Farmer Fertilizer Focus - UAN

By: Josh Linville, Vice President- Fertilizer

Wed, 01 Mar 2023, 00:21

March '23 UAN (28% / 32%)

Josh Linville

Vice President- Fertilizer

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.

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

With urea appearing to have found a price floor, UAN values getting very near recent year "in-line" norms, and spring around the corner, it appears that UAN values are more likely to hold constant for preplant. Sidedress is going to hope for solid preplant demand which would help form a bullish narrative but the marketplace is going to have a constant worry about carrying product into the summer so will be leaning into prices to make sales.

I know the above is a bit more complicated than normal and certainly more complicated than a simple bullish/bearish answer but...it's complicated!

I do think the coming weeks likely will have values holding steady. It would be hard for prices to go higher but there isn't much of a reason to go lower near term. If the preplant period sees big demand which wipes out a lot of inventory, there can be a solid case for prices to hold/go higher. If we get thru March and see NH3 application/demand down hard, that is another solid case for prices to hold/go higher. However, if NH3 applications are good and/or preplant UAN demand is off, position holders in the supply chain could start dropping prices to get out of positions. That means a lower price to the retail sector and a lower price to you.

should you buy your Spring '23 uan needs today?

Preplant, assuming the numbers still work for you, then yes.

Better to have your needs locked up, in place and ready to go for application. I'm not going to tell the "there might not be enough product" story. You have heard that enough times before. However, you might have to pay more to get it in place in a hurry.

Sidedress, I'll take the downside for future pricing.

I feel like there is a lot of angst in the supply chain regarding UAN and nitrogen in general. While a solid case can be made for prices to rally, it almost feels hollow. Folks may be saying it and may truly believe it but you can almost feel the fear.

We very well might get to sidedress and prices start to move higher but I'm taking the downside of that scenario. Regardless of what you do, I would continue having talks with your retailer. While I will not talk product shortages, I will talk about product not being in the right place at the right time. As quick as spring goes, a couple days can make all the difference.

general global uan information

What has happened in the last 30 days?

Europe remains a world focal point

There are a few storylines regarding Europe today.

First, natural gas values continue to drop which raises the chance of production restarts. In August, the Dutch TTF got as high as $103MMbtu USD and there was extreme few believing it would drop substantially. That meant European nitrogen production would remain offline for the foreseeable future. Today, that same product is priced in the $14 range on nearby months.

We have not seen another wave of restart announcements as many had hoped for. While the natural gas price dropping means the cost of UAN production has plummeted as well, the world UAN market has dropped. Today, it simply isn't profitable to restart a plant.

Second, some of the European nitrogen markets worst fears came true in February as BASF announced the closure of one of their NH3 plants. I do not believe this had any effect on UAN production or supply numbers...but it triggered an emotion. When European production started to drop with rising natural gas values, one of the big talking points was the age of the plants. The longer they stayed offline, the higher the chance they would never restart.

I'm not willing to throw in the towel on remaining offline production, but this certainly has our attention.

U.S. produced UAN continues to be exported

As the European nitrogen production situation continued, U.S. producers found a huge arbitrage opportunity...and exploited it.

As the graph below shows, exports of UAN from the U.S. exploded August/September/October/November/December. Any sort of lack of demand or oversupply story during that time was outweighed by the story of tons leaving U.S. shores.

Some had been quick to say that nearby nations (Canada/Mexico/etc.) are considered exports. Absolutely right. Please see below this graph for more:

The graph above is looking at exports on a calendar year basis. The graph below is looking at the fertilizer year (July 1, 2022 - June 30, 2023 is considered fertilizer year 2023). It doesn't take long for your eye to be drawn to that big green line, does it?

This shows that it wasn't nearby nations that tons were exported to. It was Europe which has not been a recent recipient.

UAN values in the U.S. have been under pressure but some have pondered how much lower they would have been if not for the European situation.

As I always say, we are part of a world market. Things that happen halfway around the world matter at home.

What will spring demand look like?

Basically, can UAN demand be salvaged this close to spring or is the damage already done?

Some believe there is still time to bring demand back. They acknowledge the fact that farmers have switched but with the price gap closing, that demand will come back and no changes will be made. Others are saying that commitments are already in place and to get back to balance it will need to get even cheaper to pull urea demand away.

This doesn't even begin to touch on the storylines of what happens in a good/bad NH3 application scenario, what happens in a good/bad weather scenario, what happens if corn prices/acres rise/fall scenario, etc.

