CF工業控股 (CF) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2013 CF Industries Holdings, Inc. earnings conference call. My name is Nicole and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation.

(Operator Instructions)

I would now like to turn the presentation over to the host for today, Mr. Dan Swenson, Senior Director of Investor Relations and Corporate Communications. Sir, please proceed.

Good morning and thanks for joining us on this conference call for CF Industries Holdings, Inc.

I'm Dan Swenson, Senior Director Investor Relations and Corporate Communications. And with me are Steve Wilson, our Chairman and Chief Executive Officer; Tony Will, our Senior Vice President of Manufacturing and Distribution; Dennis Kelleher, our Senior Vice President and Chief Financial Officer; and Bert Frost, our Senior Vice President of Sales and Market Development.

CF Industries Holdings Inc reported its third-quarter 2013 results yesterday afternoon as did Terra Nitrogen Company LP. On this call, we'll 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'll host a question-and-answer session.

As you review the news release 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 Chief Executive Officer.

Thanks, Dan, and good morning, everyone.

Yesterday afternoon, CF Industries reported third-quarter 2013 net earnings of $234 million or $4.07 per diluted share, on revenues of $1.1 billion and EBITDA of $478 million. While these figures were lower than our year-ago results, they represent very strong performance, given the fertilizer market conditions that were defined by what we believe to be floor prices for nitrogen during what is traditionally the slowest quarter of the year. They are a demonstration of the higher-lows portion of our higher-highs and higher-lows investment thesis that comes thanks to our advantageous position at the low end of the global nitrogen cost curve, which in turn is due to the low cost of North American natural gas.

Weak nitrogen pricing reflected a high level of global supply, slow purchasing activity at the farm level, and hesitation by dealers and distributors because of market uncertainty. Midwest market ammonia prices fell during the second quarter but stabilized in the third quarter. International prices found the floor in July, then recovered slightly as producers in the Black Sea and Eastern Europe turned down production. At the end of the quarter, North American ammonia inventory was largely in line with the five-year average.

Urea prices declined further in the third quarter, following the large drop in the second quarter as the market slipped to Chinese cost levels. The global urea market remained long during the third quarter, largely due to oversupply stemming from China, coupled with global purchasing deferral.

Producers in Eastern Europe, Ukraine, Italy, and Turkey closed plants or extended turnarounds during the period, as high Chinese exports put pressure on the market. Eventually, higher cost producers in China reduced output in response to the low prices. The behavior of these producers supports the confidence we have in the global cost curve.

Gas supply shortages occurred in Egypt, Bangladesh, Iran, Argentina, Trinidad, and Pakistan. Urea buying in the US was quiet during the quarter as dealers and distributors waited to see where prices would stabilize and for farm level demand to materialize. As a result, US Gulf prices during the quarter were generally below the world market.

Global UAN prices also declined in the third quarter. Following summer fill programs, buyers adopted a wait and see mentality resulting in weak demand and lower imports into the US. Prices remained at a level that discouraged supply from high cost producers in Eastern Europe. Producers in Romania and Lithuania shut down and suppliers in Russia reduced output through the turnarounds.

These reductions kept the global UAN market largely balanced, but pressure from low urea prices continues to weigh on the market. Even with these conditions, including urea prices at the US Gulf near their theoretical floor during most of the quarter, our nitrogen segment generated gross margin of $358 million, or 41% of sales, thanks to the advantage provided by the low cost of North American natural gas.

Our phosphate business faced a similarly challenging set of market conditions. Global phosphate prices continued to decline in the third quarter, the result of weak global markets and declining input costs. Global supply has remained long over the last few months with producers seeking outlets in a competitive market. On the demand side, international phosphate purchasing remains slow in the third quarter, with India buying significantly less than a year ago and a soft US market added to the global imbalance.

India's absence continues to be a major disruption to the market. Indian imports were low in the third quarter due to continued weak domestic demand there, which is a result of high-end market inventories entering the year and an unfavorable subsidy for phosphate products. Interest by Latin America and Asian buyers has been strong, though not enough to offset the lower Indian purchasing.

As you know, we recently made two significant strategic announcements. A substantial increase in our dividend and a set of transactions with Mosaic. The decision to raise our dividend reflects the confidence we have in the cash generation capacity of the business, and our commitment to returning cash to shareholders. We concluded that raising the dividend to roughly the average yield of the S&P 500 is the right place for CF Industries today. We will monitor this as we move forward with our other cash deployment activities.

