October '24 Farmer Fertilizer Focus - UAN

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.​

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EU production remains at 75% of normal, cutting global supplies

It's the story that keeps on giving, Clark...

Another month and another lack of change from the EU region.  Natural gas values remain decently higher than what has been considered historically "normal" for the region.  Russia supplies dried up following the argument surrounding the Nordstream 2 pipeline and then Russia's invasion of Ukraine.  Dutch TTF values as a result went from single digits to a high of $103MMbtu and now back into the $11 - $13 range (depending on the day).  Fortunately, production rates have improved significantly from where they were when natural gas prices topped out.  Unfortunately, rates are still 75% with little to no signs of improving short term.

So what does that actually mean?

When we look at the whole of Europe (west/central/east), they would normally produce around 9M tons of UAN.  25% of that is around 2.25M tons that is "missing".  Globally, there is around 33M tons produced so that 2.25M is a significant number (even more significant with Trinidad hiccups...).   This shortfall in production has caused Europe to become an unnatural buyer and as a result, has gifted manufacturers in places like Trinidad and North America new demand that help alleviate unsold inventories when their domestic buyers are not interested.  

There is little hope of values returning to normal near term.  Remember that the Nordstream pipeline was destroyed/attacked.  At least for a section of that pipe, sea water has been inside and is likely eating the metal and making it useless going forward.  While repairs can be made, that isn't expected as Russia continues its invasion of Ukraine.  Just seems as though this will be a story that I can copy/paste for the next several editions...

What does this means for farmers?

If you are a European farmer, it means that your price is much higher due to higher production costs and the necessity to call upon imports.  If you are a North American farmer, it means your price is higher because manufacturers have a relief valve of sorts.  If they offer pricing to domestic markets and the answer is largely no thank you, rather than sitting there watching unsold inventory levels grow, they can export that product to Europe.  It helps them keep a floor on pricing.  If you are an Australian farmer, Australia is almost solely dependent on the U.S. for its UAN supplies today because the government has blocked Russian imports so what happens in the U.S. happens to you.

All in all, less EU production means less global supply which is a bullish point.

Trinidad production curtails due to tight gas supplies

Speaking of production issues...Trinidad.

For a little while, Trinidad has struggled with insufficient natural gas supplies.  This has seen some of their sectors, including nitrogen production, curtail until supplies improved.  Fortunately, earlier this year, the government approved the development of previously untouched territorial waters/supplies.  Very quickly we saw partnerships and investments made to build out this new territory.  This should help Trinidad to rebuild their natural gas supplies to solid levels that should keep industrial demand steady...eventually, but not today.  That development will take time.

Today, the struggle continues and in the last month, we have continued to see and hear nitrogen production problems.  Worsened production rates lowered available UAN for export and as a result, we have seen U.S. manufacturers enjoying the benefit as they backfill the void.

Hopefully these issues will be fewer in the immediate future and almost non-existent in the further future but today, it is a story that is very real and has very real world implications.

What does this means for farmers?

When U.S. manufacturers came out with summer fill programs, we saw a lot of push back.  Farm economics were very poor so farmers were unwilling to lock in on price.  Retailers feared the market and without farmer support also said no thank you.  Normally, that would have meant that values started to slide as unsold inventories grew...normally.

With so many export opportunities, manufacturers are able to have options.  When basically told no by domestic buyers, they shifted and started exporting product at similar values.  That helped them keep a comfortable sales book in place and allowed them to be patient for either the markets to improve or for demand to become impatient.

We have not seen values shooting higher as it has continued to trend along with urea but it certainly did help values from sliding.

Will Russian UAN production shift more to urea?

The global markets are struggling with tighter supplies of both urea and UAN.  From my perspective, both are about to move into a sellers paradise...but which is worse?

In the urea world, it is bad.  Chinese exports do not exist.  Egypt continues to have hiccups.  The EU region continues at 75% operating rates.  Brazil is offline.  The UAN side is bad, but doesn't seem as bad.  As mentioned with urea, production rates are around 75% of normal and Trinidad has had some short-term issues.  

So now look at it from Russia's POV.

For UAN, you are very reliant on the U.S. continuing to be willing to accept your shipments and you know that domestic U.S. manufacturers would love nothing more than for the government to block you.  It almost has a "living on borrowed time" feel.  However, if they can shift more production to urea, it feels much tighter and there are a LOT more buyers around the world that are friendly.

So why continue to try and shove a square block into a round hole...I'm not sure which nation is which but just go with it!!!!

I cannot speak intelligently about Russia's ability to sway urea/UAN production back and forth but if I were them and I had the opportunity, I might be leaning a little harder on urea today...

What does this mean for farmers?

Let's go with the idea that Russia suddenly adopts the "make more urea and less UAN" approach.

This would further reduce global supplies of UAN in a market that is already tightly supplied.  That is bullish in itself.  Now, think about it from different regions.

• EU farmers - less likely that U.S. manufacturers need your business with imports slowing.  Why would U.S. manufacturers run the risk of raising the governments ire if they can force domestic buyers to come to them?
• North American farmers - Russian imports of UAN have helped to keep some competition alive.  If those imports slow/stop, we lose that competition.  Sure, UAN still needs to follow urea to a certain extent, but it likely would continue to do so at a little bit more of a premium.
• Australia farmers - with imports being solely reliant on the U.S., what happens there happens to you.  If U.S. manufactures no longer need export relief valves, you have to pay a higher price to convince them to come.

The simple story is that less supply and even demand cause prices to rally, but each area has its own distinct reason.

NOLA/New Orleans, Louisiana 

Number 2 global importer in 2022

Number 1 global exporter in 2022

Price Comparisons

Vs 30 days ago - unchanged vs last month

Vs 90 days ago - -7% or approximately $15 lower

Vs 6 months ago - -28% or approximately $80 lower

Vs 1 year ago - -23% or approximately $60 lower

U.S. Midwest Average

Vs 30 days ago - unchanged vs last month

Vs 90 days ago - -6% or approximately $16 lower

Vs 6 months ago - -20% or approximately $62 lower

Vs 1 year ago - -17% or approximately $49 lower

Black Sea (Russia)

Number 2 global exporter in 2022

Price comparisons

Vs 30 days ago - 2% or approximately $4 higher

Vs 90 days ago - -7% or approximately $14 lower

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

Vs 1 year ago - 6% or approximately $11 higher

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.