CF工業控股 (CF) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter two 2006 CF Industries earnings conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today's call, Chuck Nekvasil, director of public and investor relations.

Thank you, Lauren, and good morning, ladies and gentlemen, and thank you for joining us on this conference call for CF Industries Holdings, Incorporated. I'm Chuck Nekvasil, director of public and investor relations, and with me are Steve Wilson, our chairman and chief executive officer, and Ernie Thomas, our senior vide president and chief financial officer.

Yesterday evening CF Industries Holdings, Incorporated released its second quarter results. As you read our news release, which is posted on the investor relations section of our website at www.cfindustries.com, and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of federal securities laws. All statements in this call other than those relating to our historical information or current condition may be considered forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the Safe Harbor statement included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties.

Now let me introduce Steve Wilson, our chairman and chief executive officer.

Thanks, Chuck, and thank you all for joining us this morning.

Last evening we reported our second quarter earnings, notably above the average of Wall Street analysts' earnings estimates. During the quarter we achieved net earnings of $42.6 million, or $0.77 per common share. That compares well to the 42.9 million, or $0.78 per common share, that we earned in 2005's strong second quarter.

In a lot of respects this performance represents an all clear from last year's hurricanes and the related market disruptions that affected our performance, especially in 2005's fourth quarter and this year's first quarter. As you know, the second quarter is normally the strongest of the year, but as the industry went into this planting season there were some price driven concerns about corn acreage and fertilizer application rates. We did see reductions in planted acreage and apparently also in application rates, but our second quarter proved to be solidly profitable.

High operating rates at our facilities, falling natural gas prices and improved product pricing helped us achieve good performance in both our nitrogen and phosphate business segments. A big part of the story in the second quarter was falling North American natural gas prices. I believe that as last fall's weather related issues finally worked their way through the system and fundamental market realities, notably historically high natural gas storage levels, brought gas prices back to and in some cases actually below pre-hurricane levels.

In looking at our nitrogen segment, we enjoyed improved average selling prices for all products compared to last year's second quarter. We saw increased volumes for both direct application ammonia and for urea. Volume for [UIN] was down significantly, likely due to growers' decisions to reduce application rates and due to increased imports. Overall, the nitrogen segment gross margin declined by less than 1 percentage point.

In our phosphate segment, improved pricing more than offset a volume decline centered in export markets, producing a significantly improved gross margin. In North American phosphate markets, supply and demand remained in good balance, in part due to announced permanent capacity reductions by a major competitor.

For the quarter we sold approximately 42% of our total fertilizer sales volume on a forward price basis. That's down from 58% in 2005 second quarter, but it was still a significant amount of business in a falling fertilizer price environment. We've gained increased visibility on the dynamics of our margin risk management programs during these post-hurricane months. We launched this effort back in mid 2003 and from then on through roughly mid 2005 we were in a rising fertilizer price environment.

Of course, this encouraged customers to place forward orders and lock in what they expected to become eventual below market fertilizer costs. However, since early this year, we've been in a falling fertilizer price environment, which has resulted in lower volumes being booked under our forward programs. But since natural gas prices were also declining during this period, we found that our spot market margins were good.

I've got one last point on the second quarter. As we highlighted when we reported our first quarter results, the 2005 planting season was characterized by an unusually early spring, which had the effect of pulling some sales into March that in a more normal year would have taken place in the second quarter. We can't really quantify that effect, but I suggest you keep that in mind as you do your 2006 quarter-on-quarter comparison.

On balance, I believe we achieved a good performance in this second quarter. I was particularly pleased that our organization was focused on current opportunities, not distracted by a lingering hurricane hangover, if you will. We ended the quarter in strong financial condition and as I'll discuss in just a minute, with a good outlook for this year's third quarter.

Now Ernie Thomas will provide more details on the financials.

Thanks, Steve, and good morning everyone.

As Steve mentioned, our second quarter results rebounded nicely from a very difficult first quarter for the company and for the entire North American industry. For the quarter we reported net income of 42.6 million compared to net income of 42.9 million in the second quarter of 2005. Gross margin for the period increased by 5.6 million, or 5.9%, due primarily to higher selling prices and a favorable mark-to-market adjustment, which more than offset higher costs and lower volume.

Selling prices in the quarter were higher for all products, increasing revenue by a total of 63.1 million. Nitrogen price increases added 50.4 million and phosphate price increases added 12.7 million compared to the prior year. Lower volume reduced gross margins for the quarter by approximately 6 million. Our realized gas costs for the quarter increased by 38 million, including realized losses of 26 million on settled gas contracts. We also recorded an unrealized net gain of 11.7 million related to mark-to-market adjustments on gas contracts.

