DTN Fertilizer Outlook

By Karl Stenerson
DTN Fertilizer Columnist

The following is a breakdown of international and domestic wholesale prices and trends for various fertilizers.

AMMONIA

International:

World ammonia markets continued to see price weakness in July. However, following the recent announcement of the new Tampa price settlement for August at $190 per metric ton (mton) CFR (cost and freight) in the United States, $50 down from the July level of $240 CFR, many market participants are of an opinion that international ammonia prices have reached the bottom.

The supply situation is becoming tighter now with various plants reducing output. In Asia, Petronas' Kerteh plant is taking turnaround for 50 days, and a partial outage of Indonesian production was also reported. There are also reports of increased gas curtailments of up to 35% in Trinidad as one of the gas platforms is heard to be undergoing maintenance until the end of July.

Black Sea prices are assessed to be at around $190 mton FOB (free on board -- the buyer pays for transportation of the goods), down from the $210 to $220 mton FOB range at the end of June. In the Middle East, spot availability is reportedly tight, and Ma'aden says it is fully committed until mid-September. Latest netbacks on contract/formula priced cargoes in the region are at $185 to $210 mton FOB Middle East, down from $190 to $230 in June.

The short-term outlook for ammonia does look somewhat more stable. However, this is predominantly driven by the short-term reductions in supply. The global ammonia market continues to be structurally oversupplied, and therefore, it is yet to be seen how sustainable this fragile stability will be.

Domestic:

Ammonia prepay programs put on by domestic producers were the main highlight of the fertilizer market in early July. Koch was the main aggressor, with prepay prices generally $30 to $40 above their summer fill offers. Buyers were surprised by the cheap values, as in recent years, prepay prices have usually been $70 to $80 higher than fill. Demand was strong and most prepay offers have since been withdrawn. CF is quoting as much as $100 more in some regions where their competitor concluded sales, and they are not thought to have taken many orders at that level. The question now is becoming whether CF will come back with new prepay offers or will they hold out in anticipation of potentially higher prices on the horizon.

Prepay offers from Koch were reported at $215 to $220 per short ton (ston) FOB Oklahoma, $245/ston FOB Nebraska, $260/ston FOB Iowa, $265-$270/ston FOB Illinois, and $255 to $275/ston FOB Indiana. Offers by CF in the Sioux City area are $270 to $280/ston FOB for nearby, $320/ston FOB for September, and $350/ston for Q4. South of Sioux City, Q4 offers by CF were also at $350/ston FOB until Oklahoma where the numbers were $320/ston FOB. In the Eastern Corn Belt, CF's prepay pricing was around $360/ston FOB.

Since the flurry of prepay business, ammonia markets have been quiet, except in the Southern Plains where product is moving for wheat preplant in western Kansas, eastern Oklahoma and the panhandle of Texas. Ex-plant prices in eastern Oklahoma and Coffeeville are now at $200 to $240/ston, up from $180 to $200/ston at the end of June. Pryor FOB is reflected by the low end of the range, while the high end of the range was pinned by Verdigris.

Ammonia prices have stabilized since the seasonal reset and look to run flat to slightly firmer in the short term ahead of the fall season.

UREA

International:

The international urea market showed signs of stabilization in July, and some prices even moved up toward the end of the month. The greatest uptick of prices was seen in the U.S. NOLA (New Orleans, Louisiana) market where tightening barge supplies supported price increases of about $20 from late June.

Price increases were also realized in the key supply region of the Middle East on support stemming from an India tender. MMTC/India purchased 445,000 mtons in the tender with the majority being covered from Iran. However, up to three cargoes could be coming from the Arab Gulf. This would be more than the market expected, and this news has provided short-term price support in the region. Middle Eastern FOB values are currently at $165 to $200 mton, up from $145 to $195 mton at the end of June.

In North Africa, Egyptian producers managed to sell metric tons at $210 to $215 FOB, up from $200 to $210 in June. However, prices here look more fragile, as AOA/Algeria is understood to be planning a new sales tender for their stock inventory, and there have been reports that the Algerian plant could restart soon.

