August '23 Farmer Fertilizer Focus - NH3

By: Josh Linville, Vice President- Fertilizer

Mon, 31 Jul 2023, 13:01

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.

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

Global

It feels as though we have found a bit of a price floor for the time being.

The Tampa NH3 value rose slightly vs July. Continued/escalated aggression by Russia against Ukraine further lowers the possibility of the export pipeline becoming operational. Global urea and UAN values are rising. European production has remained mostly quiet.

The feel today is that global NH3 will be flat to somewhat bullish simply because values have already come down so far and we are still missing our largest exporter.

North America

I'm one of the first to be harsh against manufacturers of fertilizer. It only makes sense that be the first to pat them on the back when they do good...and they did very good with NH3.

Summer values got very aggressive in an attempt to pull demand forward. While the fall prepay value was a bit bigger of a premium to the summer fill programs, that was more an indication of how low summer fill was...not how high fall values were.

With urea and UAN values moving higher and grain prices remaining supported, NH3 continues to look solid.

It is very hard to see current NH3 values falling near term. We continue to see the market bullish going forward.

should you buy your fall '23 nh3 needs today?

If the current values work for your operation/region/etc., then that is your answer. Your local market needs to be considered as things like supply availability, demand timing and logistical issues can change the view. Just because we see the market strong or weak going forward does not mean it will translate to where you live. We are all a part of the world, but we live at home.

Global

If you are needing product between now and the end of the year, hard to look away from these prices.

Prices have come down substantially from their high's. This has been done even with European production still less than 100% and Russian exports near zero. This isn't to say that either or both couldn't come back before the end of the year, but it doesn't look likely.

After the first of the year, we will be watching closely for the return of Russian exports which will lead to more pressure on global values. Until that time, with current supply shortfalls and alternative N source values jumping higher, it is hard to ignore.

North America

I am a huge fan at these values.

When manufacturers came out with their programs, it checked every box:

Price vs urea/UAN - check, NH3 on a price per pound of N basis was on the lower side.

Price vs historical - check, values are down around 60% vs same time last year.

Price vs grains - check and check, lot of the ratios were really well valued.

We have to remember that mother nature eventually calls the shots. NH3 could be free but if it turns cold/wet in November/December, it doesn't matter because nothing is getting done. However, if mother nature were to give us a wide open window this fall, it could be one of the bigger ones we have had.

I cannot get rid of all the risk in the marketplace but I can try to give you my POV on opportunities, and I think fall NH3 values are an opportunity.

general global nh3 information

What has happened in the last 30 days?

Russian aggression all but kills any hope their exports return short term

Unfortunately for the people of Ukraine, it doesn't appear that the Russian invasion is letting up anytime soon. That means an ongoing humanitarian crisis which has effects around the world.

I understand that the impact on the global NH3 is nothing in comparison to the people of Ukraine, but this is a fertilizer report so we focus on that.

Any hope that we would see Russia be allowed to resume shipments thru its NH3 pipeline and out to sea are all but gone with recent escalations. Russia has been attacking facilities and ships in the Odessa region which is a step that had not been see before. It seems Russian has no expectations of any agreements with Ukraine going forward.

We can all but guarantee that a short term resumption of Russian NH3 exports are gone. Without access to the pipeline, they have very little logistical capability of moving their tons internationally. That means the world continues to operate without its largest exporter.

However, we continue to hear that progress is being made to bypass the pipeline. As mentioned in previous months, they are building rail capabilities as well as new deep sea ports within Russian territory. This would give them the ability to access the world market without having to "get permission" from a country they are invading. Recent discussions continue to point to early 2024 as the earliest (would not be surprised if this is delayed significantly).

This has to remain on the radar give their export size and potential impact on the global marketplace.

CF announces mothballing their Billingham NH3 facility

There had been some elation in regards to European nitrogen production over the last couple months with several restart announcements. The hope was that other facilities would follow suite.

However, CF punched that hope in the face with their announcement.

It appears that they are making the decision to mothball their NH3 production facility based in Billingham. While far from being large enough to significantly sway the global S&D, it does make the market think. If CF is willing to mothball the facility, they simply do not see a path forward where their production is economical. They are effectively saying "we believe long term that we can produce the tonnage in the U.S., ship it across the ocean and deliver it to the facility for upgrading at a cheaper cost than producing there".

