Farmer Fertilizer Focus - Ammonia

By: Josh Linville, Vice President- Fertilizer

Wed, 01 Mar 2023, 00:20

March '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

For North America, Urea/UAN values remain low in comparison and corn values are under pressure. It is really hard to believe any bullish picture today

Unless there is some big change in the market that sees grain values spiking as well as other N sources price spiking, it is hard to believe any bullish outlook. Manufacturers are going to try as best they can to hold values where they are in hopes that demand is forced to step forward (this IS NOT set by the retail sector) but the downward pressure is going to be prevalent.

Globally, we are still without the largest exporter (Russia) and values have dropped a lot more than anyone expected so how much more downside could we see? Still feel's steady to bearish.

If you are wondering, no I did not expect to see Tampa fall another $200 from February to March. I probably would have chuckled if anyone told me that.

That big of a price drop does have me wondering how much more downside there is. The current "feel" is that the market is still bearish but I cannot let go of the thought that we are still without our largest exporter/supplier which keeps the S&D tight.

should you buy your spring '23 nh3 needs today?

Well, its application time so if you are going to put down NH3 and you can get to the fields, better get it done so that is out of the way to allow spring planting to start in a few weeks.

At this point, I think it is more important to get tons into the ground so that we can focus on planting in several weeks. I wouldn't be dragging my feet any longer in hopes of prices falling.

However, if you are in a territory where you do sidedress applications, it is really hard to advise purchasing those tons today. With the current high price and the overall bearish tone of the market combined with that period usually being the "puking period" for manufacturers, no need to rush. Keep talking to your retailer about your plans so they are involved/prepared, but I would hold off on locking up those numbers.

general global nh3 information

What has happened in the last 30 days?

Russia, world's largest exporter, still out of the market in 2022

I fully understand that my saying "we have lost the largest exporter in the world" and "global values are continuing down hard" in the same report doesn't make a ton of sense.

Welcome to fertilizer.

Still, we now largely know Russia's NH3 exports thru 2022. They have stopped providing information when the world pushed back on their invasion but we can back into their values and get a directional sense. Even if slightly off, the chart below is hard to argue with...

Exports were down tremendously and the outlook into 2023 does not appear much better. Russia is prepping for another offensive push into Ukraine which is going to have ramifications. Fortunately, global values are down but if this continues, how much longer is the question in my mind. Eventually, demand will step forward and is going to find a world market that has less supply than it is used to.

European production takes a permanent hit...but perhaps improving soon?

For those hoping for lower world values, one of the worst fears came true last week. BASF announced the permanent closure of one of the European based production plants. This is not a short term closure. This is not a long term closure. This is permanent and was one of the first fears of the market when production started to slow.

Many of the plants in Europe are old and frankly put, the outlook for older nitrogen production plants based in Europe is not good as governments pivot to what they see as more environmentally friendly technologies.

On the one hand, this is a shock to the emotion of the NH3 marketplace. However, it is only one plant. If we start to see other similar announcements...we might have a problem.

There is room for hope. European natural gas values have continued to fall. At their heights, the Dutch TTF rose to $103MMbtu USD. As I write this, nearby months are trading in the $14's. While we have not seen additional plant restart announcements, the hope grows with each dollar lower. If we do start to see plants restarting, this will weigh on price ideas.

Europe isn't a big percentage on the world stage but they are more than big enough to swing markets.

March Tampa NH3 prices set $200 lower than February!

Every time I bring this up, the immediate response is "then why isn't my inland price dropping?".

Well, that is because Tampa is a good indicator of the world market but the correlation to inland markets is crap. Sorry, I couldn't come up with a better description.

Tampa is a price point that sellers love to discuss on the way up. It is an indication of the world market so if it is going higher, domestic programs should be following suite. However, that talking point goes away once it starts to drop.

Still, this big of a drop over the last couple months is certainly going to bounce around the minds of the manufacturing side. It should have them leaning into sales which means justifying lower prices much easier than normal. I'm not sure it will be enough to influence the preplant marketplace but it could certainly help the sidedress market and almost guarantee to influence the summer fill programs.

Domestic U.S. NH3 values holding high as spring begins. Eastern cornbelt will tell the story.

Last fall, the Western Cornbelt saw what we interpret as a normal application season. We had forecast around 2M tons of application and believe the number to 1.9M. Doesn't get much closer and indicates there is not a ton of demand left in the west.

