May '23 Farmer Fertilizer Focus - UAN

By: Josh Linville, Vice President- Fertilizer

Thu, 27 Apr 2023, 16:13

May '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

Global

If I were just looking at global supplies, I would probably be a bit bullish right now as I continue to lose faith that remaining European production will restart anytime soon. However, I think that fear will be more than outweighed by skeptical global buyers moving forward. That and the addition that NH3 values continue to fall and urea is feeling a bit bearish, UAN will struggle to hold

Feels as though price ideas will slip going forward

North America

This is going to be two parts:

I feel strongly that nearby/spring values will rise.

Current UAN values have been flat vs a rising urea marketplace and is a 5-cent/lb of actual N discount. With a lot of just in time demand to come, more likely switching BACK to UAN will occur to take advantage of the price savings. I'm almost bold enough to say that it isn't an issue of if prices will rise, but when...but I'm not that bold!!!!

Summer values are likely to slide lower vs today's values

Manufacturers/suppliers are going to meet a very conservative and nervous retail/farmer market this summer. Plants produce product every single month and when buyers step away, unsold positions can grow quickly and that can be an uncomfortable risk. There are two ways to combat this: drop your price drastically or shut down production to limit supplies. Suppliers do not like dropping their price if they can help it. Especially after getting very used to big margins. However, they also do not like to stop production when production is profitable. Today, it is still very profitable.

While not impossible, it is going to be very difficult for prices to hold/push higher this summer vs today. As mentioned before, likely a spring pop coming but will be shorter lived.

should you buy your Spring '23 uan needs today?

Global

It depends on your timing but if it is something you need nearby:

Worth stepping in sooner than later for spring/current needs

European production remains 30 - 40% lower than normal production rates and UAN is getting very aggressively priced this spring vs urea. That, combined with a NOLA market that could/should see values higher short term, could support prices in the near term.

However, for summer:

Worth holding on summer/Q3 purchase needs

I currently feel that the nitrogen complex is going to struggle this summer. A lack of demand excitement will likely have buyers sitting on their hands which will weigh on price ideas.

North America

For spring need:

Very much worth stepping in to secure your needs.

Current NOLA UAN values are very aggressive vs current NOLA urea values. Today, that differential sits with UAN being a 5-cent discount to urea when it was as high as a 35-cent premium to urea. With urea up $150 in the last few weeks, it feels like a price hike is a matter of when...not if.

For summer needs:

I'm not excited and frankly, there are not a lot of priced options

After North America wraps up spring, I think we are going to be faced with a very dead demand marketplace. I'll end up being proven wrong but right now that is my feel. There are going to be a list of reasons a buyer should hold off and very few reasons to step forward. Production plants will continue to produce. Unsold positions will start to grow. Manufacturers could easily get uneasy with that growing position and justify cutting prices.

general global uan information

What has happened in the last 30 days?

European production remains somewhat offline (global story)

This isn't so much of a "what has happened" as it is a "what has continued to happen".

In case you are new, European nitrogen production has improved beyond anyone's wildest dream vs last August. At that time, Dutch TTF (natural gas) values jumped to as high as $103MMbtu and European nitrogen production dropped to 20 - 30% of normal. It only ran that high based on the import of natural gas and/or the import of NH3 to run the plants. Since then, the Dutch TTF has dropped to the current $12 - $15MMbtu range and European production has improved but only to 60 - 70% of normal. Even with prices of natural gas a mere fraction of what they were, it is still not economical for the remaining plants to restart.

While I do not claim to be a natural gas expert, it does feel like Dutch values will struggle to drop any lower. They have already cut their domestic demand as much as they can comfortably do. They have already cut industrial demand. They also had one of the warmer winters on record...is it really feasible to think that will happen again?

Even with all of that, the values have become stagnant in that $12 - $15MMbtu range. There is a chance is could fall further...but it doesn't look likely.

If remaining offline plants have not already started and it doesn't look like natural gas is falling further, will those plants restart?

With Europe representing a large percentage of the global UAN production capacity, the answer to that matters to global values.

Russia has become a massive price discount vs NOLA (global story)

The fact that Russia has become a discount to the world is not a surprise. Given their antics in Ukraine, it makes sense that a lot of the world buyers have no interest in doing business with them. They can find homes for their urea because countries like Brazil, India, etc. are big urea users. They are not, however, big UAN users.

Canada was an early one to step up and impose penalties on imported Russian fertilizer. Australia also has restrictions in place, I believe. European countries are obviously not rushing to the front of the line to do business with them.

That leaves little options for Russia. One of the biggest receives? The U.S.

With a very cheap cost of production, they are going to churn out product but with few sales destinations, they are forced to drop their price to keep their foot in the door.

Until this changes, Russia being a discount should be expected.

NOLA UAN currently a discount to NOLA urea which raises demand questions (N.A. story)

The relationship between NOLA urea and NOLA UAN over the last year has been a whirlwind. At one point in 2022, NOLA UAN rose to a 36-cent/lb of actual N PREMIUM over NOLA urea. That was nearly repeated in the closing weeks of the calendar year. Of course, there were also big corrections but overall, the story was regarding the premium. This caused a lot of farmers to reconsider their nitrogen input source. A lot of you said that switching to urea occurred and today, I continue to believe that is the case.