It does not sound as though upgrade production will be affected but it does shed light on their long term outlook.

N.A. fall NH3 programs released

We finally have programs to talk about...and they are good!

We had previous seen summer fill values released and they were very aggressive. It made sense given that spring demand was so poor and ending inventories high. Manufacturers simply needed to clear tonnage.

While the fall prepay values were a higher than normal premium to summer fill, they were still very good and checked the box for all the ways I look at it. They were solid vs recent historical values. They were solid vs grain values. They were solid vs urea values. They were solid vs UAN values.

I am one of the first in line to be critical to manufacturers when necessary. That means I need to be one of the first in line to be complimentary when they do good things and these programs were very good things.

In fact, given that the outlook for next years corn crop remains 90+M acres and current programs so well priced, there is a solid chance that this fall run could be one of the bigger on record. Now, that all depends on harvest progress and weather conditions. NH3 could be free but if mother nature says no, it doesn't matter. That aside, if the chance is there, farmers should be leaning into their fall applications.

Where are current values in relation to the past

U.S. Midwest Wholesale price average

Vs 30 days ago - +13% or approximately $43 higher
Vs 90 days ago - -27% or approximately $140 lower
Vs 6 months ago - -60% or approximately $570 lower
Vs 1 year ago - -61% or approximately $590 lower

U.S. Southern Plains price average

Vs 30 days ago - +2% or approximately $5 higher
Vs 90 days ago - -41% or approximately $200 lower
Vs 6 months ago - -67% or approximately $590 lower
Vs 1 year ago - -65% or approximately $530 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

Urea and UAN values continue to move higher - NH3 already looks like a home run when compared against current urea and UAN values. As both continue to push higher, it makes NH3 that much more attractive. There is a big chance that the N.A. fall NH3 run will be toward the top of the list which means manufacturers will be looking to tamp that down by rallying vlaues.
N.A. grain values/2024 crop acreage remains firm - while still too early to tell, U.S. corn projections for 2024 remain 90+M. That means demand for N will continue large. If grain values continue to hold, that only gives more confidence for manufacturers to push prices higher.
Russian/European rates remain low - it has been amazing to see how low global NH3 values have gone without its largest exporter in Russia. Even more amazing with Europe still falling short of normal production rates. If the market ever sees a situation where available inventories are tight because of those situations, values could start rising very quickly.

Bearish Factors

Russian exports resume - this is a low probability/high impact factor. With the way the war has been going, the chances of Ukraine allowing Russia to flow NH3 thru the pipeline in Ukraine doesn't even look slim to none. It looks none. However, if by some miracle that did happen, that could be a lot of tons becoming available that the world didn't anticipate.
Global demand drops further on recession fears - we always look at NH3 from an agricultural POV. However, with NH3, there is a big industrial demand sector. While the current markets are not reflecting it, there is still a big fear of a looming recession. If it comes true, manufacturing slows. If manufacturing slows, demand for NH3 drops. If industrial NH3 drops, guess where those tons are getting pushed.
Grain values start to falter - this is a factor that I hope does not come true...but we have to watch it. Obviously grain prices have been holding really well of late. Well, at least until this morning when Dec '24 corn dropped almost a dime. If grain values in general start to decline, even if demand for 2024 remains unchanged, buyers will disappear. Without buyers, manufacturers build supplies which weighs on price ideas.

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 exports - today, the global NH3 market is pressing forward without its largest exporter in Russia. That is likely to remain the same as there appears very little chance they return. However, it sounds as though Russia is pressing ahead with plans to build infrastructure to bypass Ukraine and be able to export from Russian ports. If that happens (watching for Q1), it would mean a lot of tons reentering the marketplace.
European production rates - same old story, different day. European production is still 25 - 30% lower than normal with a lot of questions if we will ever see "normal" rates again. With Dutch TTF values refusing to push lower, it is a solid question. The longer they are offline, the longer is disrupts normal supply lines.
Price difference between NH3 and alternative N sources - as mentioned before, NH3 is set up for a stellar N.A. fall application run. NH3 is priced that well. If urea/UAN continue to hold or push higher, it puts that much more pressure on NH3 to rally.
Grains ratio opportunities - LOOK AT THE OPPORTUNITY. IT IS SOLID TODAY ACROSS MULTIPLE GRAINS.

All data was sourced from StoneX unless otherwise noted.

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