scfranklin94

Terra Nitrogen: Super-Stock or High-Yield Villain in Disguise?

Jason and Robert - you guys are exactly right. 95% of the cost of fertilizer is natural gas. The only reason that Terra Nitrogen didn't have huge losses last year when NG reached $13/MMBtu is that ethanol production kept corn prices at all time highs, therefore farmers would pay for more expensive fertilizer.

If the gov't returns to it's senses (admittedly that's a big IF) and reduces or cancels the ethanol subsidies (the program produces no net reductions in hydrocarbon or CO2 emissions - it's just welfare for farmers), and in the meantime NG returns to higher prices in 2010 as demand returns, Terra Nitrogen will be in a bind like it was earlier in the decade and it won't be making any distributions to its partners.

Anyone selling Terra Nitrogen partnerships as stable income should be indicted for fraud; the company's cash flows are extremely volatile.