CF工業控股 (CF) 2007 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2007 CF Industries results conference call. My name is Lacey and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today's call, Mr. Chuck Nekvasil, Director of investor relations. Please proceed, sir.

Thank you, Lacey, and good morning and thanks for joining us on this conference call for CF Industries Holdings Inc. I am Chuck Nekvasil, Director of public and investor relations. And with me are Steve Wilson, our Chairman and Chief Executive Officer; Tony Nocchiero, our Senior Vice President and Chief Financial Officer; and Dave Pruett, our Senior Vice President, operations.

Yesterday afternoon CF Industries Holdings Inc. released its fourth quarter results and also announced a fivefold increase in the regular quarterly dividend on the common stock. As you read our new release 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 the release and oral statements in this call or other discussions other than those relating to historical information or current condition are 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 our news release. Consider all forward-looking statements in light of those and other risks and uncertainties and do not place undue reliance on any forward-looking statements. Now let me introduce Steve Wilson our Chairman and Chief Executive Officer.

Thanks, Chuck, and thanks to all of you for joining us this morning. This morning in Chicago it's a cold, gray day and we've got snow piled all over the place. But across our Company we have a pretty good warm feeling about her recent financial performance and the operations of the Company.

Yesterday afternoon, CF Industries issued a news release that confirmed the earning power of this Company. Our financial performance for the fourth quarter was our best ever since becoming a public company.

Net earnings totaled under $135.4 million or $2.38 per diluted share compared to $8 million or $0.14 per diluted share in 2006's fourth quarter. Ideal weather helped us enjoy an outstanding fall ammonia season.

Strong fall fertilizer application combined with customer inventory stocking for what is expected to be strong spring planting drove shipments to nearly 2.5 million tons of nitrogen and phosphate. That demand reflected in pricing that was significantly higher than both the year earlier quarter and 2007's third-quarter provided a wonderful opportunity for CF Industries in the fourth quarter.

But it was our people who turned that opportunity into results. We met our customers strong demand during the quarter and we accomplished it without incurring a single lost time accident at any CF Industries location. We operated our nitrogen and phosphate complexes at high rates throughout the quarter -- 96% in nitrogen and 102% in phosphate.

We also excelled in areas of our business that often don't get much external attention -- our product supply logistics and distribution chain where we focus on maximizing throughput in order to load fertilizer quickly and efficiently for our customers. We set numerous monthly and annual shipping records this year at a number of our terminals and warehouses including Velva, North Dakota and both Spencer and Garner in Iowa.

We believe that our ability to get fertilizer on its way to customers is an important differentiator in the marketplace. Customers recognize our capability to load and dispatch ammonia trucks quickly in the most hectic part of the season. We think that's a competitive advantage that makes us a preferred supplier.

During the fourth quarter then we capitalized on the opportunity the marketplace presented us. We executed our business plans well, met our customers needs efficiently and delivered our best ever results. Now Tony Nocchiero, our Chief Financial Officer, will provide some added detail on our financial performance.

Thanks, Steve, and good morning everyone. As Steve noted, fourth quarter net earnings were our best ever post-IPO at $135.4 million or $2.38 per diluted share. Those results compared to $8 million and $0.14 per diluted share reported for the fourth quarter of 2006.

Gross margin increased more than fivefold to $236 million up from nearly $43 million in the fourth quarter of 2006. The gross margin in this year's fourth quarter included the effect of $12.9 million of marked to market gains on natural gas derivatives. We recognized $9.4 million of unrealized marked to market losses in the fourth quarter of 2006. Gains and losses on natural gas derivatives are reflected in Nitrogen segment results.

I want to discuss the financial highlights for the quarter compared to last year's fourth quarter. Net sales increased by 62% to $853 million. Volume increased by 7% to nearly 2.5 million tons with a 179,000 ton increase in our Nitrogen segment more than offsetting a slight decrease in Phosphate volume.

Selling prices were substantially higher for all products. In total average Nitrogen Fertilizer prices increased by 43% from the year earlier quarter. In Phosphate the increase was 78%.

We enjoyed a $121 million increase in Nitrogen gross margin and a $72 million increase in Phosphate gross margin. Realized natural gas cost increased by just over $33 million. SG&A expenses rose by $3.4 million or 24% compared to last year's fourth quarter primarily due to increased cost associated with incentive compensation awards and the cost of closing the KEYTRADE transaction.

