August '23 Farmer Fertilizer Focus - UAN

By: Josh Linville, Vice President- Fertilizer

Sat, 29 Jul 2023, 02:29

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

With global urea values on fire, it just makes sense that UAN values would follow. The main drag on global values has been Russia's inability to find homes for its product (U.S. one of the biggest remaining destinations) so in the few spots it could sail to, it had to get aggressive to find its footing.

Now, there is talk/speculation that Russia will be allowed to start flowing tonnage to Europe. While not confirmed, that was a talking point at the conference last week. If true, it means that Russia will be able to target a higher priced region that has less vessel freight attached to it.

Assuming the above are true, sure appears that UAN has more upside to it.

North America

With summer fill programs now released for the U.S. and Canada, we finally have something to go off of!

Frankly, while I'm always a fan of lower prices, I think the manufacturers did a great job in their initial offering. The price wasn't insanely low, but it was low enough vs urea/grain values/historical values/etc. It was low enough that demand stepped forward in a pretty substantial way. Since that time, urea values have rocketed even higher, making UAN look "cheap" in comparison.

Assuming everything holds, it looks like there is still upside in the UAN marketplace.

should you buy your Spring '24 uan 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

Today, UAN values look pretty darn solid. There is a risk that urea values fall, making current UAN values less attractive. There is a risk that grain values start to fall apart, making the ratio shoot higher.

However, current values look good against both of those and are also significantly cheaper than this time last year. I think it is worthy of consideration of at least a layer for next spring.

North America

Frankly, I like N.A. UAN values right now. They are decently priced vs NH3 and very well priced vs urea. They are almost half of what they were this time last year. A lot of the grain values are solid.

I would go talk with my retailer/elevator and have a conversation about taking a layer and selling a layer.

general global import/export uan information

What has happened in the last 30 days?

All things Russia here!

Are you tired of hearing about Russia every month? I know I'm getting sick of talking about Russia.

Unfortunately, due to their importance on the UAN global scale, we have to talk about them.

At the conference last week in Denver, Russian UAN destinations were a talking point with some theorizing that we would see more tons arriving in the European region. On the one hand, regardless of where Russian tonnage ends up, as long as their export totals do not change the global S&D remains unchanged. However, it DOES make a difference for where they end up. If they continue into the U.S., they will act as further competition for domestic manufacturers and help keep somewhat of a lid on prices. However, if they do start turning their sights to Europe, it will shift the market. I would guess that Europeans would demand lower values to do business with anything Russia. It would also mean U.S. produced tons are pushed out and forced to compete at home, however the lack of Russian tonnage in the U.S. would allow domestic manufacturers to get the price they want without fear.

Ultimately, it is hard to say exactly how everything would shake out if trade flows started to shift only because fertilizer markets do not always react rationally. However, if a shift does start to occur, we need to watch closely.

Secondly, Russia has taken a step toward escalation in recent days by now attacking grain elevators and private vessels. It doesn't appear to be a step that the world is willing to punish them for, but it is certainly a step. If Russia continues this game, it could find itself backed into a corner where global powers say enough is enough and slow/stop their ability to export. If that includes UAN exports, the global S&D looks much tighter very quickly. I am not saying I expect this to happen but in the small chance that it does, it will create waves thru the market.

European production remains unchanged

The last 30 days have been somewhat boring for the Dutch TTF (European natural gas) marketplace. Nearby months remain in the $8 - $9MMbtu and the winter months in the $16 - $18MMbtu. By itself, there would be no reason to believe any other production plants were coming online. However, that only considers the input side of the equation.

The output side has changed fairly significantly in the same time. Global nitrogen values have started moving higher rather quickly. With values moving higher, it helps move offline production locations toward profitability and toward restarting.

Today, that has not been the case but as values move up, we will continue to stay vigilant.

North American summer fill programs are out...and they are good

I had a $25 NOLA price range that I thought we would see the first layer of UAN fill come out at. For once in my life, I was right!!!

