CVR Partners LP (NYSE:UAN) has fallen over 10% in the past 5 days. UAN was a strong buy just three months ago at 25 dollars a share, with a projected dividend yield of 7.6%. Today. at just over 27 a share, and a great 4th quarter distribution of just under 59 cents a share, the yield is over 8.5%. So what is different today compared to three months ago?
Three months ago, this report showed ammonia prices for UAN of around $290 and $364 for 30%. This month's report showed prices for UAN of around $267.50 and $346 for 30%. Prices for fertilizer fell for 7 straight weeks after the November report. Farmers are not happy with record high fertilizer prices when natural gas, which is a main ingredient in the processing, is at a 10 year low. Corn production is still predicted to be at an all time high for 2012, at 94.2 million acres.
Nearly all of UAN's production for 2011 sold at a price above their predicted price per ton, which has resulted in increased distributions for the 3rd and 4th quarter. Based on presale of the product, strong results due to lower energy costs should continue to roll in.
UAN also has a distinct cost advantage in shipping costs over U.S. Gulf Coast ammonia and UAN producers and importers, due to their location in the farmbelt, and the majority of sales are in the farmbelt area.
There are also expansion plans for UAN for 2013. The expansion should be done and fully operational by the 3rd quarter of 2012. This will increase the urea ammonium nitrate output by 50%, or 400,000 tons per year.
Final summary: Don't expect the same crash in fertilizer prices that was seen in late 2008-2009. Even with the crash, prices for UAN have stayed much more stable. Increased production will be available late in 2012 to prepare for a busy farming season in 2013. If you didn't get UAN early, now could be the time to jump in.
About CVR Partners, LP
Headquartered in Sugar Land, Texas, with manufacturing facilities located in Coffeyville, Kan., CVR Partners, LP is a Delaware limited partnership focused primarily on the manufacture of nitrogen fertilizers. The CVR Partners nitrogen fertilizer manufacturing facility is the only operation in North America that uses a petroleum coke gasification process to produce nitrogen fertilizer and includes a 1,225 ton-per-day ammonia unit, a 2,025 ton-per-day urea ammonium nitrate unit, and a dual-train gasifier complex having a capacity of 84 million standard cubic feet per day of hydrogen.
SOURCE CVR Partners, LP
Disclosure: I am long UAN.