Cash flow from operations totaled $187 million, more than four times the $40 million in the year earlier quarter due primarily to the quarter's improved (inaudible). We enjoyed strength in liquidity. As of December 30, 2007 we had cash and short-term investments of $861 million and $220 million available under our senior credit facility which was undrawn.

For the year, net earnings totaled $372.7 million or $6.57 per diluted share; again our best ever and up substantially from $33.3 million or $0.60 per diluted share in 2006. You'll find year-on-year comparisons in the news release and accompanying financials.

To summarize, we delivered excellent financial results for the quarter and the year and looking ahead to the spring season we believe the strength in the market should permit CF Industries to continue with strong financial performance. Steve?

Thanks, Tony. Today the outlook for the farm economy and CF Industries remains strong, a view reflected in the decision by our Board of Directors to increase the regular quarterly dividend on the Company's common stock from $0.02 to $0.10 per share. At the macrolevel the drivers of 2007's excellent performance are if anything stronger going into 2008.

Global stocks -- of course grains remain low even as demand continues to build. That demand is underpinned by traditional factors that include increasing populations and rising GDPs in developing countries and expanding demand for more protein in consumers' diets. It is enhanced by continued pressure on grain supplies from the biofuels industry.

Strong global demand has driven prices for major crops to record or near record levels. These prices provide farmers with a significant financial incentive to plant a lot of acreage and to do their best to make sure that acreage yields a bountiful harvest.

That translates to using a great deal of fertilizer. And because today's strong demand is global, traditional fertilizer exporters can generally serve closer-to-home markets more profitably than they can serve North America. We believe all that should produce robust spring demand and strong pricing for nitrogen and phosphate manufacturers and distributors like CF Industries.

That's not to say there aren't question marks and challenges going into the spring. Perhaps the biggest question is what will happen if corn acreage falls to only 88 or 89 million acres this year. That level would still be approximately 10 million more acres than the 79 million acres the US averaged in the ten-year period from 1997 through 2006.

I think you have to consider any decline in corn acreage in the context of overall nitrogen demand. Increased acreage for wheat, sorghum and other crops that require nitrogen as well as higher application rates could well offset any decline in demand from corn.

In Phosphate, we are even more optimistic than in Nitrogen. Domestic and export demand remains very strong and the supply demand balance is extremely tight with no significant additions to capacity expected globally before 2010 at the earliest.

Another question we hear involves ethanols long-term viability. Of course the simple answer is that the US renewable fuel standard mandates the use of at least 15 billion gallons of ethanol from corn by 2015 up from the estimated 6.3 billion gallons produced in 2007. More to the economic point, margins for ethanol have strengthened during recent months despite increased corn prices.

From our perspective the outlook for ethanol in the US remains bullish. Production efficiencies and logistical infrastructure for corn based ethanol are improving. Beyond that, crops such as switchgrass and miscanthus sometimes mentioned as potential feedstocks for cellulosic ethanol require just about as much nitrogen as does corn.

What about the effects of a potential economic slowdown in the US? While those effects bear watching, the agricultural sector has historically been resistant to slowdowns in the pace of general economic activity.

So we're extremely pleased with our fourth quarter and very upbeat going into the spring season. We are refilling our tanks and warehouses and many of those tons already have customers names on them thanks to the high volumes we have booked at excellent margins under our forward pricing program. And so with the usual caveats including weather, raw material availability and costs and other factors, we are excited about our prospects for the spring of 2008.

Let's now open the call to your questions. Lacy, please explain the Q&A procedure.

(OPERATOR INSTRUCTIONS) Dave Silver, JPMorgan.

So Steve I guess I would say just upfront when you have a result like this it is the result of a number of correct decisions you have made over a long period of time. One area I was wondering if you could address would be in the sulfur area.

So a couple of years ago for some time ago you did sell your interest in your sulfur services business and now you know you talked about raw material cost and availability in general but if you look at the global market the sulfur market seems to be very, very tight. So could you talk about your general positioning in sulfur and availability? And then secondly if you think amongst your other strategic initiatives whether there is anything that CF needs to do to secure their position in sulfur?

