Farmer Fertilizer Focus - UAN

By: Josh Linville, Vice President- Fertilizer

Sun, 30 Jan 2022, 01:10

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UAN (28% / 32%)

Josh Linville

Director - Fertilizer

josh.linville@stonex.com

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

From now thru planting, likely to see values remain flat to firm.

Once into the sidedress period, I have no stinking clue.

There are a lot of factors that I am watching: production problems, good/bad start to NH3 application, duty case, long range weather forecasts

Any and all of those factors will help give us a better POV of what will happen during the later weeks of spring application.

What I do know is that the current S&D is tight on inventories. If our demand models are directionally correct, we will finish the spring season with the lowest number of tons seen in years. I am on pins and needles watching this thing because this could get out of hand....ok, more out of hand going forward.

Since we do not forecast for Black Swan events, the next couple months should be relatively quiet before we starting trying to figure out remainder of spring.

What has happened in the last 30 days?

U.S. DOC shocks the world with preliminary anti-dumping duty rates

For those that are new, last summer (I believe), CF filed for both a counter vailing and anti-dumping duty case against Russian and Trinidad produced UAN imports. They claimed unfair trade practices and were requesting rates be placed against them to even the playing field.

When the counter vailing duty rates were announced, we were surprised at how low they were. We had anticipated that the counter vailing part of the filing was the stronger case and as such, would dictate higher duty rates. While any duty is harmful, these were on the low side.

That is why we didn't anticipate much of anything for the anti-dumping duty portion. In fact, much of the fertilizer market had no clue when the decision would be made. Well, that was a mistake:

Trinidad produced tonnage - 63%

Russian produced tonnage - 9% - 24%, depending on producer

This is a game changer. If these are upheld, this will alter normal world flows of UAN. Tons that used to come to the U.S. (2.0 - 2.3M total came from both places in recent years) will now need to find new homes around the world or will need to pay massive penalties.

One thing I want to point out is that we can make enough in North America to meet our needs. Nitrogen production plants have the ability to switch (to a certain extent) between urea and UAN, depending on market needs. However, UAN will now being a larger premium than it has been in recent years.

The last thing to point out on this is it is not finalized. This was a preliminary duty vote. There will still be hearings and a final decisional vote this summer to uphold the rates or strike them down. Unfortunately, history of these cases point to them voting to uphold but there is always a chance.

Otherwise, crickets

Like NH3, buyers and sellers of UAN have been in a stalemate for the past month which has resulted in values staying flat. Buyers are scared to lock in prices today and watch them fall. Producers know there is little demand today, are comfortable on sales/positions/etc. and are content to wait for demand to come.

I'm guessing that I will reuse this talking point in March as February isn't exactly a high trade flow month for UAN. The only thing that would change that is production hiccups. According to our demand models, the current S&D is tight. In fact, if we are correct on current numbers (they are not right and will change a thousand times before July), we will end spring with the fewest number of tons in recent years. Because of all of this, any issues (similar to last years artic blast) would have devastating effects on our S&D.

I, for one, would be content reusing the crickets title again in March...

Where are current values in relation to the past

For UAN, we use NOLA/New Orleans Louisiana as our base point as it is the easiest spot to track.

Vs 30 days ago - unchanged
Vs 90 days ago - +4% or approximately $21 higher
Vs 6 months ago - +46% or approximately $256 higher
Vs 1 year ago - +211% or approximately $380 higher

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

U.S. anti-dumping duty rate against Russia/Trinidad gets upheld (Bullish for North America) – it will be a while before we get the final verdict (sometime summer). If the market starts to believe that it will (I am in that camp, unfortunately), then it will start seeing UAN as the premium N source due to lack of imports/competition.
Any production hiccups between now and spring – North America can ill afford any production downtime in the coming weeks/months. Current inventories are too tight. If we were to lose a couple weeks like last February's artic blast, then it will make an already tight situation much worse.
Terrible spring NH3 application - today, we anticipate 1.75M tons of NH3 to get applied. However, mother nature can spoil those plans quickly. If we assume that each ton of NH3 that doesn't get applied goes to UAN (it would be split with urea), every ton below 1.75M ton would grow UAN by 2.4 tons. Those numbers can grow quickly.

Bearish Factors

U.S. anti-dumping duty rate against Russia/Trinidad gets upheld (Bearish for rest of the world) – if the U.S. effectively pushes out Trinidad/Russia imports of UAN, do those tons disappear? No, they start looking for new homes. Europe will likely be a new destination as their duty rate is lower than what was announced this week. Australia becomes a target. UAN is not as widely used around the world as urea. The few demand points will get a lot of attention going forward.
European natural gas prices could plummet – this would be a large bearish signal for emotional traders. Fundamentally, it would not change much in the short term. That said, UAN traders would see this as a reason to puke positions before prices dropped which would actually create the bearish market they were fearful of.
North American spring NH3 application surprises us on the high side – in our demand models, we are forecasting the spring NH3 application total to be approximately 1.75M tons. That number is down due to supply constraints if spring weather is "normal". If spring weather is "phenomenal", we could beat that number. For every extra tons of NH3 (82%) that gets applied, it theoretically could reduce up to 2.4 tons of UAN (32%) demand. Those numbers can grow quickly.

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 Thoughts

If you have not purchased your spring UAN needs out of fear of prices falling, at least make sure you are talking to your retailer/coop. I fully understand being worried about buying the high and then watching it crater. However, know that your retailer/coop has the exact same fear. There are a lot of places that are not purchasing extra in the hopes that you come thru their door. By having an ongoing conversation with your supplier, you are at least giving them tools to build a supply plan for when you are ready to buy.
Look at your spring UAN purchase needs from a preplant and sidedress POV. Preplant values are almost certainly going to remain high priced. Sidedress has a chance of backing off as sellers look to dump positions before the summer reset. If you make that decision to hold off on the sidedress purchases, read the above thought again!!

Fertilizers

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