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Urea Prices Fell Last Week: How Did Other Fertilizers Perform?

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Part 4
Urea Prices Fell Last Week: How Did Other Fertilizers Perform? PART 4 OF 8

Natural Gas Continued to Fall Last Week: What Does This Mean?

Natural gas for fertilizers

For the week ending July 15, natural gas prices at Henry Hub continued the previous week’s declining streak for average prices. Natural gas is a key raw material that accounts for 75% of input costs for nitrogen fertilizers such as ammonia. Then, it’s used to produce urea. So, natural gas prices impact nitrogen fertilizer producers such as CF Industries (CF) and Terra Nitrogen (TNH) that use natural gas as a feedstock for nitrogen fertilizers.

Natural Gas Continued to Fall Last Week: What Does This Mean?

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Prices decline

During the week ending July 15, 2016, natural gas prices fell by an average of 1.6% to $2.76 per MMBtu (British thermal units in millions) from the previous week’s average of $2.8 per MMBtu.

The fall in natural gas prices has a positive impact on fertilizer producers such as CF Industries (CF), Agrium (AGU), Terra Nitrogen (TNH), and CVR Partners (UAN). Fertilizer producers might mitigate natural gas price fluctuations through futures contracts, but rising prices will put pressure on input costs.

Natural gas prices are based on spot prices for natural gas traded at Henry Hub. Gas prices hit a low of $1.49 per MMBtu in March 2016. However, current natural gas prices remain elevated as net injections decline, according to the EIA (U.S. Energy Information Administration). Last week, net injections were 64 Bcf (billion cubic feet)—compared to a five-year average between 2011 and 2015 of 77 Bcf.

Natural gas prices also impact ETFs such as the iShares Global Materials ETF (MXI). MXI invests about 4.5% of its portfolio in agricultural chemical companies, including Monsanto (MON).

Natural gas price forecast

Last week, the EIA revised its 2016 forecast for average natural gas prices at Henry Hub at about $2.36 from $2.22 per MMBtu. It lowered its 2017 forecast to $2.95 per MMBtu from $2.96 per MMBtu.

In the next part of this series, we’ll take a look at coal prices. Coal is an alternative input material for nitrogen fertilizer production.

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