CF工業控股 (CF) 2008 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the first quarter 2008 CF Industries results conference call. My name is Stacy and I will be your moderator at this time. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call Mr. Charles Nekvasil, Director of Investor Relations. Please proceed sir.

Thank you, Stacy. Good morning. Thank you for joining us on this conference call for CF Industries Holdings Inc. I'm Chuck Nekvasil, Director of Public and Investor Relations and with me are Steve Wilson, our Chairman and Chief Executive Officer and Tony Nocchiero, our Senior Vice President and Chief Financial Officer. Dave Pruett, our Senior Vice President of Operations, who normally joins us on these calls is on an overseas business trip. Yesterday afternoon CF Industries Holdings Inc. released its first quarter results. As you read our news 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 related 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 including 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 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 thank you all for joining us. Yesterday afternoon, we reported first quarter results that were strong in their own right and I believe point to an excellent spring season for CF Industries. Net earnings totaled $158.8 million or $2.77 per diluted common share, up sharply from the $57.2 million or $1.02 share we learned in last year's first quarter. This represents exceptionally strong performance for a first quarter, particularly one that was as wet as it was this year. Driving that improvement was a strong pricing environment for all of our products an environment that signals robust demand for crops and for the fertilizers required to maximize the yield and health of those crops. For the quarter that strong pricing produced net sales of $667.3 million, a 41% increase over last year.

I'm pleased with our first quarter performance, but keep in mind that especially in nitrogen, the first quarter is a bit like spring training in baseball. You do put numbers on the board and it is great if they are good ones, they certainly were for CF Industries. However, the regular season doesn't normally begin until the second quarter. That's when the first quarter's hard work really begins to count. But having said that, during our first quarter we achieved high and cost-effective operating rates at our manufacturing operations. Even with the reported outage at the Medicine Hat nitrogen complex we recorded a 96% capacity utilization rate in nitrogen, meeting sales commitments and positioning more than 1 million tons of ammonia Urea and UAN solution in our inmarket terminals and warehouses ready to serve customers.

In phosphate we achieved a strong 94% operating rate. One key to maintaining that rate was our success in obtaining an adequate supply of sulfur. In what was and remains a challenging sulfur supply environment, I believe we benefited from long-standing relationships with our major suppliers. During the quarter we had no sulfur related production shortfalls for DAP and MAP. In fact, we actually produced 27,000 more tons of those products than we did in last year's first quarter. During the quarter, then, we achieved significantly improved financial performance and thanks to the product positioned in our distribution network, and thanks to the product positioned in our distribution network, set the stage to meet customers' needs in what is expected to be a robust spring planting season. Now Tony Nocchiero, our Chief Financial Officer, will provide some added detail on our financial performance.

Thank you, Steve. Good morning, everybody. As Steve pointed out, first quarter net earnings were a strong $158.8 million or $2.77 per diluted share. Those results compare to the $57.2 million and $1.02 per diluted share we reported for the first quarter of 2007. Gross margin was up substantially to $271 million from $105 million in the first quarter of 2007, with strong improvement in both of our business segments. Gross margin in this year's first quarter included the effect of $69.6 million of mark-to-market gains on natural gas derivatives. In last year's first quarter, we recognized $38.5 million of unrealized mark-to-market gains. On a per share basis, the gain was $0.78 in this year's first quarter compared to $0.44 last year. Mark-to-market adjustments on natural gas derivatives are reflected in nitrogen segment results.

Let me discuss some financial highlights for the quarter compared to last year's first quarter. Net sales increased by 41% to $667 million. Volume, depressed by the wet start to spring, decreased 8% to 1.74 million tons with a 163-ton decrease in nitrogen volume more than offsetting a modest increase in phosphate value. Selling prices were substantially higher for all products. In total, average nitrogen fertilizer prices increased by 41% from the year earlier quarter. In phosphate, the increase was an even stronger 86%. We enjoyed a $107 million increase in nitrogen gross margin including the mark-to-market effect and a $59 million in phosphate growth margin. Realize natural gas costs increased by just under $11 million.

SG&A expenses rose by $4.5 million or 33% compared to last year's first quarter. This was due to a large number of individually small factors relative to last year, the most notable of which were increased incentive compensation and consulting and legal fees. Cash flow from operations totaled $297 million up from $191 million in the year earlier quarter, due primarily to the quarter's improved earnings and to a lesser extent an increase in cash generated by working capital changes, including deposits received from customers on orders under our forward-pricing program. Looking at liquidity in our financial position the news release detailed some developments related to our investments in auction rate securities. These are high-grade tax exempt securities which are no longer liquid as a result of failed auctions due to general illiquidity in the credit markets. Consequently these securities are no longer included in short term investments and have been classified as non-current assets on our balance sheet at March 31st, 2008.

