DTN Fertilizer Outlook in June

Date:06-15-2020

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

The following is a breakdown of wholesale prices and trends of the various fertilizers in the month of May and into the first two weeks of June.

AMMONIA

Domestic:

After a strong preplant application period and a quick start to corn planting, ammonia application was largely complete, and prices stayed flat while the market waited for summer fill announcements. Toward the end of May, producers including CF announced their summer fill ammonia prices, which were as low as $240 per ton (t) in eastern Oklahoma and $290 to $295/t in the Western Corn Belt.

At the start of May, preplant activity -- and therefore direct ammonia application -- was already winding down from a great start to the season in April. When April had ended, prices on prompt tons were around $380-$425/t in the Eastern Corn Belt and $340-$360/t in the west; ammonia sellers said they were already hitting record sales. May activity remained spotty overall with steep price drops to $310-$340/t free on board (FOB) Western Corn Belt and $375-$410/t in the east.

Sidedress ammonia tons are expected be lower than usual this year with price drops in both UAN and urea. Most sellers do not seem to be very concerned, however, due to the exceptionally strong preplant season. In the short term, the price outlook on U.S. ammonia is stable to soft.

International:

Yara and Mosaic agreed to a $17 decrease in the Tampa ammonia contract for June to $218 metric ton (mt) cost and freight (CFR). Some reductions could still be observed for July; however, the price is much closer in value to the weaker international market than in previous months. In 2019, $215/mt was the lowest contract price of the year and was carried over from June to September.

After Nutrien shut down one of its plants in Trinidad earlier this spring, supply in the west has been more balanced. However, gas prices are cheap in Ukraine and Europe, and there is no incentive yet to cut back ammonia production here.

On the demand side, chemical production in South Korea or Taiwan remains slow. However, Indian phosphate production seems to be largely back on its feet.

The outlook on international ammonia is stable in the short term.

UREA

Domestic:

The barge market saw no shortage of supply in May as imports continued to arrive at rates similar to April, despite relatively slower May demand. After April barges closed the month at $223-$246/t FOB, May prompt/nearby barge prices hit a low of $174 before making a recovery into the $180s. Despite reduced imports earlier this season, there is no shortage of supply today, especially in the Gulf, as the market shares concern over spring application demand.

Fill orders have been reportedly booked at northern Mississippi River terminals as low as $213/t FOB in mid-May. However, slow spring activity progress during a rainy May in the Eastern Corn Belt left talks of fill on the horizon as there remained much work on top-dress to go.

The main reason for the bearishness appears to be very strong concern over spring urea demand. There are reports that urea preplant application rates per acre were reduced, which resulted in lower sales in some areas compared to last year despite the increase in corn acres. This, combined with the successful spring ammonia season, has resulted in major uncertainty over what lies ahead for post-plant urea demand. Recent weather has also added to these fears as heavy rains have soaked multiple areas of the Corn Belt and delayed sidedress applications.

The outlook for U.S. urea is stable as orders could pick up with the top-dress season emerging.

International:

Most global urea prices edged downward in May, with producers cutting prices in order to place product into India for the May 7 import tender. Middle East and North Africa FOB prices have fallen to around $195-$220/mt compared to $220-$230/mt at the end of April.

However, heading into June, there was some positivity in the market with India expected to announce another urea tender. Domestic sales in India have been strong, and the Southwest Monsoon arrived on time, so there is the expectation for at least 1 million metric tons (mmt) of urea required. With China, the swing urea supplier, largely absent from the export market with FOB prices holding at $230-$235/mt through May, many in the market expect there is at least a little room to move prices up in the short term.

Once the tender is announced, all eyes will be on China with the end of the main domestic season possibly leading to export availability. If there is little Chinese participation in the tender, then that should be bullish news for the urea market.

The outlook on international urea is stable ahead of an expected India tender announcement, which could provide a boon for the international market with a large enough quantity.

UAN

Domestic:

UAN prices softened in May as concerns in the U.S. nitrates market continued with wet weather in the Eastern Corn Belt delaying UAN applications and urea prices crashing.

NOLA (New Orleans, Louisiana) UAN barges at the Gulf moved lower to $135-$139/t FOB, down $10 to $20 from April prices on plenty of supply and limited buying.

Prices at the main river terminal markets for CF at Mt. Vernon, Cincinnati and St. Louis dropped from $190/t FOB in April to $165-$180/t FOB for 32% in May.

There has not been much talk of summer fill pricing yet, although many expect continued price erosion.

The outlook for domestic UAN prices is stable to soft. Some short-term stabilization is expected with sidedress picking up, but expectations remain low for end-of-season sales and summer fill prices yet to be announced.

PHOSPHATES

Domestic:

The end of April saw falling prices on both DAP and MAP barges at $270-$278/t FOB, and prices continued to soften through May before stabilizing at $265-$272/t FOB DAP.

Prices on river terminals fell alongside barge prices, ending May at $295-$305/t FOB DAP and $285-$300/t MAP, down from highs of $320 DAP and $325 MAP at the end of April.

Imports from Morocco are said to be winding down for the summer, and Mosaic has started focusing more on the export market, both effectively tightening domestic supply and creating a more bullish outlook. Buyers have taken notice, and some summer fill buying has been taking place.

The outlook for DAP and MAP prices is stable in the short term but shaping up to be more positive in the medium term with more supply control and still very cheap historical phosphate prices.

International:

The start of the U.S. season and the return of South American buyers gave a boost to Baltic and North African phosphate producers. DAP demand in phosphates markets to the east has also been healthy but with plentiful supply thanks to the higher prices achievable relative to the west.

In May, prices on MAP in Brazil fell slightly from $305-$310 the previous month to $300-$310. At the same time, India DAP prices ended the month unchanged at $314-$315 CFR, the same price that closed April.

The outlook on the international phosphates market is stable to firm, to be determined by DAP demand in India as their growing season begins and on the DAP supply in China which will determine prices in the region.

POTASH

NOLA potash barges traded lower in May at $195 to $205 t FOB, down a few dollars from April. Interest for barges remained very low throughout May. However, at the terminal level, some movement was still observed, especially in several states such as Ohio, which continued to run behind average on planting progress.

The Chinese potash import supply contract was settled at the end of April at $220/mt CFR with the consortium of three buyers for delivery until the end of 2020. This is down $70 on the price of $290/mt CFR concluded in 2018 and weighed on the market as the major contract settling was delayed by the onset of Covid-19 in February.

Nutrien's market view at end of the month was that potash application was still ongoing in some pockets of the market and that talk of summer potash fill is premature. Since the recent signing of long-term potash contracts in China and India, and strengthening granular potash prices in Brazil, Nutrien is not forecasting lower-than-current prices in Q3.

In the wake of a firmer feel to the international potash market following the resolution of supply contracts plus stability in the U.S. domestic market, our short-term outlook on potash is stable.