A word about Fertilizers: Nitrogen deleveraging
EPA released the new proposal for advanced biofuels implying a corn ethanol mandate range of 12.7 billion to 13.2 billion gallons.
Based on the 14.4 billion gallons market expectations, the new range proposal will remove between [-10,9 and -15.42] millions metric tons of Corn demand for 2014.
@0.98 pounds of N per Corn bushel, EPA RVO guidance alone will remove between 415K Nitrogen 586K MT Demand of Urea @46% N. World supplies are increasing and production capacity is expanding at a faster clip than demand growth.
Could we see Urea Prices touching 200$/Short Tons in the U.S Gulf ?
For me, nitrogen pricing has still to reach an important balancing point to attract reactive buyers. Urea/Corn spread suggests below 300$/ST and just above 250$.
Someone will have to pay for this Nitrogen deleveraging. Who ?
Farmers: Will they switch to low-nitrogen crops in 2014 ? i.e Soybeans
Retailers who must write-off inventories bought at higher cost and averaging down with new purchases ?
Nitrogen industry? It sounds that if North American Nitrogen is pricing below break-even costs in the short-term but they can still import cheaply from abroad and Chinese Urea is a nice back-haul trade for USGC grain exports this winter.
Swap curve is flat or inverted, suggesting for merchants to sell it now with a small mark-up and buy it back lower later.
In the USG, because of the curve and Urea/Corn Spread, I would not hold to much inventories if I don’t have too.
For Urea buyers in Northern Alberta or in the middle of Montana, it’s not exactly the same situation because they pay big freight cost+more than often a big mark-up for supply security. If you are in this situation, it is really nice if you can work with dealer to secure some supply now at a fix price and have an option to price later say 50%.
© 2014 –The Trade, Shipping and Finance Wizard