DTN Fertilizer Outlook

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

October saw much-needed recovery in the U.S. from the impacts of Hurricane Ida in August as U.S. Gulf production facilities continue to return online and the worst of the logistical woes appear behind us. However, sharp price increases on fertilizers abroad have motivated bull runs on nitrogen prices, including ammonia surpassing $1,100 per ton in the Midwest and urea barge prices surpassing both DAP and potash.

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

AMMONIA

Domestic:

October saw enduring downtime for ammonia production as several U.S. Gulf nitrogen plants remained offline from Hurricane Ida. Dyno Nobel's facility at Waggaman and Mosaic's Faustina complex remained down through September and much of October, while CF at Donaldsonville came back online in the past month. CF Port Neal meanwhile began turnaround last month which is expected to finish in the second half of November.

Ammonia prices have skyrocketed in the Midwest, with Koch announcing new levels as high as $1,100 per short ton (t) free-on-board (FOB) at its Corn Belt terminals and plants -- a near two-fold increase on prices of $650 to $680 in the Midwest seen at the end September. CF and other producers and sellers in the region followed Koch, with CF setting a new price in the Northern Plains and Iowa of $1,200/t FOB for overpull delivery volumes.

The majority of fall buying was said to have been concluded at the previously mentioned lower levels, but buyers that opted to wait will be left with little option but to pay the higher and uniformly $1,000+ per ton levels.

Given increasing achieved prices on ammonia in the U.S. late in October after a strong Tampa settlement, we expect U.S. ammonia prices to remain firm.

International:

In the highest price settlement at Tampa for 13 years, Yara and Mosaic agreed to a price of $825 per metric ton (mt) cost and freight (CFR) for November ammonia deliveries. The increase is attributed in part to the current high level of demand from Europe, where ammonia producers have curtailed operations as they combat high gas costs. The recent increase in ammonia prices in the United States was also a contributing factor.

With all the sustained production downtime in Europe continuing last month, CF made a sale early in October to Chile and OCI sold ammonia from its Beaumont plant with the cargo reported heading for the Netherlands. Supporting the sales were natural gas costs which continued to rise in Europe; the theoretical cost of gas per ton of ammonia is at well above $1,000.

Baltic Sea ammonia rose from low trades at $603/mt FOB to $656, with $720 composing the high end for a second consecutive month. Black Sea ammonia meanwhile remained steady ahead of any higher contracts negotiated before November at $697 to $705/mt FOB.

Global ammonia is seen as incredibly firm in the Western Hemisphere, with production restarts in Saudi Arabia keeping prices more stable to the east.

UREA

Domestic:

Urea price firmed significantly in October near month's end as the closure of the Upper Mississippi River to barges and surging prices overseas both helped to sustain the urea bull market which began in September.

NOLA urea barge prices ended October at $690 to $698/t FOB, before trading later that same day as high as $710 to $720 for November and forward months into Q1 2022. This reflects a $40 to $60 minimum price gain on September highs at $650. Barges continued to trend higher on tighter supply expected from Russia and China as both countries announced efforts to curb exports recently, tightening supplies from other world producers.

Inland along the Mississippi River, urea offers jumped to $725 to $740/t FOB, with terminals north of St. Louis commanding $15 to $50/t premiums as the last barges made their way north before river close. For context, terminal prices had only managed to reach the $700 mark by the end of September.

October urea plant outages in the northern U.S., including plants at Port Neal (CF Industries) and Beulah (Dakota Gasification) and with chatter on reduced production at Wever (OCI), supported higher price in the upper Midwest.

Sellers saw significantly less buyer interest at new price highs, but firm global prices show no end in sight for urea's continued appreciation. We see domestic urea prices firm in the short term.

International: As previously mentioned, the global urea market saw prices skyrocket even faster than here in the U.S. last month. Announcements by the governments of Russia and China on efforts to curb fertilizer exports complicated an already incredibly firm nitrogen market on the natural gas crisis in Europe and the ensuing production cuts.

Illustrating the price gains are prices in Brazil which rose to $795 to $810/mt CFR in October as preparations for the new crop began, increasing over $100 from September highs at $700. Egyptian urea prices meanwhile ended the month at $845 to $876/mt FOB -- up approximately $250/t from $615 in September.

For comparison, NOLA urea barges on a metric basis were about $760/t, well under the international market at a time when suppliers are signaling less availability and major buyers continue to seek tonnage. Urea prices outside the U.S. are therefore seen as firm in the short term.

UAN

With an overall bullish nitrogen complex recently observed, UAN continues to see prices rise alongside ammonia and urea.