The decision to sell our phosphate business is one that we have considered off and on for several years. The opportunity to combine the $1.4 billion sale with a pair of long-term ammonia supply contracts was very attractive to us. Mosaic is the logical buyer of our phosphate business and we are pleased that they will become a major customer. This is a clear win-win, as evidenced by the market's reaction last week. Together, these announcements reflect our management and Board's ongoing commitment to pursue strategies that add value for shareholders.

With that, let me turn the call over to Dennis for some details on our financial results.

Thanks, Steve, and good morning, everyone.

During the third quarter of 2013, the Company reported net earnings attributable to common stockholders of $234 million, or $4.07 per diluted share. This compares to $403 million, or $6.35 per diluted share, in the third quarter of 2012.

Our third-quarter 2013 earnings included $6 million of pretax unrealized losses on natural gas derivatives and $22 million of pretax gains on foreign currency derivatives, which together increased diluted earnings per share by $0.18.

Our third-quarter 2012 earnings included pretax mark-to-market gains on natural gas derivatives of approximately $40 million and an $11 million gain related to a change in employee post retirement benefits, which together provided a $0.50 increase in third-quarter 2012 earnings per diluted share.

Despite the slow market conditions, our nitrogen business performed well during the quarter. We delivered 2.8 million tons of nitrogen products and achieved a gross margin of 41%, which you can see on slide 7. The decrease in segment gross margin reflects lower revenues along with realized natural gas costs of $3.54 per MMBtu during the third quarter of 2013, as compared to $3.34 a year ago. It also reflects the non-cash mark-to-market loss of $6 million on natural gas derivative contracts in the third quarter of 2013, as compared to a gain of $40 million on natural gas derivative contracts in the third quarter of 2012. At the end of the quarter, we had hedged positions for approximately 74% of our expected natural gas purchases for the final quarter of 2013.

During the third quarter of 2013, we sold 401,000 tons of ammonia at an average price of $527 per ton. The volume was 4% lower than a year ago, due to inventory carry-over from the second quarter and slower purchasing activity associated with price uncertainty. Our average ammonia price was 15% lower than the third quarter of last year due to high industry-wide inventory.

Third quarter granular urea volume decreased by 2% year over year to 548,000 tons, reflecting the slower purchasing activity associated with buyers taking a wait and see attitude during a period of weak prices. Our average price of $338 per ton was 28% lower than a year ago, due to the weak global market associated with high supply and prices falling to cash breakeven levels for Chinese export producers.

We sold 1.4 million tons of UAN during the third quarter of 2013, a decrease of about 10%. This was due to the later start of our UAN fill program which deferred some revenue beyond third quarter, and lowered demand later in the quarter as customers delayed purchases as a result of uncertainty about the direction of the market. The average UAN price realization was $274 per ton, only 7% below the year-ago price, reflecting the effectiveness of our fill program.

As shown on slide 8, our phosphate segment achieved total revenue during the quarter of $221 million, down about 16%. Total sales volume was 526,000 tons, 2% higher than in the third quarter of 2012, due to export sales. Average phosphate selling prices declined for both DAP and MAP due to lower overall global demand. The segment generated a 13% gross margin, down from 24% a year ago due to lower average selling prices, which were partially offset by lower ammonia and sulfur input costs. These quarterly results contributed to year-to-date revenue of $4.1 billion.

Total EBITDA for the nine-month period was $2 billion, while gross margin as a percentage of sales was 46%, leading to net earnings to common stockholders of $1.1 billion. These are strong figures considering the tough global pricing environment in which we are operating this year.

Share repurchases during the first nine months of 2013 increased EPS by $1.06, and with the items mentioned before, contributed to year-to-date diluted earnings per share of $19.01. Early in the quarter, we repurchased 700,000 shares for $130 million. We did not purchase any additional shares during the quarter.

Now let me turn it back to Steve.

Thanks, Dennis.

Total planted area in North America was high in 2013, and is projected to be at a similar level in 2014. We forecast that 92 million acres of corn will be planted in 2014, below the estimated 97 million acres planted this year, due to lower expected corn prices in 2014. However, to provide a bit of context, that 92 million acres would be equal to the most recent five-year average. For 2014, planted area for wheat, the second largest crop for nitrogen consumption, is forecast to be 56.5 million acres, slightly higher than the 2013 planted area.

