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Farmer Fertilizer Focus - UAN

By: Josh Linville, Vice President- Fertilizer

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January '23 UAN (28% / 32%)
 
Josh Linville
Vice President- Fertilizer
josh.linville@stonex.com
major global uan export location price graph
As mentioned in other products, the price graphs should be viewed by their price direction, not their absolute price.  The first graph looks at the Black Sea and NOLA values on a short ton basis.  The second looks at the same points except in metric ton.  Both are in USD.
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What everyone wants to know first, what do we think will happen going forward
UAN producers felt the heat as urea values did not skyrocket as discussed last month.  However, this feels more like a short term victory with manufacturers likely to gain control of the market in the near future with spring right around the corner.
Manufacturers are finally having to succumb to market pressure.  The fear of losing substantial demand to the urea marketplace and skeptical buyers overall has the market in retreat.  However, not sure this will be a long lived victory.
One, logistics are still a struggle across North America.  While they have improved, they are far from perfect and are still costly.  Two, spring is right around the corner.  I know it doesn't feel like it but we are only 3 months away from April.  If manufacturers are able to get enough sales on the books to bridge that period between now and spring, they will retain control of the market and as such, retain control of price ideas.
should you buy your Spring '23 uan needs today?
Pick your target and start talking to your supplier...a lot
Many of the inland values have not dropped like we are seeing in other places which can be exceedingly frustrating.  THIS IS NOT YOUR RETAILERS FAULT!  It continues to be a combination of prices being slow to move downstream and logistical costs remaining elevated.
That said, it is worth talking to your retailer/supplier and discussing target price ideas.  This is not a period to stick our heads in the sand in hopes that everything will be better in a few weeks.  I highly doubt that we will see UAN prices fall in line with historical differences with urea (urea is likely to remain "cheap" thru this season).  However, there may be short lived opportunities here and there.
If your retailer knows what you are looking for (and we need to be realistic with what we are looking for), they know when to hit you up if something comes available.
That said, also look at if you/your retailer can switch from UAN to urea.  There is a wide price spread which could mean decent per acre savings.  Not going to work for everyone but if it does, it could mean decent money.
general global uan information
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What has happened in the last 30 days?
European natural gas futures continue to fall...are further plant restarts coming?
Short answer: I do not know.
If you have been part of this newsletter for the last several months, you know that European natural gas values have caused a significant amount of nitrogen production to stop until market conditions improve.
Well, improvements have been coming.  As of this writing, the Dutch TTF winter/spring values sat in the $25 - $26 MMbtu range.  For reference, the price spiked to just over $100 following Russia's stoppage of shipments.  "Normally" these values would be in the single digits.
There has been a lot of speculation as to what will happen with natural gas prices going forward.  Frankly, I am not a nat gas expert so I do not want to dive too much into it.  I know that Europe is having a warmer than expected winter which was preceded by Europe importing a lot of additional inventory from the global market to offset Russian losses.  Some have speculated that prices will continue to fall as temps stay warm.  Others say the spike is right around the corner.
What I can say for sure is that if these prices continue to fall and are couple with nitrogen plant restart announcements, that will weigh heavy on global price ideas.  Europe is a major part of the global production scene.  However, if we see prices spike and production slows again, the opposite holds true.
I realize this doesn't tell you a price direction one way or another.  That is because we do not know.  This is more to give you insight on one of the biggest global price drivers in the UAN marketplace.
N.A. UAN values are finally falling...but how much and is it being seen inland? 
Last month we discussed how lower urea values could start to break manufacturer price ideas.  Well, that POV actually played out.  We are starting to see price ideas fall as suppliers try to get sales on the books.  
However, as is always the case, it is not a dollar for dollar move at the retail level.  Frustrating as it is, logistics are still an issue.  UAN is highly reliant on rail and river to move product.  While the rail situation seems to have resolved itself short term, the time between now and spring is fairly tight meaning rail shipments are going to get pinched.  River flows, much better than where they were, are still suffering from slower shipments and higher rates.
The market is indicating lower prices but ultimately, if manufacturers can sell enough to get to April 1 (start of spring), then they will retail control of the price conversation.  What this means is that there may be more downside for pricing but it may be short lived.
As with every market, it all comes down to negotiation power.  Today, demand has it...but might be short lived.
NOLA UAN remains very expensive vs urea...demand should take a look at options
With UAN values falling in the gulf (again, likely not as stark a drop inland at the retail level), the gap between urea/UAN has closed...but remains historically wide.
This continues to have me questioning farmers paths forward on their nitrogen source.  Not everyone has the ability to switch from UAN to urea.  More, not every retailer has the ability to switch a large chunk of their UAN to urea.
However, if in talking to your supplier, you are both comfortable with the switch and you figure it saves a solid amount of cash per acre (and you are wanting to lock in today), make that look.
It isn't often that we see this big of a price spread or cost savings/premium.
There is a reason UAN remains high priced (European production issues) but there are also reasons urea is low priced.  At the basic level, the UAN market is asking demand to switch.  
image 59318
 
