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November '24 Farmer Fertilizer Focus - Urea

By: Josh Linville, Vice President- Fertilizer

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November '24 UREA
 
Josh Linville
Fertilizer - Vice President
StoneX Financial Inc. - FCM Division
josh.linville@stonex.com
Major Global Urea Export Location Price Graphs

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.

image-20241028221040-1

What everyone wants to know first, what do we think will happen going forward
GLOBAL
Global values have been holding even though things have been relatively quiet.  That doesn't paint a bearish picture for when demand returns.
There is a lot of supply issues in the world with Chinese exports dismal, EU production rates still 75% of normal, Brazil remaining offline and Egypt having its summer production hiccups.
Now, India has announced a purchase tender that "should" have manufacturers around the world saying that they are relatively sold out for the remainder of 2024.
So, to recap:
  • Supplies are low
  • Demand is still in front of us
  • Manufacturers are about to sell out for the rest of the year

From my vantage point, it is really hard to paint a picture where urea values fall anytime soon.  The biggest thing that could cause it is if Chinese exports return with a surge...but at this point it looks more likely that they keep exports low.  

NORTH AMERICA
So if the global urea market outlook is still bullish and NOLA values continue to trade at a substantial discount to Middle East replacement (the Middle East region accounts for approximately 50% of N.A. urea imports), pretty easy to say that the outlook here is also bullish.  
However, more to consider is that imports are slow to start the fertilizer year.  Based on our current demand models, we believe that we need to import around 5.1M tons of urea to meet demand.  That does not take into account how that value can grow if we have a poor NH3 fall run.  There is still plenty of time to have imports start coming, but the calendar starts to shrink if we believe that manufacturers are about to sell out for 2024.
All to say that I continue to believe that N.A. urea values are going to hold and push higher.  Demand remains strong on a strong 2025 crop outlook.  Imports will eventually need to be called on.  It is hard to look around the world and see any supplying region moving into a "need to sell" mentality anytime soon.  
General Global Urea Information
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What has happened in the last 30 days?
Chinese exports remain mostly non-existent thru September
Another month, another disappointing round of urea export results from one of the larger suppliers of urea to the world.
A bit of backstory, in recent history, China accounted for around 10% of the global export total or around 5 - 5.5M tons per year.  While there could be some hiccups from time to time, it was a relatively stable supply.
Well, relatively stable until 2021/22.
At that time, global values skyrocketed as fears of extremely tight supplies started to take hold.  China, a communist government, saw a risk where too many tons would be exported and leave Chinese farmers in a bind. Rather than let that happen, they opted to take a step to protect their farmers.  By restricting exports, not only did they ensure that Chinese farmers had more than adequate supplies at their fingertips, they also made sure that Chinese farmers had some of the best valued urea in the world.  For the Chinese government, it was a huge win.  For the rest of the world, it was a huge loss that is still playing out today.  
Export restrictions continue to play a part in their export programs.  Last year in 2023, it looked as though they were returning to normal but it was little more than a head fake.  This year, their export total looks like it will be the lowest ever seen.  As stated, recent historical norms would have their exports around 5 - 5.5M tons.  This year, they may not reach 500,000 tons.  Their cumulative January thru September total only sits at 254K.
As long as the Chinese government restricts exports, the global urea market will see that as a huge support factor that keeps values from falling substantially.  Now, on the flip side, if/when they return, it will be noticed.  Chinese tons are typically viewed as the "boogeyman" of the urea market.  When China returns, I expect to see manufacturers and long positions to start getting a little more aggressive than what they would have been before. 
That day will come...eventually.  We just need eventually to be sooner than later.
image-20241029180633-1
What does this mean for farmers?
Whether we like to admit it or not, we are all part of the global market.  When the world value goes down, our prices should follow.  When the world value goes higher, we should follow.
Right now, one of the world's largest suppliers of urea is largely non-existent.  That is leaving a massive hole in global supplies.  Imagine what would happen in literally any other market if around 10% of the global supply just suddenly vanished one year.  Prices would see a decent amount of support.
Honestly, my biggest surprise in all of this is that values have not gone higher than they are.  Given the Chinese approach of cutting export and other supplies missing, I had anticipated values being much higher than where they are today.  We will take the win but it should make us very cautious.  Just because they haven't gone higher today doesn't mean something isn't in store for later.
Global supplies feel tight due to EU/China/Brazil/Egypt
The 2021/22 period saw global urea values skyrocket on the fear that supplies would be tight.  There were some fears that were unfounded (losing Russian exports due to their invasion of Ukraine).  There were some fears that were self inflicted (countries like China/Egypt/etc. slowed or stopped exports just out of fear).  There were some fears that production would be lost (losing the greater EU region due to rising natural gas values).
Now, things have calmed down.  Global urea values remain about a third of what they were at their early 2022 high's.  However, that doesn't mean that we do not have our current issues.
  • Chinese exports remain low - as mentioned in the above section, Chinese exports for 2024 are dismal.  It is very likely that they will finish the calendar year a full 5M tons short of what they would normally export.  That is a huge loss.
  • EU production remains at 75% of normal - while Dutch TTF natural gas values have fallen significantly from their late 2021 high's ($103MMbtu), they are still much higher than normal and the result is that production is still 75% of normal.  In fact, the outlook is getting worse.  Companies such as Yara are now taking steps to more permanently shutter their nitrogen plants with statements that they will be looking to expand in lower priced input markets such as N.A.  25% of EU urea production equates to around 2.5 - 3M tons per year.  
  • Egypt - this summer saw Egyptian urea production struggle.  High temperatures caused domestic/public demand to jump as they tried to cool their homes.  With limited supplies of natural gas, the government had to make a choice.  Give the limited supplies to the people to live or give it to the industrial sector to make money.  Fortunately for their population, they made the right choice and gave it to the people.  Unfortunately for the global urea market, we believe near 1M tons of urea production was lost
  • Brazil - another production loss due to high natural gas values.  This one wasn't a surprise but it still adds to the list.  Brazilian nitrogen production has been offline all year and that equates to roughly 1.5M tons.  

