Rising or stable? | Rabobank, NPK disagree on direction of urea prices due to supply questions
Analysts differ on where urea fertilizer prices are heading this fall and beyond.
Rabobank International believes they are on the rise in the September-November period.
“We feel there is definitely price support for urea in the coming months, and that is mostly due to some tightness in the market,” said Suzanne Pera, farm inputs analyst with Rabobank.
David Asbridge, president of NPK Fertilizer Advisory Service, sees steady prices until the end of the second quarter of 2015.
“Our price forecast is for urea prices really not to do a whole lot going forward,” he said.
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Rabobank says it will be two more years before North American grain farmers achieve break-even due to “monster” supplies and “sticky” crop input prices.
Rabobank said there are supply constraints in the marketplace.
“There are a couple of major producers that are struggling at the moment,” said Pera, who was one of the author’s of Rabobank’s latest quarterly fertilizer outlook.
The constraints are more pronounced for granular urea, which is what Canadian growers use.
China is the driver of global urea prices, exporting 8.3 million tonnes last year. The next biggest player was Qatar at 4.9 million tonnes.
Market expectations were that China would ship 10 million tonnes of product this year because of a relaxation of export taxes.
“They started to reduce that this year, which had people in a panic state because they thought all that urea is going to come on the export market,” said Pera.
“It seems traders have overestimated the country’s source of seemingly infinite cheap urea.”
She believes China will have a tough time shipping 10 million tonnes of product this year. Asbridge expects it to be closer to nine million tonnes.
Ukraine’s urea exports have also been curtailed. Production has been halted at most plants since Russia banned gas exports in June. Ukraine was the seventh largest urea exporter last year, shipping out 2.5 million tonnes.
Producers in the Middle East and North Africa are also struggling with gas supply and operational problems.
Asbridge agreed that a number of factors are contributing to a tight supply, such as gas problems in Egypt and a delay in getting a new plant running in Algeria. However, he thinks they are all temporary issues and there should be plenty of supply.
“We don’t know what’s going to happen in Ukraine obviously, but we think the rest of these problems are going to kind of work themselves out here over the next little bit,” he said.
U.S. urea imports from July to September will likely be 1.6 million tonnes, down from expectations of two million tonnes.
Significant logistical problems in North America are compounding the problems caused by short supply.
Barge freight rates to ship product from New Orleans to the U.S. Midwest have skyrocketed. A typical contracted rate from New Orleans to Minneapolis is about US$17.50 per short ton. Spot prices have been as high as $45 per ton.
There is also significant rail congestion caused by increased competition from the Bakken oilfields.
The lack of supply combined with low inventories and logistical problems caused urea prices to rise in summer, which is the opposite of what usually happens.
“But I think we’re beginning to get caught up a little bit now to the point where the price increases are going to stop for a little while,” said Asbridge.
“There is no real reason to jump in right now to buy spring needs. We just don’t see that there is anything that is going to push these prices much higher.”
Rabobank believes demand for urea will remain strong despite slumping grain prices.
The U.S. is a huge market for nitrogen fertilizer, and U.S. farm equity has risen by 34 percent since 2008, according to the U.S. Department of Agriculture.
“This likely leaves farmers sufficiently equipped to spend money on inputs,” said Rabobank in its fertilizer outlook report.
History has shown that when growers cut back on fertilizer it tends to be potash and phosphate.
“A strong deterioration of (urea) demand is not likely,” said Pera.
Heavy spring fertilizer use in the United States has depleted supplies at the retail level, contributing to what Rabobank expects to be an increase in demand and consequently prices.
On the other hand, retailers may be worried about stocking up at today’s prices because farmers might not be willing to buy it because of slumping grain prices.
Fall demand is expected to be strong in the U.S. and China, but could soften in India because of a lack of rain and a weak rupee.