Nitrogen application rates on most crops are expected to increase in 2014, due to lower fertilizer product prices and continued profitable farm economics. Nitrogen use in 2014 is forecast to be 13.3 million nutrient tons for the fertilizer year, a slight decline from 2013, primarily because of lower projected corn acreage.

We expect fall ammonia shipments to be below year-ago levels, but about even with the five-year average. And it is worth noting that we have seen good movement so far early in the fall season. Demand for agricultural ammonia in 2014 is anticipated to be strong in light of the 92 million acres of corn we expect to be planted.

The long global urea market is expected until the end of this year, but we could see price recovery in the spring if certain factors align, including reduced Chinese exports and strong demand in both the US and Europe. The Chinese urea industry will be a key determinant of global prices through 2014, and much of the impact will be determined by the production cost and tax policies.

The Chinese government typically reviews export taxes in December. For planning purposes, we're assuming status quo with respect to the export tax, and urea exports of around 6 million metrics tons in 2014, compared to close 8 million tons in 2013. We estimate that the US had low urea imports in the third quarter due to slow purchasing activity and prices that were not compelling to importers.

However, buyers are expected to pick up the pace of purchasing in the fourth quarter. Indian import demand is expected to increase in fertilizer 2014 to about 8.8 million metric tons, up from 8 million last year. To date, only slightly more than 5 million tons have been booked.

So Indian purchases should continue to absorb Chinese and Iranian product in the fourth quarter. The UAN outlook is strong through the spring. The pressure from other nitrogen markets may limit pricing upside. The market is expected to remain stable through the end of the year as imports should remain limited.

Producers in Eastern Europe are likely to remain under price pressure and may only run to serve domestic markets in the next six months, while Russia is likely to capture some export share from these regions. We believe that the cost advantage provided by low cost North American natural gas should enable us to continue to earn attractive margins as we move forward.

To provide perspective on the earnings power of our business, consider that the average cash margin for a nitrogen producer in the Gulf region, with urea at $300 per ton and natural gas at $4 per MMBtu, is over 50%. This speaks to the strength of the earnings profile of our nitrogen business, even in the recent floor price environment.

We will continue to focus on safety and operational excellence in our phosphate business and run it at full rates until the sale to Mosaic closes. Before we move to your questions, I'd like to thank all of the employees in our phosphate business. Your dedication to safety, environmental stewardship, and operational excellence has created substantial value for our shareholders. I'm sure that you will continue that focus up to and following the closing of the sale we announced last week.

With that, we'll now open the line to answer your questions. Nicole?

Thank you.

(Operator Instructions)

Our first question comes from the line of Don Carson of Susquehanna Financial Group. Your line is now open.

Steve, question on your agreement with Mosaic. Specifically, what kind of spread you're taking on the Donaldsonville sales. And I assume that it's at a reduction to the market price and what the logic of that was. And just a broader comment on supply demand.

So Faustina is the third cancelled North American nitrogen expansion. But we've seen new announcements such as Yara, BASF What's your current assessment of North American supply demand outlook, and specifically the US net import position and how that's going to play out over the next three to four years?

Don, with respect to the agreement with Mosaic to supply ammonia out of Donaldsonville, in our release last week we disclosed all the parameters of that agreement that we intend to disclose. And that's mainly for competitive reasons that we're limiting our specific comments to that.

But to put all of this in context, this is a terrific deal for us and we think it's a very good deal for Mosaic. It provides us with returns that are roughly in line with the returns that we expect on the Donaldsonville expansion project. It takes some amount of uncertainty out of those returns, and we're very happy with that agreement and we're happy to have Mosaic become our largest ammonia customer.

With respect to the overall evolution of projects in North America, I think it's going as one might have expected. Some projects, notably ours and the Orascom projects are in full force going forward, under construction. Other projects that have been announced either have not materialized or in some cases have been cancelled.

And it doesn't surprise me that we have new announcements because if you look at the strip for North American natural gas, it is quite attractive. We remain quite comfortable that when our projects come online, and we'll be either first or very close to first, that the environment will be very attractive.

