DTN Fertilizer Outlook

By Karl Stenerson
Market Reporter - Fertecon
Agribusiness Intelligence, IHS Markit

Here is a breakdown of wholesale prices and trends of various fertilizers.

AMMONIA

International:

The global ammonia market is on slightly firmer ground, driven largely by outages and the spot demand emerging as a result. However, there is concern that this uptrend may not last once production is back to normal with the market still perceived to be in oversupply.

An unplanned outage at Ma'aden's ammonia plant in Saudi Arabia seems to have been the one that finally helped break the bearish trend that could not be reversed by outages/turnarounds seen in Algeria and Russia alone. A move to cover metric tons (mt) has underpinned prices in the Middle East and Asia and Far East values have edged up as a result to $260-$282 per mt cost and freight (CFR), compared to $255-$285 in early July.

Yara secured a rollover in its latest negotiations with Mosaic at $215 mt CFR Tampa, Florida. This came after months of sliding down -- the price was set at $355 for October 2018 and then every subsequent month fell until now. The price, however, did not hit the last low of $190 CFR seen in August 2017.

Overall, while we are on firmer ground, there has yet to be any major improvement in price, and further improvements may be stymied if production quickly returns to normal east and west.

Domestic:

Interior ammonia markets were quiet. Fill and prepay activity has slowed down as buyers are content with purchases. The Tampa rollover was welcome news, as most believe that if Tampa does not continue to fall, then there will be good interior ammonia price appreciation this fall. There continues to be the expectation of strong fall ammonia demand due to the high corn price, which some are estimating will boost corn planted acres to the mid-90s million next spring, and the hope that farmers will want to get as much fertilizer applied in the fall because of how poor the spring application season was.

Corn Belt FOB (free on board -- the buyer pays for transportation of the goods) values stand at $320-$350 per short ton (t) for summer fill shipment while fall prepay is unchanged at $375-$390.

Ex-plant prices in the Southern Plains are steady at $280/t for summer fill and $320-$330 for fall prepay.

The domestic price outlook is stable to firm.

UREA

International:

Activity in the global urea market centered around the July 1 India tender, in which MMTC purchased nearly 1.7 million t. Sudden offers of Chinese prilled urea in the mid-$270s FOB just prior to the tender led price levels coming in lower than expected at roughly $293-$296 mt CFR, up just $13-$15 from the last tender. In theory, the large purchase by India should be a positive driver for the market. However, prices did not shoot up in response, because of the large offerings out of China and low levels of liquidity elsewhere.

Indeed, over a million metric tons was originally believed to be supplied out of China, but there has since been reports that not all these metric tons will be able to ship before the shipment window closes Aug. 16. This led to a short squeeze in the market and traders had to look for cover elsewhere. This supported Middle East and North African FOB values for most of July. However, by the end of the month, traders appeared to have found cover, and eventually a Middle East cargo was sold as low as $270 in early August, compared to values at $282-$284 in early July.

Meanwhile, the lack of demand outside of India is driving bearish sentiment for metric tons post mid-August shipment. This is most likely expected to play out in North African prices, with plenty of availability still reported for the second half of August. India may return sometime, but producers are likely to have to accept lower FOBs to place any metric tons this time around. The same can be said for Brazil, where import appetite continues to be discouraged by the availability of cheaper Iranian product.

The short-term outlook for international urea prices is soft as the supply side, bolstered by Chinese exports, looks set to outweigh seasonally slow demand outside of India.

Domestic

New Orleans, Louisiana, (NOLA) urea prices edged higher through July, trading at $258-$262 during the last week of the month, compared to around $245 in early July. Solid late-season demand and relatively high inland U.S. and overseas prices were supportive despite significant corn acres lost this spring to prevented planting.

Coming out of the Southwestern Fertilizer Conference held in mid-July in Nashville, Tennessee, this year, market participants generally felt that the U.S. market is balanced in the near term with the long-tail to the spring season thought to have done a good job clearing out nitrogen inventories. Also, CF has its typical summer export book out of Donaldsonville selling to Latin America, which has helped keep the NOLA market from going into oversupply. Moving forward, expectations of strong spring demand next year, due to an estimated 95 million to 96 million acres of corn planted, are expected to boost urea demand. However, this demand is many months away, so buyers are generally still happy to wait for potentially better buying opportunities later in the year.

River terminal prices are steady from last month around $290-$295/t FOB. Ex-plant prices (the price at the factory, not including any other charges, such as delivery or subsequent taxes) are softer with Port Neal, Iowa, now at $290/t FOB for prompt shipment and Enid, Oklahoma, down to $315/t, compared to $325 and $330, respectively, at the end of the spring season.

The Arkansas River from Little Rock to Catoosa is expected to remain closed until at least the first week of September due to major silting issues. Distributors will need to transload (the process of transferring a shipment from one mode of transportation to another) from other points on the Arkansas and Mississippi rivers and also utilize domestic production points like Enid, Borger, and Donaldsonville more to service customers for the wheat run beginning in late August into September.

