Nitrogen surplus keeps lid on urea prices

Farmers bracing for escalating fertilizer prices may be in for a pleasant surprise, says an industry analyst.

Growers are becoming increasingly anxious that they’re in for a repeat of the summer of 2008, when fertilizer prices temporarily doubled in response to record high grain prices.

“My dealer told me (in 2008) that he felt prices might be going back up, and that’s the classic situation we see: as grain prices go, so do fertilizer prices,” said Doug Chorney, president of Manitoba’s Keystone Agricultural Producers.

He recalls farmers buying fertilizer at sky-high prices in the summer fearing that they would continue to climb. Grain and fertilizer prices crashed throughout that fall and winter as the United States and most developed countries fell into recession.

“Producers and dealers were both caught with high-priced inventory. That was a very expensive lesson for many to learn,” said Chorney.

David Asbridge, president of NPK Fertilizer Advisory Service, said this could be the year that “punches the hole” in the theory that fertilizer will chase grain prices up.

That’s because there is a surplus of nitrogen fertilizer in the world that should keep a ceiling on prices.

“We’re forecasting that through the fall season, particularly urea prices are probably going to stay pretty flat from where they are now,” he said.

Urea is the most widely traded nitrogen fertilizer product and tends to set the tone for other nitrogen fertilizer prices.

“We are seeing a lot of excess urea now out on the market,” said Asbridge.

India recently put out a tender to buy 1.5 million tonnes of the product.

“They got four million tonnes offered to them. That’s just a fairly good indication that there’s a lot of urea out there right now,” he said.

Asbridge said the United States is sitting on a large inventory of imported urea, and plenty of new manufacturing plants have come on stream around the world.

Chorney said today’s cheap natural gas prices means it makes sense for manufacturers of nitrogen fertilizer to produce a lot of product.

However, he wouldn’t recommend delaying all nitrogen purchases until next spring.

Neither would Asbridge because fertilizer prices tend to rise in the spring.

He expects U.S. farmers next spring will seed another 96 million acre corn crop, which will be a heavy user of nitrogen and is advising clients to start pricing their urea today.

Anhydrous ammonia is one nitrogen fertilizer that has been rising lately. U.S. corn growers compensated for the lack of early-season urea application by side-dressing their crops with anhydrous ammonia.

“It has pulled our inventories down pretty sharply here in North America,” said Asbridge.

A gas restriction in Trinidad, which is a major exporter of anhydrous ammonia, has also curtailed supplies.

However, the supply situation is starting to turn around, which means that while it’s tight right now and prices could perk up a bit in the fall, they should subside by spring.

Asbridge thinks liquid nitrogen prices will be marginally stronger in the fall than they are right now, but the magnitude of the increase will be less than it is for anhydrous ammonia.

The big caveat in his forecast is what happens with the Mississippi River. Sections of the river were closed last week for dredging because the waterway is at its lowest level since the last major drought in 1988. Early last week, 97 ships were stranded while the U.S. Army Corps of Engineers dredged the riverbed.

Asbridge said shippers have been forced to load their vessels with 25 to 30 percent less fertilizer than normal because of the shallow waters.

More than one-third of the urea used in the U.S. Midwest travels up the Mississippi. If the problem persists, it will result in a shortage of urea in the Midwest and consequently higher prices in that region.

Asbridge said there should be plenty of supply of the product in Western Canada, which is a net exporter of urea.

Another factor is the impact that the U.S. drought has had on leftover soil nutrients because many growers in the corn belt produced only 60 percent of a normal crop.

That could reduce demand for phosphate and potash but not for nitrogen because it doesn’t carry over well in the soil.

Asbridge said there is an oversupply of potash, while phosphates are a little on the short side, so growers should consider filling some of their anticipated phosphate requirements now.

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