CF工業控股 (CF) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to first quarter, 2009, CF Industries results conference call. My name is Stacey and I will be your conference moderator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Charles Nekvasil, Director of Public and Investor Relations. Please proceed.

Well thank you Stacey. Good morning and thanks 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. Yesterday afternoon, CF Industries Holdings, Inc. reported its first quarter 2009 results. The purpose of today's conference call is to discuss our financial performance for the quarter as well as our outlook for the upcoming spring season. As you're aware, CF industries is engaged in a proposed business combination with Terra Industries, Inc., and has received an exchange offer from Agrium, Inc. All three companies have thoroughly communicated their positions on these transactions, via news releases and various files, including the release we issued following our annual meeting of shareholders this Tuesday.

We've also been on the road extensively during these last few weeks, discussing the proposed transactions with investors. We remain totally committed to our proposed combination with Terra Industries, viewing it as a compelling combination with a number of strategic benefits to shareholders of both companies. However, for today's actually, we will limit our comments and your questions to our financial performance and prospects.

As you read our news release posted on the investor relations section of our web site 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 on this call or other discussions other than those relating to historic 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 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 this morning. Yesterday afternoon, CF Industries reported first quarter 2009 earnings. For the quarter, net earnings totaled $62.7 million or $1.28 per diluted share, a 61% decrease from the $158.8 million or $2.76 per diluted share in the first quarter of 2008. Results for the quarter include the effects of mark to market gains on our natural gas derivatives, a write-down on potash inventory, expenses related to ongoing M&A activity and period costs related to lower plant operating rates. The first quarter sets the stage for a spring planting season that typically begins in earnest during the second quarter throughout much of the US corn belt. Earnings were lower than those in the earlier quarter but both our net sales and volumes were up for the quarter, a positive sign at this point in the year. In the new release I talked about CF Industry's ability to react quickly to changing market conditions, and I believe our actions and our phosphate business illustrate that well. Early in quarter, we anticipated a sluggish domestic market, especially for phosphate, so we decided to take advantage of our ability to move product offshore. We were able to leverage our Keytrade partnership to increase phosphate exports significantly above planned levels, selling to customers in Brazil and India as well as to new markets for us, such as Vietnam. I believe this demonstrates our ability to be nimble in the face of changing market conditions. We achieved significantly higher phosphate sales than in last year's first quarter and, we did it in a way that helped relieve pressure on our domestic inventories. I'm proud of this performance and the employees at CF Industries and Keytrade, who helped achieve it.

Looking at the forces that drove first quarter performance in the North American fertilizer industry, it's clear that unusually high inventory levels throughout the domestic supply chain presented a challenge. You all know the story-- Wet weather in the spring of 2008 delayed planting. That, in turn, led to a late harvest and a limited window to complete fieldwork and fertilizer application. Lousy fall weather added to the problem, ultimately creating high inventories throughout the supply chain. Further complicating matters were delays in customer purchasing decisions as many buyers tried to find a market bottom in a falling wholesale price environment. A lot of customers continue to take a wait and see approach before making spring fertilizer commitments. Despite this challenging environment, we performed very well.

In our nitrogen fertilizer segment, net sales increased by 4% year over year to $456 million due to higher average selling prices for ammonia and UAN. Total sales volume was flat compared to the year earlier quarter, at 1.3 million tons, but volumes for both ammonia and urea increased compared to the year earlier quarter. Volume for UAN solutions on the other hand was down 26% compared to the first quarter of 2008. As this spring planting season gets into full swing, UAN inventories in the supply chain should decline providing opportunities for substantial UAN movement to our customers. In phosphate, net sales were down 2% compared to the first quarter of 2008. Our aggressive exports, up 131%, compared to last year's first quarter, yielded a 12% phosphate volume increase. But even that substantial improvement could not offset the lower average selling price for DAP.

We responded to low early first quarter demand by reducing operating rates and moving up planned maintenance activities at our manufacturing operations. Since then, we have increased production rates in preparation for the spring planting season. We have positioned product through the our end market distribution network to insure that we can meet demand as the weather turns and fieldwork intensifies. Some of our carry-over inventory, especially ammonia and DAP will move at very attractive prices booked last spring and fall under our FPP, with positive margin implications. To summarize then, we achieved good first quarter results in a tough environment, capitalizing on our strength of moving product into export markets. Now let me introduce Tony Nocchiero, our Chief Financial Officer, who will provide some detail on the quarter.

