Q3 2022 CF Industries Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to see US industries 2022, first nine months and third quarter financial results.
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I would now like to turn the presentation over to the host for today, Mr. Martin Jurassic with CF Investor Relations. Sir. Please proceed.
Good morning, and thanks for joining the CF Industries earnings Conference call with me today are Tony will CEO , Chris Bohn, CFO , and Bert Frost Senior Vice President of sales market development and supply chain.
<unk> industries reported its results for the third quarter and first nine months of 2022 yesterday afternoon. On this call. We'll review the results discuss our outlook and then host a question and answer session.
Statements made on this call and in the presentation on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance and involve risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied in any statements more detailed information.
Formation about factors that may affect our performance may be found in our filings with the SEC, which are available on our website also you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website.
Now, let me introduce Tony will our president and CEO .
Thanks, Martin and good morning, everyone yesterday afternoon, we posted our results for the third quarter and first nine months of 2022 in which we generated adjusted EBITDA of $1 billion and $4 $6 billion respectively.
On a trailing 12 month basis, our adjusted EBITDA was $5 $8 billion and our free cash flow was a whopping $3 $7 billion, our industry, leading EBITDA to free cash flow conversion efficiency is an incredible 63%.
These results reflect continued outstanding execution by the CF industries team.
Our plants are running well and we continue to leverage our distribution and logistics capabilities to navigate rapidly changing global environment.
Most importantly, we have done all of this safely.
At the end of the quarter, our 12 month recordable incident rate was 0.29 incidents per 200000 labor hours well below industry averages.
Our team's remarkable performance took place against the backdrop of a very tight global nitrogen supply demand balance.
As Bert will explain in a moment, we believe the dynamics underpinning this environment will remain in place for an extended period, namely strong agricultural led demand and high energy prices in Europe and Asia.
Based on this outlook, we expect to continue generating substantial free cash flow, which will enable us to invest prudently in high return growth projects, while at the same time, returning significant capital to shareholders.
We remain focused on our clean energy growth initiatives highlighted by the development of our blue ammonia capacity.
Most recently, we reached a landmark carbon capture and sequestration agreement with Exxonmobil for Donaldson, Louisiana complex.
We have also moved our joint venture Blue ammonia project with Mitsui into the feed study phase.
We believe that our focus on disciplined investments and partnerships with global leaders will keep us at the forefront of the developing market for low carbon ammonia.
We also remain committed to returning capital to shareholders through share repurchases and dividends.
At the end of the third quarter, we have brought our outstanding share count below 200 million for the first time on a stock split adjusted basis.
Given the confidence we have for our continued high level of free cash generation going forward along with the fact that our shares have an LTM free cash flow yield of over 19% as shown on slide six of our materials.
We have established a new $3 billion share repurchase program to follow on after we complete our existing authorization.
With that let me turn it over to Bert who will discuss the global nitrogen market in more detail.
Thanks, Tony the operating environment for CF industries remains positive as we near the end of 2022.
Agricultural led demand continues to be robust due to the need to replenish global grain stocks at the same time energy prices in Europe , and Asia have remained high causing an unprecedented level of ammonia curtailments in Europe during the third quarter.
Trade flows have adjusted rapidly with the rate of nitrogen imports into Europe over the last three months approaching those are the two largest import regions, India and Brazil.
Foreign energy curve suggests that producers in Europe , and Asia will face high energy costs into at least 2025. This will likely continue to challenge producer economics in those regions and lower global nitrogen supply availability.
Producers in Europe , with the option to import ammonia had been able to run upgrades profitably, but for those who cannot the European winter it is likely to be very difficult.
Global supply also remains limited by government actions since October of 2021, Chinese government policy has materially restricted urea exports.
Ammonia exports from Russia are also well below prior years in contrast, the supply of upgraded fertilizer product from Russia has returned to near normal levels. That's trade flows have adjusted over the last two quarters.
Looking ahead, we expect demand for nitrogen to remain resilient as the agricultural sector focuses on maximizing food production in the face of increasing food and security.
Global harvests are not projected to make meaningful progress in 2022 towards rebuilding global grain stocks as keep producing regions suffered from poor weather during the growing season. This.
