Nitrogen prices thought to have hit bottom

Nutrien expects prices to begin increasing this fall after last year’s bad weather helped create a product glut for retailers

Nitrogen fertilizer prices have reached a low point and will be heading up this fall, says one of the leading manufacturers and retailers of the crop input.

“We believe the bottom is in,” Nutrien chief executive officer Chuck Magro said in a recent presentation at a conference hosted by Bernstein.

“We now believe that there is a good base for market stabilization and future price appreciation.”

He anticipates “price momentum” building in the fourth quarter of 2020 and continuing into early 2021.

Magro said nitrogen fertilizer prices are at historically low levels and when that happens there is typically a sharp supply response because many manufacturers of the ingredient are losing money.

“In fact, almost 50 percent of producers today are not sustainable at these levels,” he said.

Prices are low because of a build-up in retailer inventory connected to last year’s weather problems during seeding time in the United States.

“That is still in the supply chain but it is rapidly depleting and we think we should be more or less through that by the end of this spring season,” said Magro.

“So that should set up a very healthy fall application supply/demand for nitrogen this fall and into 2021.”

Josh Linville, fertilizer analyst with INTL FCStone, agreed with the assessment that prices have hit a floor.

Urea prices at New Orleans bottomed out at US$175 per ton f.o.b. and are now in the low-$180s.

“There were only two periods during the last decade that saw prices stay below where we’re at today for any sustainable time,” he said.

One was the summer of 2016 when construction began on a number of new nitrogen fertilizer plants. The other was the summer of 2017 when some of that new production started hitting the market.

In both cases prices soon jumped back up to about $250 per ton.

Linville isn’t convinced that half of the nitrogen production facilities are operating at a loss but he does think a number of plants could idle production during the summer months in order to conduct maintenance on their facilities.

He was also skeptical about whether the retail system will be drained of stocks this spring. There have been planting problems in the northern U.S. Plains, which is a big user of nitrogen fertilizer products.

Magro acknowledged another factor that could impact spring demand. He said the U.S. corn crop will likely be closer to 94 million acres rather than the 97 million acres the U.S. Department of Agriculture is forecasting. Corn is a big user of nitrogen fertilizer.

However, he still anticipates a brisk spring application season followed by strong fall demand, and that will trigger a run-up in prices when combined with the anticipated summer curtailment in production.

Linville said there are too many variables to know what will happen in the fall.

One big question is whether India will pick up its purchases of the ingredient. The country has fallen behind on its nitrogen buying. Demand in India is “phenomenal” while domestic production has been curtailed due to COVID-19.

The other big question is whether China will swoop in and fill the looming demand out of India and elsewhere. Magro said he expects China will export four to five million tonnes of nitrogen fertilizer, which would be similar to last year’s program.

Linville also wonders if Brazil will use as much nitrogen fertilizer as the market is anticipating. He noted that the country is ahead on imports with plenty of product flowing in from Iran.

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