We have been very comfortable with our position in sulfur. We have long-standing strong relationships with our sulfur suppliers. We operate on the basis of having committed supply to the extent that we can have committed supply.

We have not had our phosphate operations impacted by sulfur availability that it is of course tight and the pricing in this industry is essentially the same across the board. We're subject to the same quarterly market forces as everyone else is.

In terms of the long-term plans in the sulfur area, first I will mention that we are a long way down the road in a number of debottleneck projects in our sulfuric acid production. Of course as we eliminate debottlenecks and increase our sulfuric acid capacity that increases the need for incremental sulfur supply.

Today, we don't have any initiatives in that regard related to becoming -- having a captive sulfur source if that is what you mean. That would be a very difficult thing for us to do. But overall we are as comfortable as we think it is possible to be in a very difficult sulfur supply environment.

Thanks. I wanted to shift over to nitrogen and your average selling prices in the fourth quarter. So one thing I noticed was that your peer company, Terra, reported yesterday and they list their average selling prices and I was comparing them to the ones you presented. I noticed that CF had a markedly higher ammonia average selling price than Terra and they had a significantly higher UAN average selling price as well.

And I was wondering -- I'm pretty sure you guys do track that and try to figure out the differences. Could you shed some light either qualitatively or in other areas about where you think your outperformance in terms of selling nitrogen in the fourth quarter came from?

Dave, just a clarification; I think you made a comment they had a higher UAN price than we did. Did you mean to say that?

I apologize if I misspoke but in both cases CF's average selling price for ammonia and UAN were meaningfully higher than the numbers Terra presented.

First of all I don't have a lot of insight into how pricing is done in other companies. We meet in the marketplace. We're very pleased with our prices in the quarter. We think we do a good job in the marketplace taking advantage of opportunities.

There are some differences in the two businesses and there are also some differences in the way that prices are reported. So I would just urge you to make sure as you look at the average selling prices that you consider how freight is handled by each of us in our calculations. That may tend to exaggerate some differences.

But overall, we are pleased with our margins in the quarter and that's really the most important thing to us is what is the difference between the selling price and the cost of the product. And I think this quarter demonstrates that our forward pricing approach and our attempt to lock up margin and reduce risk is over the long run a good way to go.

Last question -- I wanted to ask you mentioned the phosphate markets seem exceptionally tight and I tend to agree. When you talk to Herschel or when you look at your operating plan for 2008 is there anything that would prevent CF's Phosphate business from operating at 2 million tons nameplate or slightly higher? In other words, are there major plant turnarounds? Is there anything going on on the ore side, anything that might prevent you from meeting kind of nameplate production of (inaudible) in 2008?

Oh, we have very ambitious plans for this year and we intend to operate in a fashion similar to the way we always operate and that is as close to capacity as possible. I will mention to you that some of the -- we announced some projects I believe it was about a year ago to increase our capacity.

And one of the reasons we came in at 102% of phosphate capacity in the fourth quarter is that we actually have tweaked our nameplate capacity and you will be seeing when we issue our 10-K that we will be bumping that up a little bit to reflect the actual implementation of some debottlenecks that we have implemented. So, knock on wood -- we expect to operate at high rates.

Steve Byrne, Merrill Lynch.

Steve, you came out of the third quarter with what looks to me like 2 million tons booked in your forward pricing program for 2008 business that is beyond the fourth quarter and now your forward pricing program is up to 2.6. Does that suggest that you are aggressiveness at selling forward slowed in the fourth quarter and if so, why?

I haven't done the comparison that you are referring to. I will just give you a philosophical answer to that and that is that we look at margins every day. We look it product by product, we look at location by location. And when we seek goodbusiness opportunities that we can lock in we do.

We are sitting here with that amount of forward business on the books that's higher than last year. That's it higher than the year before. In fact it's higher than it's been in the four-year history of our forward pricing program. So I think -- I guess I would say we manage our appetite based upon what we think is happening in the marketplace and sometimes we will bottle back and sometimes will put our foot down harder.

But if I'm right, it would imply that most of the run-up that we have seen in prices in the last few months you probably won't realize it until the second quarter, is that fair to say?

Well, there's a phase in -- there is a phase in in this. Everybody more or less is operating in the same marketplace responding to the same customer demands and we have certainly a good feeling about our margins going forward.

