CF工業控股 (CF) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CF Industries first-quarter 2012 results conference call. My name is Stacy and I will be your conference moderator for today.

At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Dan Swenson, Senior Director and Investor Relations and Corporate Communications. Please proceed.

Good morning and thanks for joining us for this conference call for CF Industries Holdings Inc. I am Dan Swenson, Senior Director of Investor Relations and Corporate Communications, and with me are Steve Wilson, our Chairman and Chief Executive Officer; Dennis Kelleher, our Senior Vice President and Chief Financial Officer; Bert Frost, our Senior Vice President of Sales and Market Development; and Tony Will, our Senior Vice President of Manufacturing and Distribution.

CF Industries Holdings Inc. reported its first-quarter 2012 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 we 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 this 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, Dan, and good morning, everyone. I want to welcome Dan to our team. His predecessor Terry Huch set the bar pretty high, but I am confident that Dan is up to the challenge of raising it higher.

Yesterday afternoon CF Industries reported record first-quarter net earnings of $368 million, or $5.54 per diluted share, compared to earnings of $282 million, or $3.91 per share, in last year's first quarter. We generated these outstanding results thanks to the confluence of a number of factors.

The large number of corn acres already planted and yet to be planted has been the driving force behind strong North American nitrogen plant nutrient demand. Exceptionally mild winter weather created ideal conditions for farmers who began pre-plant applications earlier than normal. The low level of urea in inventory in North America, coupled with the demand, lead to increases in nitrogen prices during the quarter.

The continued environment of low-priced North American natural gas provided benefits to our cost structure. These macro factors combined with excellent execution by our team were responsible for our outstanding results.

Late in 2011 we didn't believe that then current prices reflected the intrinsic value of our nitrogen products. This belief was based upon our expectation that farmers would plant a large number of acres of corn in 2012, which at the time we expected to be 93.5 million acres. It was clear to us with this level of corn planting there would be strong, perhaps even record high, demand for nitrogen fertilizer.

This belief ultimately was supported by the March USDA perspective plantings report, which reported farmers' intention to plant nearly 96 million acres of corn, a number higher than we or most industry observers had anticipated. In spite of this anticipated high level of demand, North American industry inventory of nitrogen products, especially urea, was relatively low due to lower-than-average imports. Urea imports for the fertilizer year through March are estimated to have been down nearly 0.5 million tons, or 9%, from the prior year.

Spring application began much earlier than normal this season. In fact, it started before spring arrived on the calendar due to exceptionally mild weather across the Corn Belt. Warm temperatures during March helped create favorable field conditions for farmers to get an early start on pre-plant ammonia applications.

Additionally, much needed rain fell on the Southern Plains winter wheat growing areas, providing improved conditions for farmers to apply urea which many of them had skipped last fall due to dry soil conditions. The environment, then, was one of strong demand and low industry-wide inventories of ammonia and urea. When customers finally stepped up to buy rapid price increases followed as the quarter progress.

Given our production and distribution profile, we were able to take advantage of these favorable market conditions. We used our broad network of production points and distribution of storage assets to make products available when and where they where needed, and in doing so we met our customers' needs and benefited our bottom line. As a result, we realized record first-quarter sales volumes for ammonia and urea, and we achieved an all-time production record for granular urea.

We saw year-over-year increases in average prices across all of our nitrogen products, although the price realizations were down on a sequential basis. This is not surprising when you remember the very favorable order book we had built before we entered the fourth quarter of 2011.

The robust demand that drove our revenue performance was complemented by favorable natural gas costs. As one of the major industrial consumers of natural gas, we continue to be beneficiaries of the plentiful and growing supplies of North American shale gas.

Natural gas usage in North America was quite low this winter as we experienced the fewest heating degree days in the past 60 years. Lower usage combined with the continued supply growth resulted in record inventories and 10-year low natural gas prices. While we did fix two-thirds of our 2012 gas costs back in December prior to knowing how winter weather would develop, we generated exceptional margins and did realize incremental benefits as gas prices continued to decline.

Our phosphate segment performed reasonably well in the quarter. We saw modest growth in revenues as volume increases more than offset lower prices. Our domestic sales volume was down 18%, but our exports more than tripled compared to last year.

Phosphate price realizations decreased from a year ago as dealers appeared to be comfortable with their supply positions and took a wait-and-see approach to the market. We experienced higher sulfur and ammonia costs than a year ago. We completed turnaround work during the quarter in at our Plant City, Florida, phosphate complex that will benefit us later in the year.

