The average New Orleans (NOLA) price per short ton of prilled urea increased $10.77/ton from $207.33 in December to $218.10 in January. Urea is the primary ingredient in Diesel Exhaust Fluid, so rising commodity prices will affect the DEF market.
Although many fleets think of urea as an ingredient in DEF, fertilizer applications are a much larger use-case for urea around the world. We are starting to see futures prices rising for Urea in anticipation of a strong planting season this year. With the fall flooding, a lot of farmers were not able to get an application of fertilizer down. This will lead to a strong demand this spring. We can expect the NOLA index to continue to rise over the next few months.
Urea pricing this year has been driven by the global energy market, changing dynamics with China’s production capacity and global demand. The chart below shows the changes in NOLA Urea over the past 18 Months. As energy prices rose and marginal production was shut down in China, values rose which subsequently raised the DEF market. Going into December/January we have seen softness in global energy. This in addition to US-based urea manufacturers exporting product at lower values than Brazil discouraged imported urea.
Urea producers in the US have continued to export product in January to keep the market stable. Some farmers and CO-OP’s have locked in pricing for the spring planting but many are still sitting on the sideline hoping for a price decrease in the winter months before they lock in their price. Once planting season arrives in March, urea markets are expected to increase, continuing into the summer.
The urea market continues to struggle as global demand is slow and the wheat belt has yet to see anything meaningful happen due to weather constraints. Nola has fallen in the low 240’s as international producers look at destinations to move product and fear of oversupply becomes more real. There should be demand in Europe over the next month but with rumors of the EU looking at a payment system for Iranian urea this will likely give buyers in the EU pause and therefore put pressure on North Africa and others to move tonnage, likely to the US. It should be mentioned though that while prices are falling this could likely make demand even larger against a stable Nh3 price and a UAN price that has yet to drop further. At the end of the day, we believe the market has more downside potential until meaningful demand comes into play to push the market higher.
Note: Urea is an important component of DEF prices, but far more savings can be achieved through optimizing your delivery logistics. If you’d like more information on how you can achieve significant DEF savings, I’d be happy to have a discussion on your DEF needs. Feel free to email me at firstname.lastname@example.org for more details.