N Prices on the Rise

OMAHA (DTN) -- The recent rise in anhydrous prices comes as a big lump of coal in farmers' stockings right at the holiday season. With already tight crop margins, higher anhydrous prices were not on any farmer's Christmas list.

The average retail price of anhydrous was $461 per ton the third week of December 2017, up 12% from $410 the third week of November 2017, according to retailers surveyed by DTN.

The rise in anhydrous prices this time of year has some farmers such as Dana Martens of Oakland, Iowa, scratching their heads.

Martens points out that lots of anhydrous was applied this past fall. Also, most of the country has had fairly mild weather so far this winter, which means the country hasn't used much natural gas, the main ingredient in manufacturing anhydrous ammonia, he said. Those two factors seem to suggest prices should be moving lower, not higher.

"I feel this would lead it (anhydrous) to be steady in price instead of 20% to 25% higher than just a few weeks ago," Martens told DTN.

Farther to the east in central Iowa, farmer Dave Newby did apply most of his anhydrous this fall (with stabilizer) on his farm near Bondurant. The price was around $360 per ton when he applied in early November.

Now the price is $450 per ton, according to Newby's co-op. "This is a roughly 25% increase," he said. "And it is headed higher by spring."

So what changed? Experts say several different factors have come together to push nitrogen prices higher heading into 2018. However, good news may be coming in the future.

NITROGEN PRICES OFF OF HISTORIC LOWS

Nitrogen prices moving higher appears to be the market correcting itself, according to Bob Spratt, manager of LeRoy Fertilizer Services located in LeRoy, Illinois. The market is coming off 11-year lows in all fertilizers, he said.

"We also are coming out of an unprecedented fall anhydrous season, where more went on," Spratt told DTN. "I did see a $50/ton increase at the end of the season, which put it back where it was in the spring of 2017."

Clark McGrath, Iowa State University on-farm research and Extension coordinator and agronomist in western Iowa, said the high demand for anhydrous this fall has played a role in the current situation. A former fertilizer retailer himself, McGrath said tons were moving fast this fall, and there were some reports of supply hiccups across the Corn Belt.

Wholesalers -- and to a lesser degree, retailers -- are trying to maintain or build more margin, he said. For retailers, wholesale costs, trucking distances and expenses trimmed back net margins for a fair number of retailers.

"So if the local market will allow it, they generally try to recoup some of these margins at prepay time, or more likely with 'in-season' tons," McGrath said.

McGrath said one region's retailers may end up with costs that vary significantly from other retailers in a rising market like this. Higher prices are contagious it seems, he said.

The good news is there was a lot of nitrogen applied, so supplies in the spring ought to be fairly solid, he said. In addition, farmers could possibly shift to other forms of nitrogen given that some of the prepay spreads appear to be closer than usual.

LESS CHINESE N

Another reason for higher nitrogen prices appears to be what is happening on the other side of the world.

Chinese urea exports fell significantly in 2017. In a presentation at the 2017 Fertilizer Outlook and Technology Conference held in mid-November in New Orleans, Louisiana, Luke Hutson, head of urea and nitrates analysis for Fertecon, reported that urea exports saw a major decline from 2016 to 2017.

In 2016, China exported as much as 1.4 million metric tons (mmt) in January 2016, while so far in 2017, the most the nation has exported in a month has been 600,000 mmt in June 2017.

Huston cited high production costs as the main reason for the decline in urea exports from China. Many fertilizer producers in China utilize coal as an energy source to manufacture fertilizer.

Spratt said it appears Chinese fertilizer producers are starting to see the effects of the nation cracking down on environmental concerns. Urea production is off quite a bit, and the world producers are trying to backfill the loss of Chinese urea production, he said.

"The environmental movement (in China) will have broad impacts worldwide," he said.

MORE NORTH AMERICAN N

While Chinese nitrogen producers are cutting back on production, North American fertilizer producers are seeing increased production thanks to new and remodeled nitrogen production facilities. One such plant is the Iowa Fertilizer Company's new facility near Wever, Iowa, which opened earlier this year.

Hutson said U.S. urea exports have skyrocketed from 2016 to 2017. The month with the highest urea exports in 2016 was August when 50 mmt was exported. Data from 2017 showed 40 mmt was exported in May, 160 mmt in June and whooping 225 mmt was exported in July 2017, he said.

Spratt said he attended an industry meeting recently and one of the topics was increasing U.S. urea production. Subjects discussed included the effect increased North American nitrogen production will have on nitrogen prices.

Indicators point to the price increase in nitrogen not sticking around long once North American production starts running like it's supposed to be, he said.

Russ Quinn can be reached at russ.quinn@dtn.com

Follow Russ Quinn on Twitter @RussQuinnDTN

(BAS/AG/CZ)

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