Q1 2023 CF Industries Holdings Inc Earnings Call

Speaker 2: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. We will facilitate a question and answer session toward the end of the presentation. To pose a question at any time, please press star then one on your touchtone phone. I would now like to turn the presentation over to the host for today, Mr. Martin Girassa.

Speaker 3: The industry has reported its results for the first quarter of 2023 yesterday afternoon. On this call, we'll review the results, discuss our outlook, and then host a question-and-answer session.

Speaker 3: Statements made on this call and in the presentation on our website that are not historical facts are for looking statements.

Speaker 3: risks, uncertainties, and assumptions that are difficult to predict.

Speaker 3: Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information 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.

Speaker 3: Now let me introduce Tony Will, our President and CEO .

Speaker 4: Thanks Martin and good morning everyone. Yesterday afternoon we posted results for the first quarter of 2023, in which we generated adjusted EBITDA of $866 million. Our cash generation remains strong, and on a trailing 12 month basis, our free cash flow was $2.3 billion.

Speaker 4: These results reflect continued outstanding execution by the CF Industries team. We ran our plants well, leveraged our logistics and distribution capabilities, and most importantly, worked safely. At the end of the quarter, our 12-month recordable incident rate was 0.33 incidents per 200,000 labor hours.

Speaker 4: need to replenish grain stocks. At the same time, forward price curves suggest that energy spreads between North America and high-cost producers in Europe and Asia will continue to be significantly wider than historical averages.

Speaker 4: As a result, we expect to continue to generate substantial free cash flow.

Speaker 4: This will enable us to both invest in growth and return capital to shareholders. In line with this, we are pleased to have reached an agreement to purchase Intatec Pivot Timonia Facility in Wagman, Louisiana.

Speaker 4: The Wagaman facility offers us a newer, highly efficient ammonia plant that we expect to enhance through improved uptime and asset utilization.

Speaker 4: This acquisition is the latest step in our drive to provide shareholders with greater participation in our business and access to superior cash flows, as is shown on slides 6, 7, and 8 in our materials.

Speaker 4: The facility will fit seamlessly into our network and increase our capacity to meet demand for decarbonized ammonia as a clean energy source once we have implemented carbon capture and sequestration at the site. We believe the demand for low carbon ammonia will provide a robust growth platform for the company in the years ahead. We have made a series of disciplined investments alongside partnerships and collaborations with global leaders in order to be at the forefront of producing decarbonized ammonia as a clean energy source.

Speaker 4: With that, let me turn it over to Bert who will discuss the global nitrogen market conditions in more detail. Bert?

Speaker 5: Thanks, Tony. Over the last year, the global nitrogen market has continued to change rapidly and in dramatic ways. At this time in 2022, global energy prices reflected the shock and uncertainty brought on by Russia's invasion of Ukraine. There were fears that Russian fertilizer exports would be locked out of the global market, and we entered a period of substantial production curtailments and shutdowns across Europe , while China restricted Urea exports.

Speaker 5: Today, global energy costs have moderated and global operating rates have risen. New capacity delayed by the pandemic ramped up production.

Speaker 5: Other than ammonia, Russian fertilizer exports have returned to near pre-war levels as willing buyers have continued to take the discounted product, especially in the United States and Brazil.

Speaker 5: and global fertilizer trade flows have largely adjusted.

Speaker 5: As a result, global nitrogen prices have fallen from 2022 highs. This helped lead to a first quarter of 2023 that was marked by lower than typical global buying activity. Agricultural purchases in North America took a wait-and-see approach as global nitrogen values fell and weather patterns did not support an early spring. Several large importing regions were essentially absent from the market during the quarter as well.

Speaker 5: Most notably, this included India, which only had one yearly attender during the quarter, in large part due to higher domestic operating rates.

Speaker 5: Additionally, European purchasers slowed import activity in the first quarter after securing substantial imports in the second half of 2022.

Speaker 5: Lower global nitrogen prices have triggered a rebound in demand from less affluent regions of the world, as you can see on slide 13, offsetting some of the impact of lower purchasing from large importers. CF Industries is well prepared for this environment, having entered the year with a strong order book. As demand in North America held off, we leveraged our distribution and logistics capability to

Speaker 5: as the North American spring application season kicked off recently.

Speaker 5: Pricing in North America has risen as demand emerged and all products started moving at a more normal rate.

