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June '23 Farmer Fertilizer Focus - Urea

By: Josh Linville, Vice President- Fertilizer

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June '23 UREA
 
Josh Linville
Vice President - Fertilizer
josh.linville@stonex.com
major global urea export location price graphs
The intention of the below graphs are not to use to say "my price should be X based on this graph".  These prices are indicated from an FOB price point average.  The intent is to show major global price movement trends.  I have opted to include US Gulf/NOLA in these graphs due sometimes on/sometimes off again export capability.  Also to show N.A. values in relation to the rest of the world.
The first graph shows these prices reflected in metric ton.  The second graph in short ton.  Both are listed using USD as the currency.
image 72714
 
What everyone wants to know first, what do we think will happen going forward
Global
Unless there is some shock outcome in the India purchase tender or the global markets as a whole
It is hard to see a situation where prices rally without a new event occurring.
Price ideas around the world continue to decline with no sign of demand stepping forward.  Europe is taking steps to restart production.  Chinese exports are resuming.  The coming weeks/months are not exactly known for its robust demand.

North America

Now that North America is moving out of spring and into summer, it should start to connect back with global price ideas.  So if the global POV is that values likely remain under pressure:

Looks likely that values will continue under pressure in the coming weeks/months.

That does not mean there will not be opportunities.  I will talk about the current corn/urea opportunity below.  Just because urea values fall does not mean that the value improves.  If grains fall more than the fertilizer, you might be right...but still wrong.  Watch that relationship.

