CF工業控股 (CF) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2010 CF Industries results conference call. My name is Lacey and I will be your coordinator for today. At this time all participants are in a listen-only mode. Later we will facilitate a question-and-answer session towards the end of the conference. (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. Terry Huch, Senior Director of Investor Relations and Corporate Communications. Please proceed.

Thank you, Lacey. Good morning and thanks for joining us on this conference call for CF Industries Holdings, Inc. I am Terry Huch, Senior Director of Investor Relations and Corporate Communications; and with me are Steve Wilson, our Chairman and Chief Executive Officer; Rich Hoker, our Vice President and Corporate Controller; Bert Frost, our Vice President of Sales and Marketing; and Tony Will, our Vice President of Manufacturing and Distribution.

CF Industries Holdings, Inc., reported its fourth-quarter and full-year 2010 results yesterday afternoon, as did Terra Nitrogen Company, LP. On this call we will review the CF Industries results in detail and discuss our outlook, referring to several of the slides that are posted on our website. At the end of the call will host a question-and-answer session.

As you review the news releases posted on the Investor Relations section of our website at CFIndustries.com and as you listen to this conference call, please recognize that they contain forward-looking statements as defined by federal securities laws. All statements in the release and on this call other than those relating to historical information or current conditions 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 yesterday's news release and the slides accompanying the call. 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 CEO.

Thanks, Terry, and thank you all for joining us this morning. For the fourth quarter of 2010 CF Industries reported net income of $200 million, or $2.78 per diluted share, compared to earnings of $51 million or $1.04 per share in last year's fourth quarter. Favorable fertilizer markets, good weather in North America, low natural gas costs, and of course the addition of Terra enabled us to deliver operating earnings of $435 million, a sixfold increase year-over-year. Operating and related cash flow in the quarter was $560 million, which allowed us to continue to reduce our debt quickly.

In addition to the benefits of our expanded operating platform, our results reflected the impact of high global crop prices which support fertilizer demand in two ways. First, they provide upward pressure on planted area, as corn, soybeans, and other crops compete for acreage to ensure adequate supply to meet demand and rebuild stocks.

Second, high crop prices improve farm profitability, making fertilizer more affordable and leading farmers around the world to use optimal amounts of plant nutrients. As you would expect this has lifted global fertilizer demand and prices.

Restrictions on exports of phosphate and nitrogen fertilizer from China have been important factors in world markets. The early start to the high export tariff season for fertilizer was part of a broad Chinese government initiative to slow exports of commodities that will be needed at home as demand continues to rise. This is an especially high priority for commodities that are energy intensive to produce.

While we do expect China to return to being a major exporter of nitrogen and phosphates, the two-month extension of the tariff continues to have a meaningful impact on current global markets. And although the return of Chinese export taxes didn't reduce product availability significantly during the fourth quarter, the expectation that it would reduce total availability in export markets in 2011 was an important psychological factor supporting world prices in the fourth quarter.

Here in North America, fertilizer movement for the fall application season was excellent. As was the case in the spring of 2010, we had ideal weather for fall application, particularly for anhydrous ammonia.

All of these factors contributed to strong upward price movement for our products in the first half of the fourth quarter. Prices flattened out somewhat in November and December, but far from being a concern, that pause allayed some fears that we were in an unsustainable ag commodity bubble similar to what we experienced in 2008.

The persistent fertilizer market strength we have seen, coupled with attractive natural gas prices in North America, supports our view that this pricing and margin environment is likely to continue at least through the first half of 2011 and probably longer.

As shown on slide 4 in our results presentation, our nitrogen segment had sales of $1 billion on volume of more than 3.3 million tons in the fourth quarter. Our average selling prices for ammonia, urea, and UAN were all up by double-digit percentages, both sequentially and when compared to the fourth quarter of 2009.

Higher prices and volumes combined with low natural gas costs helped us increase nitrogen gross margin to 42% of sales. We shipped 917,000 tons of ammonia to our customers in the fourth quarter; that is about 200,000 tons more than we shipped on a pro forma combined basis in either 2008 or 2009.

The extended application window and expectation for robust spring planting drove strong demand and caused supply to be the limiting factor in ammonia sales for the industry. Inventories had not been completely rebuilt after the very strong spring application season by the time the fall window opened. As a result, all producers ran out of product late in the season.

We benefited immensely from the integration of new supply points with our distribution network. This allowed us to move ammonia to the places where it was needed more effectively than we have ever been able to achieve before. Essentially we were able to move product to pockets of unmet demand until we completely exhausted the available supply from all our in-market plants and terminals.

Our average realized ammonia price in the fourth quarter was up 15% sequentially. Because we have had back-to-back strong application seasons, the corn belt premium over the US Gulf price has remained well above the historical average, finishing the quarter at about $200 per ton.

