The US Corn Belt ammonia market is poised to remain buoyed through the first quarter despite mounting pressure in the export market, as supplies in the Caribbean and US Gulf build following muted US autumn demand.
Fall application in the Corn Belt was lackluster, but Corn Belt ammonia prices willlikely remain insulated from international pressure, while excess volumes could be exported from the US Gulf and add to spot export availability in the Caribbean.
US farmers are expected to plant a bumper corn crop at 92mn-94mn acres in 2019, according to market estimates. Higher corn acreage is bullish for ammonia and other nitrogen products. Farmers are also expected to apply ammonia that was not injected during the fall as well as spring needs during the first quarter and early-second quarter prior to planting — potentially clogging the distribution system on high demand and limited truck availability.
Any hiccups in ammonia deliveries could lead inland prices to rise during peaks in demand as distributors vie for available trucks within a limited fleet. Suppliers have reflected this logistical concern with a $45/st premium between prompt and spring prepay offers in the east Corn Belt.
But distributor prices down the supply chain have narrowed to near parity, stemming from weak offtake for post-harvest applications. Nearly flat pricing between the retail and wholesale sectors could mitigate potential appreciation in early 2019.
Some retailers in the Corn Belt are still marketing ammonia previously secured under summer fill values, resulting in price parity between wholesaler offers to retailer and retailer offers to farmers. Ammonia retail offers in Illinois reached $495-$560/st fot in early December, according to the US Department of Agriculture (USDA). Meanwhile, producer and supplier offers in the east Corn Belt were assessed at $485/st fot on a midpoint basis in early December, with spring prepay offers as high as $540/st fot.
Converging prices between the wholesale and retail sectors leave little room for margin and pose near-term headwinds as upstream suppliers push for higher levels.
Producers potentially facing high carryover stocks could minimize downward market pressure by exporting, cancelling prepay orders and upgrading to other nitrogen alternatives — if the ammonia is stored at the production site
But the US Gulf and Caribbean spot export market has endured mounting pressure throughout the fourth quarter from higher-than-anticipated output in Trinidad and growing global inventories, which led to a $30/t drop in the Tampa contract for December shipments.
November gas curtailments in Trinidad were softer than market estimates, resulting in increased exports from the island. Argus estimates about 392,000t sailed from Trinidad in November, down year-over-year by 4pc.
Nevertheless, flush stocks in the US coupled with availability from Trinidad pose headwinds in early 2019 for spot prices in the region. Offers from Trinidad pressured prices to $282.50/t fob US Gulf/Caribbean on a midpoint basis in early December, down by 11pc from the island's peak price in October.
Supply-driven pressure could remain in place through much of 2019 as exports from the US Gulf potentially become regular with additional output from Yara's 750,000 t/yr facility in Freeport, Texas, which remains in the commissioning phase.
