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CF Industries Has Multiple Tailwinds For 2020 To Propel The Business Forward

Mar. 10, 2020 3:42 PM ETCF Industries Holdings, Inc. (CF)16 Comments
Armas Investing profile picture
Armas Investing


  • Weak plantings in 2019 due to adverse weather conditions are likely to lead to strong fertilizer demand in 2020.
  • Natural gas, a major component of production costs, has tumbled over the past several months and is considerably lower in price than historical averages.
  • Long-term fundamentals of the industry remain positive, based on continuous global growth of consumption of meat and general affordability of fertilizers relative to crop prices.

CF Industries (NYSE:CF) manufactures and distributes nitrogen fertilizers and other nitrogen products worldwide. The business is well positioned in the industry to take advantage of market conditions and an expected increase in global demand growth for nitrogen. Multiple near-term catalyst exist for the business, including: likely strong demand in 2020, the decline in natural gas over the past several months, and positive long-term fundamentals of the industry.

Corn Production in 2019 Was Down, but Should See a Rebound in 2020

Since corn accounts for more acres planted than any other crop produced in the US, corn production has a strong correlation to nitrogen demand. In 2019, adverse planting and growing conditions caused corn production to decrease YoY. However, as a result, there is a strong price incentive for growers in the United States to increase corn production in the near future. In their most recent projection, the USDA estimates that corn planted acres will increase to 94 million in 2020, a 4.8% increase from 2019 89.7 million acres.

Corn was not the only crop that suffered in 2019; other major field crops were affected due to flooding and record rainfall as well. Similar to corn, the USDA is projecting for these crops to bounce back this year as well.

According to USDA projections, soybean acres planted in 2020 will rise to about 84 million acres, up from 76.5 million acres in the previous year. Additionally, total acreage plantings for eight major field crops (corn, sorghum, barley, oats, wheat, rice, upland cotton, and soybeans) are expected to rise by 11 million acres to 249.4 million acres in 2020, according to the USDA. This increase in production should help propel revenue growth for the business. The chart below displays planted crop acres since 1973 for corn, soybeans, wheat, and cotton (as well as the projection for 2020).

This article was written by

Armas Investing profile picture
Armas Investing is a group of banking and food scientist professionals covering financials and food sectors. We aim to generate ideas based on our knowledge in the field.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (16)

Castles In The Sky profile picture
Low sulfur fuel requirement impact on global shipping costs may add $10 dollars per ton shipping freight costs. What I heard. Not too sure their shipping routes (namely UAN 32 and NH3 product?). Main source of anhydrous NH3 comes from? And Eastman chemical NH3 plant online 2023 will supply 9% of global ammonia? Simplot has a brand new NH3 plant in rock springs, no longer need to get via rail from California. A race to the top (simplot, koche industries, CF, yarway)
Leonard Howell profile picture
Very useful information - thanks
Thanks for this. Any analysis on their credit risk? Could they be squeezed like other commodity companies in the energy sector?
salvatort profile picture
You are missing a big part of the story, which is the collapse in crude oil prices. If anything last week CF was holding up OK. But lower brent prices mean much lower production costs for overseas producers - i.e., higher supply, higher US imports, and lower-priced imports since the global cost curve is flattening.

As you mentioned, US natural gas prices could move higher as the current rock-bottom prices are due to excess gas produced during oil drilling; as shale drilling is curtailed, this supply is restricted. So given the weekend's developments CF faces potentially higher US feedstock costs while its overseas competitors (who export to the US) are seeing a big improvement in their cost positions.

LT I am bullish on CF though, because US natural gas nitrogen producers should remain on the low-end of the cost curve (along with ME producers), meaning that imports into the US should still be priced at a level that allows CF to make a profit in times of a flatter cost curve, while when oil prices move higher and/or fertilizer demand improves significantly the company should make a nice profit.
From a US farm perspective, this will be a strong quarter for CF. Wet conditions, poor planting, and late harvest kept a lot of fertilizer from being applied in 2019. So far conditions are warm and somewhat drier then average across the corn belt, which means many farms that could not apply fall fertilizer are getting it done now prior to planting. I think volumes will be higher than normal. Seems like CF is very undervalued here. What am I missing? Talk me out loading up the truck here
Armas Investing profile picture
Depends on your risk tolerance. Commodities drive both top line growth and margins. Definitely risk involved, but I do believe the current selloff has provided a nice entry point.
John E Duncan profile picture
What do you see as risk at this point? Are they not going to consistently deliver ~ $4 per share FCF? Is the demand for fertilizer going down significantly over the long term?
whitehead1 profile picture
Seems like it CF has to test 2016 lows of 22. Too early to to buy at this time
Armas Investing profile picture
Well we're right at those lows, I suppose we'll know soon if it holds.
whitehead1 profile picture
The way market is behaving now it is not certain that 22 will hold, next level is 2008 low of around 11.51.
This is a crazy market, puts are so expensive to protect from downside at this time.
Just fun watching action recently.
Armas Investing, If this is such a great investment, please explain why on 3/3 did 8 insiders, including the CEO&CFO make open market CF stock sales@$38.14? They should be buying, not selling as I agree there is value here, but if they are not willing to step up to the plate why should we??
Armas Investing profile picture
The sales made up less than 10% of their total shares. To me, that's not enough of a red flag to destroy the bull thesis.
@Armas Investing, Selling near a 12 month low. You got to be kidding me. Just how smart are they? OR maybe they think it is going a lot lower. Remember there are 8 different sellers on the same day. Doubt these transactions were done in a vacuum!
salvatort profile picture
There were no open market stock sales. According the the filings, these represented shares surrendered to pay for withholding taxes (that is why everyone "disposed" shares in the same day, at the same price).
Thanks for pulling this information together.
They should speed up the share buyback at these prices..
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