Rentech Nitrogen Partners (RNF) CEO Hunt Ramsbottom on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: Rentech Nitrogen (RNF)

Rentech Nitrogen Partners LP. (NYSE:RNF)

Q2 2014 Earnings Conference Call

August 07, 2014 4:30 PM ET

Executives

Julie Cafarella - Vice President of Investor Relations

Hunt Ramsbottom - Chief Executive Officer

Dan Cohrs - Chief Financial Officer

Marc Wallis - Senior Vice President of Sales and Marketing

John Diesch - President

Analysts

Tom Ackerman - Credit Suisse

Adam Samuelson - Goldman Sachs

Joel Jackson - BMO capital Markets

Matt Farrell - Imperial Capital

Lucas Pipes - Brean Capital

Brent Rystrom - Feltl & Company

Operator

Welcome to the Rentech Nitrogen Second Quarter 2014 Conference Call. My name is Alexandra and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would like to inform that all participants this call is being recorded at the request of Rentech Nitrogen. This broadcast is copyrighted property of Rentech Nitrogen. Any rebroadcast of this information, in whole or in part, without the prior written permission of Rentech Nitrogen is prohibited.

I will now turn the call over to Julie Cafarella, Vice President of Investor Relations. Julie, you may begin.

Julie Cafarella

As you read in our press release today, we reported selected financial results along with our operating data for the three and six months ended June 30, 2014. It is very unusual for us not to report our complete financial results, but we wanted to give you as much information as possible while we work to finalize goodwill impairment related to the Pasadena facility. We currently expect to file our Form 10-Q on schedule on Monday, with complete financial statements for the period.

During today’s call, Hunt Ramsbottom, CEO of Rentech Nitrogen will summarize our activities; Dan Cohrs, our Chief Financial Officer will give a financial review of the period. Also, in the room with us today are John Diesch, President; and Marc Wallis, Senior Vice President of Sales and Marketing. The team will be available along with Hunt and Dan for questions at the end of our prepared remarks. Please be advised that certain information discussed on this conference call will contain forward-looking statements. They can be identified by the use of terms such as may, will, expect, believe, and other comparable terms.

You are cautioned that, while forward-looking statements reflect our good faith belief and best judgment, based upon current information, they are not guarantees of future performance. They are subject to known and unknown risks and uncertainties and risk factors. We detail these factors from time to time in the Partnership’s reports and registration statements filed with the Securities and Exchange Commission.

Please note that the forward- looking statements in this call are made as of August 07, 2014. Rentech Nitrogen doesn’t revise or update these forward-looking statements, except to the extent that it’s required to do so under applicable law. In addition, today’s presentation includes various non-GAAP financial measures. The disclosures related to these non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures, are included in our 2014 second quarter earnings press release. You can find the release on our Web site.

Now, I’ll turn the call over to Hunt.

Hunt Ramsbottom

Thanks Julie. Recent strikes in the fertilizer market has been positive for the East Dubuque facility, but it has created significant challenges for the Pasadena plant by raising the cost of our inputs. Because of this, we’re developing a restructured operating plan to improve profitability in Pasadena and we have a longer term plan to create value at Pasadena through turmoil. I’ll discuss that in more detail later. But first, I’ll focus on the results for the quarter.

Second quarter results were seasonally strong. Second quarter ammonia shipments were the highest they’ve been in the past 10 years reflecting both strong demand and increased production following our recent expansion. Weather and soil conditions in the upper Corn Belt were optimal for ammonia applications, so the farmers in the region made it the preferred nitrogen product. With this strength in the ammonia demand our second quarter deliveries were weighted toward that product. We have good demand for UAN as well. UAN volume for the first half of the year was the highest it’s been in the past three years. Strong ammonia demand and tight inventories helped ammonia prices stay firm during the quarter. The UAN prices were also solid thanks to seasonal demand.