On last quarter's conference call we pointed out that lower-than-expected global operating rates for urea producers had led to declining inventories and rising prices. In the fourth quarter urea operating rates rebounded. However, the higher global fertilizer demand I just noted soaked up all the added production, leaving spot availability fairly scarce.

CF Industries sold 662,000 tons of urea in the fourth quarter, equal to what we sold in the fourth quarter a year ago. Our average price realization was $323 per ton, up 23% sequentially.

Market prices for UAN also strengthened in the fourth quarter as demand for imported UAN in North America competed with rising European demand for nitrates. We sold 1.4 million tons of UAN in the quarter at an average realized price of $206.

UAN is the nitrogen product for which we had committed the most future volume in the third quarter, when prices were just beginning to rise. This is why our average price realization for UAN was up less than that of ammonia and urea. We expected to have more UAN available to sell into spot markets in the fourth quarter, which would have raised our average price; but the expansion project at our Woodword, Oklahoma, facility didn't come onstream in the quarter as planned.

Consequently we shipped that Woodward-produced nitrogen in the form of ammonia. Still, the delay of the Woodward expansion startup was a disappointment. We have had to make some hardware changes and expect to ship some UAN from the new plant to meet spring demand.

In addition to strong demand and prices, nitrogen segment results in the fourth quarter benefited from a very favorable natural gas environment. Production and storage remained at or near record levels throughout the fourth quarter, keeping pressure on gas prices. Even when the US experienced a very strong cold snap in mid-December, the cash price at Henry Hub peaked in the mid $4 range.

Because of our view that the North American gas market will continue to be oversupplied, we have chosen not to hedge gas purchases except where we have sold the finished product forward. Slide 5 shows how the price of the January 2011 forward contract fell during 2010. A year ago we would have had to pay $7 per MMBtu to lock in gas costs for January of 2011. Subsequently we could have hedged our gas costs at any of the points along that curve; but we chose not to do so except to support fixed-price sales. We expect that most of our forward gas purchases will continue to be tied to forward sales for at least the near term.

Our phosphate segment earned a gross margin of 27% on sales of $235 million in the fourth quarter, as shown on slide 6. Sales revenue was up strongly over the third quarter and over the year-ago quarter because of higher prices.

Volume was seasonally higher than the third quarter but down from the fourth quarter of 2009 because of a lower operating rate. Still, segment gross margin of $63 million was roughly 4 times the result achieved last year.

Our average price realization of $493 per ton was up 22% from the third quarter. Phosphate prices took major steps up in July through November and have maintained those higher levels.

Phosphate inventories are low everywhere in the world. In addition to high actual and projected plantings, demand is being supported by higher application rates as farmers in many countries replenish soil nutrient levels after a period of under-application. Supply is struggling to keep pace due to production problems at many existing facilities and ongoing delays in major new projects.

It's interesting to compare phosphate price movement in the fourth quarter of the last two years. December is typically a lull period for phosphate purchases after the fall application season is completed in the Northern Hemisphere. A year ago this pattern was broken when China unexpectedly came into the market for major import purchases, causing phosphate prices to rise week by week through December and January.

This year it was the US that broke the pattern. The US is the world's largest exporter of phosphates. But in the fourth quarter of 2010 the US became an important import destination as domestic demand was strong, production was constrained, and producers had to fulfill significant export commitments.

For CF Industries specifically, our export commitments were limited. Domestic prices were more attractive than export netbacks, so we kept as much product home as we could. If pricing relationships stay where they are now, this will continue to be our bias.

Before I turn the call over to Rich to review the financial results in more detail, I would like to take a moment to review some of our accomplishments during 2010. We truly changed the nature and stature of the Company in 2010 by acquiring Terra Industries. We reached the agreement to acquire Terra on March 12 and within a month and a half we had closed the transaction and completed the related equity and debt financing.

After a very brief celebration, we turned all our attention to operating and integrating the combined Company. I am proud of the way that our team has executed the integration, but I wasn't surprised. Operating the business is what this team was built to do and what it excels at doing.

We have spoken often about the integration synergies, which have been both larger and faster than originally targeted. But those savings were identified and realized because employees from both heritages came together, worked together, and became a cohesive organization.

By year-end we had implemented synergy actions totaling $110 million of run rate savings and identified additional benefits well above the targeted range. We had done this without letting any of our day-to-day business processes suffer.

Results to date have confirmed my view that the Terra acquisition was the right deal at the right time for this Company's stockholders. As a result of the efforts of our team and a favorable market, we achieved strong profits in 2010. Our cash flow from operations totaled $1.2 billion for the year, which allowed us to pay down debt faster than originally planned and reach our targeted leverage in under nine months.

The strong cash flow we generated also allowed us to make key investments even while reducing leverage. We invested in capital projects that increased the capacity and flexibility of our planets, most notably at Woodward, and the throughput of our distribution terminals.