We'll be able to front end load the returns on our projects and we know that the US is a large net exporter. We expect that general environment to continue over the next several years.

Thank you.

Thank you. Our next question comes from the line of Vincent Andrews of Morgan Stanley. Your line is now open.

Thanks. And I don't know if I got a chance to tell you congratulations on your retirement, Steve.

Thank you.

Come up on the call. Could you talk a little about two things. One, your CapEx budget it sounds like continues to be in line with your expectations that you laid out a year ago, and I know you said that you guys had originally forecasted a lot of inflation into that budget.

We've certainly seen it based on the numbers that are coming out from other people doing various things in the US. But is that the case? And how close are you relative to your inflation expectations so far?

Vincent, with respect to our expansion projects, we are very comfortable with the budget that we originally put in place, both the budget and the time line. Our progress to date is in line with our plans. Our permits are in hand.

We're moving dirt in both locations and we're confident that we're going to come in in our expected range of plus or minus 10% on $3.8 billion.

Okay. And then just as a follow-up, we obviously don't know when the Mosaic deal is going to close, but do you have an expectation on what you're going to do with those proceeds? Because it is above and beyond what you'd outlined before in terms of being able to do the share repurchase and build the plants with the existing balance sheet and cash flow from operations?

Well, Vincent, you're right. We don't know exactly when the proceeds will come in. We expect them sometime next year, of course. This in-flow of funds is an additional in-flow that is part of our financial planning. We are in the midst of a $6.8 billion set of cash deployment activities, $3 billion of share repurchases, $3.8 billion on our capacity expansion.

We're somewhere in the let's say one-quarter to one-third of the way through that if you look at that combined outflow. So there's a lot of spending ahead of us. And as the months and quarters roll along, we will consider what other cash deployment opportunities should be put on the other end of those projects.

And I think we have a good history of making sound, disciplined decisions with respect to deployment of capital. We intend to follow that same discipline.

Okay. Thanks very much.

Thanks, Vincent.

Thank you. Our next question comes from the line of Kevin McCarthy of Bank of America. Your line is now open.

Thank you. Good morning. Steve, just to follow up on the Donaldsonville project and the Mosaic deal. You've clearly derisked its as you pointed out. Often it's the case that returns are commensurate with risk.

So in that context, would it be fair to say that you've accepted a somewhat lower return than you otherwise might have penciled out? Or have you found a way to structure the deal to maintain the same return you would have previously expected?

When we talked about the expansion projects, we characterized them as having the potential to produce low- to mid-teens returns. This arrangement with Mosaic is consistent with that objective.

Okay. Great. And then just to clarify on your recent share repurchase activity, or lack thereof, I think you indicated in your press release that you hadn't bought anything back since August 5.

And just want to clarify, were your negotiations with Mosaic such that you were precluded from buying back shares over that period or was it more of a tactical decision?

Kevin, I'll just say that we were very busy during the quarter with lots of things. I'll let it stand at that.

All right. Thanks.

Thank you. Our next question comes from the line of JP Juvekar of Citi. Your line is now open.

Thank you. Couple of questions. First, regarding that situation in natural gas there, can you talk about was the latest on gas supply and what are your expectations for 2014?

Tony?

PJ, there continues to be an ongoing challenge in terms of gas availability in Trinidad. We continue to have to dial back the plant to minimum operating rate. And a number of operators in the Point Lisas Estate have had to take what otherwise would have been operating hours and take some down time as a result of that.

We don't see any immediate relief from that situation on the horizon. There continues to be some challenges as we go forward. I would say overall there is some volume lost. It's not a huge amount from our perspective, but I think if you sum it up across all of the producers in the Estate, it has an impact on overall S&D balances in the region.

And then second question on dealer inventories, you mentioned that as being low. Do you think dealers are delaying purchases into 4Q or is there a deferral into next spring? Thank you.

I'll ask Bert Frost to address that, PJ.

For dealer inventories, we have consistent through the third quarter, we've seen a delaying in purchasing or a desire not to purchase to build inventories due to uncertainty in the pricing structure of the world market. And we expect dealers, because the farmers will start stepping in once the harvest is complete and ammonia is applied and the P&K is put down in Q4.

We expect then people to step up and prepare for their spring purchases. And so, yes, there has been a delay or a deferral in forward purchases, but we expect that to mitigate and get back to normal trends here in the next few weeks to months.