Domestics demand for AS was also strong during this second quarter. However, the shortage of railcars restricted our shipments to inland unit train house our warehouses in Nebraska, Montana, and the Dakotas because our Pasadena plant has access to multiple transportation modes, we were able to use barge to truck transportation through our river warehouses to partially compensate for sending fewer shipments by rail. Tight inventories caused by transportation disruptions lead to better than expected domestic AS prices. However, international prices were softer than we had expected.

We believe that the soft global urea market which existed earlier in the year has continued to weigh on AS values, even though urea itself rallied in the quarter. Additional Chinese AS production also depressed international prices. So we curtailed AS production in the second quarter to manage inventory levels because of the rail shortage and because we reduced low margin sales in Brazil.

The outlook for the remainder of the year looks very strong for East Dubuque. We’ve locked in 98% of our forecast with UAN sales for the rest of the year. We’re expecting a strong fall and we’ve only about 50,000 tons of ammonia remaining to sell for this year in order to hit our targets. We’re forecasting 2014 EBITDA of approximately $100 million for the East Dubuque facility. This is a considerable improvement over last year’s EBITDA of 85 million.

Our guidance reflects a third quarter outage to repair leaking tubes in the waste heat boiler within the ammonia plant. The price of corn has dropped significantly since peaking at the end of April. We believe that lower corn prices can stimulate higher corn demand from exports, ethanol production, and fee dues. The USDA baseline projections suggest a 41% increase in Chinese corn consumption over the next 10 years. This equates to an annual increase of just about 9 million tons. The USDA expects Chinese corn production to increase about 7 million tons annually, leaving a deficit of approximately 2 million tons to be met by imports. More corn means more fertilizer which is of course good for us.

Cheaper corn has also boosted margins for ethanol producers. 2014 ethanol production is expected to reach a record 14 million gallons, requiring about 5 billion bushels of corn. This is greater than the USDA’s current forecasts of corn for ethanol consumption. Additionally, potential increase in ethanol blending requirements in Brazil could significantly increase U.S. corn demand for ethanol production within the United States.

Now turning to our Pasadena Facility. We expect AS fill volume to exceed 2013 levels because of depleted dealer inventories. We’re expanding our presence in higher priced international markets, having sold a 25,000 ton vessel of AS to New Zealand just last month. We anticipate receiving certification to sell in Australia before the end of this fiscal year. Both regions provide strong netbacks relative to some U.S. and other international markets we currently serve.

Brazilian demand is expected to be strong, but we’re going to be selective about our sales in the Brazil given the current weak margins on those sales. While Pasadena facility had a great operating performance this past quarter, market conditions are causing persistent margin pressure affecting the plants profitability.

So, since that we’ve provided guidance in 2014 in May expected margins for Pasadena have declined. Prices for ammonia and sulfur key inputs for AS have remained high. Global ammonia supplies are tight due to production issues in Egypt, Algeria, Trinidad and Qatar, as well as political issues in Libya and Ukraine. These factors have lead us to increase our forecast for ammonia prices by about 15% and for sulfur prices by about 30% for the second half of this fiscal year. We expect to produce 8% less AS in the second half of the year than previously forecasted because current margins don’t support some international sales at these lower prices.

These factors have led us to revise our 2014 forecast for Pasadena to an EBITDA loss of approximately $10 million.

Now, in response to these recent market developments, we’re developing a restructuring plan that would generate positive EBITDA even in the current pricing environment for Pasadena’s key commodities were not to improve from today’s levels. We expect to implement this plan in the fourth quarter of this year. We’ve also engaged an advisory firm to help us evaluate terminalling proposals we have received, as well as other opportunities to maximize the value of our site along the Houston Ship Channel.

We believe this longer term plan could create significant value on the site. We recently declared a cash distribution of $0.13 per unit in the second quarter and Partnership retained $18.1 million or $0.46 per unit on distributable cash. This will complete the replenishment of working capital reserves that we diminished by the negative cash flow in the fourth quarter of 2013.

I’ll now turn it over to Dan.

