Farmer Fertilizer Focus - Ammonia

By: Josh Linville, Vice President- Fertilizer

Fri, 27 Jan 2023, 20:25

February '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.

FEBRUARY '23 NOTE: the current value is looking at the nearby shipment price for NH3. Today, that means winter fill, NOT spring prepay. NH3 is a system with very limited storage. If you have a place to store tons that are taken thru January, this represents the market pretty well. However, the vast majority rely on in season replacement tons. That average is approximately $1,075 - $1,100 today. Overall, the winter/spring programs are higher priced than summer '22.

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

With urea and UAN values both falling, it is hard to see NH3 prices holding...but that market also has few suppliers which could be the decider

If the NH3 marketplace was one with several manufacturers/suppliers, I think we would have seen NH3 values down already. Urea has continued to drop and UAN finally broke in the last 30 days. That leaves NH3 as the lone high priced hold out. However, that is not the reality.

The North American marketplace is serviced by relative few which means prices tend to be....stickier. The mindset is likely "if I drop my price today, I will not make any new sales so what is the point".

Eventually, urea/UAN weakness will weigh on values but that might be right as spring demand starts...or slightly into it.

For international NH3 values:

Hard to see values higher (mostly likely steady to lower) as demand has been lowered and production continues to improve (Europe).

Tampa is still the best example of this. February values fell almost $200 from January. If that isn't an indication of weakness, I do not know what is!

should you buy your fall '22 / spring '23 nh3 needs today?

I'm less willing to say that we need to lock in either preplant or sidedress needs today. But I also think we need to be talking about our spring needs with our retailer so they are prepared.

Let me reiterate the important part of that statement.

WE NEED TO BE DISCUSSING OUR NEEDS WITH OUR RETAILERS.

Today, it looks like NH3 has a decent chance of having prices fall. That means you and I want to wait for that discount. However, so does the retailer who provides the tons. While we want the lower price, we do not want it if it means not getting physical product on time.

Continue having discussions with your suppliers so you are both on the same page. They are in a much better position if they know you will need X number of tons. While they are likely not going to lock that in today (they cannot weather that kind of price drop either), they can make preparations with truckers/terminals/etc. so they have the best chance of having product there when you need it.

I'm a big fan of waiting to save money. That said, I am not a big fan of waiting to save money only to find out I cannot get my hands on product when I need it.

general global nh3 information

What has happened in the last 30 days?

North American inland values have not dropped along with urea/UAN

From my perspective, urea is typically the canary in the coal mine. Where it goes, the other nitrogen products are likely to follow. The reason for this is the size of the global urea market and the huge amount of producers around the world. That means urea acts much more like a commodity.

Since late November, urea prices have continued to trend lower. In the last month, UAN finally started to correct lower to be more in line with urea. In that same period...NH3 has done very little and that puts it as the high priced N source today.

Take a look at the graphs below. The first looks at the NOLA urea price and Western corn belt NH3 price comparison. It breaks both products down to a price per pound of actual N and then charts the difference. Same for the 2nd except it swaps out NOLA urea for NOLA UAN.

I realize this is looking at 2 different origin points (western cornbelt and NOLA) but over the years, the trends start to emerge.

You should quickly see that today, NH3 is a much bigger premium to urea and a slightly bigger than normal premium to UAN. Keep in mind that today's NH3 values are showing winter fill values. If we incorporate spring prepay values (which is what the market is based on due to a lack of space), NH3 prices move 6 cents HIGHER.

With these kinds of relationships, we have to wonder how long can NH3 hold where it is...

Deal may be coming to allow Russian NH3 exports to resume (repeat from January)

One of the bigger events in the global NH3 marketplace has been the loss of the largest NH3 exporter: Russia. However, steps are beginning to be taken that may allow them to resume.

At the onset of Russia's invasion of Ukraine, their NH3 pipeline to export has been in the middle of fighting which put it at risk. Following months of success by the Ukrainian forces in pushing Russian troops back, this pipeline is no longer in the middle of the battlefield and has turned up conversations to allow shipments to resume.

While it is still early, it is in the best interest from the western world to allow these shipments. Global prices have been historically high since the shut off. While few want to help fund Russia's war effort, allowing shipments would likely cause price ideas to fall and in turn, help lower food costs.

Again, this is still in the early stages and it cannot be guaranteed that this will be successful. However, if further steps are taken forward, no doubt market participants will see the bearish writing on the wall.

Spring demand becoming questionable due to its high price

I speak a lot about UAN demand switching to urea as that seems like a logical move. Well, maybe not logical but certainly something that can be done.

NH3...not so much. At least from my experience, NH3 appliers stick with NH3 thru hell and high water! That's why it has been so shocking to hear so many talking about switching away this spring.