The fact that we have seen NOLA urea prices up $150 from their low's while NOLA UAN remains stagnant for yet another week further reinforces that belief of switching.

However, a lot of farmers saw/sensed the nitrogen price weakness and decided to wait on purchasing inputs. That means you are likely locking in lower priced nitrogen today if you can get your hands on it. It also means you are looking at a vastly different market than what it was recently.

Farmers may be shocked to find that UAN is priced very well vs urea which has the marketplace questioning demand. Will farmers stick to their urea approach? Will they look to switch to UAN to save a bit more money? Did spring NH3 demand fall even lower than current forecasts which will drive more nitrogen to UAN?

Usually by this point of the calendar, a lot of the questions have been answered and it is a matter of just getting spring done. This year, lot of those questions remain.

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 - unchanged vs 30 days previous
Vs 90 days ago - -18% or approximately $60 lower
Vs 6 months ago - -51% or approximately $280 lower
Vs 1 year ago - -57% or approximately $354 lower

U.S. Midwest Average

Vs 30 days ago - -3% or approximately $8 lower
Vs 90 days ago - -27% or approximately $115 lower
Vs 6 months ago - -46% or approximately $269 lower
Vs 1 year ago - -53% or approximately $356 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 - -7% or approximately $13 lower
Vs 90 days ago - -61% or approximately $249 lower
Vs 6 months ago - -70% or approximately $383 lower
Vs 1 year ago - -75% or approximately $477 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

NOLA UAN is back to being a discount vs NOLA urea – with nitrogen prices sliding lower thru much of winter, a lot of the market adopted a just in time approach to their spring needs. That obviously helped values fall further but it also has helped to create the higher urea price today. That situation now has UAN a discount for the time being. For those of you with nitrogen to buy, will you consider switching BACK to UAN to save money. I would guess the resounding answer for most is yes. If the demand wave comes, prices will reflect it.
European production remains 30 - 40% lower than normal – Europe is a big percentage of the global UAN production total. Losing their tonnage means a very real tightening of the global S&D. It doesn't guarantee that prices will go higher...but it certainly raises the chance.
Several nations continue to refuse Russian produced UAN – for the global S&D, as long as Russian tons are exported at normal levels, the S&D remains unchanged and overall values should not shift. However, for the countries that have made it difficult/impossible to bring in Russian produced UAN, you will pay a higher price as a result. The global supply shell game gets mixed up and you end up paying the logistical premiums.

Bearish Factors

Summer demand is going to be VERY skeptical – after the last year, it seems like most if not all demand is very nervous/cautious when it looks forward. When we get to late June/July, I believe a lot of buyers are going to be slow to step forward for spring '24 needs. Last year caught early buyers and punished them. Interest rates are higher. Grain values are down. Lot of reasons for normally early buyers to step away and that will push the pressure back to the manufacturing side.
Grain values remain under pressure – I'm focusing on December 2024 corn right now. The 52-week high was $6.02/bushel. Today, as I write this, the price is $5.23/bushel. For buyers, that is very much the wrong direction to get us excited to buy early.
Remaining offline European production could restart – THIS IS NOT LIKELY!!! However, it is something we need to watch. Dutch TTF values continue to trade in the $12 - $15MMbtu range (currently, June/July/August are all 3 sub $12). We have not seen any plant restart announcements recently. However, if there was a change of production heart or a further price dip in natural gas values, Europe could restart. That would add big supply to the world market and remove demand. That is a bearish recipe.

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 - unfortunately, another month has gone by and European production rates are believed to be 60 - 70% of normal, even with natural gas values still extremely low vs recent high's. For urea and NH3, they are a big part of the global complex, but not an enormous part. For UAN, they are. This production remaining offline means the global S&D remains tight. While it doesn't guarantee it, a tight S&D typically equates to a higher than normal price point.
Russia - if you look at the beginning of this newsletter and see the price graphs, you will notice how much cheaper Russian UAN is priced vs NOLA UAN. The reason...very few destination options. Places like Canada and Australia have made it hard to bring their product in. Europe is not in love with bringing Russian product. Their tons are still mostly finding their way into the marketplace but destinations are scarce. As long as this occurs, it upsets the "normalcy" of the global market.
Will last minute spring demand switch BACK to UAN with current discount - for North America, what...a...rollercoaster. Last year, we saw NOLA UAN rise to a 35 cent/lb of actual N PREMIUM vs NOLA urea. Today, NOLA UAN is a 5 cent DISCOUNT to NOLA urea. With so much of demand taking a last minute approach, this could result in demand flowing back to UAN which is exactly what it needs to balance its S&D before summer comes.
Summer fears are already starting - think back thru what has happened with UAN prices over the last year. Prices started to fall hard after a poor spring '22 cycle and it looked like it would continue lower. Then European production issues started and prices started to skyrocket. That assumed you could even get a price. Once Christmas wrapped up, prices started to fall hard. Anyone here confident that purchasing their spring '24 needs in July '23 will be the best bet? I'm not and I think a lot of demand is going to be this way. Going to be a lot of conservative buyers in the coming months.

All data was sourced from StoneX unless otherwise noted.

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