Thank you, Steve, and good morning, everyone. During the quarter, CF Industries adopted a Statement of Financial Accounting Standards number 160. The standard requires that earnings available to non-controlling interest, formally referred to as minority interest and included as an expense to arrive at pre-tax earnings now be subtracted from consolidated net earnings to arrive at net earnings attributable to common stock holders. The new requirement has been applied to prior year results for comparative purposes. Adoption of the new standard will impact the Company's affective tax rate as reported in our quarterly and annual filings. Because earnings attributable to non-controlling interests will no longer be subtracted to arrive at pre-tax earnings, our reported affective tax rates will generally decrease due to the increase in earnings.

Now I'll highlight some quarter on quarter comparisons for you. Net sales increased by 2%, to nearly $681 million, up from $667 million in last year's first quarter. Volume totaled 1.8 million tons, up 3% from last year's first quarter. Nitrogen segment volume was 1.3 million tons, flat with the 2008 first quarter. Phosphate segment volume was 527,000 tons, up 12% from 470,000 tons in last year's quarter. Phosphate volume in domestic markets fell by 13%. But as Steve pointed out, we were able to more than offset that decline with a 131% increase in phosphate exports. We sold 42% of our nitrogen under our forward pricing program in the first quarter, compared to to 75% in last year's first quarter. In phosphate, we sold 26% of our volume under the FPP, compared to 69% in the 2008 first quarter. Average selling prices for our product were mixed compared to last year's first quarter. In nitrogen, prices for ammonia and UAN were higher than in 2008's first quarter, but selling prices for urea were down. In phosphate selling prices for DAP were 15% lower, while MAP prices were essentially flat.

On a sequential quarter by quarter basis, prices for all products were lower then in 2008's fourth quarter. Gross margin in nitrogen was $169.4 million, 14% lower than the $197.5 million in the 2008 first quarter. Nitrogen gross margin was impacted by lower average selling prices for urea and higher realized natural gas cost in the inventory sold. As we reported the nitrogen gross margin included $48.6 million in non-cash pre-tax unrealized gains from mark to market adjustments on natural gas derivatives. Last year's first quarter included $69.6 million in such gains. Gross margin in phosphate was a negative $7.1 million, down from a positive $73.7 million in last year's quarter. Phosphate gross margin was negatively affected by potash inventory write-downs of $24.3 million or $0.30 per diluted share on an after-tax basis as expected selling prices fell further below our acquisition costs. There were no inventory write-downs in 2008's first quarter. Segment gross margin on DAP and MAP was $18.5 million while potash gross margin reflecting the write-downs was negative $25 .6 million for the quarter.

Our first quarter 2009 natural gas prices exceeded spot reference levels at Henry Hub and ACO as a result of locking in favorable margins our FPP during a period of relatively high natural gas prices. As you may know, we have the ability under our natural gas policy to purchase natural gas beyond the amount required to fill nitrogen FPP orders. We have begun to take advantage of recent low natural gas prices by locking in more than 2.1 million, million btus of natural gas in excess of FPP (inaudible) requirements at an average price of $3.57 per million btus. Most of this gas is expected to be consumed in the second quarter. We have additional authority to make further on or opportunistic purchases if current attractive pricing levels prevail. SG&A expenses of $15 million declined 15% due to lower incentive and long-term stock based compensation cost as well as lower corporate offense expenses. Other operating expenses increased to $23 million, $16 million of which are costs primarily associated with our proposed business combination with Terra Industries, and with the Company's evaluation of and response to Agrium Incorporated's proposed acquisition of CF Industries.

In addition, we had project development costs that totaled $4 million related to the Company's proposed nitrogen complex in Peru. These items represent $0.25 per diluted share on an after-tax basis. There were no comparable items in the year-earlier quarter. Cash flow from operations totaled $292 million, down slightly from $297 million in last year's first quarter. Looking at our liquidity and financial position as of March 31, 2009, the Company's cash, cash equivalence and short-term investments totaled $839 million. The Company also held investments in auction rate securities valid at $168 million. This is down from $178 million at year end as a result of $3.2 million in redemptions at par during the first quarter as well as an increase in our valuation reserve. Including auction rate securities, total cash and short-term investments are $1 billion, compared to investments in cash, cash equivalence and auction rate securities of $803 million at December 1, 2008. The auction rate securities remain illiquid.