We incurred higher costs for purchased products of just under 17 million in the quarter compared to the cost to manufacture those same products in-house in the prior period. On the phosphate side of the business we incurred higher raw material costs, mainly for ammonia and sulfur, of 8.7 million. SG&A expenses were 14.3 million for the quarter, unchanged from the prior year total, as stock-based compensation expense was roughly the same as IPO related costs in the prior period.

Cash flow from operations totaled 44.4 million for the quarter. Inventories decreased by 130 million due to seasonal factors, but that reduction was more than offset by 179 million decrease in our customer advances. Our adjusted free cash flow, which does not include changes in customer advances or other working capital, totaled 80.5 million for the quarter, which was in line with the total from a year ago.

Our financial position and liquidity continue to be strong. At June 30, 2006 cash and short term investments totaled 228 million and we had 164 million in credit available under our senior credit facility which was undrawn.

In summary, we registered a very strong performance in the second quarter and further strengthened our financial position, effectively addressing significant challenges in the marketplace.

This concludes my prepared remarks. Steve?

Thanks, Ernie.

I'll mention one more second quarter development before we turn to the outlook section of this call. At the end of May we informed our employees of plans to relocate our corporate headquarters from Long Grove, Illinois to leased space in Deerfield, Illinois, approximately 10 miles east of our existing facility. The new office, approximately half the size of the Long Grove facility, is more appropriate to our needs.

But beyond that, the property we own here in Long Grove has appreciated significantly in value and as good stewards of your investment, we think it's appropriate to monetize its value. So the building and land here are on the market and we intend to move into the Deerfield offices around the 1st of March next year.

I'd like to cover two other topics. First, CF Industries' outlook for the third quarter and after that I'll step back from the near term outlook and provide you with some broad perspective on our ongoing strategic planning process.

We went into the third quarter with good forward order volume in both our nitrogen and phosphate businesses and high operating rates, both detailed in the news release. Fertilizer pricing, while certainly down from the high natural gas cost driven levels of the first quarter, remain at levels supporting positive margins for all our products.

The trade picture is improved also. Nitrogen imports, at least for the near term, seem less of a factor in the market than they were earlier in the year. A combination of good overall demand in international markets as well as a reluctance on the part of importers -- some reluctance on the part of importers to commit significant volumes in what has been a falling price market may be factors. And some offshore producers are dealing with high gas costs themselves as well as relatively high ocean freight rates.

We anticipate that export demand, primarily for phosphate, will improve during the third quarter. Of course, looking ahead to the fourth quarter we'll be managing our phosphate export sales through PhosChem, officially becoming a member on October 1st.

Foreign prices at the farm level are improving and crop condition reports suggest a sizeable portion of this year's crop is in good condition, which bodes well for farm incomes and for both the fall application season and next spring's planting season. Of course, there's the ever-present elephant in the room, the price of natural gas. Our strong near term order book as well as our risk management efforts immunize us to some extent from potential third quarter natural gas cost spikes. With regard to the fourth quarter, we think there's reason to believe that the large level of natural gas storage could pressure the late fall and winter [strip] to decline. But there are no guarantees, as we all know, when it comes to natural gas prices.

Longer term I am quite encouraged by bipartisan efforts in the Congress to expand domestic exploration for natural gas. Our own experience in Florida where we have phosphate operations is a good barometer of the changing situation. A year ago, a call to increase exploration even 100 miles or more away from the state's coast drew almost universal opposition. While most Floridians understandably are concerned that strong environmental protections be built into any legislation to expand exploration, today there's a growing recognition that maintaining the status quo isn't a viable answer to the energy challenge we face.

We were quite pleased when a majority of Florida's delegation to the U.S. House of Representatives voted to support recent landmark legislation, opening significant areas of the Outer Continental Shelf to responsible exploration and development. There's still a lot of work to do legislatively and we're actively engaged in the process. I'm cautiously optimistic about prospects for passage in the Senate perhaps as early as next week.

Increased exploration in the Gulf of Mexico, coupled with rising natural gas costs in some other fertilizer producing nations, especially in Europe and the Republics of the former Soviet Union, could create a more level playing field in terms of feedstock costs.