These performance factors helped us generate EBITDA of $702 million, another first-quarter record, up from $585 million a year ago. Our balance sheet is exceptionally strong with $1.7 billion of cash at quarter end and only $1.6 billion of long-term debt. We are pleased that Moody's recognized our track record of prudent financial management earlier this week by upgrading us to BAA3 with a positive outlook.

With that I would like to turn the call over to Dennis for a few more comments on our financial performance.

Thanks, Steve, and good morning, everyone.

During the first quarter of 2012 the Company reported net earnings attributable to common stockholders of $368 million, or $5.54 per diluted share. This compares to $282 million, or $3.91 per diluted share, in the first quarter of 2011. Our first-quarter 2012 earnings per share included a non-cash mark-to-market loss on natural gas derivatives of $0.52.

Our nitrogen business had an outstanding first quarter, which you can see on slide five. We delivered 3.2 million tons of nitrogen products and achieved a gross margin of 52%. The increase of nitrogen gross margin reflects higher sales volumes compared to a year ago, as well as higher average selling prices across every product.

During the first quarter of 2012 we sold 672,000 tons of ammonia at an average realized price of $598 per ton. Ammonia sales volume for the first quarter of 2012 was 64% higher than a year ago, due primarily to the early start of the spring application season.

Our average realized sales price for ammonia was 21% higher than in the first quarter of last year. Both agricultural and industrial market prices were higher and agricultural ammonia was a much higher portion of our sales mix in the first quarter of 2012 than in 2011.

First-quarter sales of granular urea increased by 25% year over year to 758,000 tons. Our average realized price of $461 per ton was 24% higher than in the first quarter of 2011.

During the first quarter we sold nearly 1.4 million tons of UAN compared to approximately 1.5 million tons in the first quarter of 2011. Average UAN price realizations were $302 per ton, a 9% increase from the first quarter of 2011.

Our sales volume was down due to our decision to focus on higher-margin urea sales through most of the quarter. However, the average UAN realized price did increase due to sales from an attractive order book entering the quarter and to our capturing the higher market prices at the end of the quarter.

Ammonium nitrate sales of 123,000 tons in the quarter were about 5% lower than in the first quarter of 2011 and prices were 3% higher. The average daily market price for natural gas at Henry Hub of $2.46 per Mmbtu was $1.70 lower than in the same period last year. Our realized natural gas costs averaged $3.48 per Mmbtu. We continue to have hedged gas positions for approximately two-thirds of our natural gas usage for the balance of 2012.

As shown on slide six, our Phosphate segment achieved total revenues during the first quarter of $256 million, up about 3% from the first quarter of 2011. Total sales volume for DAP and MAP was 516,000 tons, 17% higher than in the first quarter of 2011, with domestic volume down 18% from 394,000 to 325,000 tons and export volume up 315% from 46,000 to 191,000 tons. 37% of our phosphate sales was exported in the first quarter of 2012 because of relatively strong buying interest and more attractive net prices outside North America.

Average phosphate price realizations during the first quarter were about 12% lower than in 2011 due to relatively high industry inventory compared to demand. The Phosphate segment generated a 19% gross margin, down from the 33% reported a year ago, due to the lower average selling prices and higher raw material costs.

We recently entered into a new five-year $500 million revolving credit facility. Improvements in both the credit markets and the Company's financial condition have enabled us to negotiate terms for a new facility that are much more favorable than those of the prior facility.

We believe the terms of the credit facility indicate the strength of the Company's credit profile as reflected in the Moody's upgrade earlier this week. The new credit facility does not have the restrictive covenants on uses of cash that the prior facility had and provides the Company greater flexibility to employ capital in pursuit of our strategic objectives.

Finally, although we elected not to repurchase shares during the quarter, the program remains in place.

Now let me turn it back to Steve.

Thanks, Dennis. Nitrogen market conditions are exceptional as we approach the mid-point of the second quarter. Near-term demand for all products is robust with a large number of corn acres being planted, favorable weather, and low industry-wide nitrogen product availability.

Corn planting is showing excellent progress with 53% of US corn planted as of April 29 compared to a historic average of 33% for this time of year. The ammonia pre-plant season is winding down after an early start and continuous, very strong demand. This robust demand has been visible in published spot market prices, and we look forward to a very good side-dress season. Urea application continues at a brisk pace and we have seen strong UAN demand in recent weeks.