This includes the U S where crops were negatively affected by extended heat and drought. This summer leading to yields that are expected to be significantly below trend.
As a result crop futures prices for corn remains strong relative to the last decade, which should incentivize farmers to apply nitrogen fertilizer to maximize yields in 2023.
As we have seen so far this year margin opportunities can shift rapidly between regions, where our product is needed most.
Typical seasonal demand from India, and Brazil, and higher than usual demand from Europe continued to drive today's market.
This has enabled CF to build our largest export book ever and we are receiving strong interest for first quarter export shipments as well.
Further out we expect high corn and wheat planted acres in North America in 2023, due to strong crop futures prices and healthy farm economics.
In line with this outlook, we have a strong order book for fall ammonia application season, which has begun.
Low water levels on the Mississippi River have challenged the industry's ability to move product north work late in the year and will have an impact into 'twenty two 'twenty three.
This is likely to increase the importance and value of product manufactured in and close to the corn belt as we enter 2023.
As you can see on slide 11, we expect these broad industry supply and demand dynamics to continue to support a steep global nitrogen cost curve during 2023 and in our view well beyond.
The wide estimated cost range suggest continued volatility in global nitrogen prices with our manufacturing network firmly rooted at the low end of the cost curve, we are well positioned for a strong margin opportunities even as prices fluctuate.
With that let me turn the call over to Chris. Thanks, Bert for the third quarter of 2022. The company reported net earnings attributable to common stockholders of $438 million or $2.18 per diluted share.
EBITDA was $826 million and adjusted EBITDA was $983 million.
For the first nine months of the year. The company reported net earnings attributable to common stockholders of two and a half billion dollars or $12.04 per diluted share.
EBITDA was $4 $3 billion and adjusted EBITDA was $4 6 billion hours as we look ahead, we believe we are well positioned across our business and strategic initiatives.
Just on remaining planned maintenance activities, we expect capital expenditures for 2022 to be around $500 million at the low end of the range. We provided at the beginning of the year.
This total encompasses expenditures related to our clean energy initiatives, including acquiring the land in Louisiana for the proposed blue ammonia plant with Mitsui.
We have initiated a feed study for the project with Teson crop and we expect a final investment decision in the second half of 2023.
We also took a substantial step forward with our carbon capture project at Donaldson Bill complex partnering with Exxonmobil and gaining the benefit of their unparalleled expertise and subsurface geology.
Once operational up to 2 million tons of carbon dioxide annually will be transported from Donaldson, bill and sequestered rather than a minute.
Putting us well on track to meet our 2030 emissions intensity reduction goal.
We expect sequestration to begin in early 'twenty 'twenty five in line with the anticipated completion of the 200 million dollar carbon dioxide dehydration and compression unit we're constructing.
Given our installed assets in place and then enhanced forty-five Q a tax credit and the inflation reduction Act, we expect to earn returns well above our cost of capital.
We believe our agreement with Exxonmobil represents critical progress in the development of the market for low carbon and ammonia and a little over two years, we expect to have completed the carbon dioxide infrastructure necessary to produce blew them out yet.
This should give industries interested in using low carbon blue ammonia for clean energy greater certainty that substantial volumes will soon be available.
Our clean energy initiatives continue to have a very attractive return profile with projected expenditures, representing only a modest outlay of capital compared to our free cash generation outlook.
This will enable us to pursue additional growth opportunities that are in need.
That meet our investment criteria as well as continue to return capital to shareholders.
On a trailing 12 month basis, we have repurchased more than 20 million shares for approximately $1 $6 billion through both ratable and opportunistic repurchases. This is almost 10% of CF industries share count from one year ago.
On slide six you can see our free cash flow yield and free cash flow to adjusted EBITDA conversion rate.
Based on these metrics, we see our shares as undervalued and expect to maintain a robust share repurchase program we.
We anticipate completing the remainder of the current repurchase authorization in the near future at that point, we'll begin the new $3 billion share repurchase program with that Tony will provide some closing remarks before we open the call to Q&A.
Thanks, Chris before we move on to your questions I want to thank everyone at CF industries for their outstanding work in 2022.
Their expertise and unwavering commitment to safety is the foundation of everything we do.