We also make key investments to increase our building to satisfy the rapidly expanding demand for diesel exhaust fluid. In 2011 we will be able to supply DEF from four different nitrogen complexes in the US and Canada. Because we have ample urea capacity we can make DEF capacity expansions with minimal capital investment as the market grows.

In 2010 we attained a number of important safety milestones, as listed in our press releases. Unfortunately, the significance of those accomplishments was diminished considerably last Saturday when a contractor's employee lost his life in a vehicle accident at our Hardee Mine. Our thoughts are with his family at this difficult time.

We introduced a new phosphate product, MAP 10-50, in 2010 with very strong market acceptance. We also announced a licensing agreement with Shell that will allow us to produce sulfur-enhanced phosphate, a product for which we have received exceptional indications of interest from both domestic and international customers.

So 2010 was a great year for CF Industries. I appreciate the commitment and effort put forth by our newly integrated team, as does our Board of Directors.

We accomplished what we said we were going to do both operationally and financially. It's a good feeling to be able to reflect on such a successful year while looking forward to what promises to be another great one.

Now I would like to turn the call over to Rich.

Thanks, Steve, and good morning, everyone. As Steve indicated earlier, CF Industries reported net earnings of $200 million or $2.78 per diluted share compared to earnings of about $51 million or $1.04 per share in the same period last year. Cash flow provided by operations in the fourth quarter was $560 million, which included a $112 million seasonal increase in customer advances.

In the fourth quarter of 2010 net sales of $1.2 billion compared to sales of $500 million in the fourth quarter of 2009. The increase was due to the acquisition of Terra, stronger demand, and higher average prices. For the full year, we had sales of $4 billion, up from $2.6 billion in 2009.

Net earnings attributable to common stockholders of $345 million (sic - see Press Release) were lower than 2009 because of business combination costs, net interest expense, and higher depreciation associated with the fixed asset write-up in the Terra acquisition. Because of these items, cash flow provided by operations may provide a better comparison of the results in the two years. Operating cash flow in 2010 totaled about $1.2 billion compared to $680 million in 2009.

A comparison of earnings before interest, taxes, depreciation, and amortization -- or as we call it, EBITDA -- makes the same point. As shown on slide 7, the Company had EBITDA of about $500 million in the fourth quarter, up from $104 million in the fourth quarter of 2009.

EBITDA for the quarter included a $31 million mark-to-market gain on natural gas derivatives and $4 million in business combination and integration costs. Earnings before tax included an additional $12 million of accelerated loan fee amortization due to our early repayment of debt, which we consider a business combination cost.

For the full year, the Company had EBITDA of $1.1 billion, which included $170 million of net charges that primarily relate to the acquisition of Terra, but did not include Terra's results from the first quarter. Our cash balance at the end of the quarter was $800 million, not including the $103 million in auction rate securities. We received $19 million in redemptions of these securities at par during the quarter.

In the fourth quarter, our net debt declined by $338 million to $1.6 billion. We paid back $300 million of our bank term loan in the fourth quarter, leaving a remaining balance at December 31 of $346 million.

We have continued to pay down this loan in the first quarter. The remaining balance is now below $100 million, and we expect to repay it in full by the end of this quarter. Now let me turn it back to Steve.

Thanks, Rich. I would like to discuss our outlook for the next couple of quarters, an outlook that is unlikely to surprise any of you. The fundamentals of our business continue to revolve around the fact that grain stocks are low. Last week the USDA again lowered its projection of the corn stocks-to-use ratio at the end of this marketing year, this time to only 5%, in line with the all-time low.

We are forecasting that 92 million acres of corn will be planted in the US this spring, which would be only the second time we have exceeded 90 million acres. Even if a large corn crop is planted and harvested this year, US farmers will need to continue to produce at high rates to replenish stocks to normal levels. As a result, we expect corn plantings to be sustained above 90 million acres in 2012 and 2013 as well.

When the spring season gets underway, we expect heavy demand for fertilizer in North America. The impact of larger planted acreage is likely to be compounded by higher application rates.

Even with fertilizer prices well above year-ago levels, fertilizer affordability to farmers, as measured by fertilizer cost as a percent of projected farm revenue, will be at the second most favorable level for farmers over the last 15 years. For 2010 and 2011, fertilizer costs as a percent of actual and projected revenue for corn are at about half the previous five-year average, giving farmers every incentive to fertilize optimally in 2011.

When fertilizer starts to move to the fields this spring we believe it will be evident that stocking practices have continued to be conservative. We expect some fertilizers, notably UAN and phosphates, to be in tight supply. In my 20 years in this industry, I have never seen a spring in which all the fundamental factors were as perfectly aligned for fertilizer producers as they are this year.

