What is driving the rise in CAN price?

Farmers who have yet to purchase nitrogen for the 2018 growing season are questioning significant price rises, especially at a time when energy prices remain relatively low.

Currently, agri merchants and co-ops are quoting prices of around €250 to €270/t for big bags depending on volume, credit terms and delivery. This is a rise of around €50 to €60/t from the lows reached in the summer months.

Despite China tightening its urea production and hence exports (down 6Mt), the international price is pretty stable due to additional capacity elsewhere in the world.

It is understood that all the urea required for the season is already in Ireland and the expectation is that the post-Christmas price of urea should not be any more expensive than last year at farm level at about €350 to €370/t big bags delivered.

Buoyed by international tightness in urea, European CAN producers have become more confident, which is driving further CAN price rises.

Coupled to this, two of the largest CAN producers in Europe have exported some 300,000t of nitrogen to South America, keeping a lid on supply and creating an opportunity for them to rise prices.

Even though energy prices remain relatively low, Yara saw a 23% increase in its cost of energy for the first nine months of 2017.

Irish price rises justified?

Analysing the externally recognised benchmark index (Figure 1), the German wholesale bulk CAN price each month over the last four years shows the relative pricing of CAN in each year and how it performs over the season. It is currently trading at €205/t for January. This translates to an Irish delivered on-farm big bag price of €265 to €275/t after freight, shipping, bagging, delivery and credit are included.

CAN prices have been relatively low over the last two years and low prices usually bring greater volatility within a season. In 2016, the price fell from highs of €230/t to under €140/t in the summer, before rising to almost €200/t at the end of the year. It was a similar pattern in 2017. Last January, wholesale CAN traded at €220/t and fell during the summer to below €160/t before rising to €200/t again by December.

Depending on where importers, merchants and co-ops purchased along that cycle, farmers were able to buy CAN at lows of €200/t delivered on farm in September to November last year.

It subsequently rose significantly in the spring to levels similar to today’s prices of around €250/t. Therefore, spring purchasers of CAN didn’t benefit from the lows seen last year and will likely end up paying a similar price to last year.

It is during the December/January period that Irish blenders import the vast majority of their spring requirements. Therefore, when or how much any rise in prices actually gets passed on to farmers depends on stock levels along the supply chain at importer and merchant/co-op level, combined with local competition.

CAN prices usually fall to season lows in June or July, as European manufacturers try to entice buyers by discounting the product for early payment, storage and delivery.

However, it is a tricky period, as fertiliser buyers try to second-guess the value of any new-season price relative to global supply-demand balance and the outlook for commodity prices, energy prices and exchange rates.