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June '24 Farmer Fertilizer Focus - Urea

By: Josh Linville, Vice President- Fertilizer

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June '24 UREA
 
Josh Linville
Fertilizer - Vice President
StoneX Financial Inc. - FCM Division
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 derived from an FOB price point average.  The intent is to show major global price movement trends.  Your values will likely have significant basis difference (similar to your local grain price being different than the traded market price).

This graph is labeled as MT in USD currency.

image-20240528133352-1

What everyone wants to know first, what do we think will happen going forward
GLOBAL
Demand returned and suddenly the markets caught fire.  Amazing what happens when the market goes from a place where no one wants to touch the stuff to a place where people are lining up!  As a result, global values have been rising and some regions are seeing a decent sales book built.
As long as demand remains and/or solid sales books are created, it gives little reason for manufacturers to drop price.  However, I am still struggling with a lot of upside on currently values.  While there are certainly questions on Chinese export programs and European production remains at 75% of normal, anything outside of that appears short term.  
Long story short, I'm seeing this as likely supported near term but wondering if this will be a bit of a dead cat bounce when we get further into the calendar.
NORTH AMERICA
Global values are starting to rise so NOLA has to do the same, right?
Maybe not.
Number one, we have to wonder about planting.  Right now, I feel like corn will hit its acreage so nitrogen demand will be fine.  If it doesn't, then we carry inventory into the summer and the market will struggle to hold.
Number two, I think things will get VERY quiet if values start to rise...and manufacturers need demand to keep from getting too full.  
Ultimately, as long as the global market is bullish (as it is now), it is hard to say N.A. values will go lower.  That said, I still feel like we will challenge lower values in the summer.  It is only the start of June, and there is a lot of calendar left before we get to spring 2025...
CME Futures Settlement Indications

While the fertilizer futures market is far from as liquid as its grain counterparts, it is still active and gives us an insight into what the market is thinking.

Please note that the values below can and will change daily.  This is merely a look at where they are as of writing:

 NOLA UreaMiddle East UreaCFR Brazil UreaEgypt Urea
June$282.50$320.00-$331.50
July$285.00$317.50-$326.50
August$285.00-$335.00-
September$288.00---
October$292.50---
November$295.00---
December$295.00---

 

