April Farmer Fertilizer Focus - Ammonia (fast version)

By: Josh Linville, Vice President- Fertilizer

Fri, 07 Apr 2023, 00:10

April '23 NH3/Anhydrous Ammonia

Josh Linville

Vice President - Fertilizer

U.S. midwest/Tampa price graph

This is the AVERAGE of the entire Midwest which means that your values 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.

The takeaway from this graph is that in the last month, prices have been jumping which comes as little surprise given European production issues.

For more an international flavor, here is the monthly price graph for Tampa NH3. Again, this should be taken more from a price direction POV than an actual price. Tampa is one of the most visible prices that trend along international movements.

What everyone wants to know first, what do we think will happen going forward

Globally, it is hard to see why prices would rebound short term.

Even without Russian exports and European production continuing to struggle, the definitive price trend has been lower. While not expected/forecasted, we could see either or both supplies improve short term. If we see their return, it will just add fuel to the fire.

I would be lying if I said there wasn't a case to be made that there is a chance of a "catch up bull rally". The longer we go without those two, the tighter the S&D gets. If/when demand steps forward, we could see a faster and more violent reaction than "normal"

Unless there is a spring application miracle, it is REALLY hard to see N.A. values doing anything but dropping

At the end of last spring, I would have said there is next to no way we could repeat that poor of a season...yet here we are. Unless there is some miracle with weather, it looks like it is going to be another bust for NH3 and that means carrying a lot of tons into the summertime which will act as a price anchor.

In addition, inland price corrections lower have been slower than what we have seen globally. Eventually, catch up will need to be done. Seems suppliers are just holding on in hopes of anymore demand...but that looks less likely by the day.

should you buy your spring '23 nh3 needs today?

Kind of late for that question!!!!

I was thinking about making the title "should you buy your fall '23 NH3 needs today" but that also doesn't work because manufacturers have not released those programs and probably will not until July/August.

This spring, it comes down to where you are. If you are applying, you are buying. There just isn't anymore time to waste.

Sorry, this is a bit of a junk section this month and probably gets worse in the next couple months!!!!

general global nh3 information

What has happened in the last 30 days?

Russia remains cut off from the world

A large story throughout 2022 was the loss of Russian NH3 exports due to their invasion of Ukraine due to their export pipeline flowing thru Ukraine. Originally, the fighting was right over the top of the pipeline and at the export ports. Then, as Russia was pushed out, their response was to attack the electrical grid...which sourced the power needed to run pump plants along the pipeline. While the fighting was removed, without those pumps, tons would not flow.

Today, very little has changed. Both the UN and the Russian government has expressed interest in allowing Russian produced NH3 to return to the export market but that only matters if they can actually get it to vessels.

It appears that Russia is working to change their logistical routes by building new export capabilities in the Black Sea as well as the Baltic Sea which they would start with supplying product via rail...but that takes time.

Until their return, the world is moving forward without its historically largest exporter.

European production remains less than normal

The world has been shocked by the price pattern of the European natural gas market. Back in August 2022, the Dutch TTF climbed to a high of $103MMbtu and didn't look like it was ever coming back down. Today, that same market has been trading in the $12 - $14MMbtu range. While some production based in Europe has returned, it is far from 100%.

Current estimates put nitrogen production rates at 60 - 70% of normal. This is a huge improvement from the low of 20 - 30% but it still removes normal supplies from the global S&D.

Fortunately for buyers, even with Russian exports cut and European production rates down, values have come off significantly but a perceived tight S&D has us wondering if when demand returns, will we have another rally?

Time will tell.

April Tampa drops another $155 vs March

Did we expect April Tampa price to drop? Yes

Did we expect it to be triple digits? Nope.

However, I'm not going to argue with being wrong! The price has dropped significantly once again and the comparisons are pretty astounding.

October '22 Tampa NH3 - $1,175

January '23 Tampa NH3 - $975

April '23 Tampa NH3 - $435

The April price is already down $540 since the first of the year and a crazy $740 from last October.

I want to say/think that it cannot go much lower...but I'm scared to do so!!!

North American spring demand not looking good

I'm not sure who made mother nature angry, but you need to apologize right now.

Last spring, the storyline was how poor spring conditions were which eventually shattered any demand expectations. Excess tonnage was carried into the summertime and acted as a price anchor...until European production shut off and the focus shifted to losing tonnage rather than the carryover.

