Viewpoint: Imports to steer US UAN market down

Mounting US imports of UAN are expected to sustain downward price pressure through the first quarter of 2020, outstripping likely production reductions and spring consumption.

Russian and Trinidadian suppliers control the US' supply balance preceding spring applications and will likely maintain a steady stream of imports, keeping a lid on upward price momentum through first half of the quarter, if not longer.

Imports from Russia and Trinidad grew by 31pc and 39pc, respectively, through the first three quarters of 2019 from a year earlier, as producers in both countries targeted the US to redistribute volumes previously earmarked for Europe after the EU issued anti-dumping duties on both countries and the US.

The sharp rise in imports has mitigated higher UAN market prices during the third and fourth quarters this year and kept UAN at a discount to urea on a price-per-nutrient basis at Nola. UAN typically claims a premium to urea during the fourth quarter and maintains the relationship through the second quarter. This season bucked the trend, as delayed spring applications compounded with bearish sentiment driven by the EU anti-dumping probe that wrapped up earlier this year.

This unseasonal price relationship is on track to persist despite an expected cut in domestic production and strong grower demand on bumper crop estimates.

US producers are still expected to receive larger margins over production costs selling urea at Nola instead of UAN through the first half of 2020, encouraging companies with flexible product mixes to favor urea output. CF Industries, which has the capability to produce more than 50pc of the US' UAN needs, slowed output through the first three quarters this year.

Exports have historically been a reliable conduit to balance inventories, but US exporters have one less destination market in the wake of the EU's ruling.

US exports retreated to a four-year low through September on restricted access to France — the second largest global UAN importer. US suppliers more than doubled shipments to France between 2015 and 2018, using it as an outlet to balance the US market.

But volumes to France fell by nearly 75pc through the third quarter this year after the EU levied tariffs on US, Russian and Trinidadian UAN, leaving suppliers with little alternatives to ship product. Argentina has consumed more US UAN through September compared to full-year imports a year ago, but it has not been enough to relieve market pressure in the US.

Now corn growers have shifted into focus as a catalyst for market direction through the first half of 2020. While nitrogen producers continue to project a bumper crop in 2020, grain values indicate otherwise.

The ratio between soybeans futures on the November 2020 contract and corn futures for December 2020 delivery indicate farmers will favor more soybean acres next season. Crop values for 2020 delivery have been unfavorable to substantially more corn acreage since late May, adding another headwind for nitrogen fertilizers.

One bullish variable for UAN suppliers, though, is another lackluster post-harvest ammonia application period. Farmers unable to inject the entirety of their fall ammonia needs tend to consume more UAN during the spring to ensure nitrogen requirements are met.

By Connor Hyde