CF Industries had approximately $229 million of available credit under its revolving credit facility. We had no borrowings outstanding under the facility. Earlier this week, we reported that the board of directors declared the regular quarterly dividend of $0.10 per diluted common share, payable June 1, 2009, to share holders of record, May 14, 2009. So despite a challenging North American fertilizer market, we delivered solid sales and volumes for the first quarter. We remain financially strong and well positioned to meet expected robust demand and further advance the Company's growth initiatives. Steve?

Thanks, Tony. Providing the weather cooperates, fertilizer demand for this spring has the potential to be strong, especially for nitrogen. Robust projected corn acreage has certainly set the table for a good spring, and we could also benefit if farmers try to make up for last full's poor fertilizer application conditions. In the US , demand for corn is excellent, with prices and crop economics remaining quite good. According to the USDA's recent prospective plantings report, farmer plan to plant 85 million acres of corn this spring, down just slightly from 2008. At CF Industries we expect corn acreage to meet or exceed last year's 86 million acres. In either case planted corn acreage would represent one of the three largest corn crops in the United States since 1949. This outlook makes us increasingly optimistic about spring nitrogen demand, especially in the corn belt. In fact, in March, we began experiencing promising levels of ammonia product movement; and through this past Wednesday, year to date ammonia shipments were almost 70%, ahead of last year's admittedly weak levels. Weather permitting, we expect this movement to increase as planting shifts into high gear.

Crop economics also justify the application of phosphate and potash on corn this spring. As a result, we anticipate that phosphate demand at the farm level will strengthen as spring planting ramps up. Even though the pricing stalemate between domestic distributors and farmers continues. Of course, producers may in the see the benefit until downstream inventory is worked down. While we don't expect phosphate selling prices to return anywhere near the highs experienced in mid 2008, today's phosphate input costs are significantly lower. As a result, margins are attractive by historical standards. Input costs for nitrogen have also continued to fall well below peak 2008 levels, with positive margin implications. Our fixed price forward-order book was 1.3 million tons at the end of the first quarter, including 1.2 million tons under our FPP, with nitrogen representing the vast majority of that total. More than 40% of that 1.3 million tons was priced in the spring and fall of 2008, at average levels that are quite attractive compared to prices realized in the first quarter of 2009.

FPP volumes for the remainder of this year are substantially below the total of this point last year. In part, this is due to market conditions and the wait and see customer mentality I discussed earlier. But it's also a result of the pricing discipline we demonstrated in the market. We have been unwilling to book significant level of FPP business at margins we find unattractive. So looking ahead, we're well positioned for a strong spring, with inventories staged at our nearly 40 terminals and warehouses to supply customers with the fertilizer required to achieve those yields. Longer term, the fundamentals driving demand for our products remain solidly in place. The underlying demand for course grains around the world and demand for biofuels in the US will continue to require higher crop fields, resulting in long-term growth for our industry.

We are pleased with our progress on our proposed nitrogen complex in Peru. The capital cost trends associate with this project continue to work in our favor. We have commenced a detailed front end engineering and design study and have begun drilling core samples at our proposed plant site to evaluate its geotechnical characteristics. We anticipate signing a natural gas contract for the proposed facility during the second quarter and completing the feed study by year end. Before we take your questions, I'll mention that in March, Business Week magazine recognized CF Industries by including us in the Business Week 50, noting that we achieved the second best financial panels of all companies in the Standard and Poor's 500 index over a 36-month period. The ranking track growth, return on capital and other metrics. As the only member if our sector included in this ranking, we are proud of this recognition and believe it validates our ability to execute our strategy, to operate effectively in a dynamic market, and to deliver value to our shareholders. With that we will open the call to your questions. Stacy will you please explain the q&a

(Operator Instructions) Your first question comes the line of David Silver with UBS. Please proceed.

Good morning.

Hi. Good morning. How are you guys doing?

Great.

I had a question. I guess my first question would be about your comments about your expectations for a robust corn planting season, and I guess some of it is weather. Some of it might be that wait and see attitude, Steve, that you referenced earlier in your prepared remarks. But, if we look at the latest weekly planting progress report, I mean, I guess Illinois corn is 1% -- was 1% planted last week, versus a 23% average for the last five years before that, and I guess, when your people look at what's going on in the field, when do you think we hit that crossover point where maybe 85 or 86 million acres of corn won't get plant this year, and it might spill over into Soybeans or other crops.