The last month has been characterized by some nitrogen supply interruptions in North America. While these industry events are quite normal, the impact has been more visible in the market this year due to the tight conditions entering 2012. We at CF Industries have met our commitments to customers and believe we are on course for an excellent second quarter.

We expect the global nitrogen fertilizer market to remain in a relatively tight position, at least through the first half of the calendar year. Although a significant amount of new capacity is being built globally, several of those projects have been delayed and we do not expect to see some of them come online until the second half of the year or even later.

Market dynamics affecting existing producers in high-cost regions are keeping the floor price for urea at a high level. The Chinese urea export window is expected to open again in July. However, given the Chinese producers' high coal cost and their own domestic fertilizer needs, we expect that China will export less than 3 million tons of urea in 2012, down from an estimated 3.6 million tons in 2011 and 7 million tons in 2010.

In addition, natural gas costs appear to be rising for some Eastern European producers as Brent crude prices have risen, discounts from Russia have not materialized, and alternate supplies of lower-cost gas have largely been exhausted. Meanwhile, India has significant urea needs and their purchases, along with demand from Latin America and Southeast Asia, should soak up much of the available global urea supply.

We anticipate that the phosphate market will continue to improve as the year advances. The market is being supported by expectations for strong demand in Latin America, as well as the planted area increases due to high soybean prices. India and Southeast Asia also are expected to have strong demand this summer.

On the supply side, high production costs may limit Chinese exports of phosphate.

We will continue to use our production and distribution flexibility to pursue the highest margin sales opportunities, whether domestically or through exports. Additionally, we will seek opportunities to provide upgraded, higher-value products.

One of these current opportunities is our introduction of sulfur-enhanced MAP or MAPS. Earlier this week we started test runs of this new product. Those tests have started out well and we anticipate moving to full scale production before the end of the second quarter.

We are very excited about this product and our customers already have voiced their interest. This is a higher-value product and should provide a modest boost to the earnings potential of our phosphate business.

Longer-term CF Industries will continue to benefit from several macro market factors, which provide opportunities for revenue growth and cash flow generation. First, global population growth, rising income levels leading to a shift towards higher protein diets, and continued use of grains as a fuel source are all contributing to long-term growth in crop plantings and plant nutrient needs.

Secondly, the abundance of natural gas in North America has created attractive cost economics that give us the competitive advantage in the nitrogen market. Finally, at CF Industries we have a leadership team and a workforce that have proven their ability to deliver on our shareholders' expectations by fulfilling our customers' needs.

These factors provide an exceptional opportunity for CF Industries to continue to create long-term growth and shareholder value, consistent with the view I expressed last quarter that we believe our nitrogen results will be characterized by higher highs and higher lows going forward. As we have done in recent years, we will apply discipline in developing our cash deployment alternatives. We hope that our shareholders are as pleased as we are with our earnings and cash flow performance, and with our prospects.

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

(Operator Instructions) Vincent Andrews, Morgan Stanley.

Thank you and good morning, everyone. Obviously, congratulations on pretty great execution, not just in the quarter but through what has been a volatile period for a while now.

I guess one question is obviously what do you think happens in the second half of the year on the price side? I think everybody would agree that we saw nitrogen prices in the first half higher than we would have thought three, six, nine months ago. So I guess my question is do you think that application rates in the US are higher on a breaker basis?

Or combined with the amount of acreage that we are planting that maybe you are taking enough supply out of the second half that, even if there is a little more incremental capacity, the back half won't be as bad as ma be what people thought six or nine months ago? Any sort of thoughts on that would be helpful. Then I have a follow up.

Vincent, I will make just one comment to your last point. I don't think anything about our outlook is bad. I would just turn the overall question to Bert Frost.

Looking at the latter half of the first six-month period, you have a lot of activity still to take place with various applications on corn and then the continued application of ammonia in the northern tier as well as side-dress. And so we are very positive what can and will take place, and believe that N applications will be up for the year on 96 million, which is a recent record on acres, as well as the other crops.

We are getting positive rainfall in Texas for -- we are anticipating good demand for the cotton crop, as well as the pivot application in the western aquifer area. And so that coupled with -- we have to take also into account world demand to sustain -- because we are in a world market -- to sustain world pricing of N. And what is taking place as you are following India and South America and the limits of exports coming out of China all really roll up into a very positive period moving forward.

Thanks. My follow-up is just could you talk a little bit, Steve -- you didn't buy a stock back in the quarter. The press release talks about being opportunistic, so maybe you could just help us understand what types of things would be considered opportunistic.

