graph is the AVERAGE of the entire Midwest U.S. region. That means your local value WILL be different than what the graph reflects. Please do not take this into your retailer and say "why isn't my price the same as here". That is comparing apples to oranges. You might be on the cheaper or more expensive side of this graph. This doesn't take into account logistics/storage/interest/insurance/shrink/etc.
This graph looks at the price from a short ton and USD currency POV.
This second graph looks at the price set for Tampa NH3. This value does not have a high correlation to Midwest values. It is a talking point used when prices are rallying...yet somehow gets skipped on the way down. This price is more an indication of the global price. This price is set by two parties (purchaser - phosphate producer in Florida / seller - international producer providing NH3 to FL phosphate production).
This graph CAN be used as an indication of global market price direction/trends. This graph SHOULD NOT be used to determine a Midwest value. Tonnage is listed in short ton and currency in USD.
The world is STILL without its largest typical exporter (Russia) which is keeping supplies tight. European production is STILL lower than normal, though production rates are believed to be around 75 - 80% or normal (our estimate). Trinidad continues to have some issues but we hope that will be solved. Recession fears and Middle East war fears continue.
Lot of those line up to be bullish going forward. However, I think the price increase pace probably continues to slow as we move forward.
North America
Fall application season is upon us. Manufacturers appear to have solid sales books on. Enough to the point that if they didn't sell another ton until the end of fall, it would still be a solid demand period.
Do not be surprised if we see another bump or two while in the middle of fall application season as manufacturers will have a captive audience (mother nature permitting, of course). However, spring prepay programs may need to see prices dip to bring demand forward.
Russian NH3 exports remain cut from the world
Long story short, another month/another example of Russia not finding its way to the world. The trend continues.
Long story explained: in the past, Russia utilized a pipeline that traversed thru Ukraine and out to sea via the port in Odessa. When Russia invaded Ukraine, pipeline shipments quickly came to a close. There was a high danger of the pipeline being destroyed either on purpose or by accident. Even if the tons were able to flow to the Odessa region, good luck getting the country you are invading to unload the product into waiting vessels!!
As Russia began to get beat back, the pipeline was removed from the battlefield and hope rose that exports would resume once again with the thinking that Ukraine would load NH3 vessels in return for access to their grain terminals. In theory, it worked. In practicality, Russian forces started to attack the energy infrastructure. A pipeline of this length needs pump stations across multiple points to keep product flowing. When they attacked the electrical grid, they effectively killed any chance of using the pipeline.
There was hope that Ukraine would be able to quickly rebuild and the pipeline usage discussion resume...if not for explosions on the northeast section. At this point, it is fair to assume it isn't getting used anytime soon!!
However, we do not believe Russian NH3 exports will remain gone forever. We continue to hear that infrastructure work within Russia is happening to allow shipments from Russian nitrogen production facilities out to sea from ports within its borders. More specifically, Ust-Luga and Taman. Taman would be a shorter distance/cheaper route but there is some regional risk with it being so close to neighboring countries. Ust-Luga is also near other countries, but has more open sea after vessels are loaded.
There is a large amount of uncertainty when these projects will be completed. If anyone can get a firm answer from Russia...let me know! Until that day, the global NH3 market continues without its largest supplier.
Israel/Palestine conflict dashes hopes of further European NH3 production restarts
The unexpected attack by Palestine on Israel and the expected retaliation has caused global energy markets to spike out of fear the war spreads beyond these borders. Obviously there is a huge humanitarian crisis that is happening. Thousands of lives have been lost. Countless more impacted. In no way am I trying to ignore that fact but this is a fertilizer newsletter so I look at the impact from a fertilizer POV.
Prior to the attack, we had been seeing the European natural gas market (Dutch TTF) bleed value. Winter month values had dipped into the $13MMbtu range and hopes of further production restart announcements were growing. In fact, a couple facilities were heard to be taking steps toward that. The nitrogen situation in Europe was finally going to improve further.
Almost immediately following the Palestine attack on Israel, global energy markets rallied as war premiums were put into place. This situation was worse as fears that it would spread beyond Israel/Palestine borders were increasing almost by the minute. Dutch TTF values were not immune to this. Going into the weekend, values were in the $13MMbtu range. Early the next week, they climbed to $17 - $18MMbtu. Fortunately for global NH3 markets, the price rally was not enough to make us fearful that plants would shut off leading into winter. However, hopes that more production would come online were quickly destroyed.
Today, its middle of the road as Dutch TTF remains range bound but that can change quickly. If we do see the war spread beyond current borders, it is plausible that we could see energy prices spike further. On the flip side, if tension are loosened, energy values could slide as war premiums are removed.
Unfortunately, we need to keep a very close eye on what happens going forward.
Trinidad outlook improving?
As has been mentioned, Trinidad has certainly played a part in global NH3 supplies being lower than expected. Producers have been heard to be reducing their production by upwards of 30% as gas supplies suffer. Unfortunately, this looks like it will continue to be a problem in the short term. Fortunately, the longer term outlook improved as it was announced that the U.S. was dropping sanctions on the Venezuelan energy sector.
