The third consecutive season with poor ammonia application is primed to add downward pressure to prices through the first quarter of 2020, although logistical bottlenecks could provide late-year support.
Carryover stocks from this fall will diminish first quarter spot demand in isolated areas within the Midwest and Northern Plains, posing the strongest headwind to the market. But prices are set to find support after the spring as Magellan Midstream's ammonia pipeline is taken completely off line and suppliers vie for drivers within an already strained truck market.
Nearly all shipments to retailers and to farmers this fall were cargoes bought during the summer. Little spot appetite arose as harvest progressed, resulting in carryover in key consuming areas. Farmers endured sporadic opportunities this fall to operate combines and inject ammonia. Delayed harvests pushed the fertilizer application window further into the fourth quarter, which faced mounting disruptions as storms became more frequent.
Growers are forecast to increase corn acreage next season. That increase would help draw down carryover inventories from this fall and balance supplies, weather permitting.
But transportation will be at the fore for suppliers, a factor that will contribute to in-season price movements.
Magellan Midstream is scheduled to completely decommission the southern portion of its 1,100-mile (1,770km) ammonia pipeline by January. It will continue to receive ammonia shipments on the northern stretch until 1 March, potentially complicating distribution if planting is delayed and push suppliers to rely on a truck market facing driver shortages.
Producers in the Southern Plains have started taking steps to reduce net ammonia availability in the aftermath of Magellan's decision to mothball its pipeline.
Upgrades at LSB Industries' Pryor, Oklahoma, facility is intended to increase UAN production capacity to 350,000 st/yr, which is estimated to reduce the plant's net ammonia availability. Koch plans to construct a second urea unit at its Enid, Oklahoma, nitrogen complex by 2022 without building an adjoining ammonia plant.
Although net ammonia availability is anticipated to fall, Argus estimates long-haul truck shipments will more than double to nearly 500,000 st/yr after Koch's expansion and accounting for regional direct application demand — further straining the national truck industry.
Market participants have reported thin truck availability for several seasons during peak applications, and competition between producers and distributors will heighten and potentially drive shipping and end-user costs higher in future cycles.
By Connor Hyde