The $259.9 million value of these investments is net of an $8.6 million unrealized holding loss that has been reported in other comprehensive income. We have the ability to hold these securities until market liquidity returns and presently intend to do so. With this reclassification at March 31st, 2008, the Company's cash, cash equivalents and short term investments, which now do not include the investment and auction securities totalled $852 million. At March 31, 2007, that amount which did include auction rate securities was $409.8 million. On April 22nd the Board of Directors declared the regular quarterly dividend, which as you will recall, we increased from $0.02 to $0.10 per diluted common share last quarter. The dividend is payable June 2, 2008, to shareholders of record May 15, 2008. To summarize then, we completed a strong quarter delivering significantly improved earnings to our shareholders and we look forward to the results of the spring application season. Steve?

Thank you, Tony. Over the last month or so I've gotten to work on many mornings, taken a look at the weather forecast on my computer screen and wondered when the spring showers would call it quits long enough to allow farmers to begin fieldwork. Our Monty Summa, our Vice President of Sales, reassured me more than once that spring is usually wet and that more importantly it always arrives. Well, spring has arrived. From North Dakota to central Illinois we are seeing good ammonia movement as farmers get into the fields for preplant work. By now most all of you can recite the macro factors expected to drive us from a strong spring planning season. We have low global stocks of course grains even as demand continues to grow. Strong global demand has driven prices for major crops to record or near-record levels. Prices that provide farmers with a significant financial incentive to plant a lot of acreage and to do their best to make sure that that acreage yields a bountiful harvest. All of these factors should be reflected in robust spring fertilizer movement and pricing for nitrogen and phosphate manufacturers and distributors like CF Industries. That's the demand side of the equation.

Last week, of course, the supply side experienced what many observers consider a positive development for manufacturers when China announced a significant increase in its export tariffs for most all fertilizers. It's estimated that China accounted for approximately 15% of total Urea comports and about 17% of DAP and MAP exports in 2007. It's understandable following China's announcement, the price of Urea moved up substantially in all markets. Has the wet weather dampened enthusiasm for spring planting and fertilizer application? No, it hasn't. We are well within the window for optimal fertilizer application. In fact, if there are any regional challenges in what could prove to be a compressed application season, our ability to position and resupply product through our distribution network could provide an advantage.

Seasonally we are looking at what is generally our strongest quarter in terms of volume. Selling prices for second quarter, especially for phosphate, are likely to benefit from the flow through of significant price increases seen on the spot market during the first quarter. Phosphate producers should also continue to benefit from robust demand in export markets. We will also benefit from our strong forward order position, with orders booked at very favorable margins. As of April 21st we had 3.7 million tons booked forward for the remainder of the year compared to just 1.5 million tons at this point last year. So spring has arrived and so have customers at our plants and distribution facilities. The table is set. That's not to say as with any year there aren't question marks going into spring. Corn acreage for nitrogen and the cost of sulfur for phosphate come to mind.

Let's talk about corn acreage first. If we plant 86 million acres of corn this year as the USDA planting intentions report recently suggested, it would represent a 7 million plus acre reduction from last year's astounding 93.6 million acres. I emphasize the if because actual planting decisions will be heavily influenced by crop economics and those have changed significantly and continue to change since the intention survey was conducted. Attempting to second guess that survey and suggest that, like last year, actual acreage could come in well above the intentions number. It's too early to do that. Instead, I'll point out that only 86 million acres of corn would still be 7 million acres more than the 79 million acres of corn the U.S. averaged from 1997 through 2006. And it would be the second highest planted acreage since 1944. We will know better in a few weeks, but overall, as spring planting ramps up we are optimistic about our nitrogen business. Strong prices, strong supply/demand fundamentals and still strong acreage totals bode well for the second quarter and the year.

In phosphate, the pattern is similarly optimistic with strong demand and pricing. Of course one challenge there is raw materials cost and availability. Sulfur seems front of mind these days, but escalating costs for phosphate rock are also an issue for the industry's nonintegrated producers. Keep in mind that CF Industries is 100% integrated in terms of rock supply. For those of you who may be new to following us, it requires approximately 0.4 tons of sulfur and 1.6 tons of rock to produce a ton of DAP and we produce approximately 2.1 million tons of DAP and MAP each year in our central Florida operations. Sulfur prices have risen sharply, with first quarter of 2008 contracts priced at almost four times 2007 levels. Indications are that second-quarter contracts will also bring a substantial cost increase. Fortunately, as I suggested earlier, the continued flow through of the first quarter's phosphate price increases should help cushion the cost impact.