One of the ways, we put a spotlight on this commitment is our annual Wilson Award for excellence in safety, which honors the most impactful safety innovation development within the company.
I want to recognize our Yazoo City complex for winning this year's award.
They improve the process of ammonia plant boilers startups, reducing the potential for unsafe conditions to arise.
As we approach the end of an outstanding year for CF industries and want to put our performance in context over.
Over the last 10 years, we've invested to grow our production and cash generation capacity, while strengthening the balance sheet and significantly reducing our outstanding share count.
Our unmatched execution ability along with a positive operating environment have amplified the returns from these investments.
As you can see on slide eight of our materials from the perspective of shareholders free cash flow participation has more than tripled over this time period.
Given our strong operational focus disciplined capital stewardship favorable outlook and strong return profile from our clean energy initiatives, we expect to generate superior cash flows.
With that operator, we will now open the call to your questions.
Yeah.
We will now begin the question and answer session.
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And our first question will come from Chris Parkinson of Mizuho. Please go ahead.
Great. Thank you so much there's been a lot of movement in trade flows, including ammonia coming out of North America and heading to Europe our wishes.
Which is easing a lot of the supply shortfalls that the region is facing I just I'd be very curious to hear your assumptions on how this materializes into let's say the first quarter and into the spring time demand season, and whether or not you believe there's going be an eventual disproportionate demand poll on middle eastern suppliers as we begin to.
Supply, let's say the northern Hemisphere markets entered the spring just any kind of comments on that or updated dynamic would be very helpful. Thank you.
Hey, Good morning Christmas as Bert and you hit on probably one of the important subjects that we in the production side of the sector need to look at as well as the distribution side and that is these changing trade flows.
And so what used to come out of Russia in let's say two plus million tons of ammonia or a different places as needing to be replaced on top of the lack of production coming out of Europe at least in Q3 with gas prices remaining above $50. So you've had a substantial amount of supply taken off the market and.
C F as well as others have had to step in and replace those tons, but its also reflected in urea in U a N.
As Russian tons head more towards South America, and middle Eastern and North African tons as well as North American tons are heading to Europe .
And so those trade flows are reflected an additional vessel time and costs of logistics as well as the cost of the products and so when we're looking at the trade flows are assumptions are and we're receiving as I said in my prepared remarks.
Requests and an outright bids for product to be supplied in Q1, and we expect this dynamic to continue through 2023, and probably 'twenty 'twenty 'twenty four and we are geared up for that we have changed some of our flows.
To accommodate that always mindful, though of our north American customers and the ability to supply that and so that's why we did the fill program early in July to take care of our North American customers and meet their needs are what they were willing to commit to and then be more aggressive in the export market.
Thank you.
The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
I guess.
And maybe continuing on that line of questioning.
You see a lot of different kind of dynamics between different forms of nitrogen at the moment as you look at the at the fourth quarter.
And in the U S and overseas, maybe it's pretty notable how divergent maybe ammonia and some of the nitrates are versus.
Urea and now that you're out of the.
Major the bigger turnarounds and in considering the logistics issues with the river, how should we think about that impacting shipments.
And how do you think has I think that impacts inland inventories in North America going into going into the spring.
Yeah. Good morning. This is Bert again, and I think these are the important salient topics that we are discussing with our customers today is how do we meet.
North American demand due to some of the difficulties and you're right. The river issue with it's not just the Mississippi, but its the Arkansas, the Ohio, Illinois that are limiting our shipments in water levels are at 30 year lows. So barges are not only being light loaded they're taking double the amount of time and then demurrage on those barges so the cost.
Of moving a ton from NOLA to the Midwest by barge went from let's say $15 to $70. So that's why when we say the value of internal tons like our port Neal our Colombian tons are our inland tons in North America.
<unk> are going to be valuable valued and needed and we're working with our customers to move those tons as we speak and I would just add to that.
Adam This only potentially gets exacerbated if you do end up with a railroad strike, which you know is being threatened out there. So.
The value of our in market production distribution assets is really.
Spotlighted during periods of.
Logistics discontinuity is and we're seeing that today, both in terms of a.
River, but also just normal rail service rates, even if there's not a strike so.
As Bert said, we're very pleased with.