The Eastern Cornbelt dominates the spring discussion today. That means we need to watch that area more than anywhere else to have a sense of how good/bad the spring season is and how good/bad the overall Fertilizer Year 2023 is.

There are concerns today regarding the high price vs alternatives. There are concerns regarding corn values dropping. However, we need to see what actually happens. If mother nature shapes up and allows farmers to do their things, we could see a huge run. We will know more in 30 days.

Where are current values in relation to the past

U.S. Midwest Wholesale price average

Vs 30 days ago - -16% or approximately $155 lower
Vs 90 days ago - -36% or approximately $455 lower
Vs 6 months ago - -36% or approximately $455 lower
Vs 1 year ago - -44% or approximately $630 lower

U.S. Northern Plains price average

Vs 30 days ago - -26% or approximately $281 lower
Vs 90 days ago - -41% or approximately $581 lower
Vs 6 months ago - -24% or approximately $261 lower
Vs 1 year ago - -43% or approximately $631 lower

U.S. Southern Plains price average

Vs 30 days ago - -32% or approximately $281 lower
Vs 90 days ago - -47% or approximately $526 lower
Vs 6 months ago - -42% or approximately $426 lower
Vs 1 year ago - -54% or approximately $688 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

Russian exports remain low - this seems very feasible today. Russia appears to be preparing for a spring offensive which is not going to set well with the world. It feels more likely that their export flows will remain very low which means losing the worlds leading exporter. Reduce supplies and demand remains constant, prices rise.
More European permanent closures are announced - I am not willing to call the permanent end of remaining offline European production based on one announcement. However, I would by lying if I said it didn't send a shiver down my spine. BASF announced that they were permanently shutting down one of their NH3 facilities. It's gone for good. If we start to see other similar announcements, I'm going to worry a lot more...
Urea/UAN values start rising - a lot of our focus has been on NH3's need to see prices fall to bridge the gap with urea/UAN. However, the flip can also happen. If we start to see urea/UAN values climb, that also bridges that price gap and can help support NH3 price ideas.

Bearish Factors

European natural gas values continue to fall which brings more plant restart announcements – on the bullish factors above, I talked about how further permanent closure announcements could rally price ideas. On the flip side, if natural gas values continue to fall (currently $14's vs $103 August '22) we could see more plants restart. That adds more supply to the world that wasn't expected.
Farmers have had enough of NH3's high price and switch away - the price gap between the nitrogen products has already helped to lower NH3 values...just not nearly enough. If manufacturers start to see demand numbers down sizably, we could see a reaction lower to try and buy the market back. It might be too late for many in the spring.
Grain prices continue to falter - this is not longer an if as corn has dropped. Now it is more of a "how much more is in store". Ultimately, the question is how many corn acres are we going to see planted. If corn values continue to drop and farmers opt away to other less intensive N demand crops, it lowers overall demand which weighs on price ideas. Based on what is happening, this is moving up my list very quickly.

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 100 bushels to pay for 1 ton of NH3
Spend 200 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 Midwest Wholesale Average 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

Has North American NH3 demand already switched away? - I know I have had several come to me and say due to NH3's high price, they were switching away and going to cheaper urea. I always struggle believing that is going to be a big part of the market because NH3 farmers seem pretty set in their ways (I know we are). However, this has not been a normal year. If this swings demand, it can absolutely swing the market..
Global recession - me forecasting a major global recession would be the same as forecast a huge Black Swan event. It is impossible to do and I'm not trying to forecast that here. What I am trying to do is give a strategy if it were to happen. If this does become a big story moving forward and does start to affect industrial demand, those tons will flow to the agriculture side and will weigh on price. I'm not predicting it happens. I am merely pointing it out to know what to do if it does happen.
Russian export rates - the Russian export data for 2022 paints a pretty bleak supply picture. Plainly put, exports were down hard. We could easily see those export volumes remain very low which will support global values. We could also see the world allow Russia to start exporting again and supplies return which would, of course, weigh on price ideas. Russia is the number one exporter...normally. What they do or do not do carries a lot of weight.
Next 4 weeks of Midwest U.S. demand - the spring NH3 story should be known over the next several week. Does mother nature allow farmers to apply (last spring that was not the case)? Has demand switched from NH3 to urea? Are the corn acres going to be there or is the lower side of estimates correct? What we do or do not do over the next 30 - 45 days will tell the tale.

All data was sourced from StoneX unless otherwise noted.

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