Should you buy your spring '24 urea needs today
Global
Unless there is a solid ratio/value today, there are not a lot of reasons to step in today.
The trend continues lower.  There are a lot of months before global demand returns.  Production/exports are resuming.  The list goes on.
North America
For corn farmers will to secure current summer urea fill values with new crop corn values, I actually like the idea of stepping in for a layer.  I'll show the graph below but today marks a summer ratio opportunity that has only been this lower or lower a few times in the last nearly two decades.
However, if you are only looking at the urea price, then no.  Lot of calendar between now and next spring.
general global urea information
image 59328
What has happened in the last 30 days?
European nitrogen production is resuming...slowly
Just when it looks like the Dutch TTF marketplace cannot get any cheaper, it breaks thru the floor and continues lower.  Recently, we have seen nearby months trading in the $7 - $8MMbtu range while the coming winter months have dropped into the $13 - $14MMbtu range.  This is tremendous news for folks living in that region who have seen their bills just a bit higher than normal.
For the global urea complex, that alone doesn't mean anything because the Dutch TTF price alone does not affect the global S&D.  That could only be done if production plants restarted...which are starting to happen.
It started with Yara announcing the restart of their Ferrara (Italy) plant.
Then there was a bit of a lull.
However, we have now heard that Azomures (Romania) and Grupa Azoty (Poland) are both taking similar steps.
While there is still a lot of work to be done before 100% production is reached, these are major milestones as it proves that lower natural gas values are helping to bring production back.  From a global POV, the fear is that remaining production turns on and their export opportunity into Europe dries up and forces the tons elsewhere around the world.
Going to be an interesting next few weeks!
Global values remain under pressure with lack of demand/return of Chinese exports
As has been the case for several months, the world just has not seen the return of urea demand as it had expected.  That is not to say there is no demand.  It just isn't at the feverish pitch that it was where buyers were falling all over themselves to secure product at any price.  Buyers have learned to be patient which has put the pressure on sellers to find a price that works.
That alone has caused the weight of the market to shift from buyers to sellers.  Adding in the return of Chinese exports certainly does not work to the sellers advantage as it means another step toward normalcy.
In case you are new to the newsletter, China is a major exporter on the urea marketplace.  Toward the latter half of 2021, the government imposed restrictions on urea exports as it viewed global inventories as being far too tight and values far too high.  Restricting exports would serve to ensure more than enough product was available for Chinese farmers as well as dropping the price.  That process appeared to work.  Today, that same government must view the global urea market as well supplied and much lower priced as moves have been made to loosen the restrictions and allow Chinese manufacturers to resume normal trade.
So we have a world market where demand has taken a patient approach to buying, European production is starting its last steps toward 100% capacity and the world boogeyman (Chinese exports) have returned.  
Anything is possible but a lot of global factors appear bearish today.
NOLA urea shoots to massive premiums vs world replacement due to lack of imports
During the fertilizer year 2023, the urea storyline was that imports came too quickly and too heavily.  The massive amount of tonnage acted as an anchor on the industry and product was jammed up in every corner of N.A.  No doubt many took this situation to heart and used that lesson during this fertilizer year.
In the lead up into and thru winter, many remarked that imports were coming soon.  There were few options around the world so N.A. would be inundated with product.  
That does not seem to have been the case.  Official import totals thru March (do not yet have April) were well below market expectations.  NOLA urea values had previous dove to a low of $290 and reached upper $400's at the height of the market...even thought world values were still under pressure.  This lack of import supply boosted price ideas to massive premiums vs the world replacement value...because it was too late to call big imports by the time it was realized.  At minimum, it takes around a month to sail to NOLA and then another several weeks to a month to put that product into space available to the farm.  
The forward futures markets are pointing to a return of normal price vs the world.  Hopefully we can find normalcy soon...though it is going to be very interesting to see how the pendulum swings next year.
Year 1 - swings to "too much and too early"
Year 2 - swings to "too little and too late"
image 72731
North American urea price determined by location and timing
I spent a lot of this winter giving presentations.  One of the big talking points I always tried to hit on was:
Holding off on purchases in hopes of lower prices is the right call.  That's your job.  You want the lowest price.  Just make sure not to wait too long because eventually just in time demand meets just in time logistics". 
I would have loved to have been wrong on this.  That, unfortunately, was not the case.
We heard story after story after story from folks across North America talking about high prices and tight supplies.  Frankly, the reset in the Gulf of Mexico was never seen inland.  It's frustrating, but its the market.
With price diving lower, the supply chain slowed down.  As mentioned above, importers refused to step in and bring product.  Why secure a high price, sail it around the world and sell it at a loss?  Then,  suppliers/retailers/farmers across North America refused to secure product.  Why would they?  Prices were falling.  No one wants to buy the last high priced ton.
As mentioned above, values will move back to normal vs NOLA and the world.  I would say 9 - 10 months out of the year, we move in lockstep with global price ideas.  Unfortunately, we are wrapping up the 2 - 3 months where the world doesn't matter because it cannot get here to help.
I hope that you were not one of the ones that struggled this spring but if you were, you were not alone.
There are solid corn/urea opportunities ahead
One of the surprising things is how well corn values have held.  Normally, when either corn or urea fall, the other follows.  That hasn't been the case.  Summer reset values are starting to be traded at a much higher frequency and at lower values.  At the same time, both December 2023 and 2024 corn values have held high.  Personally, I thought we were going to see corn in the $4.50's until the turnaround happened.
That is where the opportunity lies.
We have seen NOLA urea barges trading in the $260's.  Today, December 2024 corn (I think summer urea purchases are applied next spring for next years crop so use next new crop month) closed at $5.11/bushel.  That ratio is in the 51 - 52 range.  Take a look at the graph below.  While we have seen ratios lower in the last almost 20 years, it is not often.  
Your numbers are going to look different as that graph uses NOLA urea and Chicago corn.  Your basis will shift the value but the value should still be solid vs the same time period.  This is a case where a person might be right that urea values will dip a little more but if corn starts to fall apart again, you can be right and be so wrong.
Remember that your operation is all about inputs and outputs.  This is a solid first layer for the 2024 crop for those willing to look ahead.
image 72733
Where are current values in relation to the past
NOLA/New Orleans, Louisiana 
Number 3 importer (6.3mmt in 2021)
Top 5 import origins
  1. Qatar (19%)
  2. Russia (18%)
  3. Canada (13%)
  4. Algeria (12%)
  5. Saudi Arabia (12%)

Price comparisons

  • Vs 30 days ago - -22% or approximately $74 lower
  • Vs 90 days ago - -17% or approximately $54 lower
  • Vs 6 months ago - -43% or approximately $195 lower
  • Vs 1 year ago - -45% or approximately $214 lower

image 72715

 

U.S. Midwest Average

  • Vs 30 days ago - -4% or approximately $19 lower
  • Vs 90 days ago - +23% or approximately $88 higher
  • Vs 6 months ago - -21% or approximately $125 lower
  • Vs 1 year ago - -17% or approximately $94 lower

U.S. Southern Plains Average

  • Vs 30 days ago - +3% or approximately $13 higher
  • Vs 90 days ago - +28% or approximately $113 higher
  • Vs 6 months ago - -8% or approximately $45 lower
  • Vs 1 year ago - -15% or approximately $90 lower

U.S. Northern Plains Average

  • Vs 30 days ago - unchanged from last month
  • Vs 90 days ago - +30% or approximately $118 higher
  • Vs 6 months ago - -14% or approximately $45 lower
  • Vs 1 year ago - -15% or approximately $90 lower

Middle East

Number 1 exporter (as a region, not as individual nations)

