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.
EU production continues to struggle with high priced natural gas
Another month, another lack of improvement by EU based nitrogen production facilities.
As has been the case for a while now, EU natural gas values are high vs where they would historically be. It turns out that when you anger your biggest and cheapest supplier to the point that they shut off gas flows (and then someone sabotages the Nordstream pipelines), your input price rises which shuts off certain manufacturers. We typically follow the Dutch TTF for European natural gas pricing. Historically, that price would be in the $4 - $7MMbtu range. Today, Europe is fortunate that it fell from its high of $103 (August 2021) to its current range of $11 - $13MMbtu.
Unfortunately, that price "correction" still has approximately 25% of their nitrogen production offline. It is simply too expensive to produce and compete with the world market. Instead, Europe has become highly dependent on imports from places like the U.S. to backfill the tons they are not producing. By our estimation, this equates to around 2M ton per year. Not only is that 2M ton that is removed from the supply side of the equation, but that adds 2M tons to the demand side as well.
To make matters worse, we have been seeing/reading reports that certain manufacturers are taking steps to "give up" production in the European region and instead start looking at boosting rates in places like North America. No doubt the POV is that they see N.A. input values as much more stable/cheap compared to what is going on in Europe. This does not bode well for other manufacturers in the region.
So this is all to say that this story is unchanged. Europe continues with production rates low and is leaning on imports to backfill.
What does this mean for farmers?
Well, for farmers around the world that use UAN, it means that price ideas are going to be more supported. With the EU production still running around 75% or normal, that means about 2M tons of production are missing. To make that worse, that is 2M tons of fresh demand as they look to replace what they lost in production.
For N.A. (and those dependent on N.A. for their supply), it means tighter supplies. U.S. has been a major supplier of UAN to Europe since gas prices rose. Normally, with the market pushing back as it has, we likely would have seen more pressure on pricing. A lack of buying would normally cause manufacturer inventories to rise to uncomfortable levels and then hopefully force them to cut price to make sales. However, when there is a supply outlet in Europe, they no longer have that stress. They can take the approach of "ok local farmers, you do not want to buy so we will export it and get the same thing".
Given that our outlook on the EU is one that the situation does not change anytime soon, this is a big boost for N.A. manufacturers...and a big loss for farmers.
Poor fall NH3 demand may boost spring UAN demand
Today, there are a lot of farmers across N.A. who are looking at the ground and thinking "it is way too dry to be applying NH3". Checking on the drought maps, it makes perfect sense.
For those of you who may not be aware of why this is a big deal, please flip over to the urea section. I try to explain a little better why this is a major issue.
So what does it mean if we do end up having a poor fall NH3 run? I know it is far too early to call it done. In fact, at home around Kansas City, we have caught some moisture and there is more coming so others can have the same happen and end up with a solid run. But what "could' it mean.
Typically speaking, for every ton of NH3 that does not get applied in the fall, the spring split is:
- 50% stays NH3 (since the storage is full and ready to go for spring)
- 25% goes to urea (keep in mind that it takes 1.8 tons of urea to equal one ton of NH3)
- 25% goes to UAN (keep in mind that it takes 2.6 tons of UAN 32% to equal one ton of NH3)
Now, this split varies significantly based on where the shortfall occurs. There are areas where much more of it will flow to urea rather than UAN and vice versa. The 50/25/25 rule is more of a guiding split.
So if we end up with a really bad fall NH3 run, this is a situation we will not really "know" until early/mid December. By that point, we are getting very close to spring which means less time to prepare logistically. That is where things start getting weird. Short timeframe, lot of demand shift and manufacturers/traders looking to capitalize can cause prices to rally quickly.
To end, please note it is too early to call the fall season a bust. We are close enough that we need to be award of it, but not so far ahead that there is really anything to do today. We have to hope that the run happens as is normal...but always have your head up and on a swivel.
What does this mean for farmers?
With the rains that have moved across the Midwest the week I put this edition together, this story has fallen far down the list of concerns. I'm not saying this rain solved absolutely every issue with dry conditions, but it certainly helped. At this point, we are assuming the fall NH3 season is a go.
However, it is still important to learn the lesson that could have been.
