What to Expect of CF Industries' 4Q15 Earnings
Input costs
Previously in this series, we saw the expectations for CF Industries’ (CF) nitrogen prices. When we talk about prices, it’s important to understand what could be the floor for nitrogen prices. To find out, we need to look at the cost curve, which we’ll examine closely here.
Price floor for urea
The cost curve shows that North American producers are the cheapest when it comes to producing urea. They’re sitting on the far left side of the cost cure. The total cash cost to produce one ton of urea, including energy costs for natural gas, is a little under $150 per ton for North American producers. On the far left, the most expensive producer is coal-based Chinese producers, whose cash costs reach as much as $300 per ton.
Given that the approximate shipments for 2015 were forecasted to be about 14.8 million tons on average, the cash cost for urea for a marginal producer would be $300 per ton. If shipments drop to the lower end of the estimated range, the urea cash cost will reach a floor of $270 per ton—the floor for urea prices. The average selling prices for CF’s granular urea in 3Q15 were $317 per ton.
Alternatively, you can also access CF through the Market Vectors Agribusiness (MOO). MOO invests 1.7% of its portfolio in CF, 8.9% in Syngenta (SYT), 4.6% in PotashCorp (POT), and 2.5% in The Mosaic Company (MOS).
Assuming that natural gas costs are already at a bottom, we’ll get more color on how the floor has moved in CF’s upcoming earnings. If it moves lower, it could squeeze CF’s profitability and affect the company’s earnings per share.
Let’s see what the analyst estimate for the company’s earnings per share is like for 4Q15 and beyond in the next part of this series.
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