Dan Cohrs

Strong ammonia prices have helped our results and the forecast for the East Dubuque facility, but that same strength is causing Pasadena to struggle. Ammonia and sulfur are the key inputs for making AS and prices of both of those commodities have increased from earlier this year remaining higher than we expected. 2014 is also departed from historical patterns as market prices of AS have not kept pace with input prices to maintain our product versions.

The recent further compression of these margins is leading us to revise our outlook, further impair the goodwill related to the plant and develop the restructured operating plan that Hunt outlined.

We have determined that it’s necessary to further impair the goodwill related to the Pasadena plant in this quarter. We’re nearing completion of the work on this impairment which includes a review of the impairment from last year’s third quarter. We expect the impairment to be up to the full remaining amount of goodwill, about $27 million. The new impairment is due to three factors; we have reduced our forecast of cash flows, as we’ve discussed; the discount rate used to value those cash flows has increased; and we’ve invested more tangible capital as we completed our co-gen plant and sulfuric acid converter.

As a result of the continuing work on the impairment, today we reported only selected financial results. We will report our complete financial results upon conclusion of this work.

Let’s look at the second quarter; we saw a good demand for our products this spring with much better weather than we have last year. Our plant expansion has gave us more product to deliver into this strong demand. Nevertheless, product prices did not keep pace with input prices, causing margins to decline. All the results I’ll be discussing are before giving effect to the impairment of goodwill on Pasadena that we expect.

In the second quarter, consolidated revenues were up 9% from the second quarter of last year at almost $114 million. East Dubuque saw revenue increase by 20% on higher shipments even though product prices declined. Pasadena also saw higher shipments but the price declines cause the revenue to drop by 6%. Gross profit margins at both plants declined; in Pasadena we have of course higher margins, 61% last year, down to 45% this year; at Pasadena we typically have lower margins than we do in East Dubuque; last year, we saw 6% margin, which declined to a loss of 12% this year. That was affected by the both input prices, product prices and a lower cost and market adjustment on inventories.

Consolidated SG&A for the Partnership was slightly down with unallocated SG&A at both plants down from the second quarter of last year. That led to EBITDA before the goodwill impairment that’s adjusted EBITDA number that we’re reporting here before the goodwill impairment for the second quarter consolidated almost $31 million which is compared to $38 million last year. The strong demand that we saw as well as our increased capacity show up clearly in the higher deliveries of our products in this quarter. Ammonia’s deliveries were up 76% from last year, UAN was up 39% last year and ammonium sulfate increased 53%. Recall that last year’s spring season was wet and very difficult to deliver products.

Average product prices were down compared to last year reflecting the drop in global nitrogen prices. Our ammonia product prices dropped 26%, UAN was down 14% and ammonium sulfate down 30%.

In East Dubuque, a short increase in natural gas prices hurt the margins. We recorded a $5.08 per million Btu cost of gas in the second quarter. Note that since the end of the second quarter gas prices have come down with the NYMEX forward curve hovering around $4. Prices for ammonia and sulfur, which are inputs for Pasadena, declined by 20% from last year but because of the steep drops in AS prices, the product margins suffered.

In the second quarter we recorded total maintenance CapEx of $10.4 million, but remember that 7.2 of that has been prefunded with the proceeds of high yield notes. So if we look at maintenance CapEx funded from operating cash flow, the second quarter number was 3.2 million, up somewhat from the 1.9 million that we saw a year ago. Trends for the first half of the year were similar to those of the second quarter with shipments up, product prices down, and SG&A flat.

For the first half of the year, again, adjusted EBITDA, excluding the goodwill impairment, we saw East Dubuque at 50 million, Pasadena at a small loss of 3.5 million, leading to a consolidated adjusted EBITDA for the first half of the year of $42 million.

For this year, we expect maintenance CapEx to be about 8.6 million at East Dubuque and 22.6 million at Pasadena. Maintenance CapEx for the Pasadena facility includes 14.6 million for replacing the sulfuric acid converter. And again, that repair was pre-financed so about 8 million of maintenance CapEx for Pasadena will affect cash distributions for the full year. We expect to have about 16.5 million of growth CapEx this year for project at East Dubuque which will be funded with designated proceeds from the senior notes and the new debt facility.