Well, if I were a meteorologist, I could -- I could tell you that. Looking out the window here to the west, we can see sunshine, at least for about four or five miles, and we're expecting a really nice weekend in this part of the country. It's really a function of weather, and I'll remind you, David, that there's a capability in the system in the corn belt, to plant a lot of corn quickly. There's an ability in the state of Illinois to plant the whole crop in 10 days if there was a 10-day window available to us. At this point in time, I can't tell you whether we're going to get that great sweet spot. It doesn't take obviously a single string of good weather; it takes pockets of good weather in various places around the corn belt. And so we remain optimistic. But I certainly concede that we're behind the trend line.

Okay, thanks. And then if I could just ask about your average selling prices that you were able to realize this period. So if we were just to stick with ammonia you guys had a price in excess of $500 a short ton that you were able to realize this period. And I don't know. Your friends at Terra put up a number much lower, 335 or so. So when your people look at how you're positioning your business versus -- I don't know -- the newsletter averages or Terra or somebody else, how do you break down that surplus? In other words, how much of it was unusually favorable FPP business booked several months ago? How much of it is CF able to utilize the distribution system or other factors? How do you look at that very significant out performance this quarter versus your peers or industry bench marks?

Well, David, it's obviously all of the above. I'll just property you one little piece of detail here, because I think we've shared this with you before. When you split out our ammonia sales, what goes to our joint venture partner at Medicine Hat by Terra, our ammonia price actually was $583. So that just reinforces the point that you're making. We have a lot of FPP business sitting in that result. But also, in general, we like the direct application ammonia business. It's a very good business.

We have a strong position with our distribution system, to be able to capitalize on the spread that exists between gulf values for ammonia and end market values. And that's a point that we've made on a regular basis with investors. We have some industrial business in there, actually. We look only at the ag business, the price would be higher than what I just quoted. I understand clear the negligence of having industrial business in the mix. It provides ratability in production, and so we like having some of that business, too. So, everybody's got their own -- their own niches, if you will, and we're very, very pleased to have the position that we have in direct application ammonia. We think it's a great business to be in.

Okay. And then one question for Tony. This has to do with accounting for the feed expenses related to Peru. I think you guys estimated approximately -- I don't know -- 35, $40 million of total costs to complete the feed study, and I know, in this quarter, $4 million of it went through the income statement, approximately.

So should we expect all of that $40 million to run through the income statement this year, or is some of that capitalized? How should we think about the size of that expense and the income statement (inaudible)?

The number is closer to 20 to $30 million, David, and we expect it to run through the P&L, just about all of it. It will run through this year.

Okay. Thank you very much.

Thanks, Dave.

Your next question comes from the line of Robert Koort with Goldman Sachs. Please proceed.

Thank you. Good morning. Can you talk a little bit about use of your cash on hand? It seems like that's growing to a pretty healthy level. What do you plan to the with that cash?

I'm going to ask Tony to address that. Not that I can't do it, but he's more than capable --

We look at our cash position relative to our needs all the time. We take this holistically and we take it from a strategic perspective. Obviously we need to consider a number of things. First of all, what we think our cash requirements are going to be for the strategic opportunities we have in front of us. Some of those are available to the public because they're well developed and we disclose them and talk about them on calls like this. Others are in process and haven't been revealed to the public as yet.

And then, of course, we always have to consider the amount of reserve cash we're going to be needing to get the Company through a downturn. We also look at obviously our available leverage, and we've had the wonderful problem of making a lot of money. And, not really had an opportunity to add leverage to the balance sheet, but we certainly will do that because we understand equity investors require leverage to get optimal returns. I guess I just remind you that in that context of looking at our cash strategically back in November, we did do a $500 million share buyback. We didn't just flash a number and then not do the buyback. We announced 500 million and then we did the trade at about $59 a share for 8.5 million shares in 10 to 12 trading days. So we look at this all the time. When the time is right, we do the right thing.

And obviously at a very high level, given the state of the general economy. This is a good problem to have.