A question on your Phosphate business. It looks like your production rates were roughly flat year-over-year but your rock production was down 15%. Does that suggest you are into a higher ore quality in recent months?

I will let Dave Pruett comment on that one to you.

The way to think about the rock production is basically we use the mine as the fly wheel in the system and the rate there can go up and down depending on a number of factors including rock quality, including plans for turnarounds either at the mine or at the chemical plant. It depends on the inventory of rock at the plant itself.

So that will swing for a number of reasons and that's normal. It's just how we manage the inventory at the plant and keep a steady flow of product coming out the end of the chemical plant in Plant City.

Well then more directly to the point than how have your rock production costs varied over the last couple of years?

The general -- well they have been up and down a bit again depending on the production volume and the quality but there's not been a dramatic change in any direction.

Mark Connelly, Credit Suisse.

Just two things. First you talked about the forward pricing. I wonder if you could tell us how much of the forward bookings are for Phosphate and whether your motivation to participate heavily in forward pricing is changing with the volatility that we have seen in pricing for the product?

I would like to I guess go back and give you a little bit of history under our FPP program. We designed the program in 2003 as basically a nitrogen program to manage the risk in nitrogen. Of course, as our customers got used to buying nitrogen on the forward they also became interested in doing phosphate on the forward.

We have accommodated them to some degree but we don't have the ability to match the cost -- lock away the cost when we lock away the pricing in Phosphate so we have to be a little more careful there. Because we have gone through the months doing this we have felt comfortable going out on the forward with phosphates when we had a big enough margin to absorb what we thought where were reasonably predictable swings in input costs; sulfur and ammonia.

As sulfur started to rise, as ammonia costs have increased even in the wake of the huge increase in DAP price we have recognized that there's more risk inherent in this than even we thought at the beginning of doing phosphate under the FPP. So we're managing that. We want to make sure that we don't get exposed to elements of cost that are going to get away from us.

So our appetite as with nitrogen will vary over time and our appetite certainly was reduced a bit or perhaps more than a bit as we saw this rapid rise in sulfur costs. I know your direct question had to do with quantity. I will say that the our forward position in phosphate is a meaningful amount of our 2008 plant sales but I do not want to get into quantifying it.

That's fine. The qualitative assessment was very helpful, thank you. I wonder if I could just ask on the gasification project if there's any additional color you can tell us about either specific areas where the costs are further ahead of where you expect them to be or whether you have proceeded enough with the redesign ideas to know whether the project is going to change materially would change materially as a result.

Well the answer to your second question is we have not proceeded far enough to come to that conclusion. This project like a lot of these projects is subject to the rapid escalation in costs of hardware. The cost of engineering has increased. Almost all elements that go into a project like this have gone up.

In addition, the suppliers really have control of this situation because their services and products are in such demand. We went down one particular path looking at a technology and looking at a supplier of that technology and the answer that came back to us was an answer that would not yield a return that's attractive to us.

So we're not without options here. We are looking at a variety of technologies and supply sources hoping we can find a combination of the two that will get us in the ballpark in terms of our return expectations. But it's too early in the redirection to come to any conclusion on that.

Brian Yu, Citigroup.

I have a follow-up question on the FPP program. I mentioned earlier that you guys recognized you can't really control cost in phosphates and you're trying to handle that in your FPP. And if we look at FPP sales 39% of phosphates was through the FPP in fourth quarter which was down from 45% in the third quarter.

So it looks like your selling more into the spot markets. Can we expect that percentage to continue to decline going into Q1? And then the second part -- do you do any kind of forward selling outside of the FPPs?

In terms of providing color on our forward position in Phosphate going into '08 I probably said all that I'm prepared to say on that subject. I think the factors that I described can probably lead you to a conclusion in that regard. Do we sell -- we sell --most of what we do on a committed basis for future delivery is under the FPP is that is your question. Close to all of it is.

Great. We have seen urea prices along the Gulf decline over the past few weeks. Any color you can share with us on the pricing environment?

If you could tell me when the spring season was going to break in the South and how robust application is going to be early in the season I could tell you what might happen with prices. But I think it's way too early to know. We could be seeing a seasonal (inaudible) but we won't know that until we look backwards.

Got it. And then with regard to the gasification project, you said costs were coming in a lot higher than [earlier] expected. Could you provide a number on what that new range is?

