I found myself wondering how much correlation there is between the price of wheat and the price of urea. I mean I can't be the only one who's wondered in an idle moment if basically it isn't really just priced at what the producers think that the market will stand.
Let me say right here that I what I know about the fertiliser market fundamentals is four fifths of bugger all. What I have noticed though is that the price seems to follow the price of wheat on a delayed reaction basis.
The price of oil, demand from China, the Indians haven't bought yet, you'd better get your order in now or it will all be gone we've only got a couple of lorry loads left are all great selling points aren't they?
So anyway, as I was updating my FOB Black Sea urea chart I noticed that prices are now matching last summer's highs - the highest that they've been since I started keeping tabs on them at the start of 2010. On that basis alone it would seem unlikely to me that this is indeed a great time to buy.
You can click the chart to enlarge it. What I've noted for you is that over the past eighteen months or so we've had three significant lows on London wheat:
A: Mar 2011- in the aftermath of the Japanese earthquake, tsunami and nuclear scare.
B: Jun 2011 - financial melt-down on fears of a Greek debt default.
C: Dec 2011 - the bottom of the recent market when London wheat fell to GBP140/tonne.
All three of these events were matched by a subsequent dip in Urea prices between one and two months later. Coincidence? Maybe.
During this period the highs for London wheat were set:
1: Apr 2011 - the all time high close for London wheat, helped by erm, let's call it "technical market conditions" shall we?
2: Aug 2011 - just before we all realised that despite the drought we were actually going to end up with a decent crop after all.
3?: Apr 2012 - are the old crop highs now in? We don't know, but we can say that prices were higher in April than they had been at any time since last June so let's call it a high for now.
It seems that the Apr 2011 wheat high was met by a subsequent Urea high set in June of last year. The Aug wheat high was followed by a Urea price rally that peaked in late September. Once London wheat peaked last summer it was, like my marriage to MrsN#1, downhill all the way to the mid-December lows. Urea mirrored that decline, starting a month or so later and finishing the first week of February around six weeks after wheat had bottomed.
So the first two of these three of these events were matched by a subsequent peak in Urea prices between one and two months later. Double coincidence? Double maybe.
Supposing wheat has peaked, or that it will do so this month, the odds seem to be stacked in favour of a Urea high being just around the corner. But what do I know? Four fifths of bugger all. It's an interesting theory though, and one I will be monitoring over the next few months.