  • Vs 30 days ago - -14% or approximately $45 lower
  • Vs 90 days ago - -16% or approximately $55 lower
  • Vs 6 months ago - -45% or approximately $230 lower
  • Vs 1 year ago - -57% or approximately $384 lower

image 72716

Egypt

Number 5 exporter (4.6mmt in 2021)

Top 5 export destinations

  1. India (14%)
  2. Argentina (14%)
  3. Turkey (11%)
  4. France (10%)
  5. Italy (9%)

Price comparisons

  • Vs 30 days ago - -15% or approximately $57 lower
  • Vs 90 days ago - -22% or approximately $90 lower
  • Vs 6 months ago - -45% or approximately $253 lower
  • Vs 1 year ago - -57% or approximately $410 lower

image 72717

Black Sea

Number 1 exporter (7mmt in 2021)

Top 5 export destinations

  1. Brazil (20%)
  2. United States (16%)
  3. Canada (8%)
  4. Mexico (7%)
  5. India (3%)

Price comparisons

  • Vs 30 days ago - -11% or approximately $33 lower
  • Vs 90 days ago - -17% or approximately $53 lower
  • Vs 6 months ago - -40% or approximately $175 lower
  • Vs 1 year ago - -51% or approximately $270 lower

image 72718

China

Number 4 exporter (5.3mmt in 2021)

Top 5 export destinations

  1. India (53%)
  2. South Korea (12%)
  3. Mexico (8%)
  4. Chile (5%)
  5. Colombia (3%)

Price comparisons

  • Vs 30 days ago - -7% or approximately $23 lower
  • Vs 90 days ago - -22% or approximately $90 lower
  • Vs 6 months ago - -41% or approximately $218 lower
  • Vs 1 year ago - -53% or approximately $350 lower

image 72719

Brazil

Number 2 importer (7.8mmt in 2021)

Top 5 import origins

  1. Qatar (23%)
  2. Russia (18%)
  3. Oman (16%)
  4. Algeria (14%)
  5. Nigeria (11%)

Price comparisons

  • Vs 30 days ago - -12% or approximately $40 lower
  • Vs 90 days ago - -17% or approximately $60 lower
  • Vs 6 months ago - -46% or approximately $248 lower
  • Vs 1 year ago - -55% or approximately $353 lower

image 72721

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
  • Current summer prices are solid vs current grain values  - this could cause demand to step into the market sooner than some expect.   I know if I were farming, I would strongly consider locking up a layer of buying urea/selling corn.
  • Even with Dutch TTF down hard, Europe still far from 100% production  - as long as this regions production remains less than 100%, it means global supplies are less than normal and global demand is higher than normal.  Seeing 3 announcements of restarts is the start of a trend but there is a long road ahead.
  • India tender could surprise the market and finish with bullish tone  - yes, I'm stretching but anything is possible!
Bearish Factors
  • Europe has seen 3 restarts - as mentioned above, from a fundamental POV, this is far from being game changing for the world urea marketplace.  However, from an emotional POV, it is big as it represents the possible return of one of the last Covid era holdouts.  One last step toward normalcy could/should mean one last step toward historically normal pricing.
  • Chinese exports appear to be resuming - it appears the Chinese government has noticed global supplies improving and global values dropping.  Otherwise, they would not be loosening export restrictions.  As Chinese exports resume, the global urea boogeyman returns as well.  Sellers will have another reason to lower their price.
  • World urea market marching toward a seasonally slow demand period - the coming weeks/months are not exactly known for their huge demand.  Things can always change but there is a better chance that we see demand mostly go away and we all know how well fertilizer markets hold up to quiet periods.
Where are the current urea/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 135 bushels to pay for 1 ton of urea
  • Spend 55 bushels to pay for 1 ton of urea

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 urea 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.

image 72722
image 72723

image 72724

image 72725
image 72727
image 72728
image 72729
image 72730
Josh Linville’s focal points
  • European production rates - while far from the largest urea production region in the world, it is a major focal point for us as it represents a big swing in the emotion of the global complex.  If European production can return to 100%, it will mean the last step toward a normal world market following the last couple years...and a step closer to normal historical pricing.
  • Chinese export flows - in the fall of 2021, the Chinese government restricted exports as it viewed global supplies as too tight and global values as too high.  Now, with export restrictions being loosened, they obviously see the world getting back to normal.  As exports resume, global suppliers/manufacturers now have to fear being beaten by a Chinese ton.
  • India tender results - the world is moving into a seasonal low demand period...so this India tender should go a long way in setting that direction.  Hard to see results being outside of "flat to lower" but stranger things have happened.

All data was sourced from StoneX unless otherwise noted.

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