During the nearly one year that we've been a public company I've met with hundreds of investors and if I were to characterize investors' thoughts about CF, I'd say that most recognize our financial strength, the quality and flexibility of our physical assets and our strong position in the marketplace, particularly in the Midwestern grain producing states. The biggest long-term question, and I say long term because hurricanes and natural gas prices certainly dominated investors' thinking last fall and winter, the biggest long term question has invariably been centered on our strategic direction, how will we grow the company, what's our vision for CF Industries?

We set out to answer those questions and others following our IPO when we began working to flesh out and enhance our initial business strategy. And this part of our management process took on an added importance when last year's hurricanes brought new challenges. Despite these pressures, we brought the same discipline with an appropriate sense of urgency to our planning process as we applied to our operating challenges and we're working closely in concert with our board as we go forward.

This process is one that will be ongoing in our organization, as it should be. We know that our North American manufacturing and distribution assets and our strong capital structure provide an effective base to support significant growth and we recognize that there are opportunities, good opportunities available to us in this industry.

In summary, we're quite pleased with our performance in the second quarter.

And with that, I'll open the call to your questions. Lauren, please explain the Q&A procedure.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of David Silver with JP Morgan.

Good morning, David.

Yes, good morning. How are you guys doing? I have a couple of questions. First question would be I guess maybe within your nitrogen segment, kind of a Canada versus U.S. split. So if I look at the minority interest number, it's well up over a year ago, even though the gross margin year over year for your total nitrogen segment is relatively close. So could you talk about maybe why the contribution from your Alberta operation seems to be so significantly much bigger year over year? Was there something to do with the hedging or just what were the factors that led to that?

Sure, Dave. You have to remember that the CFL operation for us is essentially a cost center. We are -- we're buying product at a market determined price, but it's a [plant gate] cost and it does not include, for example, freight to our customers, most of whom are in the U.S., it doesn't include any distribution costs and it does not include any hedging activity because the hedging activity that we undertake with respect to our investment in CFL is done in CF Industries, not within CFL. So it's a -- it isn't quite as simple as, for example, adding twice the minority interest and suggesting that that's the contribution CFL made to the bottom line. We're obviously pleased with the operation up there and it's no secret that good margins are available in western Canada.

Dave, a couple of other points is CFL does not have any purchased product in its results and again, they benefit from the [ACO] gas differential versus Henry Hub as well.

If I could just pick up on that, so in your -- on that last point about I guess ACO versus NYMEX gas. If you look at the spot prices, I guess this was a period when there was a big, pretty wide ACO versus NYMEX gas spread, yet on your cost of gas that you guys list it's really much narrower. So I'm sure part of it is the results of your hedging, but could you maybe talk about why the cost of your natural gas and [inaudible] had versus [Donaldson] doesn't -- didn't seem to track the market trends so -- ?

Well, the real issue there is the [inaudible] pricing program. We're always trailing position, so when gas prices are falling we're going to typically be higher than market. And I would say it's really all due to the hedging program that we have in place.

Okay. I'd like to ask one question about the phosphate business. I guess since you mentioned the permanent closure at one major competitor and I guess there was even another one maybe six months before that, so it would seem like maybe on the feedstock side you're a bigger presence in the market in terms of purchasing ammonia and purchasing sulfur. Can you talk about how the outlook on that part of your business is developing, maybe with the exit of some other customers, has that meaningfully altered the supply/demand balance in the Gulf region and what can CF do to exploit that?

I'm not sure what you mean about other -- did you mean competitors or customers?

Competitors, so [Mosaic] and then in late '05 I think we lost [U.S. Agrichem]--

Right.

-- in the general region as well.

Well, clearly, that tightened up supply and that's what we alluded to in my earlier remarks. The balance there seems to be reasonable and particularly given our performance in the second quarter with really the absence of much demand in South America. So assuming that Brazil gets back on track, gets back to where it was in the past and begins to grow its agriculture once again, demand should increase and fundamentals look pretty good there going forward for a while. We have a large project in another part of the world that's coming on in the '09, 2010 timeframe, but between now and then the situation looks pretty good.

With respect to sulfur, the one development there is that there's been kind of a new facet to that business that's developed where drillers have gone into business drilling sulfur and putting it on ships and moving it around the world. So that's another -- that's another development that's kind of broadened the sulfur market and certainly makes it less dependent on Florida phosphate.

Okay, thanks very much.

Thank you.

Your next question comes from the line of Steve Burn with Merrill Lynch.

Good morning, Steve.

Good morning. Your phosphate gross margins were flat sequentially but yet during the quarter the ammonia prices obviously fell hard. Can you talk about how your phosphate gross margins were during the quarter and, as we are now into the third, are they up materially from the second quarter average?

