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Your Fertilizer Price Update for the Week Ended August 12

PART:
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Part 4
Your Fertilizer Price Update for the Week Ended August 12 PART 4 OF 8

Nitrogen Input: Last Week’s Natural Gas Price Update

Natural gas

For the week ended August 12, 2016, natural gas spot prices at Henry Hub fell. 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.

Nitrogen Input: Last Week&#8217;s Natural Gas Price Update

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Prices fall

During the week ended August 12, 2016, natural gas spot prices fell by an average of 4.2% to $2.7 per MMBtu (million British thermal units) from the previous week. However, forward one-month contracts moved sideways to $2.7 per MMBtu.

Forward one-month natural gas prices at the NBP (National Balancing Point) in the United Kingdom fell by 8% to $4.3 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) raised its 2016 forecast for average natural gas prices at Henry Hub to about $2.41 per MMBtu from $2.36 per MMBtu a week earlier.

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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