Speaker 5: We expect this to be an active fertilizer season application season in 2023 with corn acres in the US expect to be up about 5% and wheat acres up around 9% compared to 2022.

Speaker 5: Income at the farm gate in the United States and Canada is historically high, underpinned by an extended period of low grain stock to use ratios.

Speaker 5: supporting high crop prices as you can see on slide 9.

Speaker 5: We continue to believe that this will take two growing seasons at trend yields to replenish global grain stocks. This should support agricultural-led demand as growers seek to optimize nitrogen applications and maximize returns.

Speaker 5: That said, over the next 7 to 8 weeks the entire value chamber will be a walking a logistics tightrope due to the purchasing delays.

Speaker 5: act of realized and unrealized losses related to natural gas derivatives.

Speaker 5: As you know, we typically engage in hedging activity during the winter months to de-risk our exposure to shocks in the natural gas market, such as those that occurred with winter storm Yuri in 2021.

Speaker 5: As our winter hedges rolled off, we purchased natural gas at market prices during the second quarter. As we work through higher cost inventory produced in the first quarter, we expect natural gas costs and our cost of goods sold to decline significantly.

Speaker 5: Looking ahead to the rest of 2023, we continue to expect approximately 9 to 9.5 million tons of gross ammonia production and $500 to $550 million in capital expenditures.

Speaker 5: With more than $2.8 billion of cash on the balance sheet, we are prepared to fund the cash portion of the Wegman facility purchase price.

Speaker 5: We have begun the regulatory approval process with the US government but cannot predict when it will be complete. We remain focused on disciplined investments in our clean energy growth platform to meet the demand that our MOUs with Jarrah and Lotte indicate is emerging. Our blue and green ammonia projects at Donaldsonville are progressing towards their respective startup states and the feed study for our proposed joint venture with Mitsui is advancing as well and we expect to make a final investment decision later this year. Even with this activity, we are not expecting to see a change in the overall growth of our activity.

Speaker 5: Our capital requirements for the year are modest compared to our cash on the balance sheet and our outlook for robust free cash generation. As a result, we expect to continue to return substantial capital to shareholders.

Speaker 5: Over the last 12 months, we have returned more than $1.3 billion to shareholders through share repurchases and another $320 million through dividends.

Speaker 5: With that, Tony will provide some closing remarks before we open the call to Q&A.

Speaker 4: Thanks, Chris. Before we move on to your questions, I want to thank everyone at CF for all that they did during the first quarter of 2023.

Speaker 4: Taken together, we are well positioned to increase our free cash flow generation and grow shareholder participation in that free cash flow, enabling us to continue to build on our track record of creating substantial long-term value for shareholders. With that, operator, we will now open the call to your questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. To withdraw from the question queue, please press star then 2.

Speaker 6: The first question is from Adam Samuelson with Goldman Sachs. Please go ahead. Yes, thank you. Good morning, everyone. Good morning, Adam. So Tony Burt, I guess this is actually a bit more of a longer-term question and certainly as you look at your own activity on the blue and green ammonia side, you've got a number of...

Speaker 6: perspective on the demand growth, especially the demand growth outside of traditional fertilizer channels that you are looking at as you think about 25, 26, 27, 28, do you think that that demand is going to come and commensurate and consistent with some of the potential capacity that's starting to get put into the market or is there... how do we think about the ammonia market surplus balance through the later parts of the decade?

Speaker 4: that the demand is going to be developing. Our sense is that it's probably gonna start developing in larger kind of increments as we get into 27, 28 timeframe, but by the time we get to 2030, I think there will be a sizable volume of ammonia consumed in non-traditional applications as clean energy sources.

Speaker 4: back in 2012 was something like 26 or 27 announced new projects in North America, of which only four of them got built, two of them by us, two other ones, and all of them were built by traditional industry participants. So a lot of the speculative plants that were talked about never materialized, and I would expect that same dynamic to happen here.

Speaker 4: But, you know, I think it's an excellent question, one of those things that we are evaluating and thinking about. And one of the things that I'm also excited about is the, you know, the Wagman acquisition gives us a lot of flexibility in terms of how we think about continuing to grow our own decarbonized ammonia platform base.

Speaker 4: place. So I think we're in a really good position. I think North America is clearly the place where these projects will get built and should get built both because of the huge natural resource base, access to low-cost natural gas, but also the ability to do carbon capture and sequestration and the incentive structures and the 45Q. So more to come.

