DTN Fertilizer Outlook

By Logan Garcia, Market Reporter - Fertecon, Agribusiness Intelligence, IHS Markit

September proved to be a month of unprecedented firmness in fertilizer prices, bringing strong trends of the previous year to another level entirely. The month opened with Hurricane Ida tearing through the Louisiana and Texas coastline, halting nitrogen production in the area and halting barge transit on the Mississippi River.

While already a strong year for potash and phosphate prices given earlier developments, the disruption caused by the hurricane caused all fertilizer prices to skyrocket on strained logistics and reduced supplies, which sustained at least to some degree for the rest of the month.

The following is a breakdown of wholesale prices and trends of the various fertilizers for September and early October 2021.

AMMONIA

Domestic:

The U.S. ammonia market was quiet in the immediate aftermath of the hurricane, but as world prices increased and the full impact of production cuts became known, prices began to rise quickly alongside urea and other nitrogen fertilizers.

The Mosaic Company, CF Industries, Nutrien and Dyno Nobel all have nitrogen production facilities located in Louisiana, which shuttered ahead of the hurricane. Many industrial facilities in the U.S. Gulf were taken offline in preparation for Ida in the days prior. While CF was able to restart ammonia and upgraded nitrate production at Donalsonville after calling force majeure conditions, the other producer facilities remained offline for the remainder of the month as repairs and power restoration efforts continued.

While August ammonia prices ended at $650-$665 per short ton (t) free-on-board (FOB) for October through December in the Corn Belt, prompt prices had risen to around $800 by the end of September on the back of a much stronger increase in the Tampa ammonia contract than many were expecting.

CF's plant at Port Neal, Iowa, ended the month by pulling its prices on urea and ammonia from early September offers at $670-$680/t, ahead of some expected turnaround to begin in early to mid-October, which could last up to 45 days. Ex-plant volumes in eastern Oklahoma, meanwhile, had been reported at $625-$635/t early in the month and then increased to $740/t at Koch's Enid, Oklahoma, plant by October.

Trader estimates indicated that September ammonia production losses may be approximately 300,000 t in Louisiana as a result of Hurricane Ida and the shutdowns at Donaldsonville, Geismar, Waggaman and Faustina.

Stronger pricing on urea and UAN has also highlighted that ammonia could be priced much higher on a competitive nitrogen-per-unit basis, leaving our short-term price outlook on U.S. ammonia firm through the next two months.

International:

In September, Yara and Mosaic set a new Tampa ammonia contract agreement at $665 per metric ton (mt) cost and freight (CFR) for October deliveries, much higher than the rollover or slight increase previously expected.

However, firmer global ammonia outside the U.S. and rising natural gas costs as the Northern Hemisphere enters winter have also had an outsized influence on prices, especially in Europe.

Similar to market conditions present in Texas and Oklahoma in February earlier this year, CF Industries suspended production at its two ammonia production sites in the UK due to the high price of natural gas before reaching an agreement with the government to restart its Billingham plant to stabilize carbon dioxide supplies in the country. Other shutdowns continued across Europe and even resulted in the collapse of some energy providers due to historically high natural gas prices.

Reflecting the great increases in input costs and production declines, Baltic ammonia spot ammonia prices rose to $603-$720/mt FOB -- nearly $150 higher from late-August totals -- while Black Sea product rose a similar amount to $697-$705/mt.

It is yet to be seen if the current stack of curtailments, downtime and subsequent increase in spot demand from ammonia producers in Europe will encourage further movement of ammonia from the Eastern Hemisphere to the west. Some length to the market was added after Ma'aden's large Saudi Arabian ammonia plant was officially restarted, but global shipping issues could add further pressure to the firm tone in Europe and the Americas.

UREA

Domestic:

Urea prices saw their first big spike in September early in the month, after fallout from the hurricane revealed that moving urea into the U.S. Gulf and upriver into the U.S. would become a major challenge ahead of the coming Upper Mississippi River closure to barging.

Late August saw New Orleans, Louisiana, (NOLA) urea levels in the $420-$430/t FOB range, rising quickly into the $550s after the first week of hurricane impact assessments reached the market. Midway through the month after a brief, relatively stable period, however, a combination of extended production downtime, continued challenges to barge logistics and extremely bullish overseas fundamentals pushed urea to highs reminiscent of 2012 and 2008. September barge values ended at $599-$650/t FOB.

River terminal prices followed suit, with relatively subdued activity before the bigger picture of supply difficulties became apparent. Motivated by those who needed to fulfill contracts or begin fall buying, the ensuing scramble for product drove prices as high as $675-$700/t FOB, over $200 higher from end-of-August levels.

Near the end of September, it became apparent that those who did not have an urgent need for urea before spring mostly stepped out of the market. The higher prices shocked distributors and retailers, who, at a few times during the month, pulled fertilizer offers entirely as the trading market was just moving too quickly to keep up.

Unless the natural gas crisis is resolved overseas, among other factors, higher nitrogen prices appear to be the new normal for winter offers, with our short-term urea price outlook remaining firm with the potential to stabilize as fall needs are filled and remaining potential buyers await spring in hopes of lower prices.

International:

As mentioned above, Europe's natural gas crisis and a September announcement of another India purchase tender dominated the news during the month, and supply disruptions here in the U.S. also helped to push prices higher.