General Global Urea Information
image 73009
image-20231108150030-2
image 73010
image-20231108150043-3
What has happened in the last 30 days?
Egypt cuts nitrogen production by 20% on tight natural gas supplies
Egypt, the world's 4th largest urea exporter in 2022, saw the government tell nitrogen manufactures to scale back by 20% in recent weeks.
A heat wave had caused demand to skyrocket.  To make sure there were adequate supplies for its population, the government made the move against the industrial sector.
Now, this is not a new thing as this has happened before.  Frankly, rightfully so.  In the past, these production reductions have been relatively short lived with production resuming fairly quickly.  It just happens to be happening during a period where demand has returned.
Egypt/North African manufacturers were at the front of the world market in terms of getting demand back and as a result, pushing price ideas higher.  They built a sizeable sales book in a relative short amount of time.  Now that production is being reduced, that will only serve to extend the sales book...and make them that much more proud/comfortable.
Global demand returns, exciting values
As we have said over the last couple editions, the global urea market has been fairly bearish but we were watching for demand to return.  Once that buying pattern started to return, it generally starts a wave that can be hard to stop.
Well, that buying started a couple weeks ago with Egypt finding buyers.  It wasn't too long before other production regions started to join the fun.
There is plenty of speculation as to why buyers started to step forward.  Some have speculated that traders had shorted the market and finally decided to cash out rather than risk going forward.  My belief is a combination of that and the addition that some farmers saw the opportunity as too good to pass up.
If you scroll down to the ratio chart section, you will notice that a lot of the current lines are fairly low compared against recent years.  Now, we talk about our ratio approach as though it is some new thing and to a lot of farmers, it is.  However, to a lot of parts of the world, this is just how business is done.  Rather than trying to call the low of fertilizer and the high of grains, they barter or watch for that value to dip.  Well, recent trends have caused the dip.
It is going to be interesting to see how long buyers return if values keep going higher and/or grain starts to fall.  This only works if both sides continue to work for the farmer.  If either side starts to fall out, then everything looks significantly different and likely causes demand to dry up...
European Dutch TTF (natural gas) values rise, lowering hopes of nitrogen plant restarts
While Europe as a whole is far from being the largest urea production region in the world, it is large enough that the market still needs to watch what is happening.
For a more detailed backstory, go check out the UAN or NH3 newsletters.
As mentioned in both of those, our hope that the remaining offline nitrogen plants would restart are dwindling.  Dutch TTF values have crept higher into the $10 - $11MMbut range.  Over the winter, we saw those values dip as low as $7 - $8MMbtu...but no real restarts were seen/heard.  Some of the explanations were that either demand was very low since it had already been met with imports or that temperatures were very low which make it hard to restart old plants.  Well, today there seems to more than sufficient demand out there as has been seen by North Africa/Middle East/Asia.  It is also spring so temperatures are warming.
Still, no plant restarts have been heard.
I do not want to dive off the cliff and give up hope...but it is fading fast.  It certainly does not look like normal relations with Russia will be obtained anytime soon so we have to assume Europe's natural gas market will remain elevated, hindering most hopes of restarts.  The longer the plants remain offline, the harder it will be to restart.
Wet conditions/late planting helps keep N.A. values from rising substantially
The past couple weeks have been interesting to watch.  Global urea values have been moving higher as buyers have been stepping forward.  However, NOLA urea values have done very little in the same time period which has some wondering why.
Well, a large part likely has to do with demand worries.  While we are not yet ready to say corn acres will be down (and with it nitrogen demand), it is certainly getting worrisome.  That causes fear of carrying product into the summer to climb.  Then, the late planting has allowed the market more time to prepare.  Additional weeks of preparation mean more time to haul loads, more time to produce tons and more time to import vessels.  All help to weigh on price ideas.
As a result, we are currently seeing Middle East replacement values around $50 higher than the current NOLA marketplace which is worrisome that it could start dragging prices higher.  However, keeping NOLA at a sizeable discount helps to keep any additional vessels from arriving since there are other opportunities in the world.
For now, N.A. is enjoying a steady market...but it needs to watch for some pops higher in the near term.
 
Where are current values in relation to the past

NOLA/New Orleans, Louisiana 

Number 3 global importer in 2022

image 83787

Price comparisons

Vs 30 days ago - -3% or approximately $10 lower

Vs 90 days ago - -19% or approximately $68 lower

Vs 6 months ago - unchanged vs 6 months earlier

Vs 1 year ago - -12% or approximately $40 lower

image-20240528133452-2

U.S. Midwest Average

Vs 30 days ago - -6% or approximately $24 lower

Vs 90 days ago - -8% or approximately $34 lower

Vs 6 months ago - -13% or approximately $56 lower

Vs 1 year ago - -21% or approximately $98 lower

 

U.S. Southern Plains Average

Vs 30 days ago - -12% or approximately $50 lower

Vs 90 days ago - -13% or approximately $55 lower

Vs 6 months ago - +1% or approximately $3 higher

Vs 1 year ago - -28% or approximately $145 lower

 

U.S. Northern Plains Average

Vs 30 days ago - -5% or approximately $20 lower

Vs 90 days ago - -8% or approximately $34 lower

Vs 6 months ago - -10% or approximately $41 lower

Vs 1 year ago - -27% or approximately $140 lower

 

Middle East

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

image 83722

image 83723

image 83724

image 83725

Vs 30 days ago - +2% or approximately $5 higher

Vs 90 days ago - -22% or approximately $81 lower

Vs 6 months ago - -11% or approximately $38 lower

Vs 1 year ago - -3% or approximately $10 lower

image-20240528133715-3

Egypt

Number 4 global exporter in 2022

image 83726

Price comparisons

Vs 30 days ago - +8% or approximately $23 higher

Vs 90 days ago - -20% or approximately $79 lower

Vs 6 months ago - -10% or approximately $35 lower

Vs 1 year ago - -2% or approximately $6 lower

image-20240528133803-4

 