Speaker 6: But I think there's a lot of vaporware announcements out there right now. All right, that's very helpful. Thank you. And if I could just have a quick follow-up in your term with the WAGAMIN getting funded out of cash on hand this year, how do we think about buyback pace from cash flow?

there's light in the first quarter. I imagine you might have been blacked out for part of it because of the Wagman kind of transaction. But how do we think about...

How do we think about kind of cash return with Wagman going out the door? Yeah, you're absolutely right. The first quarter was heavily influenced by the fact that we were in pretty advanced conversations for most of that quarter and therefore we were blacked out from being able to do buybacks.

And then we were able to kind of jump in after the announcement went out the door and participate a little bit. You know, I think we feel very comfortable about the amount of...

cash generation that we expect through the balance of this year, plus a sizable amount of cash on hand even after we consummate the WAGMAN purchase. And so we have a large share repurchase authorization.

seems to trade on all kinds of other factors. And we're committed to taking advantage of those dips opportunistically in a way that really rewards our longer-term shareholders in a very substantial way. And so what you'll probably see is us.

diving in deeper and harder on the dips and less so when we're trading relatively flatter. But I think taking over a year or two year period that should really disproportionately reward those that stay with us. Have a great evening.

I appreciate all that, Color. I'll pass it on. Thank you. The next question is from Steven Byrne of Bank of America Securities. Please go ahead.

Yes, thank you. I'd like to better understand your own outlook for demand.

nitrogen in both fertilizer and industrial markets. When do you anticipate that collective demand will warrant?

pulling that production in Europe back on stream even if it's you know 15-20 dollars per million BTU, do you anticipate that that demand could develop or is the reduced demand for nitrogen in some of the chemical end markets?

basically eliminating that poll.

Good morning, Dave. This is Bert. And when you look at the outlook for nitrogen for 2023 and beyond,

It's positive as we said be due to on a fertilizer basis the stocks to use ratio where we are And where we are structurally in the grain complex with what we've lost in production in in Argentina this year and in terms of corn and what's not being can either consumed or exported from Ukraine

at least two years and possibly longer to refill that supply of grains.

And so fertilizer demand should be very strong and we're seeing that now recover in some of the countries that took a kind of a purchasing holiday in 2022 due to high prices. Thailand, Turkey, some places in South America where demand is recovering quite substantially. And we're looking at additional acres in the United States.

additional corn and wheat acres, so additional demand. Brazil's been very strong, we're anticipating eight, probably close to eight million tons of imports through 2023. They've only imported one to date, so demand ahead as well as with India.

So fertilizer should be, I would say, returning to its historical growth pattern of 1 to 2 percent, but probably greater in this year, and that's why I think you're seeing some of the price recoveries. Regarding industrial demand, we hear an overall 60 percent drop in cost N congressionalhetaphysia in the 6LGG of this Diamond Lake and N state was using.

We're still doing very well in terms of our industrial book, and it's diversified with nitric acid, ammonium, ammonium nitrate, and DEF in North America. I think in Europe you're going to see some of a little bit harder situation just due to the cost structure and the complications there, but I think that's what you'll see is imported ammonia.

helping to balance that supply. And we're looking at probably five to six, seven million tons of ammonia production capacity either offline or curtailed. That's going to help support the whole industrial or the whole ammonia production globally as products move that direction.

So we're structurally positive for this year and for demand on both industrial and fertilizer.

And then, Bert, maybe more near term, do you anticipate

pricing in the Corn Belt, particularly in the Northern Plains that may be tied on supply with the river being closed. Do you expect premium pricing to come through in the remaining of this quarter? How much have you sold forward?

And can you comment on any allocation out of your Port Neil plant that we've heard about? So when looking at, that's the dynamic that we're experiencing today. The product is tight.

through the last several quarters a lot of the inventory has remained with the producer side or in inventory with the producers.

and retail took a holiday for at least two, two and a half quarters of purchasing. Well, when you need that product promptly for walk-up demand, which is where we are today, you need it today, tomorrow, the next day, and it is short and it is very tight. Then it's exacerbated by these river issues on the Mississippi with the lock closures and the difficulty to move product that may be in the Gulf up to the Midwest where it's needed.

