The fall rally in two key segments of the fertilizer complex showed signs of a pause last week, amid signs volatile currency markets and weak crop values were limiting ability of manufacturers to raise prices. Retail costs were mixed, suggesting growers looking for year-end prepay deals for tax purposes may have to hunt for deals.
Ammonia prices remain weak in the U.S. wholesale market after a relatively slow fall application season. But signs of a turnaround overseas may mean the market has found a bottom for now. While Corn Belt terminal charges remain around $391, some $180 above the Gulf index, Black Sea costs were up almost 20% in November, a response to the big rally in urea internationally. Our average retail price was up around 50 cents to $424, $25 less than the projection of fair value our models make based on wholesale costs. Charges on the Plains remain around $70 cheaper than those further east in the Corn Belt, where USDA put the average in Illinois at $507 and Iowa at $467. By contrast some Plains dealers are offering as low as $340 to $370.
Urea prices jumped more than $50 a ton at the Gulf this fall, supported by China’s move to hold its offers firm rather than sell on the cheap as costs rose due to higher coal expenses. Unlike most producers, who use natural gas as a feedstock for nitrogen fertilizers, China’s system is based on coal. That tactic appeared to pay off when the market held into the latest big tender by India. But that purchase was abruptly cancelled just before Thanksgiving, knocking almost $20 a ton off the cost at the Gulf. One reason the deal may have fallen through was the move by the Indian government to ban high denomination bills in an effort to impede illegal transactions. But the action may affect farmers’ ability to pay for fertilizer, too. Other international buyers are dealing with the aftermath of the post-election rally in the U.S. dollar, which hit currencies of many emerging markets. Fertilizer is commonly traded in dollars internationally. Retail prices, meanwhile, adjusted higher before the cuts, with our average up $8 to $312 – a cost that’s still well below replacement value based on current wholesale values. As a result, dealers on the Plains changing offer sheets hiked prices $10 to $40, while USDA put the average in Iowa up $29 to $336. Growers elsewhere could be facing higher prices, too, with swaps trade flat through April.
UAN costs followed urea higher and lower on wholesale markets last week, but when the smoke cleared, the index for 32% at the Gulf was still $20 higher than it was less than a month ago – and swaps show prices up almost another $10 by spring. Based on current costs, fair retail value for 28% is around $231, $15 above our average. New offers posted last week ranged from $200 to $240.
Phosphates resumed their downturn last week, dropping DAP $10.50 at the Gulf to hit the lowest level in seven years at $292. That translates to a fair retail value of $420, right around our retail average, which has been flat all fall despite a bit of a rebound internationally. Retail prices were quiet, with swaps suggested prices could be flat to a little lower into January.
Potash prices were steady last week, holding the Corn Belt terminal price to $249, with retail average costs at $306. Values firmed more than $30 this fall after production cuts by Canadian producers finally reduced inventories when low prices stimulated demand. Potash Corp announced new cuts last week, as traders wait for new deals with China to emerge this winter.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.