Weekly Fertilizer Review
High crop prices could firm fertilizer costs
Published on: Jul 8, 2015
The turnaround in crop prices over the last month should be good news for growers with production to sell. But it could also firm fertilizer costs just as international markets face an array of uncertainty that increase volatility and risk. Profit margins are still underwater, further complicating buying decisions this summer.
Ammonia moved higher for contracts settled by the Gulf index for July, but costs elsewhere followed the trend we talked about last month. With initial fall offers reflecting the drop in wholesale costs over the spring, terminal prices also fell last week some $20 to $45, putting wholesale charges in the $535 to $555 range. While spot retail prices remain high, they’re starting to come down too, with the average at $662 this week. That’s still some $46 above our projected fair value, and fundamentals suggest prices should fall another $15 further. Much depends on prices for corn as farmers begin to draw up plans for 2016. The $75-cent rally added $30 a ton to the projected retail price of ammonia, so be on the lookout for volumes purchased earlier. There’s already a $200 spread between high and low retail costs around the country.
Urea prices were firm all spring, but that strength as predicted is over. Demand around the world is waning and sellers, like those in China, who were once standing firm are now moving to get deals done. Costs at the Gulf dropped $18.50 last week to $325 and the swaps market for July is more than $20 below that, with August contracts at $280. Average retail costs of just under $460 are around $10 above fair value, with summer values pointing to $425 – and that’s if grain prices don’t fall.
UAN appears to be searching for bottom, at least on the wholesale market, after the price of 32% at the Gulf dropped some $50 over the spring and early summer. While retail prices are quiet, with the average still around $320 for 28%, that should change quickly once dealers restock. Current wholesale prices put $280 to $285 as a fair retail price into the fall.
Phosphates are the only part of the complex with anything resembling a firm tone right now. The price at the Gulf actually rose $5 a ton last week, putting DAP there at $427.50, with upriver terminals rising a similar amount. Retail costs dropped $1 on average last week but remain above $550, around $10 over current fair value and $20 above the level where August contracts should be. DAP tends to rise and fall on a different time frame than other nutrients, and the down phase of its cycle is suggested by the swaps market, which showed contracts falling $30 into the end of the year.
Potash prices continue to leak lower at the wholesale level, with Midwest terminal costs down $7.50 last week to $355. Retail prices remain unchanged at $482 on average because little business is being done right now. Fair value is around $450, but rising corn prices have lifted the potential for prices to stay firm. Much depends on buyers around the world, who balked at higher costs when crop prices were lower.
