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How Fertilizer and Raw Material Prices Moved Last Week

PART:
1 2 3 4 5 6 7 8
Part 4
How Fertilizer and Raw Material Prices Moved Last Week PART 4 OF 8

Last Week’s Key Natural Gas Price Movement for Fertilizer

Natural gas

For the week ended August 5, 2016, natural gas spot prices at Henry Hub rose again. Natural gas is a key raw material that accounts for about two-thirds of input costs for nitrogen fertilizers such as ammonia. Thus, natural gas prices affect nitrogen fertilizer producers such as CF Industries (CF) and Terra Nitrogen (TNH), which use natural gas as a feedstock.

Last Week&#8217;s Key Natural Gas Price Movement for Fertilizer

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Prices fall

During the week ended August 5, 2016, natural gas spot prices rose by an average of 1.7% to $2.85 per MMBtu (million British thermal units) from the previous week. However, forward one-month contracts fell slightly by 0.7% to $2.7 per MMBtu week-over-week.

Forward one-month natural gas prices at the NBP (National Balancing Point) in the United Kingdom fell by 3.2% to $4.63 per MMBtu week-over-week. Henry Hub in the United States and NBP in the United Kingdom are the most heavily traded points for natural gas.

Low natural gas prices positively affect fertilizer producers such as CF Industries (CF), Agrium (AGU), Terra Nitrogen (TNH), and PotashCorp (POT). According to CF Industries, a $1 change per MMBtu in natural gas could change the costs of production for ammonia and granular urea by $32 and $22, respectively.

Natural gas prices also affect 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 (U.S. Energy Information Administration) maintained its 2016 forecast for average natural gas prices at Henry Hub at about $2.36. For 2017, it maintained its forecast of $2.95 per MMBtu. In 2015, the average price of natural gas at Henry Hub stood at $2.63 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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