DTN Fertilizer Outlook

US Wholesale Fertilizer Prices Seen Mostly Steady in Short Term

(Chart courtesy of Karl Stenerson)

Here is a breakdown of wholesale prices and trends by the various fertilizers:

AMMONIA

Widespread price recovery continued in the international ammonia market throughout December. Merchant ammonia supply reduction at several major exporting countries was the main reason for this upturn in a month when, typically, demand is seasonally weakening. The bull-run in ammonia prices has also been supported by a recovery in the downstream markets, particularly for non-fertilizer applications.

Severely reduced exports out of the Black Sea due to lower output at the Togliattiazot plant in Russia continued, and in the second half of December, Ameropa's vessel could not load any product due to the ongoing dispute over the pipeline transit fees and payments. At the end of December, ammonia export tons at fob (free on board -- the buyer pays for transportation of the goods) Yuzhnyy were priced at $220 to $260 per metric ton (mt), up from $180 to $190 per mt at the end of November.

The Middle East market was also quite tight, and while availability from Saudi Arabia improved in relation to November, Razi plants in Iran are still under rolling turnarounds up to and including January. Middle East spot values ended the month at $190 to $210 per mt, up from $170 to $185 per mt at the end of November.

In the United States, the new settlement of the contract price between Yara and Mosaic has been announced at $250 per mt cfr (cost and freight) for January deliveries, a $25 increase on the December price of $225 cfr. Increased gas curtailments of approximately 25% reportedly continue in Trinidad, which is also expected to have an effect on availability if the situation continues into 2017.

Ammonia demand for downstream fertilizer production is also rendering support to ammonia prices going into the New Year. Phosphate prices appear to have stabilized, and the short-term outlook for urea and nitrate fertilizers continues to be firm. However, supply restrictions are expected to continue to be the foremost driver of the market. We look for firmer ammonia prices in the short-term.

Domestically, the end of a disappointing fall application season brought lower prices for winter fill, but toward the end of the month, spring prepay prices increased on good demand.

Warm temperatures delayed application early in the season, and there was generally only a couple short weeks where conditions suited application before winter weather rolled in and put an end to the season. Fall ammonia sales did not meet sellers' expectations, especially those west of the Mississippi. However, not all blame can be put on the weather. The market postulation now is that many growers are going to plant more acres of soybean and less of corn, hence the demand deficiency being seen for nitrogens.

Long supplies pushed winter fill prices in the Corn Belt down to new 52-week lows. North Dakota tons moved as far south as Kansas to secure sales, and tons out of Illinois terminals were being delivered as far east as Ohio. Delivered values in Illinois for winter fill are running at $350 per short ton (t), equivalent to about $325 fob central Illinois terminals, which is down $60 to $65 from in-season sales.

Spring prepay from the major producers was initially offered at $375 to $385/t in the Corn Belt. Once buyers refilled at the relatively cheap winter fill prices, they shifted interest toward spring prepay and continued their buying. After seeing good demand, producers raised their spring prepay prices to $395 to $405/t in the Corn Belt. Winter fill prices are still running at a $70 to $80 discount, but most buyers have finished their refill. Winter fill in the Midsouth is around $325/t, and spring prepay is priced at a $50 premium.

Just before the Christmas weekend, the new settlement of the contract price between Yara and Mosaic was announced at $250 cfr for January deliveries. This is a $25 increase on the December price of $225 cfr.

We look for domestic ammonia prices to run steady to firmer in the short term on tight nearby world supply and firming downstream nitrogen fertilizer markets.

UREA

At the start of December, the urea market saw the effect of the scrapped STC, India, tender, with New Orleans, Louisiana, (NOLA) barge values softening to $215/t, while Iranian tonnage was sold at a reported netback of $210 mt fob. The market has recovered, firming over the past couple weeks, suggesting that an announcement on an Indian tender is not necessary to keep this market going. Expectations of demand from Europe, the U.S. and others in the first quarter, combined with limited availability for spot business in both North Africa, the Arab Gulf, as well as China and Indonesia, has created initiative for traders to go long. NOLA barges traded at $234 to $242/t at the end of December, up slightly from $227 to $240/t at the end of November, while Egyptian product end the month a touch softer at $255 to $261 mt fob compared to $265 to $270 mt at the end of November.

