The Inputs Monitor Nutrient Composite Index ended the third quarter 23.8% below a year ago, extending its year-on-year decline from the previous quarter.
Potash was the downside leader during the quarter, falling 30% from the same time last year, although all of the fertilizers in the 12-state survey for this index were roughly 20% lower year-on-year.
Given the sharp price declines observed over the past year, the downside for fertilizers may be limited. However, global oversupply and production capacity increases will continue to pressure prices through the end of 2016.
While a dramatic turnaround in fertilizer’s downward trajectory near-term is not expected, it can be foreseen for the breakneck pace of the downtrend to flatten slightly. The downside price action may have run its course.
All in all, expect steady to lower prices by spring 2017 on nitrogen and potash with phosphate carrying the most upside risk.
Continue reading on page 8 for additional highlights on anhydrous ammonia, DAP/MAP, potash, UAN and urea.
Anhydrous Ammonia: Anhydrous has battled lower since the end of spring applications. The story of anhydrous is also written in the price performances of UAN and urea, and the real driver at this point is improving supply and distribution based on increased domestic production. Fall applications have faded in popularity in the past few years, so we believe demand for post-harvest anhydrous ammonia applications will be short-lived and have minimal upside price impact. Once we have fall applications under our belts, anhydrous ammonia prices should spend a few weeks in decline before bottoming in January. However, anhydrous ammonia’s already low price may limit downside potential this winter. Anhydrous is priced below expected new-crop corn revenue, and we expect that to remain the case through the winter months and possibly into spring 2017.
DAP/MAP Outlook: U.S. retail phosphate prices are the highest of any of the prices we survey when compared to expected new-crop revenue. The spread between DAP and MAP narrowed, which is cause for concern. Since both have been overpriced, and North American phosphate producers have curtailed production as a cost-saving measure, import prices will continue to drive U.S. retail phosphate prices. We expect mild price softness through the winter offseason, but prices for spring applications will most likely hover around today’s prices. We expect the best opportunity to book phosphate will come after the first of the year but ahead of all the spring prebookings.
Potash Outlook: Prices for potash continue to be driven lower by bulging global supplies. North American producers have taken desperate measures to cut costs, but those cuts have come at the expense of market share. Meanwhile, offshore producers are producing finished potash products at a breakneck pace. China has recently discovered massive potassium deposits in its northern territories. That will limit demand from the world’s largest potash consumer and keep the world market flooded with potassium. Current prices should be considered a good value, but until potash places and confirms a solid price floor, we advise farmers book supplies hand-to-mouth.
UAN Outlook: Prices for ammonium nitrate have followed the rest of the nitrogen segment lower. We expect prices to flatten, along with anhydrous ammonia, during the fall but only as an extension of nitrogen prices in general. According to the three-year average recorded by the Inputs Monitor, UAN typically places a price floor after the first of the year and firms again in response to spring demand beginning in late February. As with the rest of the nitrogen segment, domestic nitrogen production is beginning to come online, and national supplies will keep a lid on prices.
Urea Outlook: Prices spent the past summer in a downtrend under the weight of bulging world supplies. The situation changed this fall, however, and Chinese producers are said to be manufacturing urea at just 65% of production capacity in an effort to stem the tide of oversupply. New entries into urea production, including U.S. manufacturing, have significantly added to world supplies which will continue to weigh on urea prices. We have been consistent in advising farmers to book urea hand-to-mouth, and we maintain that approach when booking for fall. But since urea is an unpopular choice for post-harvest applications, there should be little, if any, demand-based support near-term. On an indexed basis, urea is priced below expected new-crop revenue and anhydrous ammonia and should be considered a value, but we maintain a bearish bias for spring.