Black Sea

Number 1 global exporter in 2022

image 83727

Price comparisons

Vs 30 days ago - +7% or approximately $18 higher

Vs 90 days ago - -15% or approximately $50 lower

Vs 6 months ago - -9% or approximately $28 lower

Vs 1 year ago - +1% or approximately $3 higher

image-20240528133848-5

China

Number 9 global exporter in 2022

image 83729

Price comparisons

Vs 30 days ago - +5% or approximately $15 higher

Vs 90 days ago - -3% or approximately $10 lower

Vs 6 months ago - -11% or approximately $43 lower

Vs 1 year ago - +3% or approximately $10 higher

image-20240528133932-6

Brazil

Number 2 global importer in 2022

image 83788

Price comparisons

Vs 30 days ago - +2% or approximately $8 higher

Vs 90 days ago - -15% or approximately $58 lower

Vs 6 months ago - unchanged vs 6 months earlier

Vs 1 year ago - +7% or approximately $20 higher

 

image-20240528134014-7
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
  • Buyers keep coming - as long as the buyers keep lining up, the sellers will keep taking advantage by moving pricing higher.  Simple S&D.
  • Still need to watch for plant shut down/repairs - this is less likely today, with manufacturers selling left and right.  No reason to shut the plant down if sales are being made and you have your plant sold out for the next few weeks/months.
  • Current urea values make sense vs forward grains - the longer I think about it, the more I think the reason buyers have returned is that current urea prices make sense against grain values.  Sure, we could see urea lower, but we could also see grains fall apart.  We spend a lot of time talking about the ratio.  Others call it other things and have been doing it for a long time.  When the value gets low, don't think, lock it in.  Hence why we have seen buyers forward and prices up.
Bearish Factors
  • Still a demand dead period looming - it has been surprising to see the amount of demand that has stepped forward recently, especially with several believing that lower prices were on the horizon.  That burst of demand has supported the market, but we will still have a demand dead period on the horizon and we know how well fertilizer holds up when it gets quiet.
  • N.A. might be losing N demand/building ending inventories - while I have yet to throw in the towel on corn planting, I would be lying if I said I wasn't nervous.  If there is any reduction to corn acreage, that is a loss of nitrogen demand.  That could impact urea and cause ending inventories to grow...which weighs on the market.
  • ...I'm struggling for a 3rd - right now, I'm really struggling with a 3rd factor that could push values lower.  My summer reset forecast still has prices down a further $25 in the gulf, but right now there is a lot of support from buyers/grain prices/etc.  This isn't to say that I am guaranteeing prices higher, just think there is more upside potential than downside.
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-20240528134025-8

 

image-20240528134036-9

 

image-20240528134048-10

 

image-20240528134058-11

 

image-20240528134108-12

 

image-20240528134117-13

 

image-20240528134127-14

 

image-20240528134145-16

 

 
Josh Linville’s Focal Points
  • World demand - as long as buyers continue to step forward, global manufacturers are going to get more bold in their price ideas (think higher priced).  As I write this, buyers are continuing to step up and prices are moving higher with them.  I cannot believe this will last for a terribly long time...but I've been wrong before.
  • Chinese export programs - when the world thought that China was going to resume urea exports, global price ideas started to fall.  When the Chinese government stepped in to block exports, global price ideas started to climb.  Now, was all of this due solely to China's actions?  Certainly not...but it helped.  Today, we are a world without China but as we have been taught over and over, that can change literally overnight.
  • Price of urea vs grain values - the last month or so has been kind of interesting.  Lot of folks have asked where I think the bottom will be for NOLA urea and I have been adamant that it will be lower but I follow it up with I think folks should go ahead and lock some in.  Needless to say, that leaves folks a bit confused.  The reason for this is that today's urea/grain ratios are solid.  Just look at the graphs above.  Yes, I think urea could go lower but I'm afraid that grain prices will not be as healthy by the time we get there.  If urea were to drop $25 but corn fell $0.25/bushel, are you really ahead?

StoneX Ratio Calculation

The ratio calculation is derived from Bloomberg historical grains values as well as fertilizer values from StoneX, NPKFAS, and Argus.

The calculation is simply dividing the fertilizer price by each grain price.

All data was sourced from StoneX unless otherwise noted.

 

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