So far prices for domestic sulfur remain below those of internationally traded sulfur. In fact, in the near term the costs of sulfur, rock and ammonia for nonintegrated phosphate producers may well have put a high floor under global phosphate prices. So with the usual caveats including weather, raw materials availability and cost, and other factors, we are excited about our prospects for the spring of 2008. Now let's open the call to your questions. Stacy, would you please explain the Q&A procedures.

[OPERATOR INSTRUCTIONS] Please stand by for your first question. Your first question comes on the line of Steve Byrne with Merrill Lynch. Please proceed.

Good morning.

Good morning, Steve.

Good morning. Have a few questions about your forward-purchasing program. When we had -- on your last call and you had enough tons booked forward at that time in early February to clearly cover shipments for the first quarter and what looked like probably half of the second. When you book a sale forward like this, why is there a weather impact on that?

Steve, I just want to back up to the intro to your question. You said forward purchasing program. I assume you meant foreign pricing program, is that correct?

Yes, I did.

Well, we book our shipments with an intended ship month from our customers. The ability of customers to take product as a function of what the product is and what the conditions are on the receiving end. In the case of ammonia, the ammonia sits in our tanks, it is ready to be picked up by dealers and it goes directly from our tank to the dealer to the farm. There is no intermediate storage. So that product will be delivered coincident with the demand in the field for application, as is being done right now.

And what happens if weather precludes those deliveries? Does the order just slip into the next month?

Yes, in effect. There are provisions in our forward pricing program that will translate into some storage charges paid to us if the shipments are delinquent by a certain amount into the future.

Okay. That helps. On the phosphate side. Do you have product priced in the second quarter that occurred prior to the run-up in sulfur prices?

We spoke to this particular subject I think at the end of the first quarter about our phosphate forward-purchasing appetite, if you will, and when we realized that we were going to be experiencing rapid escalation in raw material prices and at the time we were seeing higher ammonia costs and higher sulfur costs, we reflected that in the way that we made our offering into the marketplace. Our appetite changed accordingly and that can be interpreted in two ways, a bit of a reluctance to do forward pricing and substantially more -- substantially higher expectations in terms of the compensation we would get for taking the raw materials risk. So all those things have been factored into our forward offerings with respect to phosphate.

Okay. Then lastly regarding your appetite for forward sales on the nitrogen side. Just based on this 3.7 million tons booked forward and where we are here in the second quarter. You clearly have sold a significant volume of presumably nitrogen in the third quarter, maybe even in the fourth. Is that true?

Well, certainly that -- in order to get to those kind of volumes we have to have sold quite a bit forward in terms of amounts and timing, yes.

Okay. Can you just tell me, who on balance is really being the aggressor here? Is it your interest in selling forward and locking in margins or is it your customer that is driving this and willing to pay up to lock in a sale a few months in advance? Which would you say is driving this level of forward selling.

Well, we respond to customers and, yes, it's a balance. I mean, we are making the offer in this kind of environment, we are being what we believe quite aggressive and what we ask for because we know that the supply demand balance is pretty tight. If our customers have an appetite for taking product and it shows up in the form of meeting our price, we have a match. And we do the forward sale. The margins on that business, we believe, are quite attractive. And I would just mention to those who may not be familiar totally with our program, this is a margin management program for us. So we are not only looking at the price of the fertilizer out into the future, we are matching that with our major raw material cost which is natural gas. If you follow the natural gas market, you've seen the price curve has gone up a couple dollars in the last few months, and so product that we booked over that time period has a margin that's determined by the price curve for nitrogen fertilizer and by the price curve at that time for natural gas. And that's why I can express the pleasure I have about the margins we have booked in that product.

Okay. Thank you.

Thanks, Steve.

Your next question comes from the line of Brian Yu with Citi.

Thanks. Steve, good morning. I wanted to start by saying your team did an excellent job on cost control during the quarter.

Thank you, Brian. Good morning.

Good morning. I'm trying to soften you up a little bit for my next question.

Okay.