The rise in urea prices has been dependent on China cutting back on exports, which it has continued to do. November exports were down 77% from the same month in 2015. However, news that the Chinese government will scrap its flat-rate tax for urea of Rmb80/t arrived late December. This will remove about $11/mt, giving exporters some room, but the continuing firmness of coal prices should offset some of that. Chinese fob prices softened midmonth but then rose to $245 to $250 mt by month's end.

We expect prices to run steady in the next couple weeks until India comes back, and then see a surge. Also, with support from demand in the U.S. and Europe, February could see the highest prices for 2017. However, any short-term bullish expectations are dependent on China continuing to cut production, India tendering sometime in January, and are limited in longevity as new supply should start to affect prices come Q2.

In the U.S., NOLA granular barge trading slowed and prices softened in reaction to the scrapped Indian tender. But by the end of the month, more activity was apparent and barge prices firmed to $234 to $242/t, up slightly from $227 to $240/t at the end of November.

Interior urea prices sluggishly tracked the rollercoaster barge prices through the month, ending nearly flat from the end of November. Midwest warehouses are up $5 to $10, with most now in the $265 to $275/t range, while Tulsa was flat to slightly lower at $260 to $270/t. River terminals subject to river close are holding a premium for spot product over those still open to barges. The Twin Cities fob price firmed up to $300 to $305/t for nearby, a $20 premium on river open prices.

Farmer interest has begun emerging, but the soybean/corn spread is reportedly favoring soybean planting, and this is weighing on demand expectations. This has cast a negative sentiment over the market and raised the question over how strong the Q1 pull for tons will be. Buying has picked up, but there is still plenty of storage to be filled before spring. Offers for spring prepay are generally $10 higher than the winter fill prices. After much reluctance to commit to these prices, there was eventually some prepay business concluded near year's end. Distributors are hopeful this recent spurt of demand from end users continues into the new year. As of now, it seems more likely that we will see a rush to buy nearer spring, leading to a significant run-up in prices and reduced application rates.

UAN

Early in the month, a few buyers began to place bets on rumors of further delays in the start-up of the Wever plant in Iowa, putting in orders for a small but significant percentage of their spring requirements. Other buyers, however, continued their wait-and-see approach, waiting to hear what CF's winter fill price will be.

Domestic prices firmed up toward the end of December on the back of higher nitrogen fertilizer prices as well as increased buying interest. Gavilon, CF and Koch have all reportedly pulled their offers at most terminals as they are content for the moment with their Q1 sales and need to figure out what replacement costs are. Not much new business was reported concluded at NOLA. Prices are assessed higher from last month at $155 to $160/t, but we expect next business will be done at $160/t or over. On the East Coast, offers continue to be made at $180 to $185 cfr for January, but $175 cfr remains the highest price achieved of late on the Atlantic Coast. Meanwhile, on the U.S. West Coast, 32% UAN was said to be on offer at $220/t fob in early December.

Prepay offers that are still on the table moved up with most sellers in Illinois and Iowa around $205/t for 32%. Spot prices in the Corn Belt are even harder to come by, but seem to be at about a $10 discount to prepay, with sellers in Dubuque, Iowa, currently offering $195/t. Resellers who have the inventory report good demand for prepay and seem generally pleased with their sales the past two to three weeks. It is generally expected that when the producers return to the market, they will be asking for higher prices.

DAP

Some stability has started to creep into the phosphates markets in December. Prices have increased in certain regions, on the back of solid demand for product and a tightening of supply. Pakistan has been the main driver in supporting prices in Asia as cheaper DAP prices have prompted a sizeable increase in off-take by the market, pushing DAP imports to record levels.