This is why it is so frustrating this time of year. All the speculation and all thoughts sort of come down to things we cannot control. We are now in a more reactionary situation.

And how spring goes for UAN will help tell the story of what happens in the summer....

Isn't fertilizer fun?!!!

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

Russia (42%)
Trinidad/Tobago (33%)
Canada (17%)
Algeria (4%)
Netherlands (2%)

Top 5 export destinations

France (31%)
Belgium (18%)
Argentina (14%)
Germany (6%)
Poland (5%)

Price Comparisons

Vs 30 days ago - -17% or approximately $55 lower
Vs 90 days ago - -49% or approximately $260 lower
Vs 6 months ago - -44% or approximately $215 lower
Vs 1 year ago - -51% or approximately $285 lower

U.S. Midwest Average

Vs 30 days ago - -27% or approximately $115 lower
Vs 90 days ago - -46% or approximately $262 lower
Vs 6 months ago - -40% or approximately $212 lower
Vs 1 year ago - -50% or approximately $307 lower

Black Sea (Russia)

Number 1 exporter (2.2mmt in 2021)

Top 5 export destinations

United States (49%)
Australia (16%)
Argentina (6%)
France (5%)
Canada (4%)

Price comparisons

Vs 30 days ago - -40% or approximately $163 lower
Vs 90 days ago - -53% or approximately $275 lower
Vs 6 months ago - -47% or approximately $220 lower
Vs 1 year ago - -59% or approximately $359 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

Further European permanent closure announcements include any UAN production – today it doesn't seem as though this factor is likely but it is certainly something we need to watch for. The BASF announcement of their nitrogen plant permanently going offline caught the attention and emotion of the market. Fortunately, it was one plant and one announcement. However, if more similar announcements come, could spell a price floor for all nitrogen products.
Russia does the unthinkable – while Russian exports were down vs the 3-year average in 2022, they were still able to find homes for a lot of product. Now, it looks like offensive 2.0 is in store and the world is not happy. If Russia keeps pressing, the world is going to respond. If we see economic sanctions rival that of countries like Iran, we could lose Russian fertilizer exports which would mean losing 1/3rd of the export market. Seems unlikely today...but not impossible.
Demand grows short term (more North America based) - maybe corn acres start to surge, growing demand. Maybe switching from UAN to urea was a false narrative and that demand comes flowing back. Maybe urea prices start to rally and makes UAN well priced. Regardless, we are on the front step of spring demand. Any surge of demand is going to struggle to find any outside supply help.

Bearish Factors

European natural gas prices continue to fall - most in the marketplace would have laughed at the notion that the Dutch TTF could fall in the $14 range by March 1. I would have been in that group. That is where we are and the lower the natural gas price goes, the higher the chance of additional production restarting goes. Add supply, reduce demand, prices fall.
Farmers have already switched away from UAN – a lot of spring decisions have already been made. While some in the supply chain are hoping last minute price changes will make a difference, it will not for those that have locked in their needs. If we start to find demand isn't there and we are chancing carrying more inventory into the summer, watch out.
Russia returns to normal export flows – as the largest exporter who was below normal in 2022, a return to normal flows would add additional supply to the marketplace. More supply + unchanged demand = more competition and hopefully lower prices.

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

Europe - 1 out of every 5 tons of UAN produced around the world comes from Europe. Will their production rates remain low due to the high cost of natural gas? Will future permanent closure announcements include UAN production? Will lower natural gas cause more production to restart? Cannot talk UAN outlooks without including Europe in the discussion.
Russia - you also cannot talk UAN without including Russia. 1 out of every 3 tons of UAN exported comes from Russia and given their preparations for a new spring offensive, they are not making a lot of friends around the world. If another offensive crosses a line that causes the world to block trade, we could lose our biggest exporter.
Has UAN already lost demand to urea? - if my travels and discussions are any indication, I think so. One of the most popular topics this winter has been switching away from overpriced UAN and toward cheaper urea. Manufacturers might be trying to drop the price to bring back demand but it might be too late as many have already committed their spring programs.
NH3 success/failure - how good or bad the NH3 run is will help determine how good or bad spring UAN demand is. If we repeat last spring (one of the worst on record for NH3) and we do not lose acres, then UAN is in for a huge boost of demand. If we have a phenomenal run, it can kill demand.

All data was sourced from StoneX unless otherwise noted.

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