We expect expansion and capital expenditures for Pasadena in 2014 to be about 13.5 million, primarily for the power generation project. This has being funded with proceeds from the 2013 notes.

Forecast of key operating metrics and maintenance CapEx for the third quarter of 2014 appeared in today’s press release. We’re expecting results to be seasonally low for that period. Our quarterly results may be very different than our projections as deliveries can slip from one quarter into the next, based on weather or other factors. Our guidance for the third quarter or any quarter should not be annualized to gauge our projected annual results because the business is so seasonal.

We finished the second quarter with 20 million of cash and we closed on a $50 million revolving credit facility. The revolver has a five year term with no repayment of principle required until maturity. Interest on outstanding balances is LIBOR plus 325 basis points with no LIBOR floor. There are no financial covenants unless the outstanding balance exceeds 35 million. If we draw more than $35 million, the revolver debt to EBITDA ratio must be no greater than 1:1. Since there is no requirement to periodically reduce the drawn balance, we can use drawings under the new revolver essentially as a five year non-amortizing term-loan. This facility gives us access to long term capital for growth projects and it provides us with flexibility to absorb seasonal working capital swings. This credit facility is currently undrawn. During the balance of 2014 we expect to have a drawn balance on the loan of approximately $10 million to $15 million to fund the identified projects.

Trends in the international markets for our commodities drive the story for the quarter and the year. High gas prices and restricted ammonia supplies in Europe and Africa have helped ammonia prices and East Dubuque although higher U.S. gas prices have eroded some of that benefit.

Chinese exports of both urea and AS prevented AS prices from keeping pace to pass through input costs which is a very unusual pattern if you look at historical data in the AS market. Unusual or not, we can’t just wait for commodity prices to improve that’s why we’re developing a plan to implement in the fourth quarter that we would expect to make Pasadena’s EBITDA positive even in an unfavorable market environment like today’s. This plant would also maintain the option to profit from positive developments in our commodity markets in the future. We also believe we can create value on the site in Pasadena as we begin producing power with our new cogeneration project, and develop the proposals for terminals that we’ve received into real assets.

Thank you. And now we’ll take your questions.

Question-and-Answer Session

Operator

Thank you (Operator Instructions). And we have a question from Christopher Parkinson from Credit Suisse. Please go ahead.

Tom Ackerman - Credit Suisse

This is Tom filling in for Chris. You had previously spoken about potentially doing maybe a long-term supply agreement for ammonia at the other Pasadena facility. Do you have any updates on kind of how those talks have gone or is that something that we can just expect to hear more about in the fourth quarter?

Hunt Ramsbottom

We have talked about in the past and I think we can give you an update where we are today Mark.

Mark Wallis

I think we need to maybe clarify something, we have long-term contracts that are indexed to the Tampa market and we would expect to extend the agreement upon completion. Right now we’re not in negotiations to fix the price for an extended period of time.

Tom Ackerman - Credit Suisse

So looking to the ammonium sulfate. So if you’re curtailing roughly 8% you had spoken about. What’s going to be the impact of that on the per unit fixed cost?

Dan Cohrs

We’re not disclosing a specific number on that. And we expect as we implement this new operating plan that our fixed costs are likely to change, so we don’t have a specific precise number to give you on that today.

Hunt Ramsbottom

That would more gear toward probably next quarter.

Operator

The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Adam Samuelson - Goldman Sachs

Maybe continuing on the Pasadena, could you give us or help us scope kind of where a new operating plan actually might have evolve? I mean if you’re using the same inputs and it’s the same output I mean marketing wise is it a new marketing structure where substantially more of the tonnage is directed domestically, headcount reduction? Just help us understand what exactly you’re targeting to do and what should be thinking about for 2015?