I've had a lot of people come to me and say that they are either considering the switch or actually taking steps. That is not something that I saw coming...but I certainly understand it.

Farmers are looking for every way to eek out a little more profit. If switching from NH3 to urea can result in savings per acre and it does not affect overall yield, no doubt this will happen and it is something we need to be watching as we look at our S&D's.

From a farmer standpoint, if this is something you are considering, talk to your retailer. Number one, they need to know you are not using NH3 so they do not make a purchase decision for demand that isn't there. Number two, they need to know there is going to be more demand for urea because if they only buy for average demand and it grows, there could be supply issues.

Tampa drops $185 for February when compared to January

I was not surprised to see the Tampa price fall when the February price was set/announced.

I was surprised that it fell almost $200.

Tampa is a bit of an odd market. It used to be a highly traded point with several players on both sides. Today, it is an agreement between two companies. No more. No less.

However, it is still a good indication of the global marketplace.

With global demand leveling off (recession concerns growing?) and supplies improving (Europe), we figured the price would fall going into February. It was just a bit of a shock to see it nearly $200 lower.

Going forward, it still seems as though it will be highly dependent on Europe production rates.

Word of warning: Tampa NH3 is a market that suppliers like to talk about when the price is going up. "Tampa rose XXX so Midwest values need to jump". When the price goes down, it doesn't matter as much. "Well, Tampa is falling but the Midwest isn't serviced by Tampa. It is a different market."

Where are current values in relation to the past

U.S. Midwest Wholesale price average

Vs 30 days ago - -3% or approximately $25 lower
Vs 90 days ago - -27% or approximately $350 lower
Vs 6 months ago - +5% or approximately $50 higher
Vs 1 year ago - -30% or approximately $406 lower

U.S. Northern Plains price average

Vs 30 days ago - unchanged
Vs 90 days ago - -21% or approximately $300 lower
Vs 6 months ago - -19% or approximately $250 lower
Vs 1 year ago - -24% or approximately $350 lower

U.S. Southern Plains price average

Vs 30 days ago - -5% or approximately $42 lower
Vs 90 days ago - -21% or approximately $235 lower
Vs 6 months ago - +7% or approximately $60 higher
Vs 1 year ago - -30% or approximately $385 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

Spring demand steps forward at the same time - demand feels as though it has been holding off on locking up spring needs. Makes sense with urea and UAN both down pretty hard. However, it suppliers are able to hold on until spring demand starts and they are hit by a tidal wave of demand, we could see prices bump up for a short time.
Unexpected production downtime (repeat from January) - I will preface with admitting this is a bit of a stretch as it is hard to plan on unexpected downtime. That said, if something were to happen similar to Feb '21 where sizeable production downtime occurred, that would absolutely play into higher price ideas. We have already seen temps drop below freezing down to the Mexico border. It could happen again and longer term next time.
Spike in grain values (repeat from January) - again, this one is a stretch but needs to be watched. If we suddenly saw a spike in grain values, namely in corn, demand for NH3 could skyrocket overnight.

Bearish Factors

Europe restarts continue with natural gas values falling – back in August, the Dutch TTF (European natural gas) saw values skyrocket to over $100MMbtu with little signs of it ever going lower. That caused production rates to dip to 20 - 30% of normal. This last week ended with values closing sub $18 and operating rates are at 60 - 65%...and climbing. With each price drop/production rise, prices ideas lower.
Ag switching from NH3 to urea/UAN- this certainly is not one that I saw coming but it seems to be happening to a certain extent. Hearing a lot of stories of farmers switching away from NH3. If this happens on a large scale (remains to be seen), spring demand could disappoint and cause prices to fall.
Grain prices falter - like other fertilizers, NH3 values are being supported by grain values which are still historically high. However, there is no guarantee that will always be the case. In fact, there is a case to be made that we could close 2023 sub $5. That happens, NH3 cannot sustain current prices.

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

Switching from NH3 to other N sources - I never thought this would be enough tons to matter. Today, I'm not so sure. Not saying it will happen but I'm putting it on the list of focal points. If we see demand down decently due to switching, NH3 prices are going to struggle to hold.
Global recession - ag is not bullet proof from outside factors, as we learned in 2008. Even if we expect solid demand going forward, outside factors could devastate grain values, making it impossible for buyers to step forward.
European production rates - there are a few points to watch. European winter weather. Russia discussing peace talks. Repairs to the Nordstream pipeline. Alternative natural gas imports to Europe from other world supply points. All of these are being watch as they affect the natural gas price which in turn helps determine the amount of production in Europe.
Russian exports - while still early, if Russia is allowed to start exporting again, it will no doubt see NH3 price ideas lower. Hard to see the largest exporter in the world returning...and that not be the case.

All data was sourced from StoneX unless otherwise noted.

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