So with your FPP bookings at about 3.7 million tons, these is very much similar to Steve's questions earlier, it does suggest your shipments are well booked into 3Q based on our volume estimates. First on the last call you provided qualitative commentary on implied margins for nitrogen indicating that they would increase quarter on quarter. And they did. Can you provide similar color again? And secondly, you've indicated in the past that CF can lock in margins on nitrogen via hedges but not phosphates. So I was a little bit surprised that FPP accounted for 69% of phosphate sales in Q2, well above last year and the prior quarter. Since spot prices in phosphates are pretty transparent and your peers are giving pricing guidance to manage expectations, can you do something similar here, whether it is percentage increase quarter on quarter, a range of absolutely prices. Anything that can help us to calibrate our models?

Well, if we go back to your nitrogen question first. I don't remember being quite that explicit three months ago but perhaps I was. I'll just reiterate what I said in response to the earlier question. We are very comfortable with the margins that we booked under our forward pricing program. We could be proven right in the future, we could be proven wrong in the future relative to what might be available down the road. But we are comfortable with those margins. In terms of phosphate, the percentage of our business that was transacted under the FPP in the first quarter was, of course, a function of transactions that were entered to -- prior to that. So that high percentage was a function of what were very rapid, we thought, price prices escalation in phosphate particularly in the second half of last year. So that pricing environment was reflected in our FPP business on phosphates. We were surprised by the magnitude of the sulfur price increase which occurred. And so that, as I said earlier, has changed our appetite and our approach for FPP in phosphate.

We believe in terms of -- the world really knows what's happening with sulfur prices. We don't publish our sulfur prices that we pay, but there is a fair amount of visibility into that through industry publications. And the prices that are available for phosphate products are, again, pretty transparent on a spot basis. What isn't transparent is the timing in which CF or anybody else books individual orders for future shipment. As we showed this quarter we have a sequential DAP price increase of $73 a ton. And that's on the heels of -- I'm going to read these in order. This is Q1 to Q2. Last year $87. The next quarter $39. The next quarter $32. Then the past quarter $73 a ton. So these increases roll through our system. That market is very robust right now. You can certainly expect the price increases that have been reflected in the market to show up in our financials in the future.

So nothing you can provide us right now? It does seem like you have pretty good visibility in your pricing for the second quarter.

We do.

Yes. Any numbers, percentages you could help to just manage our?

We are pretty uncomfortable with providing financial guidance. I think you've got a pretty good sense of the direction here.

Okay. Thanks.

Your next question comes from the line of David Silver with JPMorgan. Please proceed.

Hi, good morning.

Good morning, David.

I had a couple of questions and I would like to go to the Chinese export tariff issue and I kind of view you guys as kind of a very good mirror or reflection of that, given your representation in both phosphate and Urea. Could you give us a sense of what your offshore marketing people, maybe at KEYTRADE are assessing here in terms of the duration and the impact of the tariffs? I'm thinking, in particular, on phosphate where pricing maybe hasn't moved so much since the export tariffs were put in place and, as you indicated, the Chinese do represent a substantial portion of that market which I view as very tight. So what do you think the effect of the tariffs are going to be on your business and what type of opportunities might present themselves let's say to redirect some domestic DAP that's maybe $1,100 a metric ton and put it in the market at something closer to $1,300 or $1,400?

Well, it's a complex question and one I'm not sure I have a good answer for because you're asking me to get out a crystal ball and factor in what the global response is going to be to a specific action by a government. Clearly they have an issue in China. This is a pretty draconian action to take to put tariffs on at that level. They do not want a ton of product to get out of their country. I guess, just a general comment in terms of the DAP market. When prices got to $500 a ton, I think a lot of people thought that was going to be a resistance point and it would be really tough to push prices above there. Well, it seemed like only a few days and we zoomed past $600, $700, $800 and now people were talking about the possibility of $1,000 a ton. I actually witnessed a transaction in Brazil done at $1,000 a metric ton when the customer said to our KEYTRADE partner, please don't disclose who bought this cargo because he was embarrassed by the price. Well, it got past $1,000. It's more like $1,100 or so now.

There is a little lull I think in the international market but there are some markets that are going to have to buy and I think it will be awakened soon. It's really hard to know what -- no one predicted $500. No one predicted $1,000. But I'm not going to be the one to predict that it won't go higher because it's really a situation that -- it's way beyond unchartered waters.

I guess just to follow up just a moment. Maybe I wasn't clear with my earlier kind of layout. But you guys produce both phosphate and -- both DAP and Urea right on the coast, and in theory you could direct the product domestically or you could direct the product internationally.

Right.

And has the very sharp upward movement in Urea changed your thinking there. And do you expect to see -- I mean all things equal, do you think it is reasonable to expect a similar sharp move in phosphate over the near term?

