July '23 Farmer Fertilizer Focus - UAN

By: Josh Linville, Vice President- Fertilizer

Sun, 02 Jul 2023, 03:19

The intention of the below graphs are not to use to say "my price should be X based on this graph". These prices are derived from an FOB price point average. The intent is to show major global price movement trends. Your values will likely have significant basis difference (similar to your local grain price being different than the traded market price).

This graph is labeled as MT in USD currency.

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

Global

Global UAN prices, when viewed from the Russian POV, are already pretty darn low! To the point that it still shocks me to see where the value is!

The outlook remains steady to slightly bearish going forward

There is no real reason to believe there will be further disruptions to UAN production around the world. I do not believe Russia is going to shut down. No reason to believe Europe plants will start turning off. Just feels like it is going to be mundane for a little while with a very small chance that Europe restarts.

North America

The outlook remains weak

Mostly, this is due to the fact that we still have not seen summer fill values come out. Most of the values are carryover from the spring. With so much sidedress demand dragging into the summer, manufacturers like to wait as long as possible to keep those premiums.

The outlook once those programs are announced will be determined on how they approach pricing. Simply too early to call today but they "should" be cheaper than today's pricing.

should you buy your Spring '24 uan needs today?

Global

Honestly, with some of these Russian tons floating around pushing price ideas lower, it isn't a terrible idea if you can source them. Obvious by price that they need destinations.

North America

No. Not until summer fill programs come out.

Then, it needs to be a conversation with your retailer. What are their thoughts? How does the price look vs where you can lock in grain values? Does the price look as good when you factor in a lot of months worth of interest? Would it be better to consider switching to urea or NH3?

I know there are a lot that historically take the first layer. I implore you to have a conversation with your retailer when it comes out this year. A real conversation. Not a "the price is too high" but a "how does the value look" conversation.

general global import/export uan information

What has happened in the last 30 days?

Dutch TTF (Europe natural gas) values fell hard...until they didn't

For a minute there, it looked like everything was getting back to normal for Europe from a natural gas perspective. After topping a high of $103MMbtu in August 2022, values were finally back in the single digits. Nearby months fell into the $7 - $8MMbtu range. The more important winter months had settled back to the $13 - $15MMbtu range. Everything was finally getting back to normal...until the shift came.

Suddenly, prices started to appreciate once again. However, it is important to note that a lot of publications blew it out of proportion. Many reported that the price hikes were enormous and when looked at from a strict percentage change, they were not lying. However, as always, all the details are needed. Ultimately, we only saw both nearby and winter months rally several dollars.

Today, nearby months remain in the $10 - $11 range and winter in the $16 - $17 range.

U.S. appears to carry slightly heavier inventory into FY 24 than previously expected

While this is still a bit of a forecasted estimate (need to wait for more official data to be released), it does feel as though UAN inventories are a bit heavier than they would normally be by this time of year. This could spell some struggles for sellers/manufacturers as we race to the summer fill period.

This coming FY 24 is going to remain complicated as the export option to Europe remains in play...but so to does Russian imports. All the while, manufacturers are facing a very tired, frustrated, angry UAN marketplace who have just suffered thru one of the hardest years that I can remember. Going into a period like this with no excess inventory would be tough enough.

Typically, this would mean that summer fill programs come out even more aggressively priced as they need to clear more tons to get comfortable. If the export option to Europe wasn't available, frankly, I would be saying saddle up because we are about to see some...I'll leave that out so I can get this approved by compliance!!!

We will not know until we know but it does raise my hope that we see the price set at a level that works for all parties involved.

Otherwise, it was a quiet month!

I wish I had more to share with you but it was a rather mundane month.

Where are current values in relation to the past

NOLA/New Orleans, Louisiana

Number 2 global importer in 2022

Number 1 global exporter in 2022

Price Comparisons

Vs 30 days ago - -19% or approximately $50 lower
Vs 90 days ago - -22% or approximately $60 lower
Vs 6 months ago - -53% or approximately $240 lower
Vs 1 year ago - -56% or approximately $270 lower

U.S. Midwest Average

Vs 30 days ago - -13% or approximately $39 lower
Vs 90 days ago - -19% or approximately $60 lower
Vs 6 months ago - -50% or approximately $260 lower
Vs 1 year ago - -51% or approximately $273 lower

Black Sea (Russia)