In this environment, in light of the business we have already booked for spring, and weather permitting, we have very high confidence in our ability to generate strong cash flow in the first half of the year. Also we do have a bit more visibility into what lies beyond the spring season than we normally do at this point, because we know that large plantings will be needed beyond this year's crop regardless of its yield.

For that reason we have begun to field expressions of interest from customers in making purchase commitments for fall delivery. This is a positive indicator of the sustainability of current market conditions.

On the cost side, we expect natural gas prices to continue to behave well, providing attractive margins for nitrogen production. We experienced the same reassuring phenomenon in early February that we did in December. Despite very cold weather in much of the country, natural gas prices remained tame.

The March contract has fallen below $4, and this morning the forward strip is below $5 for the next 21 months. Sulfur supply is still tight and costs have risen again, but not enough to derail strong profitability for phosphate producers.

Our fourth-quarter results reflect more of the recent strength in fertilizer prices, and that trend is expected to continue through the first quarter. Results in 2011 will include a full year's benefit of the Terra acquisition including the synergies we had achieved by the end of December.

So the outlook for our business is bright and should sustain strong profitability and cash flow in 2011. It's a great time to be a North American nitrogen and phosphate producer and a great time to be a part of the larger and stronger CF Industries. We are very proud of our expanded ability to help feed the world and to generate value for our shareholders.

With that, let's open the call to your questions. Lacey, would you please explain the Q&A procedure?

(Operator Instructions) Elaine Yip, Credit Suisse.

Hi, good morning. So can you give us a sense as to how much of your spring orders has already been booked at this time? And how does that compare with last year?

Well, we have a very strong spring order book, as you might expect. I will let Bert elaborate on that a bit.

I agree with that, Steve. We do have a positive order book, but we are also taking orders for spring for all of our products. We have available tonnage. And as Steve mentioned in the write-up, that when Woodward comes on stream we will have additional tonnage of UAN available to the market for the Kansas, Oklahoma, Texas region.

Okay. Then you mentioned that you started to field interest for fall bookings from customers. How does that compare with previous years? Do customers often book this far forward?

Bert?

You know, we have had an interesting history at CF with forward sales and the creation of the FPP program, and how that program was rolled out and accepted by different levels of the marketplace, whether that be a trader/wholesaler or retailer.

In 2008 we had people purchasing up to two seasons in advance. We're not sure that is a positive. It may be positive for CF, but not necessarily positive for the market, because when it collapsed we had a lot of people with high-priced product in inventory, which we benefited from but it delayed those shipments. So we don't really discuss our forward book to the market.

We do -- we have taken some sales, not a great level of sales. I think what Steve was talking about was the level of interest. We are receiving a lot of inquiries.

What we like to see are farmers booking and selling their corn or their produced products and booking their inputs. We see that as a positive indicator and movement for the market relative to risk.

Great. Thank you very much.

Don Carson, Susquehanna.

Thank you. Steve, just some more questions on your Forward Pricing Program and how quickly you expect to close the gap between spot and your realizations. I notice on phosphate you seem to do a much better job of -- and your realizations were much closer to spot. But you seemed to lag a bit on the nitrogen side.

So as you look at the forward order book, do you see closing that gap significantly in the second quarter?

Well, Don, as you know, the market is a continuous market. We book our business based upon the margins that are available to us. So it's a combination of the cost and the price.

We are very comfortable with the margins that we have been able to achieve. We of course know that there is more price to come. The business that we have booked recently is at a higher price than the business we booked previously.

But the market lags -- we lag on the way up, we lag on the way down. I think on average our results reflect the prices that are generally available.

Then a question on investments. You made an investment at Woodward to increase your UAN capability. I am wondering; do you have more investments like that planned so that you could perhaps shift your mix from not having to sell as much to the industrial markets and have more capability to produce and store product, to sell in-season to the agricultural markets?

Then just as a continuation on that, I know you have had some comments about the -- I guess you would like to invest in new capacity but you think you have a permitting problem getting a permit to run, say, a new ammonia urea complex. You see any potential for change on that front?

Good morning, Don. Well, with respect to investment in general, now we have a lot more facilities and we have a lot of levers to pull and we have a lot of opportunities to engage in debottleneck and efficiency projects that will add value to our asset base. Our engineers are a pretty creative group.

They have got projects that are -- some of them are pretty well developed, some of them are ideas that are in the early stages. And we are excited about the opportunity that we will have to consider those projects. And we are particularly happy that we can be considering them in North America, because that is where the strong market is and that is the strength of our business.

With respect to the longer-term question on, let's say, greenfield or major brownfield construction of new capacity, the economics of the business are such that that would certainly appear to be a desirable option. Those are things that we will look at in the months ahead.

Just a brief anecdote; I spent yesterday in Washington. I met with three senators and four or five House members, one-on-one meetings. In most if not all of those meetings, one of my messages to them is that the economics of this business are very attractive in North America. And with the right regulatory framework we would be very interested in considering capacity expansions in North America.