So yes, we went on allocation in Port Neal. We're producing every day at maximum rates but a lot of demand came in for maybe a 30-day window contract. A lot of demand came in wanting it in the first week of the month and we're allocating that out on a on a ratable basis to treat all of our customers fairly. So product is tight.

We don't believe there's going to be enough urea. We believe that it will have to be migrating for second, third applications to ammonia and UAN. And we're preparing for that with positioning product throughout the system.

And pricing has extended from the normal spread of NOLA, let's say $30 to the Midwest, it's between 50 and $100 today, and it'll probably go up towards the higher end as we get to peak applications. We're pleased with our order book. We demonstrated well in Q1 what we did, and our pricing reflects that.

and we're equally happy with where we are for Q2. This next question is from Joel Jackson of BMO Capital Markets. Please go ahead. Hi, good morning everyone. I'll ask a couple questions. Just on your answer before Bert, maybe Tony will chime in too. So we know that retail as your own words took a buying holiday.

for two to two and a half quarters. Can you talk about that some more? They did that and it seems like they won out for a while. Maybe now they're not winning, but is that going to change your strategy going forward? Like what are the lessons learned from this year in many years of your career? Yeah, I'm just a spring chicken, so I just have a few years on my career, but this has been an interesting year and a difficult year. A lot of, I give a credit to the teams, to the production team.

dispersion of responsibilities and taking good decisions.

But the retail sector, I think, has reflected prices were falling. I understand that if they bought $500 UAN and the market is now $300, how do they price that to the farmer? And the farmer's reading some of the same materials, whether that's the publications or online. And so there's this standoff. What is an appropriate price at the retail level?

what should the farmer be paying? And so in effect, they said, I'm gonna stop buying because the farmer stopped buying. And as does happen, when there's an imbalance, prices fall and they fell quite hard in Q1.

But eventually, and this was our conversation with a lot of our customers, you need to plan because it can take rail cars days to be loaded and move and to come back and to have a full cycle. Same thing with barges. And so that's where we are right now in a difficult situation on the retail side of, for the second applications or enough for the first and second, third applications. And so pricing has rebounded and we're now the highest priced market in the world.

reflection of anticipation of overabundance and so you know I think we'll see how this year unfolds but as I said in my comments it's going to be very logistically challenged.

Okay, then my second question is actually a two-parter. So a, what exactly are my questions?

Is there any reason why Q2 earnings should not be higher than Q1, right? A lot lower average gas costs, maybe pricing down, but volumes higher. And my second part of that is, is there any reason why this year should be different other years where Q3 pricing is typically lower than Q2 pricing? Any reason why that may not be the case here? When you're looking at Q2 versus Q1, we're still in the...

beginning of the game. If it's a nine inning game, I'd say we're in inning three. And product has been moving, a lot of demand has been coming in for prompt shipments, and so I think it's a little early to speculate on where and what, but we're active in all fronts. We are exporting, we are moving product, and we are

taking new orders. So I think Q2 will be will be positive. When you look at Q3, you're right, traditionally we do have a reset period. Why? You're asking customers to hold inventory in North America for up to nine months. And that's something we work closely with our retail and wholesale customers to make sure we're properly priced against the import alternative.

helping our customers move that product radably because we want to keep our plants operating and and be in a good position for fall demand which is generally ammonia and then spring demand for the three major nitrogen products.

So I think it's a little too early to go into Q3. Yeah, the other thing I would just add, Joel, is that there's still basically eight weeks or so to go here in Q2. So there's a lot to play for yet. And it's probably too early to make a call one way or another in terms of how we do sequentially quarter on quarter. But if you look at our...

Price realizations reported in Q1, Bert did a great job with his team of really getting some good numbers there despite the fact that you saw pricing kind of moderate throughout that quarter and if you take a straight average we did a great job of getting price.

We do expect the inland premium and product coming out of Port Neil and Medhat and you know our other facilities to really trade at a pretty significant premium given some of the logistical challenges that Bert talked about and it's also clear based on Chris's comments that our gas cost should be...

a lot lower than it was in Q1. So all of those things are positive, but we're starting at a point where prevailing prices are a bit below where our average price realization was in Q1. So more to play for, but sum all of that together, we still expect a great first half of the year by historical standards and to generate a lot of cash over this period of time.