 
Where are current values in relation to the past
NOLA/New Orleans, Louisiana 
Number 1 importer (2.5mmt in 2021) AND number 5 exporter (563kmt in 2021)
Top 5 import origins
  1. Russia (42%)
  2. Trinidad/Tobago (33%)
  3. Canada (17%)
  4. Algeria (4%)
  5. Netherlands (2%)

Top 5 export destinations

  1. France (31%)
  2. Belgium (18%)
  3. Argentina (14%)
  4. Germany (6%)
  5. Poland (5%)

Price Comparisons

  • Vs 30 days ago - -17% or approximately $90 lower
  • Vs 90 days ago - -15% or approximately $80 lower
  • Vs 6 months ago - -6% or approximately $30 lower
  • Vs 1 year ago - -19% or approximately $105 lower

image 59182

U.S. Midwest Average

  • Vs 30 days ago - -9% or approximately $52 lower
  • Vs 90 days ago - -9% or approximately $41 lower
  • Vs 6 months ago - +3% or approximately $13 higher
  • Vs 1 year ago - -14% or approximately $86 lower

image 59183

Black Sea (Russia)

Number 1 exporter (2.2mmt in 2021)

Top 5 export destinations

  1. United States (49%)
  2. Australia (16%)
  3. Argentina (6%)
  4. France (5%)
  5. Canada (4%)

Price comparisons

  • Vs 30 days ago - -16% or approximately $82 lower
  • Vs 90 days ago - -12% or approximately $60 lower
  • Vs 6 months ago - -3% or approximately $13 lower
  • Vs 1 year ago - -32% or approximately $210 lower

image 59184

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
  • Cold winter weather sets into Europe causing natural gas values to skyrocket – the Europe natural gas story is currently that prices continue to fall due to plentiful supplies and higher than expected winter temperatures.  Mother nature is a fickle beast.  We could quickly see temps plummet and cause nat gas values to rise again...shutting down nitrogen production in the process.
  • Pent up demand has to step forward eventually – there has been a fairly severe impasse between buyers and sellers.  So far, buyers have been winning the battle...but spring is not far away.  Preparations need to be made for spring season and with April only 3 short months away, decisions will need to be made. 
  • Corn prices continue to rally - the December 2023 corn price has quietly been rising.  After dropping to the lower $5.90's, today has seen prices rally back above $6.10.  I'm not saying that this solves the high priced UAN situation but balance sheet are improving significantly with every penny higher...and could bring demand with it.
Bearish Factors
  • Europe restart announcements resume - natural gas prices continue to fall which brings European nitrogen plants closer to restart.  If that happens, global market is likely going to look bearishly upon the news.
  • Demand switching to urea could heavily sway the market – do you like saving money?!  You and every other farmer out there!!!  Those willing/capable of switching to cheaper priced urea are likely taking the step this year.  UAN could lose enough demand to plummet price ideas to bring the demand back.
  • Demand finally has sellers on their heels and want to continue to push – this has been a long time coming for the buy side of the marketplace.  Manufacturers have maintained control of the market for a while now.  That power has shifted and buyers are looking for blood!  Maybe not blood, but they certainly want to hold out as long as possible in hopes of further price cuts.
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.
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image 59191
image 59192
 
Josh Linville’s focal points
  • European production/natural gas values - this is becoming an even bigger focus with values continuing to fall.  With west/central Europe accounting for 20% of global production, restarts would mean more supply/less demand = lower price ideas.  Then again, the opposite holds true.
  • Premium price to urea resulting in demand loss - I talk about it at length above.  If the price gap remains as high as it is, switching is a very real possibility.  If enough demand is lost, the market will need to correct to call it back.
  • North America logistics - I really wish this wasn't a point to discuss...but it is.  We are much better off than 30 - 60 days ago, but we are not out of the woods.

All data was sourced from StoneX unless otherwise noted.

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