Okay. And can you help me try to get into the dealer mind-set here, as we go through this season, assuming we get the 85 million acres of corn and they move out and clear out their bins. Do you see any different buying behavior this summer, given some of the trauma that was created for pre-buying last summer and trying to get rid of that product in the fall and spring? What could be different as we go into the summer and fall selling season this year domestically?

Bob, as I look at our own FPP book at this stage, we've got far less in the pipeline than we had a year ago; and as I mentioned in my remarks, some of that is being driven by -- on the customer side, some of it driven on our side. Given what happened last year with the quickly changing prices, and a lot of people felt that they had to get on board to keep from paying even higher prices, I think there's a lot of reluctance on the part of customers to make -- to make commitments in advance. So I think we're tending more in the direction of the shorter term and the spot market rather than extended commitments.

Okay. Thanks.

Thanks, Bob.

Your next question comes from the line of Mark Connelly with [Stern Agee]. Please proceed.

Thank you. Steve, just two questions, bath of them pretty simple, but mostly about how you're thinking about things. As you start to ramp up phosphate production again, knowing that the supply chain is still not -- not quite where you'd like it to be, how are you thinking about that balance? A year ago, it was pretty clear that the supply chain backed up much faster than the industry understood, and so how are you -- are you managing that risk that we end up putting too much into the chain again and the farmers disappoint us?

Okay. Mark, good to hear you again.

Thank you.

Our focus in phosphate, I think, is fairly clear, and I hope in our release and the comments that I made, and that is that we are attempting to be nimble. We are producing to what we expect to be the demand, whether it be domestic or export demand. The fact that we have Keytrade out there as our eyes and ears around the world is a real big plus for us, because they can identify pockets of demand that frankly a couple of years ago we would have never been able to find. We're certainly in close contact with our domestic customers. We have long-term relationships with several very large customers, and so we know what their demand patterns are likely to be, and we adjust our customer mix accordingly, and that's all what drives our production planning. In other words, we're -- we are producing for expected demand. That's what drives us.

And on that point, two questions on the export business, and then I'm finished. The export margin that you're seeing on the business you picked up, is that comparable to your domestic, and the second question is, do you anticipate maintaining longer term, the higher levels of exports that you're doing now?

With respect to the margins, we believe the margins are comparable to what's available domestically, of course. When demand dries up in one place versus the other, there's not a whole lot of business to compare it to.

Exactly.

But we believe that the margins we're achieving in the export market is comparable to what we achieve domestically. With respect to our mix going forward, we don't have an objective with respect to mix other than to say that we have a-- as I noted, a number of longstanding relationships with domestic customers. Those are strong relationships that they will continue into the future, and we will work together to try to make sure that we have mutual commitments going forward. We also like having relationships on the export side, but have to be realistic and know that a certain amount of this business has got to be done on an opportunistic basis by nature.

Very helpful, thank you, Steve.

Thanks, Mark.

Your next question comes from the line of Paul Dameko with TB Newcrest.

Good morning, Steve.

Thank you, Paul.

I wanted to ask you, you mentioned in terms of a good spring and whatnot going forward, what your conviction is at this point with respect to sustainability of the higher operating (inaudible) you've got now in nitrogen and phosphate into the fall period. You must have some conviction, one way or the other, as to whether or not it's still a wait and see or that you believe it's going to hold. The first question.

Well, from -- if we look at nitrogen, first of all, I'm going to go back a bit. We look at fertilizer year -- the fertilizer year that we're in now. It's clear that in nitrogen for the fertilizer year there's -- the demand is going to be off something like mid single digits in North America. The fact is through the first quarter -- first calendar quarter, demand was off a lot more than that. So in order to get to that fertilizer year number of mid single digit decline, we -- we would have a very strong spring. So I think most players in the industry at all levels in the chain are aiming to take their stocks down to the floor come the end of the June. That's certainly the way we plan our business, and I'm sure that's the way many others plan.

So the question clearly, then, is what's the anticipated fall demand and then into the spring of next year. We believe the fundamentals are strong. We see less imports have come into the system, and so that helps our situation a bit. But, a lot of what's going to happen in the fall is going to be a function of what happens this spring and whether we get the strong corn acreage and then we have sustainability of that going forward, whether we come in less than the projected corn acreage and that (inaudible) more demand for next year. There are a lot of moving parts. Just like I commented in phosphate, we manage our nitrogen production to meet anticipated demand, and we stay very close to our customers in order to be able to do that effectively.