While too early to call it a failure, it is getting more likely that this spring will also be considered a failure...and it is unlikely that any storyline that assumes higher than normal exports will be enough to sway market opinion. Those tons that remain unused will be sitting in storage. That means less places to go with summer produced tons which pushes the pressure back to the manufacturer which theoretically means lower prices.

Again, this is no guarantee.

Where are current values in relation to the past

U.S. Midwest Wholesale price average

Vs 30 days ago - -19% or approximately $155 lower
Vs 90 days ago - -33% or approximately $310 lower
Vs 6 months ago - -50% or approximately $640 lower
Vs 1 year ago - -57% or approximately $848 lower

U.S. Northern Plains price average

Vs 30 days ago - -16% or approximately $120 lower
Vs 90 days ago - -45% or approximately $490 lower
Vs 6 months ago - -56% or approximately $790 lower
Vs 1 year ago - -59% or approximately $890 lower-

U.S. Southern Plains price average

Vs 30 days ago - -11% or approximately $64 lower
Vs 90 days ago - -41% or approximately $378 lower
Vs 6 months ago - -49% or approximately $524 lower
Vs 1 year ago - -57% or approximately $724 lower

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

World is still without its largest exporter - yes, we have been without Russian exports for a while now and yes, values have still fallen hard. However, the reason I stick this in the bull factor camp is the outlook. If this continues, will demand eventually catch up and surpass supply? Is the current bear situation just a short term reaction that will turn around?
European production remains less than 100% - even with European natural gas values a literal fraction of the high's set in August 2022, production rates have not changed significantly. Today, many peg production rates in the 60 - 70% range. While that "only" means 30 - 40% of production is offline, when combined with Russia not exporting, it makes a tight S&D even tighter. I realize that this has been going on for a while with values dropping significantly, I'm worried there is a "catch up" situation ahead.
North American exports may continue as European production struggles - as stated above, Europe production is still 30 - 40% lower than "normal". That puts North American produced tons in a solid position to backfill the demand. That means less supply available for the North American marketplace. Tighten the supplies and it leans the needle more toward bullish.

Bearish Factors

Midwest North American values have not reset as much as global - while prices have been falling hard recently, there is still a gap between Midwest pricing down and global pricing down...which means a lot more bearishness could be in store. Not guaranteed...but possible.
North American spring demand not looking good - last spring was one of the worst, if not the worst, spring NH3 seasons that we have on record. We went thru winter thinking there was no way we could repeat that two years in a row. I have also lost good money better that the roulette wheel could not possibly hit 0 twice in a row. While too early to call the spring a failure, we certainly need to keep eyes on it. If we carry a lot of inventory into the summer, that will weigh on price ideas.
Gain in supply availability from Russia/Europe/etc. - the market does not seem to expect either Russia or Europe to resume in the short term. That means if they surprise and start showing up, supplies will be greater than expectations. Bigger supplies + unchanged demand = bearish leaning marketplace.

Where are the current nh3/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 150 bushels to pay for 1 ton of potash
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.

Josh Linville’s focal points

Russian export levels - if Russian is normally the world's largest single exporter of NH3, it makes sense to watch their flows. However, we are watching this more from a bearish POV than bullish. We have been mostly without Russian exports for the last year...yet global values have declined significantly. We are already operating without them but if we were to see them start returning sooner than expected, that is a lot of supply that gets added to the current bearish S&D. In case I did a poor job of explaining, that would be hugely bearish!
European production rates - even with European natural gas values down significantly from their August 2022 high's, production rates remain relatively unchanged. I have heard current production rates in the 60 - 70% of normal range. This leaves the world more tightly supplied than it normally would be...yet values are down hard. If we start to see restart announcements, it is hard to see values bullish near term.
North American weather - while it is too early to call the spring NH3 run a failure, it is getting MUCH easier to believe that will be the case. Spring weather has been extremely tough for NH3 applicators. When farmers are finally able to get into their fields, many will have to decide if they want to apply NH3 or plant. For many, that isn't much of a choice. They will plant and go over the top with their N needs. Obviously not a guarantee but this spring is looking less likely to wipe out inventories. Those inventories will weigh on market price ideas this summer.

All data was sourced from StoneX unless otherwise noted.

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