Overall, world urea prices are generally stable and look to run steady in the short term.

DOMESTIC

Urea barge prices moved up through the month, trading at $178 to $182/ston FOB NOLA the last week of July, up from $165 to $174/ston FOB at the end of June. Re-exported barges and exports by CF over the past two months have cleaned up excess inventories in the Gulf. The relatively tighter supply has supported higher prices. Higher crop prices, especially wheat, have also lent mild support to urea prices on expectations of better demand this fall.

The interior market has been mostly quiet. Application activity over the month has been limited to some cotton in the Southeast, some top-dressing of corn in the North, and maybe a little rice in the South.

River terminal prices vary depending on how successful sellers have been at moving up with implied replacement costs out of NOLA. A range of $190 to $215/ston FOB would cover most prices on the river system, up from a range of $185 to $200/ston in June. The high end of the range reflects prices in the Twin Cities where distributors have noted the broad success of urea fill across the Northern Plains. This comes as somewhat of a surprise as there have been concerns of a poor crop due to dry conditions in the regions, which, if realized, could hamper grower cash flow and expenditures on fertilizer.

Demand is seasonally slow and barge trading is limited; however, the supply of barges currently left unsold on the river appears even more limited in the short term. This has left the NOLA market feeling relatively balanced. On the import front, spot vessels were not expected to arrive into the U.S. this summer because the NOLA market is currently discounted compared to other international markets. Still, previously contracted vessels were supposed to be arriving over the summer and were expected to keep the market balanced. Now importers have started to push these contract shipments back into later months, meaning the Gulf is looking to be tight on barge supply over the next four to six weeks.

Slightly better than expected crop prices, a stable to firm outlook for international nitrogen prices, reduced urea imports in August, and the weaker U.S. dollar are all expected to provide support to domestic urea prices in the short term.

Further out into the fourth quarter and early 2018, price direction is more uncertain. As more production comes online domestically, producers are likely to face storage issues, and therefore may need to make serious price concessions for short periods of time to ensure they can keep product moving out the door.

UAN

UAN prices were stable for most of July but underwent a seasonal reset toward the end of the month as domestic producers cut prices for their summer fill programs. CF, the largest domestic nitrogen fertilizer producer, released their terminal UAN pricing on July 26. There were no barge offers made by CF on a NOLA FOB basis and no NOLA FOB equivalent was announced for their terminal pricing. Instead, terminal offers were regionally segmented, showing differing netbacks to NOLA. Generally, the Midwest terminal and plant prices released would netback to around $120 to $125/ston FOB NOLA, but this in no way encompasses all offers.

As for barges physically at NOLA, trades were reported at $122 to $125/ston FOB. These prices are down $20 to $23 from the last reported physical trades back in June when the spring application season was still in swing.

Plant/terminal summer fill prices are generally down $10 to $20 from fill last year. Woodward and Enid are each at $145/ston, which is down $10 from last year and down $30 to $40 from prompt pricing at the end of the spring season. The price at Port Neal, Iowa, is reported at $150/ston FOB, down $20 from last year and $30 from in-season.

Most other producers are being competitive. Koch at Fort Dodge, Iowa, was initially seen at $145/ston FOB but has since moved up to $150. Dodge City, Kansas, was reported at $155/ston FOB and Coffeyville, Kansas, $145/ston FOB. Delivered pricing from OCI's Wever, Iowa, into Iowa is netting back around $150/ston FOB, the same level as Port Neal posted.

PCS Lima, Ohio, was not known to have announced a fill price at publication time, but something is expected shortly. Cincinnati, Ohio, and Mt. Vernon, Indiana, were each reported at $148/ston for 32%, or $129.50 for 28%.