NOLA UAN barges climbed to $535 to $540/t FOB in October on new offers from CF Industries for Q1 2022 equivalent offers. The market was again reinvigorated with a new replacement cost set once again for other sellers, and quickly moved to adopt the new price baseline for rail delivery and river terminal offers.

New river offers were set at $565 to $570/t FOB for UAN 32%, just over $100 higher from CF's last offerings at its terminals in September. Cincinnati UAN held a $5 premium while other river locations remained at the low end of the range for the duration of offers.

The East Coast UAN market climbed alongside other U.S. price points, with end-month trading reaching $625/mt CFR as part of CF's run of offers. Lower sales of $550 had been previously achieved before the increases.

It's hard to imagine much downside risk in UAN at the moment. Supplies have been tight of late, with some orders said to have been cancelled by suppliers last month owing to production interruptions related to the August hurricane and the ensuing production catchup delaying shipments.

Imports are also expected to be reduced through early next year as the U.S. Department of Commerce continues its antidumping/countervailing duty investigation, with an announcement expected at the end of November regarding initial subsidy rates for Trinidad and Russian-sourced product.

Our short-term outlook on UAN prices is firm.

PHOSPHATES

Domestic:

Compared to nitrogen, phosphates prices saw more modest price raises in the month of October. Despite the relative calm compared to the frenzied urea trading market, volumes remain hard to find, especially for MAP, and price increases still outpaced gains in major crop futures contracts.

NOLA DAP barge prices jumped a relatively modest $20 to $25/t from September to $672 to $675/t FOB, while MAP was steady from highs in September at $760/t. October saw a rare occurrence of urea barges surpassing both DAP and potash prices, as P&K both saw much more muted trader interest in short spats throughout the month.

Along the Mississippi River, DAP was $715 to $745/t FOB, up $5 at the low end and $20 from the previous month highs as good movement was observed ahead of fall applications. MAP prices rose in line with DAP to $785 to $825.

Mosaic did announce in its Q3 financials that its operations in Louisiana have been restored to full capacity rates and repairs at its New Wales facility are nearly complete. Looking ahead, the company expects sales to return to normalized levels in early 2022, with the potential for some relief from rising prices as U.S. phosphate production rates return to optimized levels.

While not as sharply bullish as nitrogen, tight supplies from lower domestic production and reduced import unloading operations in Q3 continue to support higher prices for U.S. phosphates going forward, especially with the threat of reduced exports from Russia and China.

International:

Phosphates prices made impressive gains in October partly on strong demand in South and Southeast Asia, notably India, and in Australia, owing to the continued absence of Chinese supply from the international market due to the new inspection process that commenced mid-October. Russian export quotas announced later in the month also helped to squeeze further price increases last month.

Indian DAP jumped $60 from September to $780/mt CFR as it scrambles to secure phosphates for its upcoming winter crop, made difficult due to supply losses from the two large exporters mentioned above. Prices for MAP in Brazil meanwhile ended October at $800 to $810/mt CFR, nearly $100 up from September on increasing demand coming out of a holiday period for the country.

With the U.S. Gulf DAP/MAP export equivalent at $752 to $764/t CFR, export cargos flowed from the U.S. to Brazil and other destinations on improved pricing and recovering domestic production in October.

In the short term, we expect phosphate prices to remain firm as the Russian and Chinese reduced supplies in the global market to come will take their toll and further tighten a bullish market.

POTASH

Potash saw less attention in October as North American producers remained tight on availability for spot sales, and the focus of trading rested on nitrogen and phosphates for the majority of the month.

NOLA potash barges gained $45/t to $685/t FOB in October as trades gained steadily throughout October. Focus continues to remain on Q1 2022 with much of the November and December potash volumes already committed. And, with harvest wrapping up, buyers are looking expectantly toward a potential winter fill program in December.

River terminal prices also moved up in step with NOLA to $715 to $730/t FOB, $15 to $30 higher from September's highest offers.

Mosaic said in its Q3 investor call the company will hit full production by the end of the first quarter next year, including ramp up of production at Esterhazy K3 and restart at Colonsay, which is now running at its expected rate of approximately 100,000 tons per month to about 1 million tons a year.

Import volumes meanwhile are expected to see some further struggles with less Belarussian supply flowing into the country with previously announced sanctions taking effect in December, and the potential for Russian shipments coming to a halt as well if export quotas are formally enacted. Currently, the quotas will only apply to nitrogen and complex fertilizers containing nitrogen for six months.

Potash prices are poised to remain stable in the short term with the potential to firm on continued tight supplies through year's end.

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

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