Nitrogen cheapest in years, but low might be in

Nitrogen fertilizer prices have bottomed out, according to one of the world’s largest manufacturers.

Jochen Tilk, president of PotashCorp, told investment analysts during the company’s second quarter earnings conference call that a low point in the market has been reached.

He said the “challenging price environment” will continue to weigh on PotashCorp margins for the balance of 2017 and then there will be a turnaround.

“We anticipate market conditions will begin to improve in 2018 as capacity additions decline, high-cost capacity is rationalized and trade flows adjust,” said Tilk.

He said ammonia prices are below the cost of production for a lot of manufacturers.

“You have to assume it’s the low point because it’s not sustainable,” said Tilk.

“People have higher production costs in some parts of the world and they can’t continue, and that would lead to an increase.”

Dan Mazier, president of Keystone Agricultural Producers, bought “a bunch” of liquid nitrogen fertilizer this summer.

“It was probably one of the lowest prices we’ve seen in the last decade for sure,” he said.

He doesn’t know what to make of PotashCorp’s assessment that prices have bottomed out.

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Mazier wonders if the drought will deter some growers from buying fertilizer in the fall because they won’t have the revenue to pay for it.

“A lot of people are going to be pulling in their horns a bit,” he said.

Others may want to pounce while prices are low, although they can buy only six to 12 months in advance because fertilizer doesn’t store well on farms.

Mazier doesn’t believe it is strictly a supply issue as PotashCorp suggests. He believes fertilizer prices have followed corn prices down.

Stephen Dowdle, president of sales for PotashCorp, said 2017 has been a year of adjusting to new production in the United States, which has temporarily depressed prices.

Consumption has been growing by two to 2.5 percent per year, but production capacity has been expanding at an even faster rate in recent years.

PotashCorp estimates global nitrogen capacity will increase by six million tonnes in 2017, while consumption will be up by nearly four million tonnes. That supply-demand imbalance is causing the price weakness.

“Now we look forward into 2018 and we see consumption growing more than capacity is growing, by more than a million tonnes,” said Dowdle.

“That’s why we think we’re floating around the bottom right now.”

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Tilk said a lot of the new plants, such as the Iowa Fertilizer Co. facility in Weaver, Iowa, are up and running at capacity already. There is not nearly as much capacity coming online in the near future.

“That should offset that (price) trend and hopefully reverse it,” he said.

However, there is still considerable uncertainty about Chinese nitrogen production and exports. China’s extensive export program is the main reason urea prices are at a 13-year low, but exports have slowed considerably.

Tilk estimates China will export around 4.5 million tonnes of urea in 2017, down from more than eight million tonnes last year as slumping urea prices and a government crackdown on environmental pollution curtailed production.

“The question is, really, what happens in 2018?” he said.

Tilk said some Chinese plants have shut down production, but it remains to be seen whether they are permanent closures or just a temporary suspension in production.

“To the extent they’re done for environmental reasons and cost reasons, they ought to be permanent, but then again, that may not be the case,” he said.

“The big question is, how permanent are those closures and is there any chance they might come back if there’s a price recovery?”

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