Q3 is, as you pointed out, normally a reset period. But every year is different, so stay tuned, I guess. Yeah, I think the only thing I would add to that, Joel, is on the natural gas prices while we're buying at lower prices today, significantly lower. We still do have an inventory some of those hedges.

that were the actual production that occurred in Q1. So some of that will roll off here in Q2, and then we'll get into sort of the $2 per MMB2 gas that we're seeing today and purchasing today.

Thank you. The next question is from Christopher Parkinson of Mizzoujo. Please go ahead.

Great. Thank you so much. You obviously alluded to this a few times in your PowerPoint, your prepared remarks, but the cost curve seems to be engaging at least a little bit more in a fluid manner than it has in the last 12 to 18 months, especially with European operating rates increasing. I would just love to hear your team's perspectives.

on what your second half slash normalized view of import export trends are going to be just given the dynamics in Europe right now. Do you still expect more products coming out of MENA, specifically North Africa to Europe in terms of ammonia trade flows as you saw last year going into Europe to basically

supplement some of the product that's still offline. Just any quick thoughts on that as well as you and would be incredibly helpful. Thank you so much. Yeah, Chris, I'll start and then hand the mic over to Bert here in a second. But you know Mina is running at full rates and so it's not like we're gonna see incrementally more product coming out of Mina. You know, it's local consumption is relatively low in region and so it's...

And even if you see prices, the spot market moderate a little bit on gas, it's kind of hard to want to campaign an ammonia plant for three months or four months of operation. It takes a terrible toll on the equipment to heat it up and then cool it back down again. And, you know, plants don't operate well when you're pulling them up and down like that, at least on the ammonia side.

And so, you know, we do not expect Europe to return to kind of historical, relatively higher operating rates. We think it's going to be spotty and campaigned. And I think the upgrades will run. But that means it's a sink for ammonia as opposed to...

you know, producing ammonia locally. We do think that Europe is going to go ahead and continue to evaluate and look at bringing in more urea and UAN as an alternative to locally produced nitrates and, you know, I think that that bodes well for our production network in North America.

Yeah, just some of the numbers behind Tony's comments. When you're at 20 million tons, more or less, of production capacity in Europe , west and east, and you have five to seven of that off-liner curtailed, that's an impact of about 2 million tons of urea. So as those demands for that nitrogen are needed in Europe .

and they're pulling those imports in from wherever, that is structurally helpful to the global nitrogen complex and supporting prices. And as we go more towards winter, that only is further placing those plants in difficulty with an operating environment plus carbon costs.

Today I would say that cost for ammonia is probably $550 to $600, where you can import for substantially less, so it makes sense and that then supports the global price of ammonia. So I think...

that these trends only continue and get worse as we hit winter.

And just as a quick follow-up, Tony, it sounds ludicrous to mention this now, but we used to discuss normalized earnings many years ago between, let's say, one 3 and one 8 of EBITDA. Now I think in most people's analysis it's probably, let's not say quite, but almost double that. When I take a step back and I look at obviously your...

Obviously your M&A pipeline as well as the deals with you know, Jarrah, Mitsui I mean is there do you have any additional thought for us on just how you're Enhancing and improving CFs, you know normalized EBITDA profile not only for 23 and 24 But quite frankly for the balance of the decade. Do you have any insights on your way of thinking there?

Thank you so much. Yeah, I mean, I think a lot of the new demand that we're looking at for ammonia as a clean energy source is much more likely to be kind of longer term, contractually based with ratable offtake and a return profile that's attractive based on...

either the acquisition price of the asset or the build construction if it's new build. And so our expectation is that we believe that we're the best operators of these kind of assets in the world. We operate in one of the lower cost regions. There's incentive structures out there from a legislative perspective.

earn a really attractive rate of return on incremental capital that we're putting in the ground on these kind of projects. And it's likely to be much more kind of ratable and fixed rate of return than it is subject to some of the volatility in the market.

in the fertilizer space. And so we think that adding some of those layers of attractive fixed margin returns will be pretty additive to the overall valuation of the enterprise going forward, will continue to generate some good cash flow for us so we can deploy either against ShareRepo or.

Morgan Stanley , please go ahead. Thank you. Bert, can I ask you on China, if the export policy does lapse and kind of go back to what it was in 2021, I think you highlighted that maybe we'd go back to that three to five million range. What I'm curious is that would be for Eurea.

you know last year we started to see China pick up significant exports of ammonia sulfate. So if the urea restrictions lapse, do you think that the, you know, clearly urea exports would go up, but do you think ammonia sulfate exports stay the same or does that get reduced as some of that ammonia gets used to make urea that gets exported instead? How would that work?