Hunt Ramsbottom

This is Hunt. Certainly, we will be, as I said in my prepared remarks, we will be curtailing in those markets where we simply don’t have margin in Brazil. So we won’t be seen but we can’t go too much further right now just because of the sensitivities on what we’re doing. But I think that we considered all options on the table and it’s a solid plan and based on where we are today and I think what I can say we’re not going to -- we’re going to look at all options and we are looking at all options including curtailing some shipments as I said to those market. But beyond that it’s tough for us to get into today on this call.

Adam Samuelson - Goldman Sachs

And maybe going back to Chris’s question foreseeing questions that got asked in the past why wouldn’t you look at trying to get some sort of indexed ammonia contract similar to industrial ammonia contract that exited on the Gulf that are basically cost plus over nat gas, help bring effectively rent the capacity of another producer and bring your sulfate cost connected to U.S. natural gas cost, I mean why wouldn’t that be something you’re looking at?

Marc Wallis

Adam along those lines that’s just something that we’ve talked to our ammonia suppliers about that we have not been able to convince them to structure a deal linking the ammonia nat gas at this time.

Hunt Ramsbottom

I agree with you I think it would be a constructive event. But to this point, we haven’t been successful in getting that done.

Adam Samuelson - Goldman Sachs

And could you just give us a little bit just to help us understand the timing of when if it became evident that you were intending or needed to take goodwill impairment? Is it in the quarter? Was it after the quarter? I am just trying to understand kind of the timing of when this all took place? And particularly relative to the disclosure few weeks ago about rebuilding the working capital reserve that you will be doing this quarter. I just want to understand kind of as it became evident that the problems at Pasadena were this serious that these remedial actions were necessary?

Hunt Ramsbottom

First of all the distribution and the working capital are actually not really connected to any performance discussion at Pasadena. You have to go back to the fourth quarter of last year when we had significant downtime at both plants and we have a negative cash flow quarter. And what we’re doing now is replenishing the negative cash flow that we experienced in the fourth quarter. We had a small pullback in the first quarter and we’re taking a much larger retention out of operating cash flow this quarter. That’s all related to the negative cash flow we had in the fourth quarter of last year, which was not only a typically seasonal fourth quarter but also we had a lot of downtime and repair expenses.

As far as the goodwill impairment goes, this work has been going on during the second quarter. There are, if you look at the way product prices and input prices have behaved and also at the new visibility we have and the prices for the balance of the year, these are all recent developments. And we were tracking very well to our prior guidance which was near breakeven until very late in the second quarter. And as we saw these pricing trends developing, even after the end of the second quarter, we saw, we learned what field pricing would be, that was a July event when some of the major aspires and out there field pricing and it caused us to adjust our forecast for the balance of the year.

So when you put all that together, as we go through the closing process, which we’re doing of course post June 30th, the analysis tells us that we have to take a further impairment. We’re completing the work. We don’t look final number as of today we expect to have a final number very soon. But we know that there is $27 million of goodwill left on the books. And what we said today is the impairment could be up to that full $27 million as we finish this work.

Adam Samuelson - Goldman Sachs

And then just quick one from me, one last one on East Dubuque. The small downtime in the third quarter, I mean how long is the plant down I might have missed it in the prepared remarks, I apologize.

Hunt Ramsbottom

It’s backup and running now. But it was down to approximately nine days.

Adam Samuelson - Goldman Sachs

Okay, all right. Thanks very much.

Hunt Ramsbottom

And just one more point, that downtime is reflected in the guidance we put out on East Dubuque today. We set approximately $100 million of EBITDA in East Dubuque, that downtime is accounted toward in that guidance.

Operator

Thank you. The next question comes from Joel Jackson from BMO capital Markets. Please go ahead.

Joel Jackson - BMO capital Markets

Could you talk about the -- for ammonia and sulfate again the geographical mix in the second quarter and we’re talking about the market. Are you really just talking about not following the Brazilian market and adding in the Australian market, are those the only changes that you’re considering?

