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BluePac Partners Fund, LP is short the common stock of CF Industries Holdings (NYSE:CF) and owns put options on CF.

CF Industries is the largest manufacturer and distributor of nitrogen fertilizer in North America.

The three primary crop nutrients required through fertilization are: nitrogen, phosphate and potash. CF specializes in nitrogen, which is primarily used to fertilize corn, and is not necessary for the second largest crop, soybeans.

In the past three years, corn crop revenue has exceeded $60 billion (compared to less than $30 billion just 7-8 years ago) on the heels of high corn prices.

CF Industries has benefited greatly from this prosperous corn crop, and they have recorded record gross margins and earnings per share during this period.

Corn has now fallen 40% from year-ago prices, and ammonia fertilizer prices (a reference price for nitrogen-based fertilizers) has fallen roughly 33% in the past year.

CF Industries stock price, however, is near an all-time high. It seems that the current investor base is more focused on potential capital opportunities the company may pursue, and less focused on the underlying economic prospects for the nitrogen business.

BluePac Partners believes, given current fertilizer prices and commodity prices, that earnings estimates for CF in 2014 need to be lowered.

This information is highlighted in more detail here:

www.bluepacpartners.com/nitrogen.pdf

Source: CF Industries Holdings - Is The Era Of High Margins Ending?

Additional disclosure: BluePac Partners Fund, LP is short the common stock of CF Industries Holdings (NYSE: CF) and owns put options on CF.