Good morning, Vincent. I think that the untold story of 2022 is the volume of ammonium sulfate that did come out of China. For years that product was available, but with the new compaction projects that have gone in and making that product more viable to places like Brazil or Turkey or...

Even the United States, we use ammonium sulfate that's domestically produced. Ammonium sulfate is a good fertilizer. It's a half the N of urea, but has sulfur. It has moved out. I don't see the growth, though, of where we're at. There's a substantial volume that has been moving out of...

of China. Regarding the urea exports out of China, where they are capacity-wise, a significant amount of capacity has come offline and been taken out over the last, let's say, five, six years. And we would peg that at about 81, 82 million tons of capacity. Operating rates have ranged from the mid-60s to the low 70s. So taking an operating rate of 70 percent.

you're producing about 56 to 58 million tons of urea. Domestic consumption is in the low 50s, so there's just not a lot of urea available to export as there were maybe 10 years ago.

And so we see this is all speculation today on the change in an export policy. There are some plants that were built for export purposes and those are the three or four that were announced as possibly gaining those export opportunities or clearance for export.

sooner rather than the other plants. So I don't see a significant amount of urea coming out of that three to five million tons for 2023.

And then Tony, if I could just ask you a clarifying question on WAGAMON versus some of your MOUs. Am I correct in saying that WAGAMON was sort of a unique purchase that you don't view as a substitute versus some of your potential greenfield opportunities?

So, I think it gives us some flexibility in terms of how we evaluate the attractiveness of new construction in the near term. And it certainly gives us an opportunity to enhance our platform from the standpoint of adding dehydration and compression and making more blue ammonia in that location.

a thousand tons of ammonia to the portfolio. That ammonia is already being consumed in the marketplace, so it doesn't disrupt the S&D. And we can generate a fair bit of blue ammonia with a fairly modest incremental investment. So I really like the project because of the optionality it brings.

This might be for BERT. BERT, like tempa ammonia prices is down to what, $380 or so? I mean, that's a level that's well below European production costs. Like what's causing that? And is the EU no longer the marginal cost producer?

I mean, it's just been very hard to understand what's going on there. Maybe if you can help us. Yes, when you're looking at the EU costs, it's a pretty easy calculation.

gas prices public, looking at TTF or NBP, and op costs, adding what that would be for cash or for full, and then carbon costs, as I said earlier, gets you to between 550 and $600. And you're right, in the current spot market,

You're in the low 400s. And so what I think is happening, and we're seeing this reflected in announcements, as well as public and private companies, they're operating either curtailed or shut down.

And supply demand does work. And I think as you take some of that supply off in Europe and some of that is being backfilled with supply from around the world, then pricing tends to moderate and move up. We did, I think as a reflection of some of the issues we talked about globally in Q1 with some economic downturn.

as well as purchasing holidays in different places and delays and consumption probably went a little long on ammonia, which drove that price down to the level where it is today. And so we're positive on what's coming in terms of, we think especially in winter with Europe and backfilling with product for ammonia produced.

different locations and shipping that and we have done that ourselves taking down our building hand plant and buying product or shipping product in from Donaldsonville. That's great and another one on corn prices they have come down

Not by a lot, but they have come down. I mean, if you look at the December futures price, it's at five and a quarter or so per bushel. How do you think this will impact farmers' psychology? Will they be willing to pay higher fertilizer prices when they see corn prices kind of moving down a little bit? So yeah, when you look at the prompt price and the forward price, you referenced December . So that's the harvest price.

for the 2023 North American crop. And when you look around the world, again these stocks to use ratios are tight. We've had a drought in Argentina where we've probably lost 8 to 10 million tons of production. We've had the difficulties in Ukraine where an additional probably 12 million tons were lost and that's a reflection not of lost exports but

lost domestic consumption in Ukraine, whether that's corn processing or for feed. And then you see the constant, we also had a negative trend yield in the United States in our harvest last year.

Some of that has been made up by Brazil, which had a record corn crop, and the United States is trending forward. But the price of $525 on a historical basis is pretty positive. We've tended to operate in the $4-$5 range.

over the last several years. And so yes, we're coming off the highs of six to 650, but still 525 is incredibly profitable. We're estimating this is the third most profitable year, but that's three years in a row because last year was exceptional and the year before that was also incredible. This is just gonna be very, very good if I rank it.