The demand/supply balance has been tightened as Chinese suppliers have largely turned away from the export market, preferring to focus on replenishing the domestic system ahead of the spring campaign. As a result, Chinese fob values have bounced out of the lows of the $300s mt late November and back up into the $310s mt as of late. However, the removal of all export duties in China could prompt a flurry of export interest in Q1 should the level of demand and prevailing price be deemed workable.

OCP has also maintained a curtailed operating rate at Jorf Lasfar in a bid to tailor supply against demand, and prices were stable from last month at $330 to $335 mt fob Morocco. Brazil has remained weaker with a seasonal slowdown in demand, and delivered MAP prices were flat from last month at $325 to $335 mt cfr.

With a floor now reached for most benchmarks, if not all, we see world prices running steady through much of Q1 with demand sufficient in key regions to provide support. As such, there is the possibility for pockets of tightness, and therefore, potentially firmer pricing in certain regions in the coming weeks. But any rally in price will be capped by the potential for additional export tons to be added to the market from Morocco and China if one or the other decides to increase operating rates.

Moving to the U.S., the last month has seem DAP barge prices in the U.S. fall to their lowest level since November 2009 at sub-$290/t NOLA. However, prices have since bounced back to $305/t fob NOLA. Tight spot supply has been the main driver as imported tons from recent Moroccan vessels were already accounted for by upstream warehouses. Warehouses not seeing these import tons, and not part of Mosaic's distribution system, are generally running low on inventory, and as such, importers have been stepping in to replenish stocks. MAP has been in tight supply as well, even more so than DAP, and was trading at $310 to $315/t at the end of December, a $5 to $10 premium on DAP for domestic product and $5 premium for imported.

Wholesalers in the Midwest reported light-to-moderate buying with tons moving to dealer storage. Midwest DAP prices are around $335 to $345/t, flat from last month, with imported product being sold slightly cheaper. MAP is holding a $10 premium over DAP at nearly all Midwest warehouses but is holding a $15 premium for prompt in some. DAP spot prices in the Twin Cities were up to $360/t with MAP at a $15 premium. River open DAP prices are lower at $345/t and MAP at a $10 premium.

In the Midsouth, light buying was reported with tons going to dealer storage. St. Louis fob prices were up $10 to $335 to $345/t. Prices were up $5 at Tulsa to $340 to $345/t, and MAP increased its premium to $10, now priced at $350 to $355/t.

The U.S. will continue to be of great interest to potential suppliers, with Morocco, EuroChem and PhosAgro all looking for opportunities through Q1 for further export cargoes. There have also been a couple of Chinese vessels as prices suddenly became workable when the China fob price fell into the $290s. However, good fall demand has left more than a few warehouses with inventories to replenish, and we feel prices will run steady in the short term.

POTASH

After the fall application season wrapped up, Mosaic, PCS and Agrium brought their list prices down $5 to $245/t for Midwest warehouses, equivalent to around a $210 fob Saskatchewan mine price. Sellers with import length took sales at $230 to $235/t. Wholesalers reported good demand at these levels. By the end of November, Mosaic and PCS took prices up $20 for winter fill, bringing Midwest warehouse values to $265/t. No deals have been concluded at these high prices, but offers at $230 to $235/t have mostly disappeared. Sellers of imported product are now taking sales at $235 to $245/t, comfortably undercutting the producers. It seems the large producers are going to wait it out and capture sales at higher prices once importers sell off their length at current prices. The NOLA barge market held steady through the month. Prices moved up slightly higher to $205 to $208/t from $205/t at end of November. More than a few believe the price increase is unjustified. However, fall potash sales in most markets were very strong after previous price increases of the same increment. With production still relatively low, it seems more likely these prices will eventually stick and producers will be able to sell their tons. We expect domestic potash prices to run steady in the short term and firmer near spring.

Questions for Karl Stenerson may be sent to Talk@dtn.com

(AG/BAS)