Okay. And I don't know -- Steve, this question will be for you or maybe even for Tony. What I'm trying to do, is with respect to the FPP, I don't know how far back history goes for that business or whether it exists pre-your 2005 IPO. But I'm looking for some context with respect to the 9.1 million tons as of April 21 or what not that you mentioned in the press release. So I'm just curious, when was it previously at that level for the month of April, and the current level, what would be the split between MMP? Or is it inconsequential?

Actually, the historical numbers are available, and we think we can get those for you. They were all made public, but I believe that our position at the end of the first quarter is the second lowest it's been since we started the program. We started the program in 2003, and it kind of ramped up that year and hit its stride in 2004. So it's a relatively short history.

We can get the history for you if you'd like. Just give Chuck or me a call, and we'll take you through it.

Don't know if you know offhand, though, you said "second lowest. " So when was the lest point?

I don't know that off the top of my head, Paul.

No problem. Thanks.

Your next question comes from the line of Jeff Zikauskas with JPMorgan. Please proceed.

Hi, good morning.

Good morning, Jeff.

In terms of your 527,000 tons of phosphates sold, what was the split between export and domestic in the quarter.

I think we have that in the release. Just give me one second. Sorry about -- Oh, here we go. I have it right here. It's 340,000 tons domestic, 187 export. And so the 131% increase is off of an 81,000 ton export base last year.

Okay. And I think one of the previous questioners was poking around the issue of how much under the FPP program will come through in phosphate tonnage going forward. Maybe a way to ask that is, do you expect your phosphate tons, under the FPP program in the current quarter, to be somewhat less than they were in the first quarter?

Well, the preponderance of our FPP book is nitrogen.

Yes,. So there's not that --

There isn't a significant amount of phosphate available to come through.

Right. And in terms of the export markets right now in phosphate, are there still opportunities, or do you think some of that is going to be on hold while prices stabilize?

Well, we have found opportunities. For example, in April, we sent a cargo to the Ivory Coast; and that's been publicized, I think, in the industry publications. We have a presence now in about 60 countries around the world, and so Keytrade brings to us individual opportunities on a regular basis. I really don't know what the future brings, but we're happy to have that flow coming to us.

And I take it you're happy with sulfur realizations?

We are happy with what is rolling off and with what is rolling into our mix?

Okay. Thank you very much.

Thanks, Jeff.

Your next question comes from the line of Steve Byrne with Merrill Lynch. Please proceed.

Hey, Tony. Help me out here on a couple of gas questions. You indicate you have locked in 26% of the quarter or roughly 3 weeks' worth of gas.

Uh-huh.

And you just mentioned you went net long 2 million, million btu, which is roughly another week, isn't it? Something like that?

It's not a huge volume; that's right.

So at the end of March, would you have not already locked in April gas purchases? Even these don't seem to add up to even a month.

Well, remember, the gas purchases that are locked in in the FPP inventory were locked in. and a lot of them, last summer, while we were taking significant FPP orders.

Okay. But you don't include -- you don't include in that metric what you would just normally buy for a month during the bid week of the prior month? You don't include any of that in there?

In which metric?

When you say there's 26% of the quarter's gas purchases are already locked in?

Right. We include just the stuff that's associated with the FPP program.

Okay. All right. So your position here is you're much more exposed to spot gas -- well, I guess you're starting to look some of that in. Your FPP is also very light. Is this a-- just an intentional move to gain more exposure to spot pricing in the market on the nitrogen side in anticipation of rising prices this is spring? Is that part of the philosophy behind this relatively low FPP position.

Steve made a comment on that during the course of the call. Obviously the first point to know is that falling gas prices for nitrogen are a wonderful thing. We do want to take advantage of that to the extent we possibly can. As Steve pointed out, in a falling price environment for product, customers are more reluctant to lock in forward prices, because they don't know where the bottom is. In addition that, we practice a lot of discipline around the prices and volumes we put out on the forward curve and they're based on our assessment of what we think the future is going to look like. So to the extent of what we have a pretty buoyant expectation for the future, and Steve talked about the spring, we might have higher expectations than our customers, and you wouldn't have transactions cross. So it's a little bit of our judgment and our discipline around pricing those volumes, and a little bit of the customers looking for the bottom and therefore are reluctant to lock in.

