Another strong US fall application season will likely limit ammonia demand in the first half of 2024 and keep a ceiling on prices ahead of the spring.
A second consecutive prolonged fall application period in the Corn Belt — especially in Illinois and Iowa, where sources indicated record-high delivery volumes — is expected to trim initial interest in ammonia purchases for the spring. This could shift buying patterns to a hand-to-mouth dynamic for pre-planting applications, where farmers buy as little as possible and just before they need it.
Initial spring prepay offers by mid-December widely exceeded buyers' expectations, ranging from $620-650/st for second quarter delivery. Sources say the offers so far have been met with minimum interest from buyers, potentially paving the way for demand and pricing dynamics to mimic those of the spring of 2023.
Producers and suppliers will have to announce more competitive offers for second-quarter ammonia volumes to capture commitments from buyers, or else risk another season of hand-to-mouth buying that could leave terminals with high inventories as applications wind down in the spring.
A successful fall application season, which is largely dependent on favorable weather and soil conditions, has historically reduced demand for end-users during the spring because some farmers will opt to skip seasons if they believe nitrogen content is adequate in their fields. Demand can be further reduced if weather and soil conditions do not meet requirements for anhydrous ammonia applications, or if prices are uneconomic relative to projected income.
Following spring 2023 applications, producers and suppliers announced the lowest fall ammonia prepay pricing since 2020, offering a significant discount after an unusual spring season in which a build-up of terminal inventories prompted nearly weekly in-season spot price declines. By the time fall applications began, some wholesalers estimated that up to 90pc of volumes delivered during the fall in the east and west Corn Belt were purchased during prepay sales in the early third quarter.
But divergent weather and soil conditions between the east and west Corn Belt during the fall presented both challenges and opportunities to end-users, with record delivery volumes reported by sources in Iowa, Illinois and Indiana because of favorable conditions for much of the season. But widespread post-harvest fieldwork in Nebraska and Missouri was delayed, first by dry soil conditions and then by intermittent precipitation and warmer-than-usual temperatures.
The relatively poor application conditions in the western Corn Belt, namely Nebraska and Missouri, could elevate inventories at terminals if prepaid volumes are not delivered, lifting carrying costs that would be difficult to recover if pricing does not recover by the spring.
Ammonia markets are expected to remain soft to begin 2024, as price support declines amid slowing spot trade. The January Tampa settlement fell by $100/t to its lowest point since September at $525/t cfr, reflecting slowing demand that has weighed on sentiment in the first quarter.