10/10/2024 Weekly Fertilizer Hedge Idea
Recently, we have been seeing a surge in nitrogen prices across the board.
From my perspective, urea continues to lead the charge. A lack of exports from China and EU/Brazil/Egypt production issues have significantly tightened global supplies when demand looks largely unchanged from last year. UAN has struggled with Trinidad/EU and global NH3 struggles with Trinidad/Russia. However, urea appears to be leading the charge higher with an outlook that still looks supportive.
...but we all know markets can change and change quickly.
So this week, we are focusing on UAN. If we suddenly see Chinese urea exports return in a big way, that could/should cause global urea values to fall. N.A. manufacturers have been working to make sure that UAN stays "connected" from a price perspective to urea. They have pushed UAN prices higher as urea rose, and they might do the same if urea falls.
So if we have a lot of unsold UAN purchased and we are nervous about that downside/price drop potential, how do we protect it?
We have FINALLY seen a resurgence of UAN paper liquidity. While far from what we would call liquid in other markets, there has been interest and March has actually shown a decent premium.
The approach is that we sell NOLA UAN March paper. We still need to worry about basis getting wider/narrower but the strategy is that if prices fall on the physical position, that loss is gained on the short paper position. Now, if values rise, what is gained on the physical side is also lost on the short paper position. We have to be willing to give up the upside potential to protect the downside.
If this becomes a worry and something that you want to look into, let me/us know and we can get on a call to discuss details.
All data was sourced from StoneX unless otherwise noted.
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