On the ammonia, if you look at the ammonia that we sell versus the ammonia that we buy, they do have -- they are different markets and they have different dynamics and those prices don't always move together. So you could have a sense where the ammonia we're buying has a different dynamic and effect on the phosphate business than ammonia we're actually selling.

But the Tampa ammonia price did fall during the quarter. Your purchase price of ammonia did fall, I presume?

Yes.

And so were your margins in the phosphate business expanding through the quarter or is that momentum continuing into the next quarter?

I don't think I have the flavor of that at hand unless, Ernie, you do.

Expanding through the quarter, I think -- we'll try to get that answer to you offline. I'm not sure I can give you today -- I'd have to look at the month sequentially, how we did month by month. I don't have that detail with me at this point.

Just in terms of ammonia, I think it's important to realize that ammonia is traded globally; Florida has one market, the market for ammonia in the ag sector and certainly in the Midwest is a very, very different market with different dynamics. International ammonia right now is weakened and prices have been coming down.

Looking at our sales of phosphate products, essentially you can see that prices have been pretty flat.

Right, so --

-- quarter over quarter also.

-- export price is flat and the contained cost of ammonia has dropped, I would assume that you margin position going into the third quarter would be pretty good.

Well, without quantifying it, I think we feel pretty good about our position going into the third quarter.

Okay. And just a follow-on to your comment about nitrogen markets worldwide, you indicated that there's been kind of a reduction here recently in imports, perhaps partly due to buyers being a little bit cautious about the direction of prices. What is your outlook over the next couple of quarters for the new product -- the new nitrogen that's on stream now in the Middle East and Australia? Do you see that coming into the U.S. over the next couple of quarters?

Well, that's a very interesting question and one of the factors at work here is that international freight rates are pretty high by historical standards. They've come off a peak. And I suspect that certainly as the new capacity that's coming on line will find the closest market it can find to get a decent net back and it may displace -- you know we go through a chain here where you displace one and displace another and so forth, there's a ripple through the system.

We have also seen, as I think you probably know, a couple of plants close in Europe because of their gas cost situation and there's some -- there's a few that -- some of the plants from the former Soviet Union and that part of the world are vulnerable with respect to their gas costs. So the dynamics of the global nitrogen market have changed actually quite a bit in the last year, in part due to what Russia is doing, using gas both as an economic vehicle and a political one.

Okay. And just lastly on nitrogen, how would you characterize the channel inventory levels of the various nitrogen products right now as we're going to head into the fall season?

I'll just comment on our own situation. We're very comfortable with our inventory levels in light of the economics and of anticipated demand.

Okay. Thank you.

Thank you.

Your next question comes from the line of [Brian Quervo] with [Mento Partners].

Yes, good morning.

Good morning.

Hi, Brian.

I may have missed this but can you provide an update on Trinidad and your study of the [Petco] conversion at [inaudible], in particular the range of CapEx that would be involved, especially in Trinidad. And I know that can be somewhat difficult to nail down and the parts are still moving, but directionally how big of an expenditure would you expect if you do proceed, the ranges is fine.

Okay, Brian, you didn't miss anything, we have not commented on it. But I'll be happy to do so.

Thank you.

In Trinidad we've been working with our partners diligently for quite some time on a project that is certainly attractive to us on the surface. We've made progress with the government. The government announced that we had reached agreement on some of the major infrastructure issues that we had down there. And we've been working principally on the physical end of the project, developing capital equipment and construction costs. We have found that to be a challenging exercise.

I suspect that many of you know that there is a lot of demand in the marketplace for engineering, steel, precious metals. There are a lot of projects being built in China and other parts of the world. We have been chasing this cost as it's risen over the months and we recently came to the conclusion with our partners that the project, as we have envisioned it as a completely greenfield large ammonia UAN facility, has got a capital cost that frankly can't be justified.

And so we are jointly taking a step back, reassessing our options on a very broad scale to see if we can find a way to develop a project that provides an attractive return in light of the fact that we have a gas contract that's quite attractive to us. So we've seen huge increases in project costs around the world.

And speaking simply from CF's perspective, we're going to commit capital where we can get a good return and we'll be patient here and look for the project to come to us. I shouldn't say that. We're actively working on a project that will have an attractive return to us. We're not going to chase something that's uneconomic.

With respect to Petco, we've said before that the technology is a really good fit for us and that we're an ideal candidate because of our location and the size of our operation. We've been working on a continuous basis with specific parties to develop a business concept that would be beneficial to the gasification sponsors as well as to the company. We're moving along on that process but we don't have anything to announce at this point.

