Analysis: Urea overtakes NH3 as cheapest nitrogen

OREANDA-NEWS. Urea has replaced ammonia as the cheapest source of nitrogen based on the latest prices for terminals in the Corn Belt, which could spur increased demand for the product as growers make application decisions this spring.

Farmers sometimes source nitrogen from different products depending on price relationships, though it is not a direct determinant of substitution as many farmers are guided by legacy application practices.

Urea is now offered from Corn Belt terminals in the \$320s/st fot, down from about \$370/st fot at the beginning of the year. The new price equates to about \$7.12/unit nitrogen.

Meanwhile, west Corn Belt ammonia terminal prices are at about \$615/st fot, virtually unchanged from the beginning of the year despite the precipitous decline in the urea market. That price equates to about \$7.50/unit nitrogen, a 5pc premium to urea.

Over the last year, urea's premium to ammonia has averaged \$0.88/unit nitrogen and been as high as \$2.79/unit nitrogen.

Some unique factors for urea and ammonia's supply this season have driven the reversal of urea's typical premium.

Ammonia supply has been similar to recent years, which has contributed to its stable pricing so far this spring. Fertilizer year-to-date imports through January of 3.3mn st are virtually unchanged from that period in 2014, according to the Fertilizer Institute data.

On the other hand, the US urea market is awash with supply. Nola has offered the highest netback of the world's key importers of granular urea. Fertilizer year-to-date imports through January are up almost a third from the same period last year to 4.6mn st.

In the absence of much urea consumption beyond the Wheat Belt, mounting supply at Nola has weighed on prices there and at upriver warehouses even as relative value has reached levels that could drive increased demand for the product.

Urea's attractive pricing could also spur switching from UAN. UAN's premium to urea has averaged \$1.09/unit nitrogen over the last year. The current premium is over \$2.40/unit nitrogen.

There have been reports of increased prepaid ammonia offtake over the weekend on account of improving weather. With attractive relative prices, an uptick in urea buying could follow.