Thank you. Our next question comes from the line of Mark Connelly of CLSA. Your line is now open.

Thank you. Two things. First, customer advances year over year are down quite a bit. I'm just wondering how much of that is price versus volume or even a timing issue? Maybe you could just tell us how you're thinking about what those customer advance numbers are telling us?

And the second question is on Keytrade. Keytrade was obviously a visible impact on your phosphate business over the last couple of years. And I'm curious, with the expansion of Donaldson, do you see Keytrade as becoming more or less strategic for your nitrogen business?

Go ahead, Bert.

On the customer advances, we had a very successful fall fill program for UAN, as Dennis mentioned. It was launched a little bit later than normal, in mid-July, and we built a successful sales book up for the periods for Q3 and Q4, and we're executing against that and you saw the result of that in the Q3 performance.

Ammonia is usually at a Q4. It was always a Q4 application, and we have seen, as we mentioned earlier, a fairly normal application rate. And so as we go through Q4, our advanced book will decline. But as I mentioned earlier, we expect then customers to step in to prepare for spring and build those spring positions because logistically it does take a while to put everything in place by railcar, barge, or truck and deliver that to the terminals.

And so we're expecting a normal year and then our advancement book will build, probably starting now. Relative to Keytrade, we have a very close relationship with Keytrade. They're our partners. We communicate daily with them. And they have been our arm to the world on phosphates, marketing our products to 20 to 30 countries throughout the year.

We also have used them on nitrogen exports, as you saw in Q3. We exported ammonia, UAN, and ammonium nitrate to various countries and we continue to work closely with them to leverage their contacts and their offices around the world. We think that's an advantage to our Company, and we have clear and open communication which allows us to make profitable decisions for the Company.

Very helpful. Thank you.

Thanks, Mark.

Thank you. Our next question comes from the line of Christopher Parkinsons of Credit Suisse.

Perfect, thank you. You mentioned for next year you expect slightly higher UAN demand and slighter lower urea. Can you just comment on the general fundamental drivers behind this and also if there are any specific geographies within the US that those trends are more prevalent? Thank you.

Bert?

What we see is a consistent trend on UAN because it's such an easy product to use, it's preferred we think by the farmers, and we see just a positive trend in the growth of UAN. So therefore, that is why we have invested in future capacities in UAN. Urea, in wheat country, in the upper Midwest, the Northern tier, has also been growing.

South Dakota is a very large state for urea consumption so, therefore, with Fort Neal being right in that central area, I don't think there's a negative towards urea but we have seen a positive on UAN. Which geography? With split applications anymore, you're seeing ammonia application in the fall or spring and then variable end applications throughout the corn growth cycle, and that has been beneficial to both UAN and urea and the overall end consumption.

Perfect. And just a quick follow up. And just given the changes in some of the Ukrainian natural gas contracts, do you expect any changes to the seasonality of the marginal cost supplier or do you just expect it to remain China at least in the near term? Thank you.

Chris, I think that that was a fairly minor event in the large context of global supply. And the big gorilla here is what goes on in China and how they manage their tax policy.

Perfect. Thank you.

Next question comes from the line of Adam Samuelson of Goldman Sachs. Your line is now open.

Hello, thanks. Good morning, everyone. Question on China, actually. In your prepared remarks, Steve, you commented that you expect the export tariff window for now policy unchanged, Chinese urea exports down 2 million tons.

Maybe just give a little bit more context around why exports would be down with a similar policy? And can you talk about how a widening of the window would impact your view on potential for a seasonal price increase across the end complex in the spring?

Adam, first I'd like to go back to what my comments were and that is for planning purposes --

Okay.

-- they're assuming a continuation of current policy. And for planning purposes, we're assuming 6 million versus 8 million tons, 6 million being roughly what we've averaged over the last few years. It isn't a prediction on our part.

With respect to the general evolution of those policies, should it be a, for example, a some tariff on a continuing basis, that's a fixed tariff at a lower level than the nonexport season, and a wider window, it would dampen the impact. It would be less volatility in the flow into the marketplace.

It would move in the direction of stabilizing the market, albeit at an average level that would be slightly to somewhat lower than we've seen in the past.

Okay. That's helpful. And then maybe just in the US in the UAN market, corn prices have moved lower and clearly farmers should probably be tighter with their budgets.