Where we've got product position what are our production looks like in market and with Donaldson Bill where it is we certainly have the options to be able to continue to export and access the European market, which is really short nitrogen and so we're happy to be able to see.
Despite some of those requirements and needs over there relative to I would just say.
Differences in margin opportunity as you know Bert does a great job of optimizing product mix in order to maximize margin opportunity. So right now as you look at the value of ammonia versus where urea is are you weigh on you know he twist the dials and we we move toward.
The products with better.
Margins per unit of nitrogen.
A lot of cases, and then that leads to opportunities for export.
And.
Really to to.
Set us up for a great ended the year in a good year next year.
And just some additional comments. Thanks for that is the we have gone out and procured additional railcars and as a reflection of the difficulties of the rivers as well as working with vessels to efficiently move our product globally. So we're excited about what's coming in Q1 and Q2.
Okay.
Right. That's a very helpful and I guess, just one clarification question on the railroads how.
Long of a strike could you either without impact starting for you run out of clients to onsite storage and load out that use your production would be impacted.
I think the way we approach that or have approached that is <unk> got a really good order book and Donaldson Bill we can export everything we produce there.
And so.
We have plenty of international demand there is available vessel.
Outbound loadings and we're not in a situation where were concerned about being able to run D. Ville or you know are in market plants, because they are already in market a lot of them have access to just do truck delivery and don't require significant rail outbound loadings.
So we're in a really good position relative to not only capturing that in market spread because of the high cost of bringing imported product into the corn belt, but also given our.
Logistics and distribution network and our storage capacity.
Were relatively unaffected by a rail strike, but that would have dire consequences for the rest of the industry and anyone who's counting on bringing imported tons and.
Is in real trouble in the event that both the combination of low river.
<unk>, along with the potential rail strike and we're cognizant of these issues and we would have inventory space as Tony said with our distribution network and our terminals. So I think we can manage that well.
And that's all really helpful color I'll pass it on thanks.
The next question comes from P. J do you have a car of Citi. Please go ahead.
Yeah, Good morning, Tony and Bert I'm really confused with this nitrogen market.
And I Hope you can you can make some sense of this if you assume.
You know European T T F prices, let's say in the mid Thirty's, you know that puts marginal cost of ammonia at close to 1200, and maybe urea north of 800.
And prices are much lower today U S is exporting but as we approach the spring season in U S. Without stop exporting you guys would have to take care of your own cost to domestic customers.
So in that case, how does this market play out.
Just describe some scenarios for us.
Yes.
Thank you.
What we're seeing right now is there there clearly is some level of demand destruction.
And I would say most prominently on the industrial side in Europe , where you've got very high energy costs and.
It's well publicized that.
A SaaS and others are running facilities at greatly reduced rates.
And so and that really has to happen in this environment because you don't have enough.
Nitrogen to go around so price tends to be a good you know arbiter of where the value sits and what things don't get it.
So.
It's necessary, but as you point out we don't expect high operating rates.
In Europe based on where the forward gas curve is and at least where current product pricing is so that's further going to constrain supply going forward and you know that that really calls into question, our highlights potential food and security issues.
And some of the most vulnerable parts of the world. So that's a real challenge as we look at high energy costs and relatively lower operating rates.
And you know, where we're conscious of that and trying to navigate that but from our standpoint.
Given where the strategic location of Donaldson Ville is we do have the option of exporting it and you know, we'll we'll sell those tons domestically if if the price is attractive relative to other options and if Europe is.
It was a more attractive option for us and are paying higher prices than you know I think price is the best arbiter of who values the tons, the most and they ought to get them. So we're we're aware of that.
But I think that's one of the reasons why we're fairly bullish as we look forward.
The you know the outlook of high energy cost in Europe , and Asia means lower operating rates there.
Still need the product given where grain markets are in grain stocks to use are so we expect very strong agricultural led demand.
And.
And a tight supply demand balance on you know on nitrogen and that's why we're so bullish about the go forward.
And I also think this is the cost curve and action you're seeing the cost curve did in that high cost tonne globally. So again back to strange economics and logistics you have Australia.
Ammonia moving to Europe , you have Chinese ammonia moving that direction. It's never happened you have our ammonia are also moving to Europe and so these these changes. These dynamics are you have to bid and those tons and some of those plants that have to produce for D. E F reasons or a.