For its part, Brazilian urea prices rose to $615-$700/mt CFR by the end of the month, up from $470-$475 in August, as the major world buyer had to compete with India and the U.S. for available supplies. Major exporter Egypt, on the other hand, ending September at $610-$620/mt FOB, still saw large gains as well but were limited by increasing freight rates as well as the producer having already sold most of its volumes and comfortable enough on sales to withdraw offers.

The other big factor in September's run-up was the Chinese government announcement of export restrictions and tighter customs regulations beginning Nov. 1, meaning that the window for India to secure more volumes has narrowed.

In the short term, global urea prices appear bullish considering all the strong fundamentals at play.

UAN

September was largely a slow month for UAN, not because there was no demand, but owing to no producers having availability until later in the month, if any. Hardly any sellers had length on UAN to sell, and those who did were resistant to do so without knowledge of their replacement costs.

The outage at Donaldsonville was a large concern before CF announced it had restored ammonia production and was working on restoring upgrades to UAN and urea.

On the last day of September, CF released long-anticipated UAN offers at its U.S. terminals and production sites for fourth-quarter shipment, at levels around $425-$435 NOLA equivalents depending on location. Most offers centered specifically around the November-to-December timeframe and were heavily allocated with offers pulled ahead of the weekend. Last offers from CF were at the $320/t FOB NOLA level.

The higher offers pushed river terminal volumes more than $100 higher from previous offerings at $455-$460/t FOB for UAN 32% at main river locations at St. Louis and Cincinnati and at equivalent levels throughout the system, bringing liquid closer in line to urea in terms of a value per unit of nitrogen basis (see graph accompanying this article).

Plant volumes were difficult to locate after CF pulled its offers but were reported in line with terminals at $455-$460/t in eastern Oklahoma. No offers were made out of CF's Port Neal plant.

UAN prices are expected to remain strong on a bullish nitrogen complex as a whole, as well as fewer volumes expected to come from Trinidad & Tobago and Russia as the U.S. government's antidumping case continues. Next developments are expected late in November when the U.S. Department of Commerce will announce its initial subsidy rates for foreign UAN production, which may reflect equivalent tariff rates down the line unless revised.

PHOSPHATES

Domestic:

The major result of fallout from Hurricane Ida for phosphates in the U.S. was Mosaic announcing that due to the storm, September production of phosphates was expected to fall by around 300,000 tons. Continued outages at some of Mosaic's Louisiana facilities, coupled with the fact that no seafaring vessels could unload imported volumes for some time, put a huge supply crunch on MAP and, to a lesser degree, DAP.

Tight supplies seen for much of the year so far became even more exaggerated in September as MAP barges reached $730-$765/t FOB NOLA, about $100 higher from the previous month. DAP barge prices, meanwhile, gained roughly $50 to $650-$675/t.

River terminal equivalents for DAP and MAP also rose with supplies especially tight at inland terminals. DAP volumes rose to $710-$725/t, up from $635-$650 at the same time in August, while MAP ended at $750-$800/t, $50-$100 higher month-over-month.

Some market participants report being unable to find any quotes for MAP from major suppliers for the rest of 2021 in the shortest interior markets, a trend likely to continue ahead of fall applications as many are still trying to find enough product to meet previous contracts or push out delivery dates further. DAP is not quite as strained but remains tight, but with China now restricting its phosphate exports, it will only prove that much more difficult to procure extra product from abroad.

Phosphate prices are expected to remain firm in the short term because of these extremely bullish factors.

International:

The international phosphate market is wrestling with a similar issue as urea with the reduction of Chinese exports expected to put a stain on global supplies.

India has seen great demand for DAP for its upcoming crop as prices reached $674-$678/mt CFR in September, up $40 from August levels when demand was just beginning to return. Brazil MAP, meanwhile, softened to $715-$720/mt CFR, $10-$15 lower from August where demand has been relatively lacking compared to the sharp rising of U.S. price levels.

Prices in the U.S. were so relatively strong, in fact, that several cargoes from Russia subject to a 9.19% import tariffs enacted earlier this year were financially viable, and at least three vessels have been booked.

Considering tighter supplies expected to come from China's step backward from the market, phosphate prices also appear to remain firm through the rest of the year.

POTASH

Potash markets were slow in August and overall remained slow in September. Values still rose nearly $100/t like some other fertilizers, but most of the business was done by traders with many having either already procured fill volumes or opted to wait through winter in hopes of lower prices materializing.

NOLA granular potash barges rose to $640/t FOB, up from last confirmed August trades at $550/t. A lack of supply and bottlenecks to import loadings at the Gulf kept liquidity low in the first half of the month, but there were a few trades for October and some loaded barges were transacted in the second half of the month.

River terminal price equivalents continue to move in step with the Gulf even though replacement costs still have not quite caught up to product stocked in warehouses purchased at lower values. $670-$700 captures the range of offers at major terminals along the Mississippi at the end of the month, up from $590-$615 in August.

Belarusian potash volumes have helped keep the U.S. from running too far behind on imports this year so far, but this is expected to end after December when sanctions will halt volumes from being shipped out of Lithuanian ports. Russia has stated that they will help the producer find another route for exporting, but U.S. sanctions on Belarusian product is expected to reduce available supply further.

The outlook for U.S. potash is firm in the short term but could see some relief in the medium term as Mosaic and Nutrien continue efforts to expand production capabilities in North America. The new volumes are expected to start hitting the market early next year.

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

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