The only thing I will say is that it was higher than would justify the project, significantly higher.

Thank you.

Charlie Rentschler, Wall Street Access.

On the basis that ethanol really is what has triggered the boom in US agriculture and collaterally the whole world here, I wonder if we could talk for a minute about where you see this thing going. With 63 new ethanol refineries coming onstream in the United States this year that will require -- they'll be able to produce something like 4.8 billion additional gallons of ethanol. This will require something like 2.2 billion bushels of additional corn on the back of the 13.1 bushels if I recall that was produced -- record produced last year.

My question is where do you think this is going to lead? It seems to me that one scenario is you just have a scrum of these ethanol refineries fighting for this stuff and driving up the price of corn. Of course maybe that's self-defeating because it gets to the point where a lot of these people can't compete or maybe price of corn keeps going up so high that the hedge fund managers up in Greenwich start planting this thing in their backyard. What are your thoughts about where this is all leading us?

First of all, the premise of your question is generally in line with our view here. We have something like seven ethanol plants being expanded right now and 62 or 63 under construction. All of that is going to add about 5.5 billion gallons to capacity getting us to say, 13 to 13.5 billion gallons.

The market has known about this. I think that's all reflected in the price of corn today. The last that we looked ethanol is profitable to the owners of ethanol assets today. The market is responding in terms of planting and we actually believe that the high corn prices are as close to a pure as you have. It is going to lead to more aerage being planted (multiple speakers)

That's not what farmers are telling people.

Pardon me? Well, we can talk about one particular season or we can talk about a trend and I guess my view is on a trend line basis there's going to be more incentive to plant corn and lots of fertilizer is required to grow corn. Farmers will be out to maximize yields.

I think that is certainly a robust underpinning for our business and with respect to what happens to corn prices and where the corn goes around the world that's really for the market to decide. We are really in the business of trying to help corn farmers produce as much as they can.

Andrew O'Connor, Millennium Partners.

Great quarter. Steve, I thought I heard you say that you are tweaking or debottlenecking your phosphate output capacity this year. I wanted to know can you quantify that, how much?

We announced projects a year ago to increase our phosphate capacity by about 40,000 tons of E205. Those projects are largely completed. And what happens when you debottleneck an integrated process you move the bottleneck from one point to another.

And so we have moved a bottleneck in phosphate acid now to sulfuric acid. And so now you kind of go back and forth -- get a little more sulfuric acid capacity and maybe go a little bit further in that regard and then you're back with another bottleneck.

So there is no additional debottlenecking on top of the 40,000 that you already have underway? Is that the correct read?

I would say that when you have good engineers working for you they always have got projects in their drawer that they want to bring out and try to justify. So I wouldn't say that's the end of the line but that's the end of the line of what has been approved and it is in process.

Gotcha and then secondly, regarding uranium enrichment, can you expand on your comment in the press release that you have made progress in identifying supply contracts with utilities?

Sure, well the first comment on that is that despite uranium prices going from about $120 or $130 down to the 70s, 80s. And so that makes it somewhat more challenging than it was when the industry was scared about future prices.

But we are finding interest among utilities in entering into long-term arrangements. That interest appears to be at levels that could justify this kind of facility but we don't have names signed on the dotted line or anything yet that could lead to providing firm support to a project.

Is it possible to accelerate the timing on this project?

I think we are moving as fast as we can but I ask frequently what we can do to accelerate progress here and we are anxious to get going.

Lastly, is there a ballpark estimate for upfront CapEx for the facility?

Well, I know there have been numbers (inaudible) about but I am a little bit (inaudible) to repeat them because recent experiences and looking at capital cost lately have led to frequent upsides prices. So I would like to reserve on that until we go out into the marketplace and test the cost of the facility.

Understand. Thanks, Steve; nice quarter.

Mike Judd, Greenwich Consultants.

Yesterday during the other conference call related to fertilizers that was going on yesterday they indicated that there seems to be adequate nitrogen based fertilizers available. I'm just curious if you could talk -- give us a little bit of some insight in terms of your expectations of how inventories look right now for your customers; not so much your inventories but how things look let's say versus last year.

What do we need to do in order to fill up the bins downstream, where are we in that process and how this season is likely to play out? I mean I realize there's a lot of unknowns at this point. We don't know what the acreage is going to be but just what you know and what your sense is, please.