Chemical intermediates are running but those who can import like we said earlier are and so when you have 17 million tons of capacity in half that's off you're going to have massive dislocations.
And we stepped in and we think others will continue to step in and that will keep the market tight.
Great. Thank you I'm still confused but thank you [laughter].
The next question comes from Vincent Andrews of Morgan Stanley . Please go ahead.
Thank you and good morning, everyone.
I would like to hear your thoughts on.
Chinese exports and in particular, we saw it in the last month data that ammonia sulphate exports took a big step up and so I'm. Just wondering if you think that's going to be a trend on a go forward basis, and where what markets do you think that would wind up influencing and does it actually matter from a staff perspective.
So again, China has been an enigma wrapped inside of an Enigma, it's been very interesting to watch their various governmental policies over the last several years from massive expansions and capacity to ramping that production down and becoming a basic domestic supplier, especially of urea going from $13 million.
Tons, a few years ago to five and now down to one five.
The dramatic change that has tightened up the global F&B, but ammonium sulfate.
Has been a surprise that's come out in multiple millions of tonnes and ammonium sulfate as a good fertilizer, because you're combining nitrogen and sulfur sulfur deficient areas. So it's been a lot of those tons are moved to South America as well as to Europe and have replaced some of the urea and ammonium nitrate tonnes in Europe .
So we expect that to continue those haven't been sanctioned by the government and they have come out and that's probably reflect some of that production is a reflection of caprolactam others is a reflection of of <unk>.
Pollution control equipment to make that product and so it's been a surprise yesterday, we expect it to continue but I would also say it did.
It's something that the world is desperately short out now with all of the curtailments and outages you see across.
Historic producing regions the world as you know it was chronically short and really needs those tons and as bid up the value of those tons for the reasons Bert has talked about so I think thats. The normal response, given the deficiency on the supply side.
Thanks, so much.
Okay.
The next question comes from Joshua Spector of UBS. Please go ahead.
Hi, Good morning, this is Lucas Beaumont on page.
Josh I just wanted to ask you guys about Russia I go ahead sorry.
Exports, there haven't really been impacted that much in nitrogen compared to some of the other nutrients.
But over time, you'd probably start to expect to see them, having production problems there based on where <unk> lack of availability of parts and expertise that sort of thing that's popping up in other industries. So I was just wondering could you give us your thoughts on how we should kind of see that through flow through to like lower production yields and operating right.
Operating rates over time.
And then also just kind of on the expansion project. So I'd like to add a few listed there. The next two to three years. So does that basically just not yet done now with assigned kind of lack of availability of parts expertise basically.
So.
Lucas.
I think our expectation is that.
Nitrogen exports remain sort of near historic.
Historic levels.
And there isn't that much.
Variation the one difference is probably a little lower on the ammonia side, because a lot of that ammonia used to go.
Via pipeline down to.
Odessa are usually and then come out to the Black Sea and that route is not really available right. Now. So there is some reduction in ammonia exports.
But as you point out the other forms of nitrogen are pretty flat year on year and our expectation is that they are operating rate at least for the next year or so is going to be fairly consistent I think it's really dependent upon how long the conflict goes on and how long.
You know you see various sanctions are in place.
At the moment, we're not counting on there being a big falloff of Russian ton availability due to maintenance problems on the on the new plant build.
Our expectation is those plants once they've begun will eventually start up.
They were likely be delayed for you know a significant amount of time and so.
I think it's fair to push start up on a lot of those plants back at least.
18 months, if not two years.
But but again our expectation is that they start up and also the world really is in a deficit situation right now with respect to that.
The normal demand growth in nitrogen year on year, and the amount of production capacity coming online. So ultimately the world really does need those plants.
To show up, particularly when we start seeing alternative uses of low carbon ammonia, whether it's as a marine fuel or as co combustion for electricity generation with coal.
Historically, those demand areas have not required ammonia and.
And if we see those things develop and start pulling away available ammonia, we really do need those new plants to start up so.
Our expectation is that that Russia has for the most part you know status quo with a little bit of delay on the new stuff.
Okay.
Yeah.