And, Steve, you mentioned --

The position we're in right now, vis-a-vis gas is very attractive, with gas prices coming down.

One of the factors, Steve, you mentioned earlier was reduced imports. Do you think that we could reach that point this spring, where the demand is sufficiently strong and supplies tightened -- because of less imports that we see rising prices yet this spring?

Well, it's a phenomenon we'd love to see happen, but we think that those kinds of conditions are frequently predicted and rarely realized. I think that the marketplace is pretty efficient. Farmers find a way to get their product, and the logistic system at the end of the day provides it. So we have heard the arguments for that. They make some-- they are somewhat logical. On the other hand, they never seem to happen. So we don't plan for it.

Okay. And the last one on potash, is that a business you expect to continue in?

We'll certainly continue in it until we sell the product that we have today. It's been an expensive lesson for us, frankly. We think that the concept is a solid concept, and that is being able to provide our domestic customers with all three nutrients through our drive product warehouses makes sense from a strategic standpoint, but we will be much more careful in the future on the execution side should we choose to do so.

Okay. Thanks.

Thanks, Steve.

Your next question comes from the line of Michael Piken, with Cleveland Research. Please proceed.

Good morning. I had a couple questions for you, guys. This first one is with respect to kind of your volumes and the levels that you reported in nitrogen versus the results from Terra earlier this week and on phosphate. You reported a 12% increase. I realize some of that is international particularly on the phosphate side, but can you talk about why you guys were able to capture so much market share? Was it a function of pricing? Was it a function of finding kind of these unique smaller deals offshore? Just any color on that would be appreciated.

Well, obviously I can't provide you any color on why someone other than us might have done better or worse. I think, if you -- if you do look at relative prices; however, you will find that our prices are quite attractive, and so I don't think we -- quote ought market share, unquote.. I think a lot of what happened was being able to move quickly, to either take advantage of opportunities or, in some cases, make opportunities in the marketplace. We moved a lot of urea in the north -- northern tier of our market area, and I think, if you look at the margins we generated in nitrogen, all things being considered, they were quite attractive.

Okay. Great. And then my second question is just regarding your nitrogen mix sort of as we go forward, it looked like across the board UAN sales were down more year over year whereas ammonia and urea performed well, and it sounds like, from your prepared remarks, it looks like we might see the UAN volumes start to level out if you're thinking about the whole year in terms of where your mix might end up. Would you expect to see UAN sales start to catch up, or do you think that we're going to see more of a shift toward ammonia and urea. Is it primarily an economic decision that's driving the farmer decisions, or is there something else applied?

Well, with respect to the disparity in UAN movement versus ammonia and urea, in the year over year comparison, it's pretty clear that there was really no downstream space for UAN in which to move product in the first quarter. Unfortunately, product for spring movement was staged because a lot of it didn't move last year. And so we -- yeah, we think that the situation is set up pretty well for good UAN movement. It's not a product that moved to the field early in the season. It's-- normally ammonia moves early, and UAN moves later. So the heart of the UAN season is ahead of us, and we have high expectations for it.

Okay. Thank you.

Thanks, Mike.

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

Just a couple of quick things. You mentioned that you felt the tax rate would be a little higher for the rest of the year. What was that rate that you're anticipating, please?

No , actually, we said, under the new standard, we expect the tax rate to be relatively lower, and it's about

Okay. Thanks a lot. Lastly, I understand with what's going on in terms of the negotiations that are taking place with the other two companies, that your other expense line has been a little higher. I got on the call a little late, so I apologize if you already addressed this issue, but did you have a forecasted run rate for the June quarter for that number?

No. We don't disclose numbers like. That I guess the only thing I'd say, with respect to the deal expenses, we did disclose an approxy-- those expenses could run up to $60 million related to the Terra transaction.

Okay. Thanks for the help.

Your next question comes from the line of [Don Carson] with UBS. Please proceed.

Yes. Thank you. Steve, you said --

Good morning.

Just a question on some of the Keytrade activities. Have you done any analysis showing whether you're better off with Keytrade marketing your export phosphate versus what you were doing under -- as a member of PhosChem and is it your sense -- some have suggested these on or opportunistic sales are aggressive exports as you call them in what is frankly a sloppy market or driving down the price. What would your response be to that?