Sure. With respect to the whole question of cash deployment, I would like to put a little bit of context around it.

We have now been a public company for going on seven years. I think our record of investment and other cash deployment has been quite positive and, frankly, I am very proud of it.

Going back to 2008 we had an opportunity in front of us to repurchase our shares following, at that time, a peak in the summer of 2008. We bought stock back in the fall at a very attractive price, $500 million worth of our own stock. Last summer in August, which is only eight months ago, our Board authorized a comprehensive approach to cash deployment that included a plan to invest up to $1 billion to $1.5 billion inside the fence in our nitrogen business and to buy up to $1.5 billion of our own stock back.

We bought $1 billion worth of that stock back before year-end. I think the average price of those shares was around $153-and-change. Recently our stock has been trading in the range of $180 to $200 a share. I think that was a very prudent amount of purchases at a pretty good price.

The authorization that was put in place in August of 2011 runs through December of 2013. So I am proud of what we have done both strategically and tactically in this regard. We will continue to develop strategy in the future consistent with our good stewardship to date, and the tactics will become visible as we make announcements about actions that have occurred when they occur.

Don Carson, Susquehanna Financial Group.

Good morning, this is Sandy Klugman sitting in for Don. Actually a two-part question related to the second quarter.

As you pointed out, you wisely walked away from some lower-priced nitrogen business at the end of the year. Your customer advances are up sequentially, but they are still down $350 million year over year. So question is to what extent should investors expect the strong second-quarter nitrogen pricing environment to eventually be reflected in your second-quarter results?

Then you have also talked about how the early start to the application season helped the first-quarter volumes. Do you feel that any demand has been pulled forward from the second quarter? And, if possible, could you quantify the financial impact on second-quarter results?

Good morning, Sandy. I will make a comment on your second question and then I will ask Bert to deal with the pricing question.

With respect to volumes, obviously we had a terrific first quarter in terms of volume and we were certainly able to sell everything that we can produce. The first quarter was particularly strong in ammonia and it would be unrealistic for us to think that, for example, we could repeat the ammonia volume we had a year ago, because a lot of the pre-plant ammonia is essentially down now. It's not being applied as much in the second quarter as it was a year ago.

But on the other hand UAN is a second-quarter product. We have lots of UAN to move, lots of capacity to sell. We are very pleased with our physical position with respect to the UAN market. Bert?

Yes, relative to pricing, what you saw in the first quarter was a fairly weak period coming out of the fourth quarter through January and February. And then pricing appreciated beginning in March, maybe late February, and has continued to do so through April.

We recognize, and obviously we have to participate, in these environments on a day-to-day basis, but believed our story and believed the potential of the high acreage number. And then we priced accordingly for the first quarter.

For the second quarter and looking forward, what we say about order book is we are pleased with where we are, and we have products to sell throughout the quarter. But pricing will continue, I think, to be a positive throughout this second-quarter period because you have had less exports coming into the United States for ammonia and urea, a little higher on UAN to date, and high acreage and high application rates. And so you can see where it's (inaudible) into some of the publications, probably will trend through the quarter and then begin to weaken for the fill period.

Okay, great. So it sounds like you are happy with your inventory position in UAN. Just want to make sure I am clear; the recent outages we have been reading about, you don't expect them to have a real impact on second-quarter shipments?

You know, as you saw in our press release, our ammonia units ran at the rate of capacity in the first quarter. I think, absent some kind of problem that is not anticipated at this point, we expect to be very pleased with our production in the first half of the year.

Great. Thank you very much.

Lindsay Drucker-Mann, Goldman Sachs.

Thanks. Good morning, guys. Just to follow up on Vincent's question about cash deployment; not at all questioning your track record of good stewardship of capital, you did bring up the example, though, a couple -- when you did have the initial buyback authorization that in 2008 you executed it rather quickly, the full extent of it. And I understand that last year you were unable to execute the full $1.5 billion because of your credit agreement.

But it doesn't seem as if there were any hurdles to buying back stock in the first quarter. So maybe just shed a little bit more light on the rationale for waiting to complete the execution of this authorization and in addition waiting to the deploy capital for the capital investment program that you also announced last year. It sounds like a bunch of that cash deployment is on hold, and it would just be helpful to have a little more color as to why.

Well, with respect to the second part of your question, we are on the exact timetable on looking at our investment opportunities as we contemplated last August. We have a period here of doing front-end engineering and design work. We have to overly market studies on that. That will all come together later in the year, and assuming that we have positive decisions, we would expect to be making announcements around the end of the year.