The next question comes from Joel Jackson of BMO. Please go ahead.
Good morning, gentlemen, I'm going to ask a few questions together.
Maybe Bert what would you think if the totally Audi pipeline comes back online what would that do for ammonia in the world number two.
Martin I always like to yell at me about Q3 politely, though about Q3, you know ammonia netback tend to be a weaker because of the heavy industrial mix you had some quite weak urea in UA in prices relative to sort of benchmark can you talk about was that just the export dynamic there and then number three the $3 billion buyback over three years. It's a good number can you talk.
Tony.
Why is that the right number what the board with thinking about all the different commitments and how you got to the 3 billion for three years. Thanks.
Okay I'll start with the first two.
Hopefully I will come back online at some point, we know that there have been some efforts to rail that those tons to northern ports. That's a very difficult situation to take on one you need additional railcars that then move additional miles that had to go through different facilities and its an intricate.
Bringing together of many different components.
Well the pipeline come back up that is a big question. It's a very long pipeline, that's an old pipeline and you're in the middle of a war zone. So all of those positive factors would say that's going to be a pretty difficult enterprise to bring back up to its former.
Operating rate.
So are those 2 million tons that have moved pretty consistently over the years I think should be question is it a million tons is it you know just picking up the line, we'll have to wait and see.
When you look at the Q3 net backs.
Uh huh.
When you look at it let's just take each of the three on ammonia. It is an industrial quarter and so when you look at the volume of tons and the commitments, we have to mosaic and other industrial users that are many gas based.
Our numbers extraordinary because on the percentage that is it cost plus against the percentage that is at market price.
We averaged very well and when Youre looking at urea has the next question you had.
The low of urea for Q3 was $485 entering Q3, and so as you know for urea, you're asking our customers to sit on those tons for up to eight months and so there is a working capital issue and an expense issue that goes is buying those tons and they do get.
And then the interior they get discounted as well and that's just something we worked through with our customers over time and so when you look at our average price.
Starting at a very low level and probably hitting a peak the peak pricing was late in September .
So that will be reflected in Q4, so I like our Q3.
Three both ammonia and urea numbers I think you I N was fantastic at the numbers, we had there when we started ammonia fill at $400 and averaged 448, that's a good good team effort there.
Yeah, and I would just.
Tag on with that one you know Joel back to Martin's point that.
He is spot on Q.
Q3 is our lowest quarter from an AG demand perspective, because of the northern hemisphere is not applying for the most part is going into inventory and so really it's it's also proportionally our largest industrial.
Quarter end.
As he pointed out rightly so whether it's the you know the mosaic contract or other industrial contracts that we have those don't trade typically at the same level was AG demand does particularly AG demand in season, and so you've got to make sure when you're thinking about third quarter, you take those factors into consideration.
Duration, but I'm with bird I am really pleased with our price realization our volume I mean, the $1 billion of adjusted EBITDA is the strongest third quarter, we've ever had by a long shot and that really leads us into the second part of your question, which is $3 billion why is that the right number and I would just say you know over the last.
12 months, we've done $1 $6 billion of share repo.
We're nearing the.
Closing out the existing repurchase authorization that we have and so we wanted to make sure that we got another authorization in place. So we didn't.
Have any dead period in there.
And this is one of those things that it's going to be a rinse and repeat not a bit since the end of it right. So.
You know if things develop the way, we expect them to and how we're seeing the first half develop we could easily finished that well faster than the three year time horizon that it's on and then we'd go back in and layer on another one on top of it but the good news here is based on energy.
<unk> and based on where stocks to use are we see a prolonged period of very significant cash flow generation for the business without huge capex requirements and so it really gives us a lot of flexibility in terms of how we think about deploying capital and returning capital to shareholders.
And you know.
I'm just excited about what that means for the future.
Joel I do want to highlight one issue that when you're talking about pricing is the record levels, but if you look at our other category, that's basically D E F.
And a few other products, but the <unk> team has not only operating at maximum capacity and utilizing our fleet efficiently, but our average price realization from that group is at record levels. So just a shout out to them.
Thank you.
The next question comes from Andrew Wong of RBC. Please go ahead.
Hey, good morning.