Well, it's not unheard of for Urea to be exported from the U.S. but it's been rare. Could it happen again? Sure. I mean, prices jumped up $100 a metric ton or more almost overnight. That gets people's attention. We have a good domestic market to serve. We have obviously a lot of product committed. But we can provide some more if the value is there. Are people beating down our doors today to do that? Frankly, no. And phosphate, our philosophy on phosphate is that we would like to have strong long-term relationship with customers in both the export market and in our domestic market. But we would also like to keep a degree of flexibility, so that we could exploit the types of opportunities you are talking about. There is no science to this. It's a bit of art as we visited with potential customers in Brazil, we emphasized that point that we want to be relationship oriented with them as we are with our customers in the U.S. So we are not prone to take huge quantities and move them back and forth between the import -- I'm sorry, between the domestic and that export market. But that's enough flexibility to be able to take some advantage of it.

If I could just change the topic. Thanks very much for that. I wanted to ask you kind of maybe if you could give us your best thoughts -- what you really think about corn acres this year. So I'm picking up several tid bits that you mentioned, including the interesting comment you made about the strong ammonia movement right now, and that's a product I associate first and foremost with corn plantings and I know through your customers and through your extensive distribution network through the Midwest, you probably have the best barometer on corner versus soy movement as much as anybody. But if you really had to guess, Steve, I know in public you've kind of talked around this issue a few times. What type of upside do you think there could be to that 86 million-acre number? In other words, economics in the futures market favor corn but the weather kind of favors or puts a little more pressure on soy moving up. How do you assess the pushes and pulls as the planting season really moves into high gear here?

Well, the economics clearly favor corn. The weather so far hasn't exactly favored corn but we've had a lot of good ammonia days in the last week or so. Upside. Outside -- this intentions report has been exceeded by significant amounts in the past. Last year was 3 million tons. I think there has been as much as a 3.5 million-ton swing between the intentions report and what is actually planted. We don't know, obviously, we don't know how the weather will play out. To me that's the biggest factor right now.

Okay.

Did I say tons? I meant acres.

I thought you meant acres. I would just say to Brian Yu, if you really want to soften these guys up do what I do, and that's provide free Starbucks coffee and expensive pastries. Anyway, I'll get back in the queue. Thanks very much.

Thanks, Dave.

Your next question comes from the line of Mark Connelly with Credit Suisse. Please proceed.

Thanks. Just to follow on David's question about nitrogen, I'm curious whether the natural gas price hike, the relative price situation that we have seen overseas versus the U.S. affects your view of, not of the U.S. becoming an exporter but of the relative competitiveness of ammonia versus UAN and Urea. We have had some funny pricing in the last six months and I wonder whether you think this is going to have any impact during the season on that.

Good morning, Mark. Are you talking about the relative world values of nitrogen products or the U.S.?

I'm thinking about as they impact you and the U.S. market.

Well, for us, if you think about our product mix and our location, we have a lot of flexibility in the mix that we produce versus what we purchase because we do purchase nitrogen on a net basis. Gas costs have gone up in eastern Europe. They've begun to move up in Russia. I think not only industry observers but industry participants I think are viewing this as a structural change in the industry. And combining those higher gas costs with the inherent freight disadvantage serving our market, it certainly has put North American producers in a much better position than we were a couple years ago and perhaps than we envisioned we would be in. In terms of the relative values of nitrogen products, I mean that will change on a regular basis. If it's -- you put in place the Chinese export tax, it had an overnight impact on world Urea values and we think of Urea as being the most vulnerable nitrogen product from the standpoint of pricing power because of how much capacity there is around the world. You take a big exporter out in what is generally a tight market and you can see the effect that it had very quickly.

At the end of the day does a meaningful shift in Urea versus UAN and ammonia, is that going to make a big difference to you guys? And obviously ammonia is key. I'm trying to get a sense of whether these structural shifts are going to make a big difference to you guys or not? Is it going to change what people are buying? I'm trying to look ahead three or four years.

Well, if I think about what people are buying in the U.S. which today is our principal market, for people -- for farmers who have traditionally used ammonia. They love ammonia. It is 82% nitrogen. They know how to put it down. It fits right into their corn planting. They are reluctant, I think, to switch. They wait as long as they can before making a decision to apply something other than ammonia. Sometimes the price of product can enter into the equation but I think it is going to take a pretty big differential in the cost of nitrogen to dissuade the ammonia users from using it.