Can you comment with UAN now at a 30% premium to ammonia and a 15% or so premium to urea on equivalent nitrogen basis in the Midwest, why we wouldn't see a greater switch to ammonia as you look into the spring?

Bert?

I think on the differentials, you have to be careful at what spot in time you're taking that differential calculation and we're well aware of those differentials. So what you're seeing today is ammonia that's going down in Q4 was purchased earlier in Q3. Then we'll roll into the spring period and we'll see what those differentials are.

But at the same time, we're seeing a positive trend in urea. Urea has moved at least $30 in the US market. And you're seeing also the ripple effect, I think we're on the backside of that, but starting with the cost increases in China, the freight increases in the world, and moving the AG prices up, then it's been rolled into US and you're seeing the US now traded at $310 to $320 in NOLA for Q1.

That will have an effect on the differential, and so I'm not sure if it's going to stay at a 30% or 15% spread. But again, going back to UAN, it's an easy product to use. It's a preferred product to use. And so that's why we see consistent use in that product and it will be priced appropriately to attract demand.

All right. Thanks very much.

Thank you. Our next question comes from the line of Matthew Korn of Barclays. Your line is now open.

Good day, everyone. Just a couple questions. First, what were the export levels of your nitrogen products that you put out for the quarter? And in general, how do those margins for those sales compare to generic sales in the Midwest?

The second question would be is there any encouragement on 2014 pricing that I can take looking into next year there from the lower level of US imports for the major products through say late summer? Thanks.

With respect to exports of nitrogen, I don't believe we quantified that. But qualitatively, Bert, you want to comment?

We exported a vessel of ammonia in the early part of the quarter and we had some smaller vessels of ammonium nitrate throughout the quarter. And on UAN, we sent full vessels to Europe and to South America. And for our purposes, we consider Canada also an export.

But so those are some of the markets we're shipping into and we generally ship to all the open markets, Mexico also is one of the markets we ship to. As we look at that as a lower, higher, or what level of pricing that the exports attract, it's a combination of balance.

How we balance our system, how we utilize the opportunities available to us at the time, and when the market was slow in the United States we had attractive markets that we could export to and continue operating our plants at 100% operating rates. So when you combine all the factors together, we think it's an attractive equation.

Thank you. Our next question comes from the line of Tim Tiberio of Miller Tabak. Your line is now open.

Thanks for taking my question. Just to follow up on your comments that distributors have been somewhat more cautious until they see where the market develops, obviously we've seen urea and NOLA bounce back here in the last few weeks.

Is it primarily that they're looking for the nitrogen market to bottom and develop, or is this more of a function that they're also trying to assess what happens in the potash market as well as where corn futures potentially will bottom in the next few months?

I'm just trying to get a sense of from a timing perspective, when we think about Q4 volume potential versus 2014, what else we need as far as clarity for distributors to really start coming back in in a meaningful manner?

Bert?

I don't think you can discount the impact of the potash debacle on the overall market for NP&K. The disruption that that caused and because it was so immediate and big, having an announcement at the time, potash was probably trading at $400 to $420. To announce that it was falling to $300, anybody holding inventory positions, those very quickly became negative positions.

And so with P&K generally trading together and applied together, that then drove distributor positions to just step out of the market and we saw this worldwide. And then there was a carryover effect into nitrogen.

And so thankfully, how we prepare for -- you can't prepare for that type of event, but how we prepare for an average quarter and we did so by launching our fill program, moving our products through the distribution chain and having an acceptable level of volume in Q3. How that will play in Q4 at 92 million acres of corn, we expect reasonable application rates and demand then to materialize, and we're seeing that in the market today.

So distributors are coming back in. They are buying. And they have continued to buy. I just think we saw that dip in August, September, and October and so that corresponded to bottom level pricing and then now pricing is responding.

It's operating beginning to return I think to normal market decision making and operating systems.

Thanks for your clarification.

Thank you. Our next question comes from the line of Mark Gulley of BGC financial. Your line is now open.

Hello, guys. Good morning. Congratulations on the price you got, both in terms of Medicine Hat and the Florida phosphate operations.

Thank you.

In terms of most NPK markets seem to be very much supply driven now and you've got those swing producers in the Black Sea and maybe in China. Doesn't that put a lid on the kind of price expectations that you might be hoping for as you move into 2014?

