CF Industries Profits From Demand and Wide Margins

November 2, 2012 09:11 AM

Demand for Urea and UAN fertilizers is up right now and with natural gas generally soft, nitrogen producers like CF Industries are positioned to capitalize on widening production margins. CF reported a 29% year-over uptick in the retail price for Urea in the first six months of 2012. Prices for Urea and UAN have remained largely stable, even adding a few cents here and there along the way.

This bodes very well for nitrogen producers, and CF in particular. Growers will be looking to bolster supplies both this fall and in the coming spring as nitrogen-based UAN fertilizers are preferred following drought. Ammonia prices are creeping higher year-over as well and CF's production arms are long enough adjust outpost to meet market demand. So as demand chases prices higher for one particular product or the other, CF can focus production where the profit is.

cf industries  nitrogen

CF also had the foresight to hedge 60% of its natural gas for the second six-month period of 2012 meaning margins will stay intact until CF's nattie supply runs low. But given the heyday hydraulic fracking has unleashed in the nattie futures market, cheap natural gas is a near-certainty for the foreseeable future.

With demand for UAN and Urea spiking and a production base wide enough for CF to stay mobile, expect CF Industries to perform well and add value for shareholders in the next few quarters.

As of now (2:00 CT)...

CF had been on an upward trend since mid-May but softened 20 points through the month of October. Currently seeking downside support, shedding $9.90 since open of trade today -- right now at $200.98 and falling.

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