If we fell short of fall expectations, that puts A LOT of stress on the spring. That is more spring NH3 application that needs to happen and it is a lot more UAN demand that suddenly appears in S&D's for December/January. That gives very little time for the market to shift, get more imports coming and get ready for the new demand.
Again, this has moved far down the list. In fact, I would be more concerned that it stays too wet or gets cold too early at this point. But regardless the reason, a poor fall NH3 run has spring UAN implications.
NOLA/New Orleans, Louisiana
Number 2 global importer in 2022
Number 1 global exporter in 2022
Price Comparisons
Vs 30 days ago - 10% or approximately $20 higher
Vs 90 days ago - 7% or approximately $15 higher
Vs 6 months ago - -18% or approximately $50 lower
Vs 1 year ago - -13% or approximately $35 lower
U.S. Midwest Average
Vs 30 days ago - 5% or approximately $13 higher
Vs 90 days ago - 3% or approximately $7 higher
Vs 6 months ago - -18% or approximately $54 lower
Vs 1 year ago - -12% or approximately $36 lower
Black Sea (Russia)
Number 2 global exporter in 2022
Price comparisons
Vs 30 days ago - 9% or approximately $16 higher
Vs 90 days ago - 11% or approximately $20 higher
Vs 6 months ago - 25% or approximately $39 higher
Vs 1 year ago - 13% or approximately $23 higher
- EU production still 75% of normal – 25% of EU UAN production equates to roughly 2M tons per year. Not only is that 2M tons of supply missing, it is also 2M tons of new demand to backfill the lost production. Big one-two combo.
- Urea market outlook appears bullish – where urea goes, UAN should follow...and our outlook on urea remains bullish. If urea prices start to appreciate, it makes sense that UAN values will eventually follow.
- Early fall NH3 signs for N.A. are not great – if it doesn't start raining across a lot of acres in the Midwest, the fall NH3 application run may be a bust...which is a large late demand shift for UAN. If we get into later December/January and find out the fall season didn't happen, UAN is going to be scrambling to catch up;
- Buyers just are not interested with poor farm economics – this continues to be the biggest sticking point in my mind. Farmers are dealing with crap economics. Income just isn't enough to cover expenses and make much money. Retailers know this and are playing a much more conservative role out of fear of being on the wrong side. If this continues thru to the new year (no guarantee that year end/beginning prepay happens), we could see prices pressured.
- Urea values start to tank – while I do not expect this to happen, markets have proven me wrong before. Grain values are already low. If we suddenly see urea values starting to drop, how long will it be before we see UAN follow? I would expect that prices would hold for a little while but recent history likely has manufacturers nervous on trying to hold on too long.
- Really good fall N.A. NH3 run + lower corn acres – I'm stretching a bit on this 3rd factor but I think it is relevant. Right now, we are fearing more of a poor fall run...but we know we have the ability to have a great one as well. Just look back to fall '23. If we end up with a better than expected fall run and then go into winter with grain values falling to the point that farmers start to shy away from corn and to less N intensive crops, we could see UAN demand sink.
We believe that only looking at the flat price of either grains or fertilizer can be misleading:
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Only selling grain can hurt you if fertilizer prices rise substantially
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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:
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Spend 100 bushels to pay for 1 ton of UAN
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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 MAY 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.
- Demand timing - there are a lot of factors that can impact this. It could be rising grain values. It could be rising urea values. It could be fear that the fall NH3 season isn't happening. Regardless of the reason, it all comes down to when buyers step forward. Over the last few years, the market has gotten used to buyers stepping in earlier than this year. Economics were good and folks were willing to spend money. Now, there are a lot of people saying that expectations for year end/beginning prepay should probably get ready for disappointment. I still think it is going solid demand that is going to support UAN values...but it is a matter of when that happens.
- Any further production hiccups - The EU region has been at 75% of normal capacity for all of 2024 and there is little to no indication that improves near term. We have already seen Trinidad production hiccups due to natural gas supplies. We are doing ok today, but we can ill afford further issues...and winter is coming. A North American artic blast could hurt production rates. Trinidad could have problems again. Who knows what happens with Russia. We do not need anymore production downtime.
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.