That is what we have contemplated. I think we actually talked about that on our fourth-quarter conference call. And so there has been no change, either in our appetite for these projects or on the timetable associated with them.

With respect to repurchasing shares, when we announced our buyback in August we announced it as a $1.5 billion program. We said it had a longevity through the end of 2013. We didn't make any commitments with respect to the pace at which we would buy back stock, and when we repurchase shares we will let you know at the end of each quarter where we stand.

Okay, fair enough.

Bert, maybe just a question for you on UAN specifically. We haven't seen some capacity expansion in Trinidad. If you were to paint a scenario where corn prices decline and we get less than this level of record acreage and, ultimately, UAN demand is something that could be fulfilled self sufficiently without reliance on exports, how would you think about what would set the price floor for UAN and the extent to which urea might be enough of a support factor to keep UAN prices propped up at high levels?

Well, specifically looking at UAN, world capacity today is far above world demand. So you do have differentials trading and it does play off the other products where UAN is relative to urea and ammonia and nitrate also for where the world producers set their production targets in and then where they move the products to various markets.

And so we do monitor what is going on, I guess the drivers in these other countries relative to gas, demand, production, and where they are marketing their products. And then what that impact would be on the United States relative to imports and where they import and to then, therefore, how we price our products.

UAN, where we are today is in a logistics market and so that is where the benefits to the CF having in-country production facilities and distribution assets allow us to participate in the spot market and, therefore, capture spot pricing. And so corn today, you can call it 96, you can call it 92, it's still very positive for a UAN. So I am not really anticipating the acreage impact to negatively impact the first six months on UAN.

Exports we do, as you can see, in the first quarter we exported UAN to a few countries and we continue to use that vehicle as a way to moderate not only our inventories and production rates, but to participate in other markets. So as we look forward, I think what your question was leading to is the reset price for UAN.

The end products today are very positive. As I mentioned earlier, world demand and world [S&P] scenario as being played out today, and you are going to see that in the India tender for urea, really plays well to what is going on with nitrogen.

So I think UAN will reset at a positive place. But we have to be aware that there is a pretty long carry period for UAN, so that price reset will be at a level that is attractive for an end user to purchase and store. And then we will continue to move and produced our products.

Thanks.

Charles Neivert, Dahlman Rose.

Good morning, guys. Couple of quick questions. One, on your customer deposits, it's not a huge number but can you characterize what timeframe those are set in? Do they go out to the third or fourth quarter? Are they predominantly for second-quarter deliveries? Talk a little bit about that.

Also, if there is anything out into the quarters beyond the second, what kind of price differential -- again, not listing the price -- but what kind of differential are you seeing between the current pricing, second-quarter pricing, and the quarters out beyond that point, if you have sold into those quarters already?

Well, as a general matter, Charlie, we are very comfortable with our order book position. We are very comfortable with what we have seen as the trends in pricing. Beyond that I don't want to be any more specific; I don't think that is what we do in the normal course.

Okay. Just as a follow-on, have you done any 2013 hedging on gas at all?

Our gas hedging position is essentially unchanged from the end of the year.

Okay, thank you.

Joel Jackson, BMO Capital Markets.

Good morning. Maybe I would follow-up on the last question. I know you have given the same guidance for your gas hedge for 2012. Maybe you could speak about if you hedged more than that for Q1.

Also, if you could give us a little bit of color right now when we think of sort of your gas position and what types of spreads we should be thinking about. Just some of the benchmarks like Henry Hub and AECO to get an idea of what we can track.

Joel, I am not sure I understood your first question.

I am sorry; on Q1 if you could give a little color on what amount of your gas was hedged.

So going into the first quarter we had hedged roughly two-thirds of our natural gas for the full year. It was not exactly pro rata through the year, but it was close to that.

Was it a little bit higher or lower? Can you --?

No, it was approximately pro rata all the way through the year. And your second question was about basis differential of natural gas?

How we should think about it, yes, please.

We normally have an advantageous position at Medicine Hat. We normally have an advantageous position at our Oklahoma plants. We normally have an advantageous position at Fort Wright, Ontario, and I think our Port Neal facility is generally less than Henry Hub. Donaldsonville, of course, is right on top of Henry Hub.

Did I miss anybody? And those numbers move around but they are, I think, pretty widely available in publications.

Finally, in the quarter obviously the US under imported urea for the end of Q4 and a little bit in Q1. Can you maybe speak about if some of your gain in the quarter beyond just some of the mild weather in the [big] acres, but some of it came from market share pickup here because of the under-importation? Maybe quantify it if you can.