Well first of all we don't have clarity on downstream inventories. There is not a reporting service that we can go to that would give us any numbers on that. So we have to rely on sound bites and field reports.

Having said that, if you look at ammonia there isn't the ability to store a lot of ammonia beyond the producer level. It has to move from us and our competitors to the field when the season starts.

With respect to urea and UAN there is downstream storage of course urea being a dry product it can be stored a lot of places. UAN requires tanks but there are a lot of tanks in the marketplace.

We believe that the the strong fall movement that we had was associated with two factors -- good application in the fall excluding UAN which doesn't go down in the fall and rebuilding supply for the spring. The fact that UAN prices are as strong as they are suggests that demand is there's not a surplus sitting around or the market would reflect that in the pricing.

I can give you some numbers at the producer level, the manufacturer level that would put some of this in perspective. These are TFI numbers. As of the end of '07, we had about 750,000 tons of ammonia compared to almost 1 million tons as average inventory over the 2002 to 2006 period. In urea, 318,000 compared to about 350 in a five-year period, UAN a little less than 600,592 compared to 750,000 on average. And you didn't ask about phosphate but phosphate was 425,000 versus 548,000 over the five-year period. Versus a five-year average, producer level inventories across the board are lower.

Just as a follow-up to that, if I look at your inventory numbers from your balance sheet it looks like there was a sequentially -- there was a pretty big build at the end of the March quarter of '07 versus the end of December quarter '06. Is that the same type of pattern we should expect to see at the end of March of '08 versus December '07?

It's a good question and a lot of it depends upon the weather, believe it or not. If we go back two years in the spring of '06 we had a very, very strong movement in March. If you looked at the end of March inventories in '06 versus '07 you probably saw a big increase.

In '07, we had very little movement in March and so the spring movement didn't start until the second quarter. So it's difficult to predict what our inventory position might be end at the end March in the absence of having a crystal ball in the weather.

(OPERATOR INSTRUCTIONS) Dave Silver, JPMorgan.

Steve, I wanted to ask you a question about how you view your balance sheet right now and in particular additional distribution of your cash flow. Obviously you have a very large net cash position at the end of the year. And if you believe the earnings estimates on the street, it should rise substantially further in 2008.

So in the context of the fact that you have raised the common dividend here and you do have some growht projects, how do you view the opportunity for additional distributions of cash, special dividends, share buybacks, something else as 2008 progresses?

Well, I'll give you philosophical answer because those decisions evolve over time. We have demonstrated, I believe quite effectively in our 2.5 years as a public company that we do a pretty good job of executing on the operating side with focus and discipline. We've managed our way through the post-Katrina experience I think in a first call way and recently we have demonstrated the ability to execute in a very strong market.

We have the same focus when it comes to managing our investments and managing our capital structure. We have an ambitious set of objectives related to capital deployment in the business, the initiatives that we talked about in the press release are prominent. Peru is a very important initiative for us and we have some other things that may or may not materialize as the months go by.

Our Board of Directors is very much engaged in an ongoing basis in reviewing our strategic initiatives portfolio, reviewing our capital structure and putting all these things in perspective. Earlier this week they made a decision to raise the common dividend. When we're ready to make further decisions on any of these dimensions whether it be related to capital deployment, we will make them. But we want to make sure that we consider all the factors and we consider the future of the business in a thorough way.

Okay and I was wondering -- I just wanted to follow-up I guess on your comments in the printed release about the change in the status of the expiration of the term sheet in Trinidad. I am not familiar with what happens quite frankly with when a term sheet expires and what has to be done to get it renewed and what not.

But should we view that from our perspective as a risk to that original gas allocation under the favorable term that your Trinidad partner had secured it? Does this represent kind of a turning point in your deliberations or in your thinking about the opportunity in Trinidad?

The answers to your two questions are yes and yes. It has been a long frustrating process. We were quite optimistic that this was going to happen and the failure to get a site turned out to be the key missing link here in this project. The clock ran out on the term sheet.

In terms of the legal ramifications, a term sheet is a term sheet; it isn't a contract. It's kind of binding from a process standpoint but it's not binding from a delivery of gas standpoint. We would like to see that renewed.