Marc Willis

Joel, this is Marc. What we would say we’re going to focus on the markets that give us the best net backs and the Brazilian market has been coming down relative other markets that we sell in. So immediately we’ve said we’re going to really take a hard look at the businesses that we do in Brazil and the ports that we go to have some varying on net back. And without getting further into operating plan that’s about all we can say right now. But as Hunt mentioned in his prepared remarks we do have a plan in place that will present positive results in 2015 once implemented.

Hunt Ramsbottom

I think it is safe to say this is mostly focused on that South American market today in some curtailment here. But we see fairly good prices in other markets and we’ll pursue those markets.

Joel Jackson - BMO capital Markets

We saw ammonia sulfate prices come down a fair bit in the quarter. Can you about what’s going on there and what to expect in the second half of the year?

Hunt Ramsbottom

Absolutely, and this is one of the reasons why we had to take the adjustment. But what we seen the Brazilian market has bottomed out and prices have actually in the last cargos that we’ve marketed have improved by double-digits I am saying about 10 from the bottom. The domestic market we feel pretty strong North America is going to advance with the increasing nitrogen market in general. We see I believe offshore ammonia likely to print up. We’re seeing good strength in the Midwest on the ammonia front. Urea, is responding nicely globally. And I believe personally that we’re going to see escalation in ammonium sulfate both domestically and international.

Joel Jackson - BMO capital Markets

And finally, and looking at the restructuring plan at Pasadena, how extreme could the plan go? Would one of the alternatives be possibly seizing production there using some of the granulation of their capacity they will do other things? Or like how wide is the scope of the review?

Hunt Ramsbottom

What I could tell you and again I apologize for not being able to going into detail today. But I could tell you that it’s a very detailed plan. And as I said everything is on the table from curtailment, and production, et cetera, and we just for a lot of reasons, lot of stakeholders involve, we just can’t go into details today. But I think it’s safe to say we have looked at all input, all product prices. Everything that goes to drive production in that plan and we’ve looked at over and over the last 30 days to 45 days and we’ll just be able to talk more about in the next earnings call.

Operator

Thank you. We have a question from Matt Farrell from Imperial Capital. Please go ahead.

Matt Farrell - Imperial Capital

Curious about the maintenance capital, how should we be thinking about maintenance capital at East Dubuque in 2015, and also at Pasadena?

Hunt Ramsbottom

Well, we haven’t put out any specific guidance for 2015, Matt. But we don’t see any unusual pattern. I mean, you know the history and you know what maintenance CapEx tends to run. But we’re not putting out specific guidance on 2015 right now.

Matt Farrell - Imperial Capital

Do you think you have some additional cash to invest in some of the CapEx projects at Pasadena, for example, the co-gen project? How would that project work if the plant is operating at a lower capacity? And it doesn’t make sense to continue to invest in these projects?

Hunt Ramsbottom

The co-gen plan is part of the plan going forward. We believe that it's been a good investment; it was prefunded with the bond offering. And it is going to come on-stream in the next month or two and that’s frankly a very positive part of our plan going forward.

Matt Farrell - Imperial Capital

I mean, doesn’t it require the plant to be operating in order to generate power?

John Ambrose

Matt, this is John. Those are separate operations, sulfuric gas it runs independently more in sulfate. So our plan is to operate a full production of sulfuric acid and that allow us to generate as much power as possible and in exporting to the local markets.

Matt Farrell - Imperial Capital

And could you provide a little bit more color on the terminalling opportunity?

Hunt Ramsbottom

All I can tell you is we’ve been talking about this since we bought the plant and we have been receiving proposals over the last six months or so. And I think we’re at the point now where we’ve hired an advisory firm in that market that knows the market well. And we’re now frankly betting those opportunities and we’ll pick the right path by the end of the year.

Matt Farrell - Imperial Capital

Is that like 2016 type of opportunity?

Hunt Ramsbottom

I think we will be prepared to talk about it in the next quarter.

Operator

And we have a question from Lucas Pipes from Brean Capital. Please go ahead.

Lucas Pipes - Brean Capital

I have a broader question on your strategic outlook. So most recently you’ve been focused on kind of organic growth projects. Is that ultimately where you kind of see yourself investing over the next year and maybe beyond that? Or are you also may be looking just beyond those two immediate plans?