If I could switch to phosphate. Again a big picture question. 94% operating rates are pretty. You are putting a lot of stress on equipment. Are you having to change the way you run your facilities to make sure they can stay that way? Are you spending more on them? I'm just wondering whether there is a risk out there that these operating rates are going to be tough to sustain?

Well, this is why we have maintained our facilities the way we have through the years. These are opportunities that we have prepared for. Our operating guys are not talking about putting stress on equipment. I mean, it's running. We are taking -- in our plans we take our normal turnarounds that we plan to take. A lot of the work that we have going on in our operation is actually to tweak our capacity. We have been increasing sulfuric acid capacity. We have increased our ability to make P2O5 both because of improvements in the phosphoric acid process and by having more of our own produced sulfuric acid in the mix. So for us I will say, this is not an unusual operating environment. It's a standard operating environment for us.

That's what we want to hear. Thank you.

Your next question comes from the line of Mike Judd with Greenwich Consultants. Please proceed.

Good morning.

Good morning, Mike.

I'm not sure if it is too early to give us a view on this but if we think about your sales volume mix within nitrogen and also within phosphate, just wondering if you look at this in terms of two buckets. One is the colder than normal weather and how that could impact in the June quarter, what the mix might have been relative, let's say, to last year? And also -- and then in the second bucket is really just this international question and how that could impact the relative amount sales volume, so DAP versus MAP in terms of mix in the second quarter. Thanks.

Well, in terms of our nitrogen mix, first of all, we plan to provide a lot of each of our products to our customers and we never really know exactly what the mix is going to be. The lead, of course, is ammonia because it's usually the first to be applied. We have made no changes in our plans for the spring. To this point there is a lot of time left for ammonia to be used as the principal nitrogen product, well into May, perhaps into late May. Could the mix change? Sure. We've had different mixes through the years. I think we probably have some of that information public going back quite a ways if we go back to our original S-1 filing. We are prepared for that. Of course we like ammonia. We like our position in that in terms of our production points and our distribution locations, but there is plenty of money to be made in other products too.

With respect to phosphate, your question about DAP versus MAP, traditionally, we make a lot of DAP, we make a little MAP. I'll just get into a bit of the makeup of those products. There is a bit more phosphate in MAP than there is in DAP, and if we are going to make MAP we want to be paid for it. And that's been shown in the way we have done business in the recent past looking for a differential there. We will make what our customers want as long as the economics make sense to us.

Thanks.

Your next question comes from the line of Charlie Rentschler with Wall Street Access. Please proceed.

Good morning. If I did my math right comparing your results against one of your public competitors that reported yesterday, your volume of nitrogen products was off 11%. Their's was off 2%. And I wondered is that because of the Medicine Hat problems, or is there something about the way your distribution system is set up that there is a bit of a lag there if.

Good morning, Charlie. I can't comment on our competitor's business because I don't know his business. I will tell you just a couple of things. Number 1, the Medicine Hat outage had no effect on our ability to ship fertilizer.

Okay.

We had plenty of inventory. It could have taken care of a very robust ammonia run in March had it occurred. In terms of product positioning in the market, we've got product positioned in the market, plenty of inventory. I would just suggest perhaps, as you look at this particular issue, that you examine the business mix. For us, we are essentially agricultural nitrogen. Others may be a mix of ag and industrial. So that may be a factor at work. I can't give you a quantitative action to that.

No, I'm satisfied with that. In terms of capital projects, of course, you've got the KEYTRADE acquisition done and Peru is underway but can you give us any information about Donaldsonville or the nuclear possible projects. Are you tiptoeing closer to some of that or can you not comment?

Well, we are working on those projects. If we had news, we would be reporting it. Certainly, we are eager to get those to decision points but they are not at decision points yet. We think the concepts are solid and we are working in both cases on the capital costs and economics to see if we can bring them forward to a decision point.

And then just as a final question to kind of revisit what a couple of questioners have already gotten into, but it's the farmer's mind set, as you perceive it, I mean, is it fair to characterize the mentality that the farmer would like to grow corn despite retail costs of anhydrous at $900 or $1,000 a ton. I guess the reality is that beans is still something 2.3 times the price of corn which typically says that they should plant the corn. But do you think the mind set is just go for the gusto and plant corn and go for it despite input costs? Is that kind of where we are at do you think?

