Rice, corn and China differentiate 2014 urea trade
U.S. urea barge prices have rebounded to near year-ago levels but an increase in rice acres, elevated corn stocks and increasingly abundant Chinese urea supply have set the stage for the 2014-15 fertilizer cycle.
The majority of available urea barges are currently offered for August at similar prices to a year ago. But last week's urea Nola barge assessment midpoint was $35/st higher than the prior year, owing to steady demand for prompt barges to meet rice demand.
August barge prices are reflected on the low end of last week's $316-395/st fob Nola range with many traders viewing this loading period as the real market for urea. Meanwhile, the high end of the price range is based on ongoing trades for soon-to-be-loaded or loaded barges moving to meet rice demand, and suppliers likely capturing attractive margins based on elevated late-season warehouse prices .
Last year's assessment the week before the Southwestern Fertilizer Conference of $317-324/st fob Nola was also backed by prompt urea trades on the high end, but higher levels of warehouse inventory and less pull from rice acres in the southeast meant a narrower premium for prompt barges. Trades for August loading barges booked the week before the conference last year were in the range of $317-318/st fob Nola.
Much of the tightness in warehouse supply can be attributed to growth in planted rice acres, which rose 22pc this season to 3.05mn according to the US Department of Agriculture. While this increase pales in comparison to the 91.6mn acres of corn planted this season, the 500,000 rice acre increase shaped this year's late-season urea trade.
Rather than the typical lapse in demand for prompt barges as corn top dress wanes in June, buying continued as warehouses in the US southeast struggled to keep up with the crop's heavy nitrogen needs. Barges that would have otherwise gone to begin restocking warehouses further north were diverted to the south, leaving stocks tight and prices elevated in wholesale markets like Inola/Catoosa, Oklahoma, St Louis, Missouri, and Cincinnati/Jeffersonville, Ohio. With warehouse netbacks topping $400/st fob Nola equivalent well into July, trades for prompt barges have continued at an over $70/st premium to the forward market.
Forward prices could come under pressure as the market digests the impact of lower corn prices on farmer demand in 2014-15. The current corn crop is rated good or excellent, up 10 percentage points from this time last year. Ideal growing conditions expected to continue, and corn stocks-to-use is expected to rise from 8.4pc for the 2013-14 marketing year to almost 13pc in 2014-15.
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