I just wanted to ask one nitrogen demand actually we normally on the AG side. It's do we think of it is non discretionary.
Obviously, there's going to be a lot of acres being planted we have seen a little bit of pullback in demand or is just some demand deferral and things like that.
I guess I'm, just kind of curious on your view on price elasticity on nitrogen.
Crop profitability and all of those metrics look really really strong, but just seems like there's a little bit of hesitancy here to hear so just just kind of thinking about how that works.
Yeah, Andrew I, you know I think whats going on a little bit is.
There is a wait and see approach being taken by a lot of people right now they know that theyre going to need nitrogen next fall, they're looking at where crop prices are and despite the fact that farm economics are still very favorable.
The view is nitrogen prices is relatively high and therefore I may want to wait.
What we're seeing is that.
You know that.
That's a.
Tough situation or potentially a tough situation, given where energy prices are in the rest of the world.
Their issue is in some parts of the world less so in North America, and Europe , but Theres also a big working capital commitment at.
Current levels of nitrogen pricing out there in order to.
Build a position for for next year or so I think people tend to live a little bit more hand to mouth on that.
But there's still plenty of demand as you say based on where we.
Where grain prices are we think AG demand is going to be very strong as we head into next year.
And.
Sure.
We're very optimistic about where that goes I agree and when you look at end demand just taking five major markets China.
Argentina, Brazil is one North America and Europe .
When you look at the total demand coming from those just those areas, it's very healthy and over 100 130 million tons of the 180 million tonnes. It move around the world.
We are short.
In terms of grains, and oilseeds and the stocks to use ratio, but you have to feather and then livestock ethanol and even though we're heading into a recession.
Products that are demanded from us the ammonia and nitric acid for synthetic fibers are explosives for mining are all very positive and so for end demand I look at the forward and that goes back to the cost curve. There are regions that are going to be cost constrained and so then you lay in the demand.
It's expected that still keeps the market tight and that's why we're operating in this level of pricing of $1000 for ammonia when a year ago. We were at 602 years before that we were at 400, we're going to stay at healthy levels for the foreseeable future.
Yes.
The next question comes from John Roberts of Credit Suisse. Please go ahead.
Thank you actually this is edlin Rodriguez.
And Tony one quick question and apologies, if you mentioned that already.
Clearly the quarter turn out weaker than you would have expected, but what was so different from your expectation two or three months ago like what did you. Thank you Ms.
Actually I don't think we missed any spec I think if anything you know the the.
<unk>.
Oh.
The view from other people on the outside May not contemplate the normal cadence of this business, which is there is no AG demand and product go into ground in the third quarter and therefore, it's industrial.
Really mix of business that is much higher and <unk>.
Industrial contracts because of the rate ability of them tend to trade at a lower rate, we've talked about at length, the mosaic contract and others and honestly, having $1 billion of adjusted EBITDA in the third quarter is absolutely fantastic.
We launched fill at the highest price we've ever launched at and realized prices well above that.
We had a fairly muted fill program because we saw the demand for that product internationally and.
I would tell you $1 billion of EBITDA in the third quarter is absolutely outstanding Theres nothing.
Disappointed or apologetic about at all Yeah, Let me get my own opinion, which is production is higher than estimated volume shift is higher than estimated we pivoted very quickly to the export market, where we had at times three times the normal volume of exports. We have got the vessels lined up the product moved.
And the pricing was in line and our inventory is manageable.
And gas price was lower than expected other than that.
It was great.
I would just say one other thing we don't really give guidance right.
Now we have it internally and I will tell you based on what our.
Internal thought was we knocked it out of the park. So I'm really pleased with the performance of this organization.
Okay perfect. Thank you.
The next question comes from Stephen Byrne of Bank of America Securities. Please go ahead.
Here your view on on nitrogen inventory levels in various channels.
So maybe starting with the U S. Corn belt clearly you you exported more than normal this year.
I'm sure you have visibility into your wholesale and retail customers. How would you assess their inventory levels right now versus normal so that would be the U S comment.
A question there is some comments out there that you're Uh huh.
Has a full inventory levels of urea.
I'm not sure that's logical but would cured we'd like to hear your view on that one and then with respect to Brazil.
They have enough urea to head into a freemium.