What this means is that companies will no be allowed to partner with Venezuelan energy companies to develop gas fields in the area. More gas fields developed = more gas available = more ratable NH3 production! It sounds as though plans have already been made to develop the Dragon and Hibiscus Fields as soon as possible. In case you were wondering, I had no idea those fields even existed before it was pointed out to me!! Have I mentioned that I'm only good at repeating what smart people say!!
To reiterate, this is not a short term fix. It will take some time for these fields to be developed and put into action. Then, the risk/fear will be if Venezuela tries to nationalize the companies as has been done before (hopefully past actions will strategically remembered) but this is still an optimistic step toward increased supplies and hopefully lower prices.
November Tampa NH3 price rallies another $50
Another month, another price increase of the Tampa NH3 contract. This one fell into expectations. We fully expected another price increase but did not think we would see triple digit moves higher like previous months. Frankly, the price is getting pretty expensive and some questions about demand reactions were starting to pop up.
This puts the price in an interesting spot. If you look at the current $625MT at the market since the beginning of 2022, today's value is still pretty good. It has jumped significantly from the summer's $285MT low, but it still looks good in comparison. However, the 2nd graph goes a little further back. 2018 to be exact. Suddenly, we are pretty high priced. That said, I do not think today's market should be in line with those lower levels. All of the production issues around the world means a much tighter S&D which typically results in a higher price. I point it out as hope for the future when the S&D corrects once again...whenever that day comes.
For now, this means higher production costs for nitrogen and phosphate (NH3 being a main variable cost input for phosphate manufacturing).
U.S. Midwest Wholesale price average
Vs 30 days ago - +8% or approximately $55 higher
Vs 90 days ago - +86% or approximately $325 higher
Vs 6 months ago - +32% or approximately $170 higher
Vs 1 year ago - -46% or approximately $595 lower
U.S. Southern Plains price average
Vs 30 days ago - +27% or approximately $141 higher
Vs 90 days ago - +132% or approximately $380 higher
Vs 6 months ago - +37% or approximately $180 higher
Vs 1 year ago - -40% or approximately $445 lower
- Israel/Palestine conflict keeps global energy markets on edge - as long as this war remains in the headlines, energy markets around the world will remain elevated. This certainly has a direct impact on NH3 markets/production costs. No manufacturing facility in the world is immune to the effects.
- Russia remains cut from the export marketplace - I know I am a broken record but it remains true. Russia is typically the world's largest exporter and they STILL are not reaching the world market. Losing the world's largest exporter means a lot of supply is gone from the market.
- N.A. fall demand should be good enough to reduce available supplies going into winter - assuming mother nature allows application, all signs are pointing to a solid fall run which will reduce inventories to very low levels. If/when that happens, manufacturers will use that as their rally cry for stable to higher pricing going forward.
- N.A. Midwest values are starting to look high vs grain values - I'm not sure I'm nervous that fall demand will shun NH3 due to current pricing, but it is certainly a watch point. Interest rates are high on a very high priced NH3 product. If we assume the average retail NH3 price is $800, 8% interest works out to over $5/month. That's $20 - $25 in interest fee's if folks wait until spring. Could we see demand drag? Plausible.
- Manufacturers will likely need to lower price ideas for spring prepay to bring demand forward - today, current values do not look high enough to push away fall application demand. However, it could cause buyers to pause if manufacturers try the same or higher price for spring prepay. These programs are typically released around Christmas. If they do not lower their price ideas at least for the first round, they could find buyers unwilling to commit...and force their hand.
- Trinidad looks to improve with less sanctions on Venezuela - this is a bit of a longer term situation but sanctions being reduced/deleted against Venezuela will be bearish for nitrogen fertilizers. If companies can and are willing to co-op with Venezuela, new gas fields can be developed which will help Trinidad produce more in the future. New/increased supplies is bearish.
We believe that only looking at the flat price of either grains or fertilizer can be misleading:
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Only selling grain can hurt you if fertilizer prices rise substantially
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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:
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Spend 150 bushels to pay for 1 ton of potash
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Spend 100 bushels to pay for 1 ton of NH3
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 NH3 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.
- Russia's continued absence from export market - the world's largest NH3 exporter remains removed from the world market...for now. Eventually, they will find their way back. When, not if, they do it will fundamentally change the landscape of the marketplace once again.
- Trinidad/European production woes - global production issues continue to impede global supplies of NH3. The longer range outlook for Europe does not appear that it will improve short term. Trinidad, we can hope supplies improve but that is far from a guarantee.
- North America fall weather - now that we are on the start line of fall application, the price no longer matters NEARLY as much as mother nature does. If wet/cold conditions set in early, it will hamper fall application/demand. If the weather window remains open, it will be hard for a lot of farmers to stay out of the fields. All success/failure lies almost entirely with weather. How good or bad the fall run is will impact what happens this winter/spring.
All data was sourced from StoneX unless otherwise noted.
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