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.
The world is still having to deal with production losses in Trinidad and in the EU. While it looks like Trinidad production issues have been figured out short term, we also know how quickly they can come back. The EU looks like it is going to be a very long term situation. Enough so that we are starting to wonder if we ever see production back to its "normal" 100% rate.
However, there just isn't a lot of excitement in the UAN realm. Spring is still a little ways away and most farmers are not looking at fantastic economics.
Short term, it feels like we are going to remain relatively flat...however, that should chance when spring demand starts to step forward. Also, if we are right on urea and those values start moving higher, do not be surprised to see UAN follow.
**given Australia's reliance on U.S. UAN supplies, it makes sense that what happens in the U.S. happens to Australia. That said, I am copying the U.S. outlook and placing it here. No need to reinvent the wheel**
N.A. UAN is in an interesting spot. On the one hand, manufacturers seem very well sold with little need to make sales near term. On the other hand, farmers/buyers could care less today. Sure, a lot of reports are coming back that yields are better than expected and grain prices have improved from where they were...but that does not mean that farm economics are in a good place today. Basically, the market is in a stalemate. It is a stalemate that I think the sellers eventually win, but that doesn't change today.
We are leaning bullish on urea, we are bullish on overall nitrogen demand and the start of the fall NH3 season is not great (dry conditions). Near term, prices should remain relatively flat but when they break, I think it will be to the higher side.
EU production continues to struggle with high priced natural gas
Another month, another lack of improvement by EU based nitrogen production facilities.
As has been the case for a while now, EU natural gas values are high vs where they would historically be. It turns out that when you anger your biggest and cheapest supplier to the point that they shut off gas flows (and then someone sabotages the Nordstream pipelines), your input price rises which shuts off certain manufacturers. We typically follow the Dutch TTF for European natural gas pricing. Historically, that price would be in the $4 - $7MMbtu range. Today, Europe is fortunate that it fell from its high of $103 (August 2021) to its current range of $11 - $13MMbtu.
Unfortunately, that price "correction" still has approximately 25% of their nitrogen production offline. It is simply too expensive to produce and compete with the world market. Instead, Europe has become highly dependent on imports from places like the U.S. to backfill the tons they are not producing. By our estimation, this equates to around 2M ton per year. Not only is that 2M ton that is removed from the supply side of the equation, but that adds 2M tons to the demand side as well.
To make matters worse, we have been seeing/reading reports that certain manufacturers are taking steps to "give up" production in the European region and instead start looking at boosting rates in places like North America. No doubt the POV is that they see N.A. input values as much more stable/cheap compared to what is going on in Europe. This does not bode well for other manufacturers in the region.
So this is all to say that this story is unchanged. Europe continues with production rates low and is leaning on imports to backfill.
What does this mean for Aussie farmers?
As long as the EU continues to struggle with high natural gas values, EU UAN production rates will be lowered.
As long as EU UAN production rates remain lowered, U.S. manufacturers will have alternate sales opportunities.
As long as U.S. manufacturers have alternate sales opportunities, they can demand higher prices from N.A....and Australia.
Unfortunately, U.S. manufacturers are reaping the benefits of EU's situation and there isn't an end in sight.
NOLA/New Orleans, Louisiana
Number 2 global importer in 2022
Number 1 global exporter in 2022
Price comparisons
Vs 30 days ago - 10% or approximately $20 higher
Vs 90 days ago - 7% or approximately $15 higher
Vs 6 months ago - -18% or approximately $50 lower
Vs 1 year ago - -13% or approximately $35 lower
Black Sea (Russia)
Number 2 global exporter in 2022
Price comparisons:
Vs 30 days ago - 9% or approximately $16 higher
Vs 90 days ago - 11% or approximately $20 higher
Vs 6 months ago - 25% or approximately $39 higher
Vs 1 year ago - 13% or approximately $23 higher
- EU production still 75% of normal – 25% of EU UAN production equates to roughly 2M tons per year. Not only is that 2M tons of supply missing, it is also 2M tons of new demand to backfill the lost production. Big one-two combo.
- Urea market outlook appears bullish – where urea goes, UAN should follow...and our outlook on urea remains bullish. If urea prices start to appreciate, it makes sense that UAN values will eventually follow.
- U.S. manufacturers continue to have plenty of sales options - if a seller only has a single sale opportunity, that seller can easily justify dropping their price to ensure they make the sale. However, if that same seller has a lot of options, they can more easily hold their price up. They have options. They have other opportunities. There is no need to cut price. Doesn't guarantee higher prices...but it certainly helps make the case.
- Buyers just are not interested with poor farm economics – this continues to be the biggest sticking point in my mind. Farmers are dealing with crap economics. Income just isn't enough to cover expenses and make much money. Retailers know this and are playing a much more conservative role out of fear of being on the wrong side. If this continues thru to the new year (no guarantee that year end/beginning prepay happens), we could see prices pressured.
- Urea values start to tank – while I do not expect this to happen, markets have proven me wrong before. Grain values are already low. If we suddenly see urea values starting to drop, how long will it be before we see UAN follow? I would expect that prices would hold for a little while but recent history likely has manufacturers nervous on trying to hold on too long.
- EU production returns - this seems like the stretch factor of the century...but that is how much I am struggling with a 3rd bearish factor!!! If for some reason we see the EU take steps to restart that last 25% of production, that changes global trade flows. It removes sales opportunities from U.S. manufacturers. It adds supplies.
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 100 bushels to pay for 1 ton of UAN
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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 MAY 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.
- Demand timing - there are a lot of factors that can impact this. It could be rising grain values. It could be rising urea values. It could be fear that the fall NH3 season isn't happening. Regardless of the reason, it all comes down to when buyers step forward. Over the last few years, the market has gotten used to buyers stepping in earlier than this year. Economics were good and folks were willing to spend money. Now, there are a lot of people saying that expectations for year end/beginning prepay should probably get ready for disappointment. I still think it is going solid demand that is going to support UAN values...but it is a matter of when that happens.
- Any further production hiccups - The EU region has been at 75% of normal capacity for all of 2024 and there is little to no indication that improves near term. We have already seen Trinidad production hiccups due to natural gas supplies. We are doing ok today, but we can ill afford further issues...and winter is coming. A North American artic blast could hurt production rates. Trinidad could have problems again. Who knows what happens with Russia. We do not need anymore production downtime.
StoneX Ratio Calculation
The ratio calculation is derived from Bloomberg historical grains values as well as fertilizer values from StoneX, NPKFAS, and Argus.
The calculation is simply dividing the fertilizer price by each grain price.
All data was sourced from StoneX unless otherwise noted.