Actually, we are talking about thousands and thousands of independent decisions here. I think corn farmers in Iowa, Nebraska, Illinois, Indiana love to grow corn and when the economics are the way they are, they love to grow corn more than ever. I'll take this opportunity just to share an anecdote with you that I heard from Monty, our sales VP just yesterday. This just gives you an indication of how intent they are on growing corn when the opportunity is there and also how fast conditions change in the field. Roll the clock back a week ago yesterday. Thursday Monty is talking to this farmer. He has a pretty sizeable operation. And Monty asked him how it was going and he said it was raining, we are going to get another 2 inches of rain. I don't know if I'm going to get this corn crop in. I'm just going to get in the car and go to Lincoln and see the Nebraska spring football game. Yesterday, a week later, Monty dials up the same guy. How is it going? Oh, we are working hard. If it doesn't rain we will be done planting by tomorrow.

That's how fast it changed. Not only did the weather changed, it changed in enough time to get him in the field. He needs about five days of fieldwork. He was four days into that five-day period. So I know there is a lot of talk about weather and there is a lot of talk about weather in this building, but a lot of corn can be planted in a two- to three-week window. That's about all it takes in the major corn planting states. But I still can't tell you how many acres are going to be planted and nobody will know that until it is in the ground.

Thank you very much.

Your next question comes from the line of Brian Yu with Citi. Please proceed.

Thanks. Given your higher phosphate capacity of 2.1 million tons, are there any major planned turn arounds that would keep you from hitting that level this year?

We have a normal set of turnarounds. I don't know if I can give you an estimate on our volume for this year but I don't think we really have any turnaround impediments to running pretty flat out.

Thanks.

Your next question comes from the line of [John Crouse] with Anchorage Capital. Please proceed.

Good morning. Two quick questions on volume and price. I guess volume first. Just a follow-up to I guess what Steve Byrne's first question was. Is it fair to assume, given what you said about the timing on the FPP, that there were some orders and deliveries that would have shipped if you had good weather but instead given the rain, slipped into April? Is that what you're implying?

Sure. Yes, that's a fair conclusion.

Okay. And then on the pricing side, I know you've talked about on prior calls about sort of the evolution of the swing cost producer moving the prices and remember a year ago it was Europe moving up and then it was Gazprom raising costs to the former Soviet Union. And they have been having higher and higher gas costs, which has led to higher nitrogen costs. With this new Chinese tariff, is there effectively a new high cost producer in town? Who is the swing cost producer?

I think in today's market, especially in light of what the Chinese have done, is the Urea prices are decoupled from gas costs at the moment. I think today the high cost producer -- remember, when you talk about who the high cost producer is you have to talk about with respect to some particular end market.

Right.

And given that we are in North America, we always use North America as a reference point. I think the high cost producer delivered to the U.S. today would be -- given probably out of the Black Sea or somebody producing with marked up Russian gas, Eastern Europe and so forth. That's assuming that the Chinese don't try to export after paying the tax, which I don't think -- they probably even can't get to the market price, today's market price.

Was their product primarily going to India? Where was it going before that you sort of have to make it up from somewhere else?

Their product would go wherever they could get the highest price on the day they were shipping it. Their natural market is in Asia for them.

I guess I was trying to get at -- are they effectively, is some new bidder now bidding for the same Urea that used to be going to the U.S.?

They would have been serving Latin America also. And maybe a bit to the west coast of the U.S.

Okay. Thanks.

Thanks.

Your next question comes from the line of Robert Pollock with Citadel. Please proceed.

Good morning.

I just want to dive in to and explore the competitive advantage you have on the phosphate rock side a little bit. You mentioned the 1.6 ratio. I'm getting actually about $500 cost advantage that you guys have on the rock side. Is that -- can you -- I just want to verify the numbers in terms of looking at your cash costs of rock relative to what the global rock prices you are seeing right now and then the 1.6. What is that dynamic right now you are seeing in the marketplace?

I think phosphate rock is north of $400 a ton on the world market. I won't give you our specific cost but I think domestic rock cash costs are $30 to $50 a ton.

That would imply -- if you multiply by 1.6, that's $640. If the price of DAP is $1,100, it looks like the rock is approaching 60% of the costs for the global producer, or the nonintegrated producers. Is that correct?

I think that's right.

So in light of this, when we think about the dynamics going forward, I mean, there's been a lot (inaudible) sulfur and the other pressure on margins, but shouldn't we expect to see a significant margin expansion as all of this goes into your vertically integrated situation?

I think the answer is clearly -- it's a conclusion that you need to come to on your own. You know in general what the cost structure is and you know what the price is. There is a lot of difference between $1,000 a short ton DAP and an integrated producer using $30 to $50 rock. (inaudible - overlapping speaker) to make money.

What percentage of the industry of DAP capacity is nonintegrated? How do you view the sustainability of the rock price? I know Morocco has been driving a lot of it but how do we think about the sustainability of rock prices?