Of course, specifically what I was referring to is the lack of clarity with respect to climate change regulation, particularly within the EPA. I think those messages resonated. Whether that can result in any action, I don't know because it is really not in the Congress's hands right now. It is in the hands of the EPA.

Great. Thank you.

Horst Hueniken, Stifel Nicolaus.

Yes, good morning. I noticed that your capacity utilization rate in your phosphate business went from 89% in the third quarter to 83%. Was that just due to maintenance turnarounds or is there something else going on?

Good morning, Horst. I will ask Tony Will to respond to that.

Yes, in the quarter we had scheduled turnarounds in both our sulfuric acid and phos acid plants. But that said, we did have several operating challenges in the quarter. We believe we have got our arms around those issues going forward.

But I will also say phosphate production is a complicated process with lots of moving pieces, and so we think we have got our hands around it and hopefully that will bear fruit here as we head through the first half of this year.

So would it be reasonable for us to expect it to get closer to the 90% rate in the first quarter? Have you got more maintenance turnarounds then planned?

We typically don't announce what our turnaround schedule is. But it is certainly our intent, particularly given the market environment that we see ourselves in, to run at capacity.

Thank you. Perhaps a question for Stephen. I read that one of the ammonia units at Ma'aden in Saudi Arabia has in fact started up producing ammonia. I am wondering what you are hearing the amount of ammonia that they might produce is, and what your perception is of what kind of impact that may have on the ammonia market.

I suspect that it's -- yes, it's additional capacity; it is a small amount and it is located in a location that is a long way from our marketplace. I expect that to have a minimal impact.

Thank you.

Michael Picken, Cleveland Research.

You, good morning. There has recently been a couple of announcements with one of your competitors announcing that they are going to reopen an ammonia plant that was previously shut down about seven years ago, and there was some talk about another week ago that another group was considering building a domestic nitrogen plant.

Just wondering, it obviously won't impact the near term; but how do you see this impacting your business ever let's say the next three to five years?

Well, we keep a list of obviously existing operating units as well as formerly operating units. So if we look at what might be available for restart, it's a pretty small list of pretty small facilities.

On the other hand the nitrogen business is good, so you would expect anyone who has a piece of hardware to be considering the sort of action that has been announced with respect to the Geismar.

Nitrogen demand globally is growing at the rate of about 3%, 3.5% a year. So the capacity in general is needed, and frankly there are a lot units in the world and in North America that have bottleneck potential, including some of our own facilities. So I think this is just a natural phenomenon in the marketplace. I think overall capacity is growing in relationship to demand in a comfortable way.

Okay, great. Then more shorter-term I mean what is your expectation for Chinese urea and DAP exports in 2011? Particularly when we the export tax comes down, I guess it is July 1 for urea and June 1 for DAP.

Well, we would expect in general that they would return to their historical levels. But we really don't know that. There is a -- FERTECON is out with estimates of perhaps 3 million tons of each in 2011. That is as good as any estimate we might make.

Jeff Zekauskas, JPMorgan.

Your tax rate in 2010 was roughly 38%. Can you talk about why the tax was as high as it is and what you expect for 2011?

Can you also talk about the difference between your book tax rate and your cash tax rate?

Sure, I'm glad I have Rich here to answer that question.

Jeff, let me start with -- when we talk about taxes we use pretax income exclusive of the non-controlling interest, or less the non-controlling interest. Because as you know, we have some items that we consolidate that we don't own 100% of. So let me start with that.

The second thing is that, as you have known throughout the year, we have had transaction costs that came from the Terra acquisition that we did. Those transaction costs reduce pretax income, but we don't get a tax benefit because they are included in our tax base in the acquired business. So that is what causes the tax rate in general and what you have seen this year to be higher than what we have normally seen.

Now in the third quarter, the quarterly rate was 33.6%, and that quarterly rate included an adjustment at that time. Because when we were at the third quarter we looked forward to the fourth quarter; thought it was going to be a terrific fourth quarter -- and it was. So what happened was, is that we increased our internal earnings estimate; and that caused the tax rate to go down a little bit. Because the impact of those nondeductible items is diluted over a greater amount of earnings.

So at the third quarter the year-to-date rate was 44%. So at that time that was our estimate, our best estimate of what the full-year rate would have been.

The full-year rate now for the fourth quarter, fast forwarding now, is up about 190 basis points. So 45.9%. So that is the change in terms of the fourth quarter. That is really due to higher state and some foreign taxes.

In terms of next year, because we are not expecting to have a large amount of nondeductible items, we would expect the rate would fall back into a more normalized range. Internally we are looking at something in the 36% to 38% range for 2011.

Okay. In your cash flow statement I think there was about $174 million in cash flow benefits this quarter. $47 million in deferred taxes and $127 million in accrued taxes. Will those be cash outflows in the first quarter? That is, is it a timing issue? Or is there something else?