Okay. And those types of projects generally are very large projects, correct?

Yes.

Okay.

If you want a boxcar number for all of these kind of projects, 0.5 to $1 billion.

Right, for Petco conversion.

Well, Petco --

Or Trinidad.

Petco because of the size that we're talking about, I think $1 billion is a boxcar number that's a pretty good one.

And what about a boxcar for Trinidad?

Well, I can --

[inaudible - microphone inaccessible]

The number that we have talked about in the past was 5 to $700 million. I think you can interpret my remarks as concluding that we can't fit it inside that range right now.

Right. And you were some portion of that figure?

We would have been a third of that.

Okay. Nice quarter, guys. Thanks.

Thank you.

Thank you, Brian.

Your next question comes from the line of [Levin Von Redden] with [Hoppy Capital].

Good morning, guys.

Good morning.

Hey.

A couple of quick questions. Ernie, you were talking about how your -- the derivatives have an impact on natural gas prices and I guess you said you hadn't quite seen them there. Could you just be a little more specific? I wasn't exactly following the logic there.

We were talking about the fact that the market comparison, we were higher than the market. And this is because we set our gas prices in advance through our hedging program and when gas prices are falling, obviously we've already set those prices in place. So we'll be trailing that downward movement. And the opposite is true when gas prices are rising. So it's because we set those prices in advance of the market movement.

So how does that work from -- I don't want to get too technical, but from a mechanical standpoint with the derivatives, if gas prices continue to fall or they -- if they're falling today, you're buying the purchase of the gas six months out, how does that work from either looking at a gain or a loss on the actual derivative contract from your perspective?

We have two things that we do. At the end of the quarter we look at all our gas positions and we compare our positions to the market and we do a mark-to-market adjustment. That's the unrealized piece. And as contracts are settled, we book a realized gain or loss based on the settled priced of those contracts. So there's really two pieces of it.

Okay. The other question I had was related to the timing of some of the global capacity that's expected to come on line this year. Any sense as to what quarter some of this capacity is coming on line? And you could do it net of what your expectations are for closures as well if you have that.

Well, with respect to nitrogen, some of that capacity has already come on line. The capacity that's expected this year that is not -- well, that we don't know definitively is mostly in Iran. There are two or three projects in Iran. One of them I believe was already supposed to be on line. We don't really know the status of that. And I do have some information which we can get back to you with.

We can send you some information that we have.

Okay, because I'm trying to just get some better feel, I'd like to get a better feel for whether or not the majority of the expected or anticipated additions are behind us or in front of us, but we can talk about that offline.

Okay.

All right, thank you.

Thank you.

Your next question comes from the line of [Greg Coposton] with Burlingame Asset Management.

Hello.

Morning.

Good morning.

Congratulations on a strong quarter.

Thank you.

Over the last few quarters it seems like your CapEx is fairly consistently around half of your depreciation. Is it fair to say that your maintenance CapEx on the existing facilities on an ongoing basis is about half of depreciation?

No, our CapEx is very lumpy, it's -- you couldn't make that conclusion because we include [inaudible], for example, in the CapEx. And those are timed based on the utilization of the equipment. So you couldn't really make that conclusion.

Would you have a guess as to what fraction of depreciation charge your maintenance CapEx is kind of on a normalized basis.

We've guided that we'd be in the 70, $80 million range on CapEx typically --

I see.

-- which is a bit lower than our depreciation at roughly 90 to 100.

Okay. And in the news release you talk a little bit about ethanol and mention it as a longer-term positive factor for the business. And on the surface it seems that your position is pretty unique in the value chain with respect to your nitrogen fertilizer distribution network that's not really easily, if at all, replicable at this point. Can you talk about sort of what -- in more detail what longer-term impact additional corn demand and improvement in corn pricing can have on your sales into the Corn Belt?

I'll try. Of course, that's our -- the sweet spot of our market is the Corn Belt and we are a major supplier of direct application ammonia, which, under the right circumstances, many farmers prefer. We expect ethanol demand is going to add to an already good situation in corn this year.

I'll give you a little bit of recent history. In 2005 there were about 81.8 million acres planted to corn. This year early estimates were 78 million, USDA says it was around 79.4, and [Dones], one of the respected services out there, anticipates in their last public report back in April 81.8 million next year, rising steadily until 2010 where it's 84.5 million acres. That's a lot of corn acres. The biggest year since 1990 was 2005 at 81.8. There are some people out there who are talking about even larger acreage planted to corn than the 84.5 out by the end of the decade.

