Weekly Fertilizer Review
Prices may be sliding, but events in international markets cloud the outlook.
Published on: Aug 17, 2015
While farmers are finally seeing lower fertilizer prices as summer nears its end, events on international markets could cloud the outlook for nutrient costs into the fall. Add in uncertainty over the size of U.S. crops and buying decisions aren’t getting any easier.
Ammonia prices continue to move lower for growers on the Plains, though it’s harder to find bids for fall in the heart of the Corn Belt. Average retail costs dropped $10 to $638, but updated offer sheets on the southern Plains are running in the $560 to $580 range. The Gulf Index has remained at $418 over July and August after dropping $175 during the winter and spring, suggesting average retail costs around $620. Current corn prices and other fundamentals project prices average in the $598 to $608 range, unless growers decided to cut corn acreage. In that event average costs could fall all the way to the $540 level.
Urea costs were also down $10 last week, with our average at $438. But new offer sheets on the Plains are running more like $380 to $415. Though current prices are fairly valued, swaps into fall are around $10 cheaper, so the market doesn’t appear to be worried about rising costs. Indeed, Fundaments suggest fair value around $405, less if farmers cut seedings. The big question mark now is how events in China will impact both supply and demand. China, a leading exporter, imposed a new tax on domestic sales, then roiled international markets by devaluing its currency. Currencies of many countries weakened as well, because they either sell to China or compete with it on the world export market for finished goods. Farmers in those countries, including Brazil and South Africa, have less purchasing power to buy fertilizer, which could keep markets sluggish.
UAN followed the rest of the nitrogen complex lower last week, with our average dropping $6.60 to $306 for 28%. That’s still about $20 too high, according to our fair value calculation, based on the current cost for 32% at the Gulf, which was steady at $209. Swaps show little movement through the winter, indicating little momentum for costs to turn higher. The lowest retail offers for 28% are down to $280, in line with our projections.
Phosphates continue to buck the trend in the rest of the nutrient market as a surge in exports this spring lowered North American inventories according to the latest data. Still rising production left supplies at the end of the 2015 application season above year ago levels. DAP at the Gulf did drop $5.50 last week to $429, but average retail costs actually edged a buck higher, to $551. That’s fairly close to current fair value projections, though the swap market shows a lower trend into winter, with January $25 lower than the spot. Fundamentals suggest retail prices should be $500 or less for DAP, a price that might only be seen if demand from Brazil and India really dries up.
Potash was stubbornly steady in 2015, surprisingly so given the steady decline in world prices over the past year. Now retail costs are finally cracking. Our average dropped $7 last week to $474, with new offer sheets finally coming in around the $442 fair value price suggested by terminal markets. Prices could be $10 less if fundamentals remain weak. While North American companies pushed exports in the spring, domestic sales were slow. Inventory levels were still 11% below year-ago levels, but China’s demand remains uncertain due to the tax increase and currency devaluation.