If you look at the balance sheet, Jeff, you will see there is a current tax payable on the balance sheet; and that is the number that I would use in terms of looking at what is going to get paid out in the near term.

The deferred tax amounts that you see on the cash flow statement, what that relates to is the fact that -- as you know, Mr. Obama has passed some legislation that allows us to take more immediate tax deductions on certain capital projects and certain equipment that is put in place.

So what you are seeing is the fact that the benefit of that accelerated depreciation on the tax side is coming through in the cash flow statement as an increase in our cash flow. The book taxes will catch up over time.

Okay. Thank you very much.

Ben Isaacson, Scotia Capital.

Thank you very much. My question is on the DEF markets. Perhaps you could just provide some color in terms of the size of the markets, your position, margins, and where you see things going over the next 18 months or so.

Sure, good morning, Ben. I will ask Bert to cover that.

Well, we are pleased with the developments of DEF, which is under Lynn White, our business development person. But we are growing in that business, we are investing in that business. We have additional capacity that we are planning to bring on at additional locations.

The 2011 volume in terms of December, on a fertilizer year, was significantly higher but still at a minimal, not material, basis for us to report.

So we are looking forward to this market. It is growing. The trucks that are being sold with this necessity are continuing to increase also. So we see positive days ahead.

Okay. Could you just comment on your DEF economics versus some of your peers?

Ben, we have no idea what the economics of our peers' DEF business is. The economics of our own business are very attractive. This is a high-margin business.

It is, frankly, a small part of our business. I think in 2010 our DEF sales were in the range of $5 million to $6 million, so it's -- and it consumed roughly the equivalent of 8,000 tons of granular urea.

So it's a high-margin, small sales revenue business right now; but it is ramping up very quickly as the truck fleet begins to be turned over. There will be substantially more truck builds in 2011 than there were in 2010. So, it is on a steep curve from a small base, and we love the business.

Great. Thank you very much.

Charles Neivert, Dahlman Rose.

Good morning, guys. Just a couple of quick ones. Can you talk about the nitrogen mix in the first and maybe second quarter, between ammonia, UAN, and urea? Is that going to make any major changes from what we just saw?

Then on the follow-on is on the industrial versus ag split. Is there going to be -- what kind of change are we going to see 4Q into 1Q and 2Q, in terms again of the nitrogen markets? Particularly obviously ammonia, I guess.

Good morning, Charlie. In a broad sense we really don't know what the nitrogen mix will be moving to the field this spring, because we can't predict the weather. We will be prepared for another strong ammonia season. We will be very well prepared to meet UAN demand and urea demand. Beyond that, Bert, anything you would want to add?

No, I think you're right, Steve. We are projecting -- again, when you look at the acreage and the additional end application that we are expecting, the whole hydrogen complex will benefit. If we do have a difficult weather that prohibits ammonia, we will move right into UAN. And we think then urea would backfill behind UAN. So we're well positioned to capture whichever direction it goes.

I guess I would add that it is unlikely that we could replicate the kind of spring ammonia season we had last year, just because everything was perfect last year. But it could be perfect again; so who knows?

With respect to industrial versus ag, we continue to have industrial contracts come up for renewal. In some cases we renew those industrial contracts on refreshed terms, if you will. In other cases we have had mutual agreement not to renew those contracts and shifted that business.

I think we have modestly reduced the amount of industrial business in our mix, but it isn't a substantial change. It is gradually moving in the direction of a little bit more ag, a little bit less industrial.

Got it.

And again as I think we have said before, we don't have an objective of a particular mix. What we want is the best average margin we can get across our whole book of business.

Okay. Thanks very much.

Mark Connelly, CLSA.

Thank you. Two questions. Steve, you have been consistent in your comments about gas and right about the way you have positioned CF for gas. As you look at this potentially prolonged period of relatively low gas prices, what would it take to get -- to convince you to start locking in on a longer-term basis? I know you have gotten this question before and said you are not interested.

Just curious. Is there a gas price that would convince you to lock in? Or is there something else that holds you back from it?

Well, Mark, I think it's a great question and it's a question that gets a lot of consideration here. Because of the success of shale gas and the substantial amount of supply, we continue to believe that there is more potential for lower gas costs than potential for higher gas costs.

Having said that, if we saw gas prices out a few months to perhaps more months, though, that began with a 3 we would be getting our gas committee together and begin to consider whether we ought to lock in some gas, independent of our forward order book.

That isn't to say we would do it, but we would be seriously considering it. Particularly assuming that the nitrogen market is as robust as it is now, we would be foolish not to consider base loading some gas at attractive prices.

Okay, thank you. And one more question. Your comments say that you see synergies beyond the original $105 million to $135 million. Can you give us a sense of what kind of synergies they are and also how much this ERP implementation is going to cost?