Bert?

Depends on the product that you're talking about. I think when you go NP&K, we're operating in separate markets even though the same customer is buying all three products. I think we need to see K settle out. That will drive a little bit of P. As we mentioned earlier, India is and has been a big driver in P demand and then market structure and then now moving to nitrogen.

And so, yes, some of these swing producers and tax subsidies from India and tax costs from China have a heavy impact on the market, as well as gas costs coming out of Russia and that drive the Ukrainian and Russian producer as well as Eastern European.

And so I think, again, our mantra of higher-highs and higher-lows was represented in this quarter. And you're seeing once the low or the floor level was hit in China, reduced -- product was not shipped to the ports, reduced supply at the ports which now represents reduced supplies to India and Pakistan.

And those were coming in with tenders right now and you're seeing the market respond up. I think we're in a favorable market trend.

And the n my follow-up, Steve, on the capital allocation decision. You mentioned that you're about a third or a quarter of the way through deploying all that cash. How should we think about share repurchases given the fact that we seem to be more towards the low of earnings?

And of course your CapEx is ramping up quite a bit next year and maybe you can tell us a little bit about how that CapEx will scale during the year? I think you said -- you gave us a number for the year?

I'll make a comment on share repurchases and ask Tony to comment on CapEx. We have basically two-thirds of our share repurchase authorizations ahead of us. As we have in the past, we intend to be able to look back on this share repurchase program with a certain degree of pride. We think we've done a good job of buying shares back in the past and we intend to try to do the same going forward.

On the CapEx for next year, we are expecting to spend in the neighborhood of about $2 billion on the capacity expansion projects. We are call it about three-quarters of the way through the engineering and procurement phases on those projects, and the amount of money that we've spent year to date doesn't reflect the full amount of the commitments that have been made.

So we've got a number of vessels that are being fabricated on order that we've got commitments outstanding. We began construction activities at both locations in October and invoicing on that activity hasn't rolled through the P&L yet, or the balance sheet yet.

So as we look at next year, we'll have a full year of construction activities at both locations. We'll be winding up the engineering and procurement activities, and if you think about the second and third quarters, that's where we're going to be at the peak cash flow out next year.

And Mark, just to tie those two subjects together, yes, we have a large amount of CapEx next year, but that particular timing doesn't have any impact on how we might or might not repurchase shares. We've got plenty of cash. We've got expectations for good cash flow from the operations and we have significant debt capacity available to us.

Thanks, Steve.

Thank you.

Thank you. Our next question comes from the line of Joel Jackson of BMO Capital Markets. Your line is now open.

Hello, thanks. You gave some guidance that you expect US nitrogen demand to be down about 1.5% next year. Could you talk about where you see your demand being down? Would you be in line with the market? Would you hold share and importers would get displaced? Thanks.

I think our numbers on nitrogen demand are 13.5 million nutrient tons in 2013 and 13.3 million nutrient tons in 2014. That's a very modest drop. In terms of the impact on us, we expect to be running flat-out as far as the eye can see.

Perfect. On UAN prices, it seemed the last few months that you were able to hold your prices while importers did undercut for a while, prices starting to rebound. Could you talk about what happened in the quarter and how you were able to hold that against some seems like lower cost product coming from some global competitors?

Bert?

As I said earlier, we launched our fill program a little later, and I think what we were able to capture was the tail end. Due to late planting of crop this year, there was a longer tail to the season. And so we captured a significant amount of in-season demand during that period and then launched our fill program, which was well received by our customers.

But you also have to remember, we have our whole infrastructure system, which can also leverage where we put product and when we put it there, along with our logistical options. And so, yes, imported product did come in and, yes, I think some of the other competitors in the market sold at levels we would probably believe to be unattractive.

But that's just how the market works and we believe that we were able to select better options for our product and move it consistently and ratably through the market.

Okay. And finally, on your nitrogen cap expansion CapEx, how for the remaining expansion CapEx in 2015 and 2016, how would you expect that to scale relative between 2015 and 2016? Thanks.

Well, at the end of 2014, we'll have approximately $1 billion left of spend and much of that will get spent in 2015 with a little bit of tail that will fold over into 2016. But by the time we finish calendar year 2015, our expectation is that we'll have two of the major operating units up online and most of the mechanical work done on the other units.