We ship as much product as we make, and we are able to sell it. Bert, anything you want to add to that?

Just relative to market share I would look at it on a five-year import average for urea or the other products and then compare. Urea was under-imported in 2012 relative to the five-year average, and there I think that drives a bit of the supply and demand imbalance that we experienced in the first quarter.

Thank you.

Mark Connelly, CLSA.

Thank you. Steve, two questions. You talked about how many more corn acres there are versus your original expectations when you set some of your targets. Do you still think 96 million acres is the right way for us to be thinking about things given the way you are seeing the market develop and corn go in the ground?

Second question, KEYTRADE was a small relatively small deal with relatively large strategic impact. I am curious whether global fertilizer distribution is on your wish list when you think about capital allocation opportunities?

Good morning, Mark. With respect to corn acreage, our internal view on corn acres is just a little bit less than the USDA, which is 95.3 million. At this point, all we know is that a lot of corn is being planted. Whether we get to 96 million, I don't think anybody knows it at this point. But given the amount of nitrogen that is moving it is going to be a pretty big number.

We are very -- obviously very pleased with our KEYTRADE relationship. In fact, KEYTRADE is celebrating their 15th anniversary as a company this weekend. We haven't been with them quite all that time.

KEYTRADE is in the trading business, not in the distribution business, and so fertilizer distribution around the world is a very different business. We are very comfortable with our position as a manufacturer, mostly manufacturing for the domestic market, but accessing the world markets when it's appropriate for us to do so.

I would not say that we would never consider that, but that is not something that is prominent on our radar screen.

Great, that is helpful. Thank you.

Tim Tiberio, Miller Tabak.

Good morning. Two questions; first off, I thought I heard you mention that ammonia volumes might be down year over year in the second quarter. If that is the case, do you expect urea patterns to be very similar in the second quarter?

Well, the ammonia situation is characterized I think in the following way. A year ago we had a huge second quarter in ammonia and a fairly weak first quarter. This year we have had a huge first quarter and, given that there is roughly the same amount of land to which direct application of ammonia is applied, then I think it's a reasonable expectation for ammonia to be down in the second quarter compared to a year ago.

For us, we don't really care whether it's in the first quarter or the second quarter. We are in the middle of a huge nitrogen demand pattern in the first half of the year, and so we expect a huge UAN movement, weather permitting, in the second quarter.

I think it's also important to note that we have had rising prices, and if you look year over year prices, market prices right now are stronger than they were a year ago. We are going to sell -- again, weather permitting, we are going to sell everything we can make. We are going to be testing our ability to sweep the floors of our warehouses and drain the product from our tanks. And we welcome the challenge of doing that.

Okay. My second question, we have heard from some of the potash producers that distributors have been more cautious in restocking inventory levels. Post-spring planting can you just give us some color on some of the initial conversations that you are having with your distributors and whether you are seeing the same cautiousness on the nitrogen side? Thank you.

Tim, I will make a general comment and then Bert may want to add to it.

Every year is different. Following the problems of 2008, a lot of people down the chain became reticent to making commitments, and rightfully so because they got burned. That reticence actually was in full display at the end of 2011 and into 2012.

What I think a number of customers are experiencing now is the lack of having made commitments translated into either late availability or difficulty in getting commitments from producers. And so my general belief is that there will be some moderation of this view coming out of this year, that there may be incremental willingness to comment earlier than was the case this past winter.

Great.

I think where we are in inventory, we are in the drawdown period for all the products and so it's natural that we would trend at the end of the quarter, the second quarter to low inventory.

I think part of this is good decision making on the distribution channel to moderate their purchases, to manage their risk, which is managing their inventory, and be prepared for the reset period. But also that moves into, I think, our sweet spot of logistics, where we are active on all modes of transport of the end products. And so I think it's going to be a positive position for CF going forward on the reset.

P.J. Juvekar, Citi.

Good morning. Just, Steve, quickly on your hedging strategy on a higher level; is there a maximum amount of exposure that you can hedge and is two-thirds the max you can go? And is there any change in your strategy in terms of hedging?

In general, there has been no change in our strategy towards hedging. We ended up taking some positions in excess of what had become traditional for us at the end of 2011 because the market gave us an opportunity.

Is there a maximum? Well, clearly the technical maximum is what our production is. How many ammonia molecules do we need translated back into Mmbtus of gas.