Corn is the most nitrogen-intensive major crop. Corn farmers get -- obviously get the best yields when they put down ammonia, often in the fall after the harvest, then again in the spring and maybe after it's planted. This is a good development for nitrogen fertilizer producers and distributors.

Back to your original premise about distribution assets, we've got ammonia terminals in the Corn Belt with a lot of capacity and we stand ready to serve that market, be it ammonia, urea or UAN.

So in terms of kind of me trying to guess the long term next few years impact of the ethanol phenomenon, would you guess the impact will be more in the form of strong volumes or will it also -- can it also have some margin improvement effect?

That's a -- it depends on the global supply/demand dynamics and the overall strength of the marketplace. There are only so many distribution assets in the market for ammonia, so the more growth, all other things being equal, the tighter the situation will be and it will benefit those producers with assets.

And do you have any guess or estimate as to what the current capacity utilization is of the sort of total nitrogen distribution network into the Corn Belt?

Not really. It would range -- it would range from some assets running at capacity and some assets having substantial unutilized capacity. It depends very, very much on specific locations.

And then time of the season as well.

But do you guys do have [inaudible] abundant, is that correct?

We could find some capacity in some places.

Okay. Thank you very much.

Thank you.

Before we go to the next question, I'd like to go back to the previous one just for a second on nitrogen projects around the world. The specific information that we have, and I think it's reasonable, is that an Egyptian -- there's an Egyptian plant scheduled to come on in the near future that's a urea plant. Another Egyptian plant for this year is already on stream, urea plant. There are a couple of Iranian plants that I referred to that we don't have good intelligence on. There's a Saudi Arabian plant, [Safco] for the ammonia plant is on stream and the urea plant is not yet on stream. And it's, I think, widely known that in Australia there was a plant that started up a few months ago. That is an ammonia-only plant. So that's the near term look there.

One comment I'd make overall is that while there are a lot of plants in process or just on stream, if you look at the current situation of capacity build and compare it to the amount of capacity build that occurred in the last couple of cycles, the overbuild, if you will, is likely to be considerably less than it was in those last two cycles. And one of the main contributors to that is the high cost of these projects.

We can go to the next question now.

Your next question is a follow-up from the line of David Silver with JP Morgan.

Yes, hi. Boy, most of my questions were just asked. I have one question and this would be kind of an observation about the market. So if you look at the -- and this would have to do about how the domestic industry is running -- are running their plants over the summer, okay?

So in years past we've had relatively high gas costs in the summer, in my opinion, and there's been low operating rates. I think if you look at the gas futures strip, the current relatively low price of gas, prospects for higher gas in winter, although you've commented on that earlier, my sense is that there may be a meaningful increase in domestic production this year as maybe some of your competitors decide to run their plants a little bit harder when gas is cheaper in the summer.

I'm just wondering if you see any evidence of that on your -- in your particular operations, whether CF can justify running their nitrogen plants a little bit harder this summer and perhaps leading to a little extra inventory in the market come the fall?

Dave, we mentioned, I think, that all of our units, except for one that's undergoing a bit of maintenance, are running. So this summer for us is about like any other summer. We look for fill business, we put inventory in place for fall application of ammonia and we have a pretty good forward book, not as strong as a year ago but a pretty good forward book.

I really can't comment on the competition and what they may or may not be doing. It's a complex business. You have to manage the economics along with the maintenance needs of your plants. In our case we have a lot of units and we have to pick our maintenance times first and foremost based upon the operational integrity of the plants and safety, but once we take that into consideration, we look at the economic opportunities and we try to run them when the economics are best and maintain them in the slower periods.

Okay. And you may have touched on this as well, but in a couple of weeks the USDA is going to take their first crack at yields on crops like corn and soybeans and whatnot. And from your position in the field there, can you comment on your expectation for whether, let's say, corn yield might be a little higher than last year or close to the USDA's current forecast I think of 149 bushels an acre? In other words, what does your intelligence in the field kind of indicate regarding how the current corn crop's looking?

I guess our view would be that we'd be surprised if the USDA changes their number much at all. But then again, that's anecdotal, there's no science involved in that. But that's our feel.

Yes, I was just looking for the anecdotal bits. Okay, thanks very much.

There are no further questions in the queue. I'd now like to turn the call back over to Mr. Steve Wilson.

Well, I want to thank you all for participating this morning. We're very pleased with our results for the quarter. We thank you for your attention and your questions and we look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.