So it is still very profitable to, whether you're a dry land farmer or an irrigated farmer, to absolutely maximize your seed population as well as your nutrient applications for yield. And we're seeing very good soil moisture in North America to support that.

So I think 525 represents a very fair price, which then supports livestock, it supports ethanol, for the demand of those products.

Okay, thank you. The next question is from Richard of Wells Fargo. Please go ahead.

Great, thanks. First question, just on WAGAMEN, can you just give us an update in terms of timing for closing, any regulatory progress that you've made, and where are we expected to close?

Yeah, so we've filed with the FTC, and they're reviewing it. Right now, we don't necessarily have a time frame on that. We're supplying them the information that they need. We think, you know, we're hopeful that it'll be sometime this year that we'll be able to close on that project.

Okay, great. And then just in terms of once you get that deal done, when you think about the flexibility you mentioned, one option I guess is to convert it to CCS, potentially get IRA credits. Can you talk about that in terms of how?

how that might work in terms of timing, and have you had a chance to sort of work that into your options with your partners, whether it's JIRA or SUI or Latte? Thanks. Yeah, so timing on putting in the dehydration compression and getting access to the pipeline and all that stuff being done in the pipeline-

kind of time frame. And again, we're, you know, we are in ongoing discussions with the partners that we have already signed and announced MOUs with and there's a series of other conversations that are happening in the marketplace as well that are not quite as advanced at the moment.

But this just is another source of supply. So it both provides some diversity of supply locations, you know, in case there's an outage or a storm or an issue that, you know, would affect one location. It also just increases the aggregate volume of material that we'll have that's local.

certainly secure access, but also provide our shareholders an attractive rate of return on our investments. Great, just last question. In terms of funding these projects, is the idea basically to...

look for project financing or are you going to fund it with your JVs for free cash? How are you thinking about that? Yeah, so we ended the quarter with over $2.8 billion of cash on the balance sheet. We're continuing to generate a substantial amount of free cash flow every quarter as we move forward.

It's going to be funded from cash on hand. By the way, it's a relatively modest draw on cash on hand, particularly at the rate at which we're building it. It provides us flexibility to continue to do our share repurchases as well as our growth and improvement projects all at the same time. Yeah, just to follow up on that, I mean these projects are...

and cash for other capital allocation return policy.

The next question is from Ben. There are a bar plate. Please go ahead. Yeah, thank you very much and good morning. Congrats on the results. Just wanted to follow up on some of the logistic challenges you've talked about and maybe help us understand how that impacted you this quarter or maybe benefited you this quarter.

You know, it's a really interesting situation as we got into the back end of last year. You saw historic or near historic low water levels on the Mississippi. Fast forward to this spring and all of a sudden now we're facing such high water levels that, you know, barge traffic is again impacted by it.

Combine that with what I would say is a relatively significant national shortage in drivers, over the road drivers and so forth. You've seen logistics costs and delays in timing go up kind of across the board.

And that helps us significantly in terms of the in-market premium that we're able to realize in our facilities like Portneo and Medicine Hat because we're already in the marketplace and generally speaking the value of product in market is.

loaded on the coast plus logistics cost and maybe you get a time premium for it as well if you're in the middle of immediate application. And so all of these things really are helpful for us as we look into the meat of the application season here in the second quarter.

I'd say in the first quarter, you know, the increase just costs across the board and logistics probably impacted us a little bit to the negative side, but I think that'll turn around and play to the positive side as we go forward. And it's less important from an export perspective.

because vessel freights haven't moved quite as dramatically as the inland stuff. When you're looking at the logistics options we have, we're on the Class 6 railroads, and we're on the Arkansas, the Mississippi, the Illinois, the Ohio, so we are able to barge as far north as Minneapolis. And when we look at each year, we work with our retail wholesale trader customers.

who work with the farmer and we're in constant communication. And this is a great year for an earlier question of you know what did we do when our our customers weren't purchasing. Well we focused on how are we going to deliver the spring needs in a way that makes sense. And so we we set out a strategy and a game plan early late Q4 early Q1 to make that happen and that's leveraging all these.

all these assets that are at our disposal and we have done that. So we feel very positive about what we have positioned in the interior through our terminals and ammonia tanks, our UAN terminals and urea storage places for dry. But in those conversations when customers were not willing to buy, we...

we did pivot aggressively to the export market and we're able to do that. We're able to move several of our plants to the export market and optimize our loading structure. We have five docks in Donaldsonville. So we are a unique company that has many options available to us and each year we're going to evaluate those and do what's best for our customers and our company.

