What happened, and where is it going? Those are the questions that need to be answered to understand nitrogen values today.
There are many misconceptions in the marketplace as farmers are trying to figure out how fertilizer costs have increased to the recent levels.
This article will answer the questions to provide an accurate understanding of current nitrogen pricing and availability.
What happened?
The nitrogen complex has seen exponential price appreciation, due in part to the price run up seen in ammonia. Ammonia is the feedstock used to manufacture urea and UAN. Ammonia prices followed a similar pattern, with similar values reached in 2008-2009, multiple contributing factors and market dynamics led to those and these values.
The fall of 2020 application season was above average in terms of volume moved throughout the Ag sector, leaving producer tanks empty at season’s end. Producers fought through production issues, brought on by prolonged maintenance due to COVID restrictions.
An arctic blast swept through the domestic U.S. in February 2021 causing plant curtailments as producers looked to capitalize on hedging natural gas.
Natural gas values spiked from $4 to $1,250/MMBtu during this time. The system then fought to recharge itself before the spring 2021 season began. A nominal application season aided in producers limping their way through, meeting the demand before them.
Post application the supply issues were on track to resolve, until plant turnarounds were extended due to hard shutdowns in the arctic blast and COVID catchup maintenance taking place.
Undermining availability and causing production issues, Hurricane Ida landed in the U.S. Gulf, causing severe damage to production facilities and infrastructure as well as leaving barges stranded due to river closures. An already tight market was made even tighter as production was lost in the aftermath of Hurricane Ida.
Where is it going?
International demand has been a major driver in global supply constraints, as trade flow patterns have been forced to change from traditional routes.
A significant factor in trade flow patterns is global food security, China, Russia, and Egypt have reduced exports of resources to supply for their own countries.
European natural gas values have been making headline news in publications today, which is one of the main differences from 2008-2009.
Current spot natural gas values have peaked as high as $58/MMBtu, equating to over $2,000/mt in just gas costs of production.
Because of these spikes, European facilities have idled production back and have been running their urea and UAN plants with imported ammonia. This is an example of trade flow patterns changing as traditional tons coming out of the Caribbean that would have hit the domestic U.S. are now a better netback for producers feeding the European market.
To summarize, values have increased domestically, but global factors are aligned to show a firm market to carry through the spring preplant season.
Author: Alex Zook serves as Associate Product Manager, NH3, for GROWMARK, Inc.