To put the above into a short list:

  • China - 5M
  • EU - 2.5 to 3M
  • Egypt - 1M
  • Brazil - 1.5M

That is a lot of tons that are not being made or being exported this year.  Worse, situations like EU and Brazil means that not only are those supplies missing, they need to buy those tons from the world.  It is a full S&D hit.

I do not say all of this to try and say something ridiculous like "urea is going back to $800".  While it is a possibility, I think it would take losing Russia or having the Middle East go into a full on war.  Neither scenario looks likely today.

However, I say all of the above to show why I have been continually bullish on urea.  With this many tons missing, it is hard to imagine values falling anytime soon.

What does this mean for farmers?
If losing China by itself is enough for me to think that global values should be supported, what does that mean if we are losing all of the above?
There are a lot of tons missing from the global supply side...and spring demand is going to have to get serious very quickly.  We still have plenty of time...but not forever.  My biggest fear is that we start 2025 with manufacturers around the world pointing to all of these issues and telling buyers "sorry but we were basically sold out to start the calendar year...and we know there is a lot of buying to go".  If that becomes the case, it will be very hard for buyers to get prices lower.
India tender fails to capture tons...new tender announced
The last India urea purchase turned out to be fascinating.  Normally, when all the offer information is released, we see a relatively tight value spread.  By the time the offers are due, traders/offers have all mostly agreed to where market values are based on where business is being done and the offer values show that.
Someone missed the memo on this last tender!!!
In the days leading up to offers being submitted, Iran launched a barrage of missiles at Israel.  Now, from a direct situation, the launch had little to do with urea.  Israel isn't really a player in the nitrogen world and Iran was the aggressor...but global values went up anyways.  Our interpretation is that the bullish price run was already in the cards but everyone in the market was worried about being the one that caused it.  The Iranian attack gave the market the reason "why" values needed to go up.  By the end, price ideas had risen about $25.
Eventually, India released the offer information.  The East coast played out like normal.  There was a range of values but for the most part, they were relatively in line.  The west coast...well, there was a standout for the west coast.
One trading company submitted their offer for 50,000 tons at over $25 LOWER than the next lowest price.  If that one offer had not been submitted, then the other offers fell into line of normal.  Needless to say, all the other west coast offers refused to negotiate down to the lowest price.  While India secured a little over 500K tons, all but 50K went to the east coast.
That brings us to today.
Yet another tender has been announced.  This one will have a shipment period thru to December 25th and they are asking for west coast offers only.  More, they have stated they are looking to secure at least 1M ton for this purchase.
This is pretty substantial.
Our belief is that they will get the tons that they want...and manufacturers will be smiling ear to ear following the conclusion.  After this purchase, it is highly likely that the market will be able to say "we are mostly sold out thru the rest of 2024".  That is incredibly important.  If a manufacturer can get well sold thru to the end of December, the market leans to them.  Spring demand buyers suddenly start feeling backed into a corner and competition to secure tons becomes more important than trying to vie for a lower price.  
Now, there are certainly plenty of pitfalls that could happen during this tender so stay tuned but right now, a lot of the factors that we watch are pointing to supported prices in the near future.
What does this mean for farmers?

This will be the tender that sets the tone to start 2025.

