Uncertain logistics and soaring crop prices triggered higher fertilizer prices last week at the retail level, even as international markets for many nitrogen and phosphate segments showed signs of easing after their winter rally. Still up in the air is the impact of the crisis in Ukraine, a major nitrogen producer.
Ammonia prices were higher on wholesale markets last week, not waiting for news about acreage and potential disruptions in Ukraine. The Black Sea exporter was the world's seventh largest producer of ammonia in 2013, according to the U.S. Geologic Service, but that output depends on now highly uncertain natural gas supplies from Russia. Ukraine got a break on imports of gas as part of an aid package from its large neighbor thrown under the bus in the wake of the crisis. That could increase Ukraine's gas cost from $7.46 to $10.24 per million metric BTUs, raising the price of feedstocks for making ammonia from $282 to $387 a ton. By contrast, NG futures in the U.S. last traded for $4.626 on Friday.
Here in the U.S., wholesale prices rose up to $15 a ton, with the west at $530 and the east up to $567.50. But few changes were noted at the retail level. Costs from dealers updating offer sheets were steady on the Plains from $565 to $605, and prices edged a buck or so lower to around $655 in Illinois according to USDA's survey there. Wholesale costs translate into fair value around $620, while fundamentals point to prices from $590 to $620 under current conditions.
Urea prices were lower at global benchmarks last week, but retail prices continue to catch up to higher costs as offer sheets update. The Black Sea index fell less than $5 but is off $40 from January highs. Prices at the Gulf are following suit, dropping almost $25 last week to $400. The swaps market shows a $320 bottom for product in July, before prices begin to firm again on the curve. Current fundamentals and wholesale prices suggest a fair spot market retail cost around $525, close to where USDA pegged the average in Illinois last week. Updated offers on the Plains were running $520 to $570, though wholesale dealers were steady.
UAN jumped on the urea band wagon this winter, but costs appear to be stabilizing now. The Gulf index was steady at $295 a ton for 32%. Current wholesale costs and fundamentals suggest a fair value for 28% at $358 to $368. USDA said the price in Illinois on average rose $8.50 to $349.50, while updated offer sheets on the Plains were $320 to $335. Swaps suggest a $70 break is possible into July as demand eases.
Phosphates showed more signs of peaking at the Gulf after their big winter rally, but those gains are still working through the retail system as dealers restock and upriver prices creep higher. Retail expenses on the Plains for DAP reset from $550 to $570, while USDA put the average in Illinois around $558, up almost $15. Fair value based on wholesale costs and fundamental are $577 and $568 respectively, so the market seems stable right now. The Gulf swaps market for July is at $420, $55 below the current spot.
Potash on the Midwest terminal market this week stayed at $360, with retail prices also looking steady. USDA put the cost in Illinois at $440, with the Plains maybe $10 higher. Those costs are in line with the current wholesale market, but fundamentals point to fair value around $405 given large supplies and reduced subsidies to farmers from big importers like India.
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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 Advisor. He conducts Farm Futures exclusive surveys on acreage, production and farm 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 farm crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
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