But as far as this management group is concerned, we have turned our sights to the Southwest. We are aggressively working on the Peru project. I don't think that we have had a chance to talk with investors on a conference call since we announced the Peru project. We're very pleased to be selected there.

We are working there on a gas term sheet. We're working on site selection, we're working on establishing an office in Peru. We are establishing relationships with of course with the supplier, the supplying consortium and with a number of government officials. We have had great encouragement from the US government embassy in Peru and officials in Washington. So as far as internationals grassroots expansion, we are on that single focus right now.

I know there's a lot still to go on Peru, but I just wanted to maybe see if my thinking about this is correct in one or two areas. The Trinidad project would have been an export based project and a fair amount of that product would have ended up available to you in the US Gulf should that project have been completed.

And then I am wondering with the Peru project at least as it's been sketched out it's kind of a different product mix and of course it is in a different part of the continent there. Would that be more of a regionally focused sales program? In other words would that Peruvian product largely be kept and marketed in Latin America or would that also be kind of something that could supplement your production in the US Gulf through a large study flow of exports up into the Gulf?

Let me go through your questions kind of in a reverse order. The fact that this plant would be on the West Coast of South America leads one to the conclusion that the (inaudible) probably not going to work its way back through the Panama Canal to North America because there are other more attractive markets closer to Peru.

There is significant demand in Peru. It's a meaningful amount of demand. There's other regional demand in South America. Frankly we view the opportunity in Americas stretching all the way up the West Coast of Mexico and the US. With (inaudible) down there is really no significant nitrogen production on the West Coast of the Americas.

Our partnership with KEYTRADE is very important in making this work. It's obviously once you load urea on a ship it can go anyplace and it could find its way to Asia. And so we are obviously early on in formulating any marketing plans but we're very excited about the opportunity to be in that location in the heart of an underserved marketplace.

Brian Yu, Citigroup.

Steve, now that KEYTRADE is handling all of your phosphate exports, how much flexibility do you have in allocating products between the domestic and international markets to take advantage of some of the relative price disparities we are seeing while still maintaining customer relationships?

You hit the nub of the question right there. We have strong relationships with domestic customers. The fact that we have been able to move product back and forth through the years between export and domestic means we have certainly flexibility on the domestic side.

We're very anxious to establish solid relationships with export customers and we certainly will be working with them on sales plans that would align our interest and their interests. Will we retain some flexibility? Probably but we are a long-term relationship oriented company and in general that's the way we would like to continue operating.

Okay, and then with regards to channel inventories and correct me if I'm wrong but in a typical spring planning, assuming there is something that is typical, warehouse bins and tanks can turn two to three times. So would you say it's premature to make judgments about customer inventories right now?

Well (multiple speakers) resupply is happening now and we're getting our system setup to run. We don't really know. That is the truth. We don't have data on downstream inventory.

Bob Goldberg, Scopus Asset Management.

Very nice quarter and I just wanted to follow up on Brian's question on the phosphate export situation. I was wondering what kind of pricing you are seeing in those markets now with all the pressure from sulfur the pressure being much greater on the overseas producers than it is on the domestic producers. Also wondering what kind of lag you see in realizing the type of prices that we see on the spot market. Is it similar to the domestic lag, maybe eight to 12 weeks or has it been any shorter or longer?

The pricing in phosphate has gotten incredible publicity in the last few months and since we now have a market presence through KEYTRADE in 65 countries around the world, we get e-mails every day about this particular price indication and that particular price indication in various parts of the world. And we have seen the very large numbers for individual transactions. Are those pervasive across the market? Maybe, maybe not. Only time will tell how fast and far those prices spread.

The phenomenon that you describe is an important driver of what's going on here. You have got DAP producers in some parts of the world who are importing rock, importing ammonia and importing sulfur. If you look at the marginal cost of those commodities today they are very high and suggest some sense of floor pricing around the world.

In terms of how fast prices move into our inventory and get reported on our sales, it's weeks to months. It depends upon how the market -- where you are in the annual cycle, where you are in the trend in the marketplace. But clearly they're price increases in phosphate that have yet to walk work their way through our system.

At this time I would like to turn the call back over to Mr. Steve Wilson, Chairman and CEO, for closing remarks.

Okay, thank you, Lacey, and as always thanks to all of you for your continued interest in CF Industries. We look forward to talking with you in the future.

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