If this tender is successful in securing a million plus tons and we suddenly start hearing manufacturers claiming to be sold out, buyers are going to be backed into a corner.  Once we hit January, spring is around the corner from a logistical POV.  It typically takes a month for a vessel to arrive from its origin port and then another month to get put into place inland N.A.  January 1 is basically March 1...

There is a chance that the market (and myself) have overshot how tight the marketplace is on supplies...but I do not think so.  This tender should prove/disprove that theory very quickly and set the tone.

N.A. spring urea demand possibly rising with possibility of poor fall NH3 run
At this point, it is far too early to say that the fall NH3 run is going to be really good/bad or something in between.  By the time you read this, it will barely be November...but there are reasons to be concerned with the run.
First and foremost is the widespread drought/dry soil conditions.  Most everyone reading this knows why you cannot apply NH3 when it is dry but for those that do not.  There are two issues.  The first is the difficulty in getting the toolbar (the piece of equipment that applied NH3 into the soil) into the dirt.  If you can puncture the ground, you will burn a lot more fuel and cause a lot more wear and tear on your equipment than if there was a decent amount of moisture.  Sure, you can bust thru and do it, but at what cost?  The 2nd is that if you can bust open the soil, you need to be able to close it once the NH3 is injected.  If you do not, that nitrogen will dissipate into the air.  That is literally money vanishing into thin air. 
Eventually, everywhere will get rain.  We do not grow crops in deserts.  Rain will come...but will it come soon enough.
Well, if it doesn't, what does that mean for spring demand?  Well, for every ton not applied in the fall...
  1. 50% stays NH3.  There is still the ability to apply in the spring (or at least you hope there will be) so there will be an opportunity to do some of what was missed.
  2. 25% goes to urea.  However, urea and NH3 are not equal.  There are 1,640 pounds of actual N in a ton of NH3.  There are only 920 pounds of actual N in a ton of urea. That means it takes around 1.8 tons of urea to equal a ton of NH3.
  3. 25% goes to UAN.  Like urea, UAN and NH3 are not equal.  There are 640 pounds of actual N in a ton of 32% UAN.  That means it takes 2.56 tons of 32% to equal one ton of NH3.

This is where spring demand for urea can get squirrelly.  If there is a significant shortfall to the fall run, we suddenly see spring urea demand rise...with limited time.  The N.A. urea market typically waits until Q1 of the calendar year to bring in significant imports.  Once we figure out the fall NH3 run is a bust, we are already basically in the same period.

Again, it is too early to call it a bust.  The whole season is still in front of us...but there are more cards stacked against us this year.   

What does this mean for farmers?

With the rains that just went thru the Midwest in the last couple days of October, this is no longer as big a worry as it was.  However, it should serve as a reminder of how emboldened on weather that we are as a market.

So the story is no longer "it is too dry" (though some may argue that is still the case).  With these rains, we could easily set into a period of too much rain.  If the fields are soaked, they do not dry quickly this time of year.  If we cannot get tractors and toolbars into the fields, it has the same effect as being too dry in that nothing gets done.

I still believe we will have a successful fall campaign, but this is a reminder of how close to the edge we always are.

 
Where are current values in relation to the past

NOLA/New Orleans, Louisiana 

Number 3 global importer in 2022

image-20240826091327-1

Price comparisons

Vs 30 days ago - 4% or approximately $14 higher

Vs 90 days ago - 7% or approximately $23 higher

Vs 6 months ago - 10% or approximately $30 higher

Vs 1 year ago - -9% or approximately $33 lower

image-20241028221102-2

U.S. Midwest Average

Vs 30 days ago - 7% or approximately $26 higher

Vs 90 days ago - 5% or approximately $18 higher

Vs 6 months ago - 0% or approximately $2 lower

Vs 1 year ago - -15% or approximately $70 lower

 

U.S. Southern Plains Average

Vs 30 days ago - 6% or approximately $23 higher

Vs 90 days ago - 8% or approximately $28 higher

Vs 6 months ago - -7% or approximately $28 lower

Vs 1 year ago - -14% or approximately $63 lower

 

U.S. Northern Plains Average

Vs 30 days ago - 5% or approximately $19 higher

Vs 90 days ago - 1% or approximately $3 higher

Vs 6 months ago - -6% or approximately $24 lower

Vs 1 year ago - -16% or approximately $71 lower

 

Middle East

Number 1 exporter (as a region, not as individual nations)

image-20240826091434-3

image-20240826091459-4

image-20240826091529-5

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Vs 30 days ago - 11% or approximately $39 higher