We have had -- our synergies have really been across several general areas of our business. They have been on an ongoing basis. The greatest opportunity bucket has been in supply chain. It has been -- it is the bucket that we identified from the very beginning as a great opportunity. It has turned out to be true.

Example is today we had about 10% fewer railcars in our fleet than we had a year ago on a combined basis. I think we are not done doing that.

We have realized synergies, frankly, on the sales and revenue side by tweaking our mix of business, whether it's on a location basis or on a type of business basis. Procurement is an area where we have identified a lot of opportunities; many of those are yet to be realized because we have multiyear contracts in place, and we will be examining those as they come up for renewal.

In terms of G&A, we have had a lot of headcount reduction. We haven't seen the full-year impact of that, but we will have some further streamlining in that regard in the months ahead. And the ERP project will be a facilitator of that, I think, as we become more efficient in the way we conduct some of our back-office functions, if you will.

The ERP project? It is just beginning, but our estimated cost of that is in the range of $30 million.

Okay, super. Very helpful. Thank you.

Brent Rystrom, Feltl.

Thank you. Just a couple quick questions. You had mentioned 92 million acres of corn. I am wondering where you see, on the demand side maybe, the first place that you might guess price rationing and demand destruction might (multiple speakers).

Brent, I am sorry; you were breaking up. I couldn't hear your question.

Yes, I am wondering where you might guess demand destruction will come into play here on the corn side. Do you think the livestock area might be the first to break a little bit? Do you have thoughts on that?

Well, some of the materials I have read suggest that the livestock producers are not consuming as much feed as they were, let's say, six months or a year ago. I think the last time that we had high grain prices that was the first area where some of stress showed up.

Ethanol right now has been bouncing around between modestly cash-positive and modestly cash-negative. On the other hand, the mandate is a large mandate, and so the ethanol is being produced and is being blended.

But I think those are two areas to keep an eye on.

I had a follow-up question. I know the acres are small in the 12, 13 million acre range, but cotton -- are you guys positioned for cotton as far as the 240 pounds per acre of nitrogen needed there? Is that a big market for you? Are you more mainly in the corn belt?

Bert?

Well, I would expand it to say the major crops being corn, soybean, wheat, and cotton, obviously corn is the most favorable to CF because of the level of nutrients that it consumes. Wheat probably secondary, and the wheat belt has been dry as of late; and there is discussion in Texas that some of those acres will be turned over to cotton.

Because you are right, the cotton price is extremely high and there is a deficit from what happened worldwide, not only in Pakistan and what we are seeing in other parts of the world.

But we are very positive. I think again I would probably expand it even further to what is going on in South America with additional hectares coming online, with probably up to 1 million. But they are reaching their limit of ease of coming online, in not only the economics but the environmental issues of getting those permits.

We are looking at India and Pakistan also and some of the big demand areas. So I would say we are favorable N and we are favorable P for what will drive CF Industries.

All right. Final quick question. The drought in China's wheat-growing regions, does that have any impact on the possibility and magnitude of Chinese fertilizer exports starting this summer?

It certainly impacts the global supply-demand situation in grain. To the extent that there are short falls for production in any part of the world outside of the US, it is on the margin a benefit to the US farmers and would be a spur to demand for planting here, and improve the economics for American farmers and therefore the opportunity for us to benefit from that.

Thank you.

Edlain Rodriguez, Gleacher & Company.

Thank you. Good morning, guys. Quick question on your cash, on your priorities for cash beyond those investments that you have noted. When do you have to make a final decision on Peru?

And after the debt repayment, would you ever consider a share repurchase?

Okay, let me answer the second question first. Yes, we have done it in the past and certainly we would consider it. It will be one of the items on our menu as we look at a whole range of opportunities for use of cash.

I know I have said this before, but it's probably the most wonderful problem that -- or challenge -- that a management team and a Board can have, and that is how to deploy the cash generated in the business. We have been very pleased with our rate of cash generation.

We are excited about investment opportunities that we have identified and investment opportunities that we will consider. But returning cash to shareholders in some form, appropriately, will always be on the menu.

With respect to Peru, nothing has changed in Peru other than a continuation of, let's say, the uncertainty that we have had for at least a year or two. We are probably measuring this in years now.

We don't believe that the expansion of the pipeline over the Andes to the coast will be completed soon. It is likely to take two years or more to get to the expanded pipeline. The commitment hasn't been made to undertake that yet. There has been no commitment to build the pipeline from that point down to our plant site.

I know, Edlain, you asked a very specific question. And that is, is there a deadline by which we have to make a decision? From a practical standpoint I would say, no, that we certainly wouldn't make a decision without clarity on the availability of the gas and some other things.

So if we were to get that clarity we would refresh our analysis, refresh our capital cost estimates, refresh our view of the market. In today's environment, frankly, we have to assess the relative cost of the feedstock.

