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DTN Fertilizer Outlook: Price Declines and Weak Spots Across the Board

Ernst Undesser
By Karl Stenerson, DTN Fertilizer Columnist July 11, 2017

DTN Fertilizer Outlook: Price Declines and Weak Spots Across the Board

Dry fertilizer spreader. ©Debra L Ferguson Stock Photography

The following is a breakdown of international and domestic wholesale prices and trends for various fertilizers.

 

 

AMMONIA

International:

International ammonia prices remained weak in June as supplies continue to be ample, and downstream products, which use ammonia as a feedstock, continue to suffer price weakness.

FOB (free on board — the buyer pays for transportation of the goods) values in the Middle East saw further decreases from May. Early in June, Trammo sold a 15,000 metric ton (mton) Middle Eastern cargo to CIL/India at $268 mton CFR (cost and freight). Since then, spot business has been quiet and prices are assessed at $190-$230 mton FOB on the back of reduced netbacks on contract deliveries. At the end of May, prices in the Middle East were in the $270-$340 mton FOB range.

In the Black Sea, prices also continue to be under pressure. There is little appetite for cargoes outside of contract arrangements within the region. Latest cargoes out of Yuzhny, Ukraine, are reportedly priced within the $210-$220 mton FOB range, which are down from prices at the $270-$340 mton FOB level seen end May.

The ammonia Tampa price for July was settled between Yara and Mosaic at $240 mton CFR, down $25 from the June contract price.

The overall short-term outlook for ammonia prices is weak as the market remains fundamentally oversupplied.

Domestic:

Domestic ammonia prices moved weaker across all regions throughout June as producers and distributors competed aggressively over remaining sidedress sales. The wet spring season and the generally low preplant volumes as a result, had many sellers long supplies for sidedress and wanting to liquidate positions before the season ended and summer fill programs commenced at expectedly softer prices.

Demand was not as strong as many distributors expected, and the market certainly favored buyers through June.

The sidedress application season came and went without a hitch, and traditional summer fill purchasing took place mid-month in the Corn Belt. Some light demand does remain across the Midwest for corn sidedress, but enough product is understood to already be in place to finish up the season, so new prompt sales have been seasonally slowing. Now, focus is on prepay for the fall season.

Most summer fill business took place west of the river. Fill prices in Oklahoma were heard as low as $175 per short ton (ston) FOB Enid, but most other plants in the area were at or nearer $200/ston FOB. Prices came in $20 lower than many expected. Buyers responded well and producers have since retracted most fill offers. June/July tons were offered around $225-$240/ston fob in western Iowa and Nebraska at the end of the month.

East of the river, fill prices were announced around $310 FOB in Ohio and Indiana and did not attract nearly as much response from buyers as cheap prices in the West did. Since then, prompt prices have moved down to the $300-$320/ston FOB level, which are down from $365-$385/ston last month.

Prompt prices may still be susceptible to further downward pressure, especially in the Eastern Corn Belt, as sellers look to finish out their sidedress positions. However, prices are not expected to fall as low as fill offers seen in previous weeks, and prices for fall prepay are likely to be similar or firmer than prompt prices.

UREA

International:

The international urea market saw further price softening in June as buyers in the U.S. and Europe have plenty of time to consider next season’s tonnes, while those in Brazil see plenty of supply options, and sellers are forced to cut prices to keep tons moving.

The Middle East finds itself under increasing pressure. The U.S. market, which was already offering netbacks some $40 below other regions, saw prices erode yet again. Brazilian prices are also under pressure as sellers try to find some liquidity to move long positions.

Little respite can be found going east as Australia and Thailand buying seasons draw to a close. Indian interest has yet to resurface, and Arab Gulf suppliers are likely to find very strong competition for this business when it finally emerges.

Middle Eastern FOB values dropped to $145-$195 mton at the end of June, down slightly from $145-$210 mton FOB in May.

In Europe, some small sales were concluded, but in general, buyers purchased a lot of forward metric tons a fortnight ago and now appear to be in a good position to wait in the expectation of lower FOB levels in Egypt. North Africa FOB values have already slipped to $200-$210 mton FOB from $210-$215 a month ago.

In China, demand for the domestic market continues to boost export levels. But this is not expected to continue for long, and a correction in prices here is bound to take place. Chinese granular prices were at $210-$212 mton FOB at the end of June, off slightly from $215-$220 mton FOB during May.

Overall, while there may be pockets of stability, the international urea market generally remains weak and prices are expected to trend slightly lower in the short term.

Domestic:

Domestic urea prices moved lower through June, showing no signs of strengthening on seasonally increased demand. The New Orleans, Louisiana, (NOLA) market continues to suffer from oversupply even as traders re-export barges against sales to Latin America, effectively removing close to 200,000 tons from the domestic market.

Barges ended the month trading at $158-$160/ston FOB NOLA, down from $160-$165/ston at the end of May. Truck prices out of the major river terminals are around $190-$195/ston FOB, down from $200/ston one month back.

Grower demand is wearing thin across the Midwest as much of the corn crop is becoming too tall to topdress. Barge sellers with length and limited warehouse space are becoming more aggressive. Summer fill business has been light so far. Purchasing was expected to pick up after the July 4 holiday.

Wholesalers supplied with tons off the river continue to note reduced volumes compared to previous years. Some of this is being attributed to weaker demand and low crop prices, but new domestic production on the interior is being pointed to as the main reason. Warehouse inventories are being inspected, and general feedback is that carryover will be higher than in previous years. This is weighing on forward price ideas.

At this time last year, NOLA was trading a little over $10 higher in the low $180s FOB. Then, in mid-July, prices hit a low in the mid $160s. This year, the $160/ston mark has already been hit, and the question is whether that will be the low or whether prices need to move down again this summer.