Thank you.

Thank you. Our next question comes from the line of Michael Piken of Cleveland Research. Your line is now open.

Yes, hello. Just a quick question. With respect to your phosphate agreement with Mosaic, assuming the transaction closes, if there are I guess some issues with the Point Lisas nitrogen issue, would you supply ammonia from Donaldsonville or how would that work out or would you have sufficient supplies?

I'm not sure I understood your question, Mike. We have two separate agreements.

Right.

One with respect to Point Lisas. One with respect to Donaldsonville. And once the transaction is done, we expect both of those contracts to be enforced.

Yes, I guess I was just asking if there is any sort of hiccups in terms of Trinidad in 2014 being able to supply Florida with the infrastructure in place in Donaldsonville?

I understand. Tony?

Actually, because of the Jones Act you can't ship within the US unless you've got a Jones Act registered vessel. And so part of the announcement I think that Mosaic indicated is that they were in the process of building Jones Act vessels to move product from Donaldsonville to Florida.

And the Deville portion of the contract doesn't go live until we get into calendar year 2016, or at the absolute latest, the beginning of 2017. If there are issues in terms of Trinidadian production, we would -- there's a force majeure kind of clause relative to gas availability there.

Okay. Great. And then as we think about the longer term, the thought process behind signing a 15-year supply agreement, if the US is expected to remain a net importer, I guess just trying to understand a little bit more of the dynamics?

Understand you don't want to give out the specific terms of the deal, but could you walk us through the thought process behind wanting to have for 15-year supply agreement?

It's very simple, Mike. It's attractive economically to us and it takes risk out of our Donaldsonville project with respect to volatility in natural gas prices.

Okay. Thanks.

Well before we complete our call today, Steve and Tony have some closing remarks. Steve?

Thanks, Dan. This is my 33rd and final quarterly conference call as CEO of CF Industries. And before we wrap up, I'd like to share a few thoughts, in particular with our shareholders.

It's been a distinct privilege to serve in this position for the past 10 years, 8 of which have been since we became a public Company. I've had the honor to work with and for a Board of Directors that has been both challenging and supportive, and I've been very fortunate to be able to surround myself with a leadership team that is smart, hard-working, and usually fun to be around. (laughter)

The entire CF Industries team has rallied around our focus on building sustainable value for our owners. It's great to be leaving on my own schedule and to turn the baton over to someone I recruited and have had a hand in developing. I know Tony and his team will lead the Company to more successes in the years ahead.

Tony?

Thanks, Dan. I'd like to take this opportunity to recognize Steve Wilson on his illustrious career and many accomplishments at CF. First, on behalf of the employees of CF Industries, I'd like to thank Steve for creating a culture focused on safety, environmental stewardship, and absolute uncompromising ethical standards.

Actually, with respect to safety and environmental, I think it might be more appropriate to broaden this group. So on behalf of the employees and their families, the contractors that work at our facilities, and the communities in which we operate, Steve, we'd like to thank you for always placing a particular emphasis on safety and environmental stewardship, which has been translated into a focus on ensuring that everyone leaves our facilities in the same condition which they arrived, and that we are trusted good neighbors.

On the ethical behavior front, a few lines that sum up Steve's philosophy include we are going to do things the right way, and we're going to do what we say and we're not going to say it until we're ready. He has created a culture with ethical standards that are a very bright line.

Steve has always treated the Company as parentheses shareholders, resources as though they were his own. And given his Pennsylvania Dutch tendencies, those resources were never in safer hands. Next, I'd like to thank Steve on behalf of the CF Industries shareholders. Steve led the launch of CF Industries Holdings Inc as a public Company eight years ago.

The Company IPOed at a stock price of $16, and a market cap of $880 million. At the close of business yesterday, the stock price was $217.63, and a market cap of over $12.4 billion. This represents an increase in market capitalization of over 13 times, and a share price compound annual increase of 38.5% per year over the past eight years.

Again, the shareholders' resources were never in better hands. Finally, I'd like to offer my personal thanks to Steve. He has created an outstanding Company with a terrific culture and a strong leadership team. He has been a demanding boss, a patient mentor, and a good friend. I wish you all the best in retirement. Thanks.

Thank you.

Operator, that concludes our call today. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.