The game has changed since we first looked at this project. The cost of gas as we just talked about a few minutes ago in North America is down substantially and seems to be sustainable at a substantially lower level. So it would take certainly a very sharp pencil for the analysis to come out favorably at this point.

Okay, got it. Thank you.

Mark Gulley, Soleil Securities.

Good morning. I want to come at the 92 million acres of corn from a different perspective, that is perspective of competitive economics for other crops. It seems to me that soybean economics look awfully strong. So to that extent is that 92 million number perhaps a little bit too aggressive?

Well, Mark, our model, which we update on a regular basis, suggests that if you look at returns over variable costs -- which we think is the right way to look at it, on a marginal basis -- that the returns available to an acre planted to corn are about $200 an acre higher than for beans. So we think there is a wide gap there.

Now that doesn't mean that the competition might not heat up, and bean prices may rise and bid some of that acreage. But it would take a pretty big increase in soybean prices for that differential to be closed.

I know you can't be specific, Steve, but certainly fertilizer costs will weigh a lot in that equation. Can you give us some feel for what fertilizer costs are embedded in that $200 per acre differential between corn and soy?

Well, I don't have a specific dollar amount; but I can give you some indication of what fertilizer cost is as a percent of projected revenue. The 10-year average -- and again, this is with respect to corn -- is about 19%. That is fertilizer cost as a percent of revenue. For 2010 we think it was about 11%; and for 2011 our projection is for it to be about 14%.

So, fertilizer is eminently affordable. In fact, it is highly desirable for the farmer to maximize his yield.

On top of that, we ended the last harvest year with about a 5% stocks-to-use ratio. That is incredibly low. It is certainly an uncomfortable level for US agriculture and the food supply. So we think, frankly, the stars and the planets are aligned here to support corn planting.

Then if I can wrap up -- slide 4, thanks for the information, the graphical information on prices and of course your realized price. How should we think about closing the gap between the ammonia realized price and the spot prices? The delta is by far the biggest for ammonia versus urea and UAN. Thank you.

Well, you have to keep in mind that we have got a mix of industrial and ag in there. That affects it.

Beyond that, what drives it is the timing of our orders being booked. Those of you who follow this business closely know the direction and the roughly magnitude of pricing going into the spring, and those kind of prices will be working their way into our realized mix in the next quarter or so.

Vincent Andrews, Morgan Stanley.

Thank you and good morning, everyone. Just if you get a little more sense on the psychology of the channel as it relates to inventory, and what you are seeing sequentially, maybe as far back as a year ago, through the fall season, now as we head into spring. Both in nitrogen and in phosphate, and if there is any difference in the desire to hold nitrogen versus phosphate inventory. Or any thoughts you have would be helpful.

Sure. Bert Frost?

Well, we are paying a significant amount of attention to inventory because you are right, it does drive the decisions of the retail sector as well as on the production side for what we do. So we have been to a number of locations domestically as well as internationally to determine that level. We have traveled recently to South America. Steve and I were in India and Vietnam recently, in January, meeting with some people to discuss and see what their opinions are going forward relative to negotiations. Then we spent January going around the United States and recently at the TFI.

We are fairly confident that the inventory levels in the United States are low, and as well as low worldwide for N and P. For the fall, a lot of discussion on was spring pulled into fall, or will spring be as big. We are fairly -- actually we are very confident on spring.

Again, relative to acreage increase and applications, that will be increasing. We think spring will be very positive and strong for both products.

But big-picture do you think the channel is going to get back to holding a normal level of inventory at some point during 2011? Or do you think we are just -- this hand-to-mouth that we are seeing is going to continue?

The magic word is normal. Define that and then we can define what reality is.

Because what you saw in 2010 was a significant decrease in inventory levels of all products. The goal at the end of June 2010 was to be at zero inventory.

That drove decision-making on purchases for February, March, April, and May. Relative to that then, we priced into the second half of 2010. I think because crop prices are so positive the chain is accepting -- the wholesale-retail trader and end-user is accepting the prices relative to returns, as Steve mentioned. And therefore are willing to probably hold more inventory at this time than they were last year.

On the other hand I guess I would just add that one of the comforting factors of where we are today versus 2008 is that in 2008 everybody was buying way ahead. They were stocking up because they felt prices were always going to go up.

So the physical side of the business got way ahead of where the future economics were in the field. And we don't see that happening now.

I think the discipline that is being practiced now is good for everybody in the chain. So even if there is a modest increase in stocking I don't think it is likely to approach what we saw in 2008.

Okay. Thank you very much. I will pass it along.

This concludes our question-and-answer portion for today's call. I would now like to turn the call back over to Mr. Terry Huch for any closing remarks.

Thank you, Lacey. We would just like to thank everyone who participated on today's call. If you need more information about CF Industries or our results I would invite you to contact me. Thank you.

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