Reports suggest large retailers are stepping in at these levels for 50% to 60% of their estimated requirements. Other buyers are approaching fill with a little more caution, only layering in a small percentage of their needs. Differences in fill response can also be seen regionally. Cincinnati, Port Neal and ex-Oklahoma plant markets have seen the strongest response, and players here do not think fill prices will have to be reissued at lower numbers. In other regional markets, distributors are reporting an underwhelming response and think lower prices are needed. Buyers in the Twin Cities area were especially unenthused with CF's summer fill price of $170 to $175/ston FOB for 32%. While this reflects a $20 decrease from previous weeks, the price is still $25 higher than what is seen ex-plant in Iowa and farther south on the Mississippi.

The price outlook for UAN prices is stable. Most markets seem to have seen a strong enough fill response to support current values through the short term. Producers have probably seen enough sales to pull offers and try for higher prices, but anything more than a marginal increase seems unlikely to stick at this point.

PHOSPHATES

International:

July was a relatively quiet month in the phosphates market except for the announcement that the first ton of DAP has been produced at MWSPC in Saudi Arabia at the new 3-million-metric-ton-per-year granulation facility in Ras Al Khair. This news comes hot on the heels of indications from Morocco that production at Jorf Lasfar will be increased in July and then again in August, and in all likelihood, cements prospects of oversupply in the second half 2017 and into 2018.

Meanwhile, all the major benchmarks saw declines in June. Brazilian and Pakistani imports are running ahead of last year, limiting the pressure on buyers to step back into a weak market. CFR Brazil prices for MAP fell to $335 mton by the end of July, whereas in June MAP shipments were priced at $365 CFR.

Turkey is providing an outlet for North African DAP but only at lower prices. Moroccan ammonium phosphates have also been shipped to Brazil, the U.S., East Europe and Africa. North Africa FOB values are at $355 mton, down from $362 to $363 mton in June.

With Morocco set to maximize granulation next month, all eyes are on the major Chinese producers to halt the potential price slide in the East by curtailing production. Prices for Chinese DAP have edged down to $335 mton FOB from $335 to $340 last month.

With apparent demand on the horizon looking thin relative to supply, international phosphate prices are set to remain weak, particularly against a backdrop of falling raw material costs.

Domestic:

Distributors are facing higher prices at NOLA as they look to move MAP/DAP to storage ahead of the fall season in the wheat belt and Corn Belt. DAP barges have traded up to $317 to $325/ston FOB NOLA from $310 to $312/ston in June. MAP is generally a few dollars premium to DAP. The distribution chain is running thin on inventories after the spring season, and low import levels thus far this summer have kept barge supply relatively tight. Additionally, higher crop prices, especially wheat, have lent mild support to phosphate prices on expectations of better demand this fall.

Inland pricing moved slightly firmer in July on the back of increased replacement costs out of NOLA. Warehouse prices for DAP on the river are in the $345 to $350/ston range, generally up about $5 from June. MAP is generally holding a $5 to $10 premium to DAP, depending on the local supply and demand. These prices are mostly yet to be tested as fill interest in the interior remains limited.

Tightness is keeping DAP prices firm at NOLA in the short term, but once more import cargoes arrive in August, prices are expected to slide back down a bit.

POTASH

PCS and Mosaic announced summer fill potash prices at $250/ston FOB warehouse across the Midwest, down $15 from spring values. Mosaic was also offering $245/ston from river terminals. Both PCS and Mosaic were also offering potash barges as part of their fill program at $215/ston FOB NOLA.

Buyer response to the program was strong, prompting producers to withdraw their opening offers. New offers for fourth-quarter delivery are at $270/ston FOB inland warehouse, up $20 from the initial price for summer fill. However, these fourth quarter offers are yet to be tested in most markets and won't likely be bid against until the fall when retailers again need product. For now, price levels in most regions remain at the $250/ston level where last sales occurred.

Internationally, Uralkali has confirmed that it has agreed to supply potash to its contractual Chinese customers at $230 CFR for shipment through to the end of December 2017. This reflects an $11 increase on the 2016 price of $219 CFR.

The outlook for domestic potash prices is flat to firm.

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