This isn't to say that it was a phenomenally low value. With urea showing strength and grain values still elevated, it was hard to see really low values get released. However, manufacturers did not get too proud of their product. They put the price at a point that made enough sense that the uptake was pretty good.

From a comparison to urea, when it was first released, it was a solid value to urea. Since that time, urea values have been shooting higher, making UAN look better and better.

From a comparison to grains, it was a solid value. No one knows where grain values will end up but with what is available to secure today, it is a solid chance at a good valued layer.

From a historical POV, the value was nearly half what it was this time last year. Frankly, a low price is needed to offset the high interest rate!

The one caveat to the above is that the approach was different this year. Rather than targeting anyone and everyone, the program was better valued around production sites but locations dependent on rail were a bit disappointed. Even with the disappointment, it looks good today.

If you haven't, have a conversation with your retailer and see where they sit. Might be an opportunity worth considering.

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 - +7% or approximately $15 higher
Vs 90 days ago - -15% or approximately $40 lower
Vs 6 months ago - -30% or approximately $100 lower
Vs 1 year ago - -44% or approximately $180 lower

U.S. Midwest Average

Vs 30 days ago - +1% or approximately $4 higher
Vs 90 days ago - -15% or approximately $46 lower
Vs 6 months ago - -37% or approximately $160 lower
Vs 1 year ago - -43% or approximately $199 lower

Black Sea (Russia)

Number 2 global exporter in 2022

Price comparisons

Vs 30 days ago - +28% or approximately $34 higher
Vs 90 days ago - -3% or approximately $5 lower
Vs 6 months ago - -62% or approximately $254 lower
Vs 1 year ago - -66% or approximately $309 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 keeps moving higher – as urea keeps pushing price ideas higher, the UAN market will be considering the same.
Current grain values could bring demand forward – with values where they are today, we could see a lot more demand step forward to take the opportunity. A surge of demand would support price ideas.
Russia continues to escalate the invasion – one of the big fertilizer fears at the onset of the Russian invasion of Ukraine was that the world would cut business ties. Eventually we found out that was not the case but the bull results were plain as day. Today, Russia is escalating the situation by attacking elevators and vessels. The more they keep it up, the higher the chance the world reacts. If the world loses Russia UAN exports, watch UAN values fly.

Bearish Factors

The urea and corn outlook is shaky – as I mention in the urea newsletter, I'm struggling to believe current prices are going to hold. If urea starts to fall, no doubt demand will step to the side for all N products to see what the fallout is. Also, lot of fundamentalist are still anticipating corn values dropping which would kill a lot of buyers excitement.
Russia continues to target the U.S. marketplace – Russian tonnage arriving into the U.S. market continues to act as major competition for domestic manufacturers. If the tons were to disappear, values would have an easier time going higher but that is currently not the case.
Huge fall NH3 run kills some spring demand – this is stretching a bit into the calendar but is worth consideration for the longer haul. Today, NH3 is extremely well priced. Assuming the fall season grants us plenty of application days, it has the potential to be a really big fall application. While that would be supportive for NH3 values (clearing inventories), it would cut into spring UAN demand.

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

Russian destinations - if Russian UAN continues to flow to the U.S., it will act as competition and keep a lid on values to a point. If Russian UAN starts to flow to Europe, it will push out tonnage from places like the U.S., but would also free up N.A. values to go higher. Where Russia goes affects more than that destination.
Russian aggression/escalation - while the odd that Russia does something to cause the world to completely block their exports, the chances are not zero. Because the impact of an event like that are huge, we need to keep tabs on it.
Solid current ratios - I know that I preach this all the time but damnit I believe it. Several of the ratios are extremely well priced. There will continue to be volatility in the fertilizer sector, albeit at smaller price moves. The best way to secure value/offset risk is locking in both sides. Today marks a great opportunity to do just that.

All data was sourced from StoneX unless otherwise noted.

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