CVR Partners' Business Model Continues to Shine

Jun.26.11 | About: CVR Partners, (UAN)

CVR Partners, LP (NYSE:UAN) continues to offer a strong fundamental fertilizer investment. The fertilizer pricing remains favorable and should enhance CVR's potential to deliver a strong second quarter ending June 30th. Let's examine CVR's fundamentals and dig deeper into CVR's current day-to-day business model.

Fertilizer Pricing Update
As of June 22nd, CVR's core products continue to have strong pricing fundamentals. Investors are well-served to identify CVR Partner's core fertilizer products: a) urea, b) urea ammonium nitrate. These are high quality fertilizers. Assuming the fertilizer prices remains high at the wholesale level, then the CVR quarterly distributions should provide attractive investment opportunities.

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Urea's pricing increased $20-per ton for the week. To keep pricing in mind, Urea was $327.50 2-months ago. CVR Partner's anticipated quarterly payouts were based upon much lower fertilizer prices. Fertilizer's strength bodes well for CVR Partner's second quarter results.

Ammonia pricing was flat for the week. Looking back one year, investors are well served to view the 30% growth in Terra Nitrogen's (NYSE:TNH) core wholesale products. CF Industries (NYSE:CF) continues to hold a 70% position in Terra's common stock.

DAP continues to shine. The weekly price per ton was up $25.

Potash Iowa pricing was up $25 for the week. Potash is currently priced at $560. Potash Corp. of Saskatchewan (NYSE:POT) will benefit by the strength in potash pricing. Bill Doyle, CEO, was available for a June 24th virtual meeting with investors. Mr. Doyle is a vocal spokesperson for the long-term benefits of fertilizer products to meet the world's food demands.

Fertilizer Swap Futures
An important development for fertilizer manufacturers is the new CBOE Fertilizer Swap Futures. The four products to be offered, beginning July 11th, include:

  1. Urea (Granular) FOB NOLA Swap Futures,

  2. UAN FOB US Gulf Coast Swap Futures,

  3. DAP FOB Tampa Swap Futures,

  4. DAP FOB NOLA Swap Futures

Fertilizer entities will have a new source of mitigating fertilizer risk prices. This transfer of risk will provide enhanced solutions for companies to budget and plan for increased plant production capacity, and preparing income distributions to shareholders.

The unique capital split of CVR allows CVI to focus upon its core strengths while benefiting from its 70% ownership in CVR. Well-known value investors such as David Tepper, who runs hedge fund Appaloosa Management, have actively purchased CVI positions. Third Point LLC, founded by noted investor Daniel S. Loeb, owns 8.4% of CVI as of March 31st, 2011.

CVI held its CVR Energy Analyst Day Presentation on June 14th. Pages 20 - 24 highlight the growth prospects for CVR. The world is growing and fertilizer offers a method to enhance crop production. Fertilizer inventories are tight and CVR is benefiting by this supply vs. demand situation. The June 14th presentation highlighted the core benefits of CVR Energy.

CVR Partners has highlighted its importance in the fertilizer space. Recognition by major hedge funds only strengthens the view of continued CVR Partner's success. As the second quarter approaches a close, CVR Partners' investors will soon learn the actual income potential with UAN shares.

Disclosure: I am long UAN, CF.