Sure. First of all, our experience in PhosChem was a short one, I think it was only about a year. So we made the move to Keytrade as part of making the investment in Keytrade, and we think it was a great thing for us to do. We're able, because of our size and, frankly, Keytrade's extensive network of contacts, we're able to identify pockets of demand and move quantities that for us are significant quantities and perhaps for PhosChem wouldn't be so significant. So we're a key player in some of those markets. In terms of the realizations, we get. We're absolutely comfortable with the prices at which our products move, and I think they compare quite favorably to others in the industry.

And just to follow up on potash, in response to a previous question, you indicated while the execution wasn't well, you like the strategy of having a complete range of nutrients for (inaudible) customers. I'm just wondering why you would find it attractive to be sort of in a distribution business subject to the inherent volatilities of inventory swings, or do you think you can come up with the right sourcing and forward sales strategy to mitigate that risk?

Well, we have the assets in place, and we have the relationships with customers on -- in N&P that support the same sort of business in potash; but clearly that side of the business can get overwhelmed if we don't make the right commercial decisions, so that's why I made the comment about execution. The execution obviously depends on being able to sell the product for more than the price you acquired it. at and that will be our focus should we do this again.

And one final question. You talk about your out lock for nitrogen this crop year being down mid single digits. What's your similar guesstimate for what might happen to phosphate in the domestic market?

Well, if we look at what most of the people have viewed as the fertilizer year pattern in phosphate, it's in the range of 20% down; and if you do the math through -- I think it's probably the end of February or March, it suggests that phosphate demand should probably be roughly flat with a year ago in order to end up at about 20% down for the year. So it's not a robust situation, but it may not be -- it's probably not as bleak as recent experience has shown.

Thank you, Steve.

Thanks, Tom.

Your next question comes from the line of [Bill Young with Chem Speak]. Please proceed.

Morning, gentlemen.

Good morning, Bill. How are you.

Good, Steve. How are you doing?

We're doing great.

Good, good. What's your intermediate to longer-term outlook for phosphate supply demand, and do you think -- when can pricing, say, move back toward some of the levels achieved earlier last year?

Well, think, if I were to try and guess when prices were to get back to where they were mid last year, I would say what happened last year was once in a lifetime confluence of events that's unlikely to happen in the future. If it were to happen, it would be wonderful. But also I think the result of it would likely be the same result, and that is that high prices destroy demand, and it leads to exacerbated cycles, which are probably not healthy in the long run. In terms of the near to intermediate outlook in phosphate, it's probably more likely to be determined by the actions of China than by demand patterns, because I think the demand should be there as Brazil comes back, and other markets become more normal, including our own market in North America. I think a lot of it is a function of supply.

How much supply do you see coming on -- some of the projects we're hearing about in, say, Africa, the Middle East, India, that kind of thing.

Well, the big project coming on is the Saudi project, which is scheduled to come on now probably in 2012. That's about, almost 3 million tons in DAP and MAP Between now and then, there are some smaller projects, probably not big enough to move the needle in terms of the global pricing structure.

Okay. Great. Thanks very much.

Thanks, Bill.

Your next question is a follow-up question from the line of Robert Koort with Goldman Sachs. Please proceed.

Hi. This is (inaudible)

Hi. How are you?

Doing well. Can you please remind us, how much did you buy, and how much do you have left to sell? We purchased 164,000 tons. And the answer to the second question is most of it. So most of it. Okay. And what kind of price --

They haven't again through the P&L yet.

What kind of price did you market your product at new?

We haven't had significant sales. We haven't disclosed it. That will be for second quarter.

You'll see an average price on the product when we start selling it in quantities that we need to disclose.

And have you sort of taken your prices down so we can move the product quicker?

We'll be sharing that with you at the end of the second quarter.

And then one final question, how much potential do you believe is on the river?

I have no idea. And I suspect, given what I have read about the potash situation, there was a lot of product around at various levels in the chain.

Thanks a lot. I appreciate it.

Okay. At this time, I'd like to turn the call back over to Mr. Chuck Nekvasil for closing remarks.

Well, thank you, Stacey. Since there are no other questions, we will conclude this call. We thank all of you for your continued interest in CF Industries, and we look forward to talking to you in the future. Our next scheduled conference appearance will be at the Bank of Montreal's agriculture, protein and fertilizer conference in New York on the 14th of May. Look forward to seeing you there; and, again, thank you for joining us today.

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect, and have a great day.