Hunt Ramsbottom

I think for right now until we give you further disclosure for sure but right now what we have always said that we’ll continue look at projects at East Dubuque. The team does continue to find opportunities there and proposals that bring forth. So we’ll look at opportunities to continue increase the footprint and throughput of the plant at East Dubuque continue to be probably the best asset in North America. So we want to keep investing in that asset. And I think some of the things we’ve eluded to here on this call in terms of Pasadena as probably the next step for the Partnership.

Lucas Pipes - Brean Capital

And would it be possible for you to kind of give a rough estimate in terms of how much EBITDA the various growth projects are going to be generating in ‘14 versus ‘13?

Hunt Ramsbottom

You stated out the end.

Lucas Pipes - Brean Capital

Would it be possible to essentially provide an EBITDA bridge year-over-year ‘14 versus ‘13?

Hunt Ramsbottom

For the Partnership or for project?

Lucas Pipes - Brean Capital

Specifically for East Dubuque and then if possible also for the Pasadena facility.

Hunt Ramsbottom

The bridge from the 85 to the 100, is that you’re saying?

Lucas Pipes - Brean Capital

That’s correct.

Hunt Ramsbottom

We’ll take a look and see if we can help you out with that.

Operator

Thank you. The last question comes from Brent Rystrom from Feltl. Please go ahead.

Brent Rystrom - Feltl & Company

Just very couple of quick one please, on the unfunded CapEx for the third and fourth quarter. Can you kind of give us sense of how that will breakdown in those two quarters?

Hunt Ramsbottom

You mean the breakout between the third and fourth quarter?

Brent Rystrom - Feltl & Company

And I guess kind of want a sense of how it’s going to kind of fall between the two quarters?

Hunt Ramsbottom

I mean I can’t put out a number that we haven’t disclosed yet we’ll try to help you out with that a little bit. But there are fairly small projects coming up. We talked about the expansion in East Dubuque that are going to be funded with the new revolver and we’ll get those CapEx numbers in there this year it shouldn’t be particularly lumpy. So I think that’s going to be relatively even all those quarters. But I am not trying to give you a specific number right now even.

Brent Rystrom - Feltl & Company

What I mean on reasonable at 3 million to 4 million a quarter?

Hunt Ramsbottom

Well, it’s going to be relatively smooth. I am not going to take them down specific guidance number here that we haven’t really put out.

Brent Rystrom - Feltl & Company

From a simplistic perspective, how are you guys feeling about pricing right now on the kind of the restructuring? We’ve seen the normal seasonal pattern as far as kind of pricing giving the accurate abetment coming back up as fall and one that progresses.

Hunt Ramsbottom

Are you talking about which product lines?

Brent Rystrom - Feltl & Company

Basically going to what you sell in the East Dubuque it seems to me it seems like the recycle pricing is not been going down as aggressively as some of us might have expected, so I am just curious.

Hunt Ramsbottom

Marc, why don’t you elaborate?

Marc Willis

We agree with you. Pricing on the East Dubuque product lines have been better than we had initially forecast. We’ve been lieu in prices up with the market buying came in earlier than we had initially planned, which was great especially on the UAN front. Really pleased with the strength that we’re seeing in the urea market that’s going to supportive for the other nitrogen product lines. And if you haven’t caught it the barge rates have really escalated in the last two weeks which is should support higher upstream prices which riding our wheelhouse the more going to drive that with urea staying strong it’s going to be supported for the ammonia and the UAN market.

Brent Rystrom - Feltl & Company

And then final question, one of your larger competitors they talked about maybe a couple of million acres coming out of plant next year, I would imagine in your footprint as you look at particularly Iowa and Illinois you’re not really anticipating the 2 million acres coming out there, it’s going to be more the marginal acres. Would you agree with that?

Hunt Ramsbottom

We would agree with that, yes.

Operator

We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Speakers, please standby for your post conference.

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