From a more practical standpoint, we would obviously want to leave a little bit of room for unplanned outages and so forth so that we didn't over commit. And, frankly, I think we like being in the spot market to a meaningful extent in a market like we just had. So every day is different in a commodity business.

We will continue to evaluate, our committee will meet and get together, but our overall philosophy of hedging has really not changed.

Okay, good. Secondly, any thoughts on new nitrogen capacity in the US? Looks like some brownfield capacity is getting delayed. And then anything on this (inaudible) plant that is proposed in Iowa?

I don't know any more about that particular plant than I have read about. I think anybody who is contemplating building ammonia capacity in the US should have a pretty good grasp on the environmental challenges associated with building that capacity. Obviously that includes ourselves.

Whether that ever would get built I don't know, but I think in today's environment, with respect to environment, it would be a challenge. In our particular case, we are sitting in a pretty good position because of all the plant sites we have, all the infrastructure we have, and our own experience in expanding production on a brownfield basis.

So the projects that we are contemplating in this $1 billion to $1.5 billion that we may spend will be quite lower cost than greenfield capacity. In the range of, let's say, a third to half the capital costs of new capacity.

That is a great position to be in. We can do that relatively quickly. We would phase it in concert with our normal turnaround schedule, but it is really -- it's a set of high return, low-risk projects that we are really hopeful we can undertake.

Thank you.

Brent Rystrom, Feltl.

Good morning as well. Just a couple of quick questions.

The first one would have to do with kind of seasonality. I am assuming, given how wet it was last spring, that a lot of the side-dressing pushed off into July compared to the more typical June, and I am wondering if you see a 3Q pull into the 2Q because of that.

Then I know a lot of farmers are focused on harvesting corn as quickly as possible given how tight the carryout is. And then the inverted basis on corn, particularly in kind of the key ethanol refining states where premiums are $1, say, per bushel over the cash price, do you feel that the ammonia application typical in the fourth quarter might get pulled a little into the third quarter? That would be the first question.

Bert, do you want to talk about the seasonality on UAN?

Well, what you are going to see -- what we are seeing is -- and you can see it in the published planting speed that is going on. Obviously you are going to have an earlier, as we have all said, an earlier crop in the ground, which would then push forward the side-dress season. And so we are anticipating here in a few weeks probably in the lower half of the United States that the side-dress for ammonia would take place, and UAN would be a little bit later in the Northern tier. Iowa is a little bit later planting than Illinois.

Your second part on harvesting early and then possible early application of ammonia that will depend on soil temperatures and the right application period. So, yes, the corn could come off early. Let's say, it's in the ground three to four weeks early so you might pull the harvest three to four weeks early, which would be nice if it dried out by September. But we would anticipate that ammonia then being -- they would do the field work to prepare for ammonia, but that would only probably commence in late October.

You need the 50 degrees basically?

Correct.

Then final question, can you give any sense of how much of your expected 2Q sales were exposed to spot pricing at the start of the quarter for nitrogen?

We are in the market every day; Bert's people are answering the phone. In general, there has been a lag in spot prices showing up in our order book and our shipments. But we are very comfortable with our position in all of our products with respect to the margins that are in that book.

Thank you.

Michael Cox, Piper Jaffray.

Thanks, congratulations on a nice quarter. I was hoping you could quantify the turnaround costs at the Florida facility and what sort of benefits we might be able to expect in the second half.

Good morning, Michael. We do turnaround on an ongoing basis. It's just part of our normal routine. The benefits of doing a turnaround are we keep the facility in tip-top shape, operating to its capability, and prolong its life.

The other thing that we did was we moved the turnaround out of later in the year to earlier in the year, partly because of the soft nature of the market opportunity that was there. So we took an outage during a period of soft demand, so we will have production capacity online later in the year where we believe pricing will be more supported.

Okay, that is helpful. On the topic of cash deployment, I would be curious as to the thought process of a comprehensive strategy when you do unveil your plans for that $1 billion to $1.5 billion capital project. Would that be a time when we could potentially expect a broader platform of how to expect use of cash at CF over time?

When we have comments to make about deployment of cash, we will be making them.

Okay. All right, thank you.

All I have to say on that, sorry.

Kevin McCarthy, Bank of America Merrill Lynch.

Good morning. This is [Chris Perella] on for Kevin. One question or two questions. But did you have a free hand in buying back shares during the first quarter; were there any factors that precluded you from coming to the market?

Chris, I think on our fourth-quarter conference call we made it clear that the basket had been refreshed under our revolver and we were free to go.

