May hints at a bottom gain momentum.
In May I suggested nitrogen prices were showing signs of a bottom that could limit bargain buying this summer. That trend indeed appears to be taking hold as June begins, thanks to higher crop prices and stronger demand internationally.
Ammonia prices were little changed this week on retail markets, with spot shortages still reported in the upper Midwest. That keeps our average retail cost near $494. The good news: dealers restocking inventory this summer should be able to slash that price substantially, though maybe not by as much as it appeared last month after Gulf contracts for June settled $13.50 higher around $245. That suggests a potential retail price between $385 and $445 depending on whether increased production in the U.S. and elsewhere squelches wholesale price move. So far the market seems far removed from the slump that battered costs last summer.
Urea as usual was the canary in the coal mine tipping off a change in the market’s direction. But a volatile week in swaps trading suggests buyers and sellers haven’t completely bought into the idea of a longer-term rally. While swaps for June ended the week nearly $14 higher than May, some deferred contracts lost $10.50 Wednesday before recovering most of the setback on Thursday. Overseas buyers continue to book cargoes out of the Gulf and appear willing to pay higher prices from other countries as well. Though new production here and abroad is coming online, China – once a leading exporters – reduced production to fight pollution, leaving a hole the market is still trying to fill. Our current average retail price of $350 may not have much downside into summer given the tone to the international market.
UAN was largely unchanged at both the retail and wholesale level last week, though river terminals cut offers a little as the season for shipping product to dealers winds down. The $170 settlement at the Gulf this week for 32% translates into a 28% cost of just under $237, a fair value according to historical trends. Swaps for September show a $15 cost which could cut fall prices if it holds.
Phosphates costs rose slowly but steadily higher since last summer, and our average for DAP was unchanged this week at $488.50. Though the wholesale market pulled back a little in May, don’t look for any great bargains this summer. DAP could have $10 to $15 downside at best if supplies hold firm on their contracts for summer replacement order. Higher nitrogen costs are part of the reason why sellers could be reluctant to cut prices much, if demand from big buyers like India and Brazil holds firm.
Potash edged lower this week at the Gulf, but the drop was just pocket change. Retail prices, which remain on average at $345, could actually move a little higher as dealers restock after manufacturers announce their summer prices.