Right now, the barge market has been supported by re-export sales to Latin America achievable by traders with today’s international prices when they can buy barges in the low $160s. International prices are at a premium to the domestic market; however, they have been weak thus far this year.

The demand outlook in India and Latin America doesn’t suggest anything special to change the trend.

International market prices and Latin American demand will certainly be solid support indicators for the NOLA barge market moving through summer, as they will dictate how many tons CF will be able to export out of Donaldsonville and keep out of the domestic market.

If prices move up internationally and we see strong exports to Latin America, NOLA prices could see some strengthening domestically before fall. On the other hand, new production also exists at Borger, Texas, and Wever and Port Neal, Iowa, and it is here producers are left largely without the ability to export.

As production continues through the summer, buyers are likely to adopt a wait-and-see approach this year to see if the pressure to move tons hits before fall and producers are forced to cut prices again in order to motivate anyone to take tons to storage. In either case, the current market appears relatively balanced, and prices are not expected to shift greatly either way. Our view is the latter situation is more likely to keep domestic prices flat to weaker through the medium-term outlook.

UAN

UAN prices declined through June with pressure stemming from depressed urea prices. Price cuts were made despite seeing good demand throughout the month and various spot outages.

Movement across the Corn Belt is seasonally slowing as the corn crop progresses. Warehouses supplied off the river are running thin on inventories or in some cases have already sold out. Plenty of domestically produced product remains in place to finish out the season.

Some sellers who are worried about carryover inventories are electing to cut prices now ahead of the impending summer fill announcement by CF Industries, which will certainly bring prices lower. Some offers for truck tons off the Mississippi were seen as low as $160 FOB for 32%. Generally, truck prices off the river are around $170/ston FOB.

Barge trading was limited in June as any remaining spot demand is unlikely to support barge quantity volume, and the last barge prices are too high for anyone to be motivated to purchase it now and store it through the summer. Current terminal pricing on the river may support a NOLA barge price of around $130-$135/ston FOB for 32%.

The outlook for UAN prices remains soft with continued pressure stemming from depressed urea values and new production domestic production keeping supplies ample through the summer.

PHOSPHATES

International:

All the major benchmarks in the international phosphate markets came under pressure in June as buying activity in key regions slowed down. Import demand in India, Pakistan and Brazil appeared less robust than it should be for the time of year for several reasons. However, lower ammonia prices have helped producers maintain a similar margin to last month.

Greater volumes booked earlier in the year provided a cushion for Brazilian 11-52-0 MAP buyers and enabled importers to take a back seat in anticipation of lower prices going forward. The Brazilian market has also been affected by lower soybean prices, which has caused some delays in crop sales and therefore cash flow. Delivered sales of MAP into Brazil were concluded at $360-$365 mton at the end of June, down about $5 from prices in May.

In India, high stocks deterred import interest in Q2. Subsequently, Chinese DAP export prices had to be cut in order for metric tons to find a home. China FOB prices fell to $335-$340 mton at end the June, from $340-$347 mton in May.

U.S. export prices also decreased late in June as domestic demand slowed and Mosaic was forced to look toward India for spot tonnage. DAP prices fell to $345 mton FOB U.S. Gulf, from $350-$355 mton in May.

While new business has put phosphate producers in a more comfortable position for July, there are still metric tons from the U.S., Mexico, Russia, Morocco, Saudi Arabia, China and Australia hanging over the market for shipment next month. Those in the market are buying hand to mouth as they sense lower numbers ahead. It still appears that price concessions will be required as demand on the horizon continues to look insufficient against burgeoning supply from the Middle East and North Africa region.

Domestic:

Within the U.S., phosphate markets have been quiet with grower demand slowing and buyers now mostly waiting for the announcement of summer fill programs by the major North American producers. There has been little interest in buying import tons ahead of the producer summer fill announcement, as there does not seem to be enough confidence in the price to cover forward requirements at current prices.

Barge purchasing has been slow despite reportedly thin warehouse inventories and trader length in the river limited. DAP barges traded at $310-$312/ston FOB NOLA at the end of June, down slightly from $310-$318/ston in May. MAP barge prices were stable around $318/ston FOB NOLA.

End-user demand is seasonally slow as we move through the “watch-the-crop-grow” period. Some renewed interest is anticipated for phosphate for fall wheat planting at the end of August/September. Prompt warehouse DAP prices on the river system were flat to slightly weaker in June, at the $340-$345/ston FOB truck range. MAP has been running at a $5-$10 premium at most warehouse locations.

The domestic barge market continues to run at a discount to international prices, which has kept the summer import lineup relatively light. Yet, demand does not seem to support any price increases at this time, and prices are expected to remain stable to weak in July.

POTASH

There has been limited activity in the potash market with most everyone waiting an announcement from the major producers on summer fill prices. River terminal prices are generally unchanged from May at the $245-$250/ston FOB level. Prompt demand is seasonally slow. Potash barge trade was illiquid awaiting the arrival of overseas vessels. Some trades were heard within the $206-$212/ston FOB NOLA range toward the end of June, essentially unchanged from May.

Some believe the major producers will come out with summer fill prices at current values or even try to increase them. If that’s the case, buyers will be hesitant to take in many tons as import volumes for FY2017 look to be about the same as previous years and crop prices remain weak. Buyer ideas on the North American fill price are around $245/ston FOB Midwest warehouse.

Potash prices look to run slightly lower for summer fill prices as producers look to incentivize forward purchasing and the movement of product to storage.

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Ernst Undesser
By Karl Stenerson, DTN Fertilizer Columnist July 11, 2017