I don't have that split for you. We could provide that to you in a subsequent call.

Finally just sitting on the cash here north of $1 billion dollars. I mean, it seems the rock has really become the value, large value component here. What is the opportunity to spend money to expand your reserve base and perhaps sell rock on the market? Would you explore that? Are there interesting acquisitions out there to require rock reserves?

Phosphate rock doesn't exist in an exploitable form very many places in the world. We would love to be able to expand our rock reserves in Florida but that's a relative -- in terms of big opportunities, that's not likely to materialize for a couple of reasons. Florida is running out of rock. And also, the permitting process in Florida, as you may know if you've watched the difficulties our large competitor has experienced, it's a difficult place to try to permit. We have a good match today between the size of our mine and our chemical plant. We have 15 years of permitted reserves. We have got another nine years that we intend to permit in the near future at current rates.

Would we try to mine that rock at a faster rate and sell it on the world market? It all comes down to net present value calculation. Would we accelerate the rate of mining and invest a lot of money to do that? I think it would be hard to find a pay back and you've got to assume these rock values go for the life of your property before you do that. In terms of our longer term strategy, phosphate is a nutrient that we like. We know how to do phosphate. We will certainly be interested in talking to anyone who wants to talk with us about a future investment in phosphate anywhere in the world.

And then just lastly. Any update on the uranium opportunity, any developments there?

No. Our partner is working hard on putting together long-term contracts between the utilities. That's kind of the lynch pin of this. When that's finished, we will be able to move on to the next phase.

Thank you very much.

Thanks, Rob.

Your next question comes from the line of Bob Goldberg with Scopus Asset Management. Please proceed.

Good morning, guys.

Good morning, Bob.

Steve, I apologize if I missed this earlier, but did you break out the split between nitrogen and phosphate in terms of the FPP bookings, the 3.7 million tons?

No, we didn't. We haven't done that in the past.

But I gather from listening to the call it's virtually -- virtually may be too strong. But it's mostly nitrogen?

Well, in terms of value we are mostly a nitrogen company, so that's a reasonable conclusion.

I'm still trying to put together the pieces here, and I think everyone is, in terms of trying to understand what the phosphate realizations are going to look like. So I'm just trying to get at -- when did the company make the change in terms of getting less aggressive on the forward selling of phosphate? Was that just recently? Was it back in January? I'm just trying to understand how to look at this pricing dynamic from you?

We spoke about this at our February conference call. So we had already made that change in direction prior to that. So it was probably in January that we -- and I want to make sure that when you use the term less aggressive that we all understand what's meant by that. In terms of our margin expectation, we became more aggressive. In terms of our willingness to do forward pricing for the sake of doing forward pricing, we became less aggressive.

Operator, we are running over an hour here. We have probably got time for one more question. Could you do that, please?

Your next question comes from the line of [Mark Lensfeld] with Galleon. Please proceed.

Good morning, guys. I just wanted to ask on the nitrogen side regarding the forward program. The customers, what was the driving factor to be more aggressive? And what was the timing of that during the last quarter or so?

My believe is that our customers like the security of supply that's part of our -- it's part of our offering here in terms of our forward pricing program. They also want the certainty of price, of course. And many of them are working downstream to lock in their own economics and some of their customers are locking in their economics. A $6.00 corn environment I think is one in which everyone in the chain wants to make sure they get a piece of this economic pie. And by locking in elements of costs, they are able to increase the chance that they are going to realize the economics down the road.

Was there some limit, though, that the percentage is much higher than last year? Is there some limit because you are definitely leaving some price on the table? How far, how much are you willing to go? It seems like it is more than I would have thought.

Well, I think there is a bit of a misconception out there that we are pricing our forwards equal to today's spot market or something like that. And while there may be occasions when that's the case, in a very strong market what we are issuing here is a price curve and embedded in that curve are our expectations about future prices just like the forward curve that you see for the (inaudible) expectations in the marketplace in terms of future economics for natural gas. So we are building in our expectations for margin in this analysis and we are being, I think, aggressive in that regard and whether or not we are leaving money on the table can only be determined by looking in hindsight when you compare what we did with what others might have done who approached the business differently from the way we approached it.

Thanks.

Thanks.

Operator, that should do it.

With no further questions, I'd like to turn the call back over to Mr. Steve Wilson for closing remarks.

Thank you, Stacy. And as always thanks to all of you for your continued interest in the Company. We look forward to talking with you again in the future.

Thanks.

Thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect. Have a great day.