Okay, perfect. And then my second question is just to understand a little bit the magnitude of the inventory you said the higher cost inventory you still have to run into QQ. Can you give us a little bit of sense of a timing of that impacting like the majority of the second quarter, just maybe half of it, only a few weeks? Or should we think about what was in place as to the napkin hatches and how does run?

of higher gas costs, probably maybe six weeks worth, that roll through here in second quarter before we get into the cash purchases at the low two dollars that we're seeing. So I think that'd be a good proxy to use.

The next question is from Josh Spector of UBS. Please go ahead. Yeah, hi. Thanks for taking my question. Just a couple of quick follow-ups on WAGAMIN. First, can you disclose what the remaining life is on the contracts for the other two buyers outside of Dyno?

just regarding carbon capture and you know who gets the credit is there anything in the agreement with Dyna Nobel that has you share some of the portion of what you're selling them in terms of ammonia credits for carbon capture on those tons or that's still open-ended? Yeah so we we're really happy with the way that the contracts are structured and that we've got off

at kind of market based pricing. So we're really pleased with those. In terms of the blue ammonia and the CCS there, we have a number of companies that are very interested and have registered interest with us on.

securing access to decarbonized or blue ammonia. Dyno is among them and we will work with Dyno and also work with others whether it's production out of Donaldsonville or Wagaman in order to try to satisfy the needs that we see really developing in the marketplace.

but also realize and value for that product. Yeah, and I think as you look at the production and actually the dehydration and compression piece of that, you know, we purchased the plant with that being an upside to CF that we would own that asset and also the benefits that would come from that as well. Thanks. No, that's helpful. And just to clarify, I mean, just...

Without disclosing, I guess, the remaining life on the contracts, do we need to be thinking about is there any risk of renegotiation in the next one to two years creating different economic firsts of what you expect today? I think we feel comfortable with where those industrial contracts are and we can't really disclose more than that, but we don't see any issue. Yeah, we don't see the kind of risk that you're talking about.

projects coming up in the US along the Gulf. Are you seeing any potential for bottlenecks, cost inflation around labor and construction services and maybe taking the SMD question from the other side, like could there be any tightness in the clean ammonia market if we see any delays on build outs and could demand come in quicker than expected?

Yeah, Andrew, so I think it's fair to say that you're seeing inflationary impacts in every aspect of the announced projects that are there. And I think that affects both the time that it takes to bring them online as well as the cost that it takes to bring them online.

for those that ultimately get built. You know, the raw materials, the metals, the fabrication, the transportation, the labor to construct, you're seeing inflation in every single aspect, you know, across the board. And remember, you know, that none of these projects that have been announced really are underway.

about the Wagman acquisition because our belief is by the time some of these projects that are being discussed, you know, if they're announced, that the cost per ton of capacity is gonna look really attractive from an acquisition economics on Wagman. And more to come in terms of whether, uh,

what results our feed study for the potential project with Mitsui yields. But I would certainly expect when all is said and done for the WAGMMEN acquisition to look really attractive by comparison.

Okay and then just a question on the BP deal for low methane gas earlier this year. Can you just talk about how important that is for your customers in securing some of these clean ammonia deals? And is this something that you're looking to do more of going forward?

Yeah, I mean, I think one of the things that it helps us address is some of our scope 3 emissions. In this case, it's upstream scope 3. The downstream scope 3 are very hard to manage, but from an upstream perspective, if we're sourcing gas that is more responsibly produced and transported, it reduces the methane slip on the upstream. It reduces our upstream scope 3 emissions.

And that's substantial because methane is a very potent greenhouse gas. It certainly goes into our overall carbon footprint. And so customers that are interested in the overall footprint will care about that to some extent. Stone generation jobs typicallybased in Arizona shot up to 600,000.

Most of the conversations we've been having around decarbonized or ammonia are very Project specific to Donaldsonville and or you know Wagaman once we get the carbon capture and sequestration Equipment installed and operating and And and so, you know, I think in the near term that's a little less important in the longer term. It's it's