The urea price outlook is soft in the short-term as NOLA prices look to remain at a discount to international values, which appear to be in a downward correction following the short-squeeze for India.

UAN

The long-awaited CF summer UAN fill program was announced on July 29.

Ex-plant prices were reported at $165/t for Oklahoma (+0-5 year-over-year) and $180 Iowa (+0 year-over-year). River terminal prices were heard at $175 (+7-10 year-over-year) at St. Louis and Cincinnati.

Assuming $30-$35/t transportation and terminal costs, river terminal prices are estimated to netback to NOLA around $140-$145/t FOB. Ex-plant prices would net back below this level.

Delivered barge trade was reported netting back to $148-$152/t FOB NOLA, compared to $145-$153 during the initial fill week last year.

Buyer reception to the fill program was positive despite prices coming in toward the high end of some expectations. Reports suggest that CF limited the tons that buyers could purchase at these values, even more so than last year. Expectations are that CF will return to the market in the coming weeks and look to sell more, likely at prices around $5-$15 higher. CF also still needs to issue prices from its other inland distribution points as offers so far have only been seen from production points and its major river terminals.

Expectations of an increase in corn planted acres to around 95 million to 96 million next spring is providing support for UAN. Urea also remains at premium to UAN. Recent news that the EU proposed to change UAN antidumping duties from a percentage rate to a flat rate in October also provides upside as this will cost less from an import perspective and will likely lead to more import demand relative to under the percentage-based tariffs, all else held constant.

The outlook for domestic UAN prices is firm with a positive follow-through from buyers during the fill program likely to lead to price increases in the short-term.

PHOSPHATES

International:

Global phosphate prices were slightly soft in July with stable delivered values and higher freight rates leading to lower FOB values in most cases. Some importers in Asia, Europe, North and Latin America looked to purchase cargoes of DAP and MAP at the end of month; however, demand remained relatively lackluster compared to a more typical peak third quarter shipping period.

Saudi Arabian producers accepted lower values in the high $330s mt FOB to place DAP in India and OCP yielded to $360 FOB at most to put Moroccan metric tons to bed in Europe, compared to FOB values as high as $342 and $372 in early July. Mosaic sold MAP at $355 CFR to Brazil, netting a lower $332 FOB, down $4 from last month.

Indian demand for imported DAP is the key variable for prices in Q3. Importers are well ahead on purchases, but there remains a large requirement through the end of the year. Lower prices would have to be accepted by U.S. and Moroccan manufacturers to conclude sales in India, although should this add strongly to order books, it would underpin producers' efforts to raise prices for other markets, including the U.S.

There was talk last month of a meeting of Chinese producers where a curtailment in DAP production of 40% was discussed, however, evidence of this large of a cutback has yet to be seen.

Overall, suppliers are likely to sacrifice price to secure volume with a soft undertone to the sulphur market in China set to help move the cost benchmark down yet again.

Domestic:

NOLA phosphate barge prices remained under pressure in July as a result of high carryover following a poor spring application and the continued arrival of imports. DAP prices are most recently reported at $300-$305/t FOB, down from $306-$308 in early July. MAP prices continue to run even with DAP.

Market sentiment at the Southwestern Fertilizer Conference was mostly bearish. There was talk of a high number of barges in NOLA left unsold and with further imports coming over the next month, mainly from Morocco, many felt that the risk in the short-term was more to the downside. That being said, some highlight that DAP prices are not far off from estimated total domestic production costs and corn prices are high, so any further downside should be somewhat limited and there is the potential for price appreciation once fall applications begin.

River terminal prices are softening with most quotes for DAP and MAP around $335/t FOB, compared to $345-$355 last month. There is little interest from buyers as most who want to buy ahead of fall have already stepped in, and the few who have not yet bought are willing to wait, sensing lower prices.

The outlook for NOLA phosphates is soft in the short-term as the international market remains oversupplied, and it is unlikely that any significant productions cuts will be made domestically.

POTASH

Domestic potash prices were steady at best in July as the market continues to struggle with high carryover despite expectations for a strong fall season. It is becoming clearer that the producer-led $25 price increase following the conclusion of summer fill programs will not be achieved anytime soon.

Indeed, while producers have not officially changed their offers at $315/t FOB inland warehouse and $310 river terminal for the fourth quarter, there has not been any sales reported at this level, and it appears unlikely to happen until possibly fall application work begins. A $10 increase from fill levels is the highest reported.

NOLA barge prices have declined to $245-$250/t FOB, compared to $248-$255 in early July, as buyers have little appetite and importers struggle with length.

River terminal values are equally soft with reports this week of sub $280/t FOB surfacing from multiple points along the river system.

The outlook is steady in the short term with potential for further downside equally unlikely as any upside before fall.

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Editor's Note: This information was supplied courtesy of Fertecon, Agribusiness Intelligence, IHS Markit.

(AG/BAS)

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