Okay. Then as a follow-up, do you expect at the fill season here after the spring application is over for more normal inventory restocking? Things have been tight; do you expect more people to step back in and top off at the end of the spring?

We expect normal behavior. Inventory will be very low for at least two of the three nutrients, that would be [N and D], and so we are anticipating actually probably heavy purchasing. Because then you get into a logistical situation where you can only move so many railcars of UAN and the pipe can only handle so much ammonia up through.

Then also we will be participating in the international market, because we do see heavy demand for phosphate in South America. We will be monitoring India to see if we participate or not.

All right. Thank you very much.

Jeff Zekauskas, JPMorgan.

Good morning. You know you have had a wonderful first quarter and it looks like you will have a wonderful year. And so the Company probably has much more financial flexibility than you might have imagined that you would have.

Does that open up various acquisition opportunities for you, either in North America or offshore, that you might not have looked at as carefully?

Thanks for that question; that is a nice question to have. We have a very good window to the world. We hear about a lot of opportunities; we will normally look at any opportunity that pops up in front of us.

On the M&A front, if something were to come along that is attractive we certainly wouldn't hesitate to consider it. We have been -- three years ago, Jeff, we were in a position, maybe four years ago, of absolutely needing to diversify away from North America. That was an objective for us.

As shale gas developed in this country our existing asset base became more valuable. It certainly has reinforced the value of the Terra acquisition. So we are comfortable with our North American profile today, and we -- I think it's safe to say that given our disciplined nature that the fact that we have more jingle in our pocket doesn't make us any less disciplined in our deployment of cash.

I didn't mean to imply that you would be less disciplined.

I understood. I just felt that I should make that comment in light of the question.

Okay, thank you very much.

Ben Isaacson, Scotia Bank.

Thank you very much. Steve, just one quick question for you, maybe as a follow-up to Jeff's. When I think about the potential transfer of ownership of the 34% stake in Medicine Hat that you don't own, can you give us some color as to what extent CF is involved in that process? Does CF have a right of first refusal on the asset?

Ben, just as a matter of prudence, we don't comment on announced pending transactions by other people.

Okay. But given the agreement that exists between CF and Viterra, historically has there been a right of first refusal?

As I said, we don't comment on pending transactions announced by other people.

Okay, that is fine. Thanks, Steve.

Thank you.

Michael Piken, Cleveland Research.

Congrats on a good quarter. I guess couple questions. One is why have urea imports been down year on year if the expectation among the market was that we were going to see increased corn acres? Could you talk a little bit about that?

Well, you have had several factors impacting the movement of urea. We had some difficult markets. If you look back over the previous years, we had a collapse of pricing in March and April and so those who imported early were punished for that decision.

And so I think with the -- you watch what the traders and the producers -- a lot of this product is shipped in by producers direct and then put on barge. I think they were playing a more prudent hand, looking for more spot purchases or sales around the world.

And also the China impact. We had probably 1 million tons come into the United States in January -- December and January a few years ago and that product is basically nonexistent this year.

So when you factor all that in -- a few plant problems around the world, the new capacities did not come online, less available, and the risk of the forward market -- I think people were, again the traitors and producers were just acting more in a short-term interest.

Okay, great. Then just shifting gears real quick. Do you guys have sort of a target, like optimal either leverage ratio or debt-to-cap ratio or debt-to-EBITDA or however you look at it? But is there sort of, as you think out the long term, where you would like to see your leverage ratios at?

In the past, Steve, I think we have said 1 times EBITDA or 1 point. And I think, as you can imagine, given where we are in the cycle right now, you can see that we are significantly below that which is sort of what you would expect.

I don't have any particular target level of debt in mind for the Company. I think I would just go back to what Steve said which is we have to look out and see the environment that we are facing in going forward and take a judgment as to what is the best way to capitalize the Company given all the strategic opportunities and whatever that we have in front of us.

So I don't have any particular target in mind, but at this point in time, obviously, we are well below what we had stated before. But given where we are in the cycle I think that you would expect that.

I would add just one thought to that and that is to follow up on the Moody's upgrade we had this week. We think we have had investment grade credit statistics for a long time and so, generally, my view that over the long period we ought to maintain an investment grade credit profile. Whether that results in an investment grade rating or not is out of our control, but what is in control is our own capital structure.

At this time I would like to turn the call back to Mr. Dan Swenson for closing remarks.

We would like to thank everyone who participated on the call today. If you need more information about CF Industries or our results, please contact me.

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