Vs 90 days ago - 10% or approximately $34 higher

Vs 6 months ago - 31% or approximately $90 higher

Vs 1 year ago - -4% or approximately $18 lower

image-20241028221115-3

Egypt

Number 4 global exporter in 2022

image-20240826091630-7

Price comparisons

Vs 30 days ago - 11% or approximately $40 higher

Vs 90 days ago - 11% or approximately $39 higher

Vs 6 months ago - 36% or approximately $108 higher

Vs 1 year ago - 0% or approximately $2 higher

image-20241028221126-4

 

Black Sea

Number 1 global exporter in 2022

image-20240826091656-8

Price comparisons

Vs 30 days ago - 8% or approximately $25 higher

Vs 90 days ago - 6% or approximately $20 higher

Vs 6 months ago - 33% or approximately $85 higher

Vs 1 year ago - -1% or approximately $5 lower

image-20241028221137-5

China

Number 9 global exporter in 2022

image-20240826091723-9

Price comparisons

Vs 30 days ago - -1% or approximately $2 lower

Vs 90 days ago - -15% or approximately $49 lower

Vs 6 months ago - -14% or approximately $44 lower

Vs 1 year ago - -29% or approximately $114 lower

image-20241028221148-6

Brazil

Number 2 global importer in 2022

image-20240826091747-10

Price comparisons

Vs 30 days ago - 7% or approximately $26 higher

Vs 90 days ago - 5% or approximately $18 higher

Vs 6 months ago - 22% or approximately $68 higher

Vs 1 year ago - -5% or approximately $20 lower

 

image-20241028221159-7
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
  • India could soak up all excess tons for 2024 - this is at the top of the list for a reason.  India is likely to lock up over 1M tons on this purchase tender.  I think a common phrase following their purchase will be "we are effectively sold out for 2024".  That is a HUGE negotiation statement for manufacturers.  If they are well sold for 2024, that means they enter 2025 very comfortable and they know spring demand is coming soon.
  • Chinese exports remains dismal - Chinese exports have been low for all of 2024.  Most of the feedback we continue to get is that the low exports rates will continue.  At this point, it would be more of a surprise if they suddenly started to export again.  As long as China is restricting exports, it leaves a gaping hold in the global S&D.  
  • Higher chance than normal that fall NH3 could fall short of expectations - farmers want to apply NH3 in the fall.  Manufacturers want farmers to apply in the fall.  However when Mother Nature says no, price is no longer anything that can impact the run.  It is dry across a lot of territory that runs in the fall season.  If it stays that way, farmers can and probably will delay their application until either the moisture returns...or wait until spring where urea will see a windfall in demand that wasn't expected.
Bearish Factors
  • Never count out China - just because they have done very little so far this year doesn't mean they cannot suddenly start flooding the market.  Their reported operating rates have been very high.  They could be stockpiling and once storage is full they could hammer exports.  That doesn't seem likely...but it also doesn't seem impossible.  Something to consider.
  • We are overestimating India demand impact - right now, my narrative is that India will lock up enough tons to essentially wipe out any excess tons for the remainder of 2024...but what if I'm wrong?  What if there are more tons out there than we think?  What if India doesn't need as many tons as they say and they are just playing with the market.  There is no guarantee that it plays out like we think. In fact, as soon as I start to think I know how it will happen...
  • Buyers disappear until Feb/Mar - just because we think the market is tightly supplied doesn't mean that buyers give a crap...I really didn't want to use crap but I didn't want to fight my compliance department over what I wanted to say!!!  Farmers are still not happy.  Farm economics suck around the world.  Farmers could easily say shove it until just before spring.  
Where are the current urea/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 135 bushels to pay for 1 ton of urea
  • Spend 55 bushels to pay for 1 ton of urea

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 urea 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.

 

image-20241028221210-8

 

image-20241028221220-9

 

image-20241028221319-11

 

image-20241028221347-13

 

image-20241028221359-14

 

image-20241028221408-15

 

image-20241028221417-16

 

image-20241028221426-17

 

 
Josh Linville’s Focal Points
  • China - I am putting this first because China feels like the biggest thing keeping values higher and seems to be the biggest thing that could pull prices lower.  As long as their exports are non-existent, values should be supported but when they return (and I think they will return), watch out for the downside.  
  • How India changes the narrative - do they shock the world and only buy a few hundred thousand ton?  Do they beat estimates and buy well north of 1M tons?  Ultimately, it comes down to what is left after they have their fill.  If manufacturers can say they are sold out until 2025 when they know spring demand will be foaming at the mouth, they should win those price arguments.  However, if they go into 2025 needing to sell tons...
  • Fall NH3 success/failure - if the N.A. fall NH3 run plays out as expected, then spring urea demand likely stays as expected.  However, if the fall fails, spring urea gets a big demand boost.  Will it be impossible to get tons in place for spring?  Absolutely not, but it will not be easy.  NOLA will need to move to a premium vs the world to entice tons.

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.

 

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