Urea/Corn Spread USG

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 ?

usda ers corn urea

Long-term Urea46-Corn (FOB USGC) trajectory is down, consistent with a rapid increase in nitrogen supply capacity after 08′.

Urea cheat sheet

Urea 46 Corn Spread USG FOB

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.

urea swap fob gulf coast

Urea FOB US Gulf Coast Swaps on 2013-11-16

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


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