INSIGHT: US fertilizer industry prepares for spring amid steady-yet-cautious market pace

SAN DIEGO (ICIS)–As the fertilizer industry begins moving towards the start of spring, the first major domestic conference of the year concluded in mid-February.

Participants travelled to California to weigh the upcoming expectations for the season amid a steady yet cautious pace of activity for the key crop nutrients.

Emerging from the TFI Annual Meeting was a picture of good demand from farmers despite their economics still being challenged.

And while an early spring start and a flurry of subsequent buying at the farm gate is not likely to be at hand for the US, it could be an equally strong period with applications expected to stretch into early summer.

Conference attendees said that part of the quiet atmosphere is due to farmers watching their expenditures more closely once again, and because the fall (autumn) refill for most nutrients was the strongest seen in years.

This has left both the retail and grower side feeling comfortable even with some projected short term tightness in early spring. It adds to the thought there is potential for higher prices once they come back to purchase.

Once again in the main market spotlight, the urea market was drawing much of the overall interest at the conference but while in agreement that the US is short on supply, there are mixed views.

The thought persists that the US is facing about a 700,000-1m tons urea import deficit but comes with varying degrees of sentiment as to how this plays out domestically over the next two to three months.

While an uptick for barge levels was thought possible, as farmers start to return to their fields over the next several weeks, perhaps climbing another $15-20/short ton, expectations are fairly limited.

As one trader said, which echoed many at the event, “this will be small and it will be short lived”. This came with the thought that the market could see an equally drastic retreat.

Others still hope that the international market will strengthen and boost US fortunes, and that favourable weather emerges because it was mentioned often that it is a factor that always looms over the period.

Unlike the previous year, the uncertainty, or anticipation of things to come, in the urea market did not result in an upsurge for near-by volumes but rather participants were preferring to step slowly.

While some thought it might be greater hesitancy, others saw the market as one trader did, who said “everyone is showing some more disciple this time around”.

Ahead of the conference, February urea barges traded at $248/short ton FOB (free on board). But through the event the trade pace slowed with sales between $250-$254/short ton FOB for February during the early part of the week, with March urea barges having been traded in a similar range to February at $250-254/short ton.

Higher levels were also heard but these could not be further confirmed.

On Friday 16 February the market continued to be range bound as one urea barge traded for February at $248/short ton and one for March shipment at $252/short ton.

While remaining quieter than its nitrogen counterpart, phosphates continue to move closer to their start of spring with most viewing the market as steady and stable for the short-term.

Although there is a thought that tight supply and good early season demand could provide a springboard for the nutrient to climb up another $10-15/ short ton before the quarter closes.

Retail inventory is seen as considerably low but this could be alleviated by current import expectations, which includes Russian and Morocco vessels in the lineup. There was talk that possibly much of these volumes have been committed and will not hit the open market.

It was thought that this market needs a few more weeks, allowing for winter conditions to retreat, before the real pace picks up. Recent buying was, in the word of one retailer, just people “trying to grab some more before this changes” as values have been inching up slowly over this quarter.

During the event, which ran from 12 to 14 February, March DAP (diammonium phosphate) barges sold at $375/short ton while February was discussed between $373-$379/short ton.

Monoammounium phosphate (MAP) barges were generally agreed to be in a range of $385-390/short ton but no trades were concluded reflecting the tepid nature ahead of the start of spring in the key crop regions.

Likewise, potash activity remained diminished and it is expected to stay in a winter slumber until early March. Barge pricing has remained stable with $236-238/short ton seen currently for New Orleans (Nola) barges.

This comes amid the thought that buying will be good in the second quarter and add further pricing support as the season progresses.

The urea ammonium nitrate (UAN) market it is also waiting for spring to kick into high gear but one strong aspect that came forth at the conference was the firmer expectation that this nutrient could see increased demand this year, especially given that crop prices remain under pressure.

It was noted that the cost ratio benefit might make UAN more attractive to farmers over the next quarter, especially if corn prices do not look improved for the forward contracts.

The added new availability in the US from producers has created a more favourable environment overall in the market. There were more than a few participants at the TFI meeting who thought it could be a chance this year “to steal some of urea’s position away”.

Outside of demand, the UAN attention was focused on CF Industries next move as it recently pulled prices. The sentiment was strong that the producer will return within next two weeks at higher levels.

Despite that take, however, overall there was not a clear consensus on how much that would sway interest in the nutrient going forward, especially with the direction in urea not as firmly defined yet either.

By Mark Milam