So looking at the U S system I think it's probably I know, how we were trending into Q3, and we had high inventory levels and this was not the view that was public but as we followed the trade case, we kept inventories in anticipation of spring demand that Didnt show.
So we were long U a N and so through Q3, we worked that down to a very good level, yes, we did export but we also shipped.
The interior we've also prepared for fall application of ammonia, which is now taking place and positioned ourselves very well to meet our customers' expectations into December .
Urea I think thats, probably maybe on the lighter side of inventory and I think that's where the river and for U a N. The river issues are having an impact or an inability to move NOLA tons up.
Or the cost to move them up and that's something we're watching and that's why we're acquiring additional railcars. So we can move <unk> tons by rail as needed as well as port Neal in Medicine hat, Alberta.
But we're transitioning to the rest of the world there are areas, where inventory is high but the reason that they're high in Europe is Europe was not set up to be a.
Very large importer and so youre structurally trying to do something very quickly that the system was not built to do and so those import facilities. They are they are a little bit plug. They also had high or low river issues in an inability to fully load barges, but they also don't have a rail system like ours set.
Up to quickly move tons into the interior. So structural issues are limiting the movement of product and I think that's going to be an issue for them. There are a lot of north African tons that were moved into Europe . So I would actually say they were plugged for awhile.
<unk> is a little bit different we're moving some UN over there and that's been moving fairly efficiently.
Brazil is another issue there were Paraguay, as well as Santos and Hubert and they were all.
Inundated with imports and Theres been some trucker issues some trucker strikes.
And they're not set up well.
For rail.
On a grand scale like we are in the United States and so vessels had been lining up and waiting a record numbers of days.
And that's going to cost money.
Do think they will make it though however, Brazil is constantly.
Working through their issues and very creative and theirs and how they solve those issues.
But they need six to 700000 tonnes a month no dis Jan and into February to meet the suffering of requirements.
They'll do that but it will be probably more expensive.
Thank you.
The next question comes from Ben Theurer of Barclays. Please go ahead.
Yes, yes.
And finger on much for all the comments actually I wanted to just follow up around the pricing of the product and what maybe what is your expectation for the quarter and some of the delays in terms of how it's reflected through so so given everything that you've talked about in terms of the logistical constraints.
The rivers be it the potential rail strike and so on.
Plus what's over up Russia et cetera, how do you think about the structure price going forward and how do you think the structure price and the realized price is going to align over time and also if you could explain maybe a little bit why the current price at least NOLA seems to be below the levels of last year, but it seems like there is some.
Much more friction in the system this year versus a year ago. So just to understand a little bit the actual pricing environment versus some of the commentary you made around the structure price. Thank you.
Yes, so I'll start with the last part first so the current price and why is it lower.
We're in a commodity business in a commodity business. That's not board traded that is determined at different pricing points, whether that'd be NOLA paranagua or in the middle East are dependent on different things and so as I just with the last call or talked about there are areas of the world that are high.
Demand areas that are plugged and have an inability to receive new tons.
So what does happen that has happened into NOLA and with with the difficulties of the river system a lot of traders and buyers who have wanted to get out of their positions and they just sold them down to a level that we believe is artificially low and guess what happened. This week, we saw a 50 dollar rebound because those tons now.
Maybe going to India, because India.
Did a surprise tender announcement today.
And so this is a dynamic market and this is what the beauty of the CF system of our ability to pivot very quickly participate in all of these different markets have the spread of the distribution terminals and the flexibility you have to remember we have five different modes to ship pipe barge rail truck and vessel.
That gives a lot of flexibility. So that's why we believe our pricing structure is consistently at or better than the market. So our expectations are are still the same do you have a product.
Strained market, a little bit the demand deferral and demand destruction, but a need for the world to be fed and close and that will only happen with nitrogen fertilizer being readily available and that's the question Mark heading into 2023 is how and when that will normalize.
So the structured price, we would say where we are today and probably trending higher into 2023, and it's going to be a positive market next year.
Okay. Thank you.
Ladies and gentlemen that is all the time, we have for questions today I would like to turn the call back over to Martin <unk> for closing remarks.
Thanks, everyone for joining us today, and we look forward to seeing you at the upcoming conferences.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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