Number 2 global exporter in 2022

Price comparisons

Vs 30 days ago - -21% or approximately $33 lower
Vs 90 days ago - -30% or approximately $52 lower
Vs 6 months ago - -75% or approximately $363 lower
Vs 1 year ago - -73% or approximately $331 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 prices have appreciated – lot of the UAN pricing is set on what is happening in the urea marketplace. With urea being produced in so much volume across so many countries and by so many different companies, it truly acts as a commodity. While UAN is much more specialized, it is "forced" to follow the price signals of urea or risk losing demand (similar to this last winter). With urea prices having trended higher in recent weeks, this will boost price ideas for summer.
Some of Europe remains offline – it was great to see a few plants being announced that they were coming back online, there is still 25 - 30% (estimated) offline. That leaves less tons available in the global hopper. Not only does it lower the supply, it also raises demand as those regions need to replace the tonnage.
If 1st round of fill is widely adopted, that will trigger higher prices – if manufacturers do what I think they should do (get relatively aggressive with the first round of fill), there will be widespread buying. If enough step in, manufacturers will stop sales. Within a couple weeks, they will reengage the market at a higher price...then pull out when they sell enough. Rinse and repeat. It is a stair step approach. If they can secure that first step, it will lead to higher prices.

Bearish Factors

European natural gas values plummet again – today, this no longer looks feasible. Nearby months of the Dutch TTF dropped to the $7 - $8MMbtu range while winter months fell to $13 - $15MMbtu. That helped 3 plants restart. Since then, values have all jumped back to double digits. However, if we did see those prices falling again and it caused more production to restart, it will weigh on global price ideas.
Laundry list of reasons to wait – the wounds of FY 23 are still fresh on farmers, and they are not likely to be forgotten quickly. Those same wounds are on retailers as well. It feels as though the buy side of the equation is going to be very skeptical about stepping in early this year. That means if manufacturers want to put sales on the books, they need to make it worthwhile. What's the first way to do that? Lower the price sufficiently.
Russia continues to participate – when countries such as Australia and Canada cut Russian fertilizer imports, some believed that Russian exports would drop significantly. However, we have seen them continue to force their way into other markets at lower netbacks. As long as they are willing to play ball, they will be a "nuisance" to the UAN marketplace. Whether wanted or not, they will find the price it takes to offload their product. This most times comes in the form of lower prices.

Where are the current uan/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 UAN
Spend 60 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.

Josh Linville’s focal points

European production rates - since last month, Europe has seen 3 companies announce that they would have their nitrogen plants restart production. While these were great steps, it was unfortunately short lived as Dutch TTF values started to rise again. Nitrogen production in Europe continues to remain in that 70 - 75% of normal range. Still vastly better than almost a year ago but still 25 - 30% less than normal which means imports are still needed.
Russian export flows to the U.S. - with Russia upsetting a lot of the world with their invasion, they have seen their export options for UAN diminish. Many of their typical destinations are cut due to political intervention. The U.S. remains one of their remaining large destinations which means to stay operational, they need to remain competitive...and at least some U.S. buyers are on board with it. While U.S. producers enjoy the Europe export option, they must also consider the influx of tons from Russia each month. Slippery slope...
How manufacturers will price summer fill vs urea - we believe at least one major U.S. nitrogen producer is going into FY 24 with higher UAN inventories than what was anticipated. On their positive side, they can continue to take advantage of the Europe export opportunity. On the negative side, Russia should continue to come. On the more negative side, the UAN market is not thrilled following last year. How will they approach summer fill? Will they try to set the price at a premium to urea? Even money? Discount?
Longer range issues (interest, grain values falling, etc.) - UAN buyers have a lot of reasons to hold off on purchasing spring '24 UAN needs. Uncertainty of crop mix. High cost of carry. Falling grain prices. Last year proving that waiting was the best option. Ultimately, this means the onus will be on the sell side to convince buyers to step forward. Will the manufacturers take the bait to get things moving?
Watch for widespread nitrogen plant stoppages this summer - I have nothing definitive to back this watch point. This is just something worth considering. Nitrogen production is a high stress/temp process that causes a lot of wear and tear. Most plants around the world have been running hard the last couple years as they have seen tremendous profits. Now, when faced with a lackluster price and lackluster demand, we could see companies decide to pull their repairs forward. Better to shut down and repair at today's prices if there is hope that values will go up in the future. Enough production goes down, it could crimp supplies.

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