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   Non-TechUAN - The variable distribution MLP that could go a long way


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From: Elroy10/11/2021 11:40:58 AM
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UAN unit price hits multi year high today - $86.83.

A friend tells me CNBC is talking about fertilizer prices. Maybe the market is coming around to my point of view. Not sure why it's taken so long, all the information I have is publicly available to everyone.

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From: Elroy10/11/2021 12:08:07 PM
   of 353
 
Ok, while we wait a few weeks for the Q3 distribution announcement, lets play another game.

What's UAN worth today?

As you should know by now, the fertilizers that UAN makes and sells are in short supply due to

Low supply:
1- low stocks at the beginning of 2021, and
2- above average demand due to slightly above average corn planting in the US in H1 2021
3- US tariffs on Russia and Trinidad and Tobago due to dumping probably results in zero imports from these countries going forward.
4- Natural gas cost in the rest of the world are at record high prices, making overseas fertilizer manufacturing uneconomical, which reduces imports to the US and perhaps increases demand for US to export fertilizer (??)

Reduced production
1- Cold storm in Feb 2021 knocks lots of fertilizer plants offline for a few weeks to a month
2- Hurricane IDA knocks Louisiana US fertilizer plants offline for a month or more
3- Many 2020 turnarounds (which require the fertilizer plants to go offline for 3-6 weeks) were postponed to 2021 due to Covid. Thus 2021 has more idle plants due to turnarounds than normal.

All of this is resulting in skyrocketing fertilizer prices.

So, what is UAN worth today?

Lets assume over the next four quarters UAN distributes $25, and pays down $60 million in 9.125% debt.

At the end of those four quarters, the outlook is sort of similar, with UAN expected to pay out $20 over the following four quarters, while paying down the remaining $20 million in 9.125% debt.

And.....there is legislation moving through Congress which may give tax credits for carbon capture which UAN has been doing for the past few years. The credits are retroactive, meaning UAN will get tax credits for carbon capture done in previous years, and then credits for ongoing carbon capture each following year. It's unclear how much the first credit monetization will be, but it sounds like between $40m and $100m is reasonable (my take).

All of that future outlook is a maybe, the actual future could be stronger financially, or a meteor could hit both plants and turn them into rubble, who knows, it's the future.

Given that outlook, what would you pay for UAN today if you had no idea what the unit price was?

I think I'd pay $120.

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From: Elroy10/11/2021 3:35:38 PM
   of 353
 
And then, an ammonia plant in Algeria exploded.......

www-algerie--eco-com.translate.goog

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To: Elroy who wrote (254)10/11/2021 5:21:28 PM
From: Paul Senior
   of 353
 
would you pay for UAN today if you had no idea what the unit price was?

I think I'd pay $120.

I keep arguing with you as the price goes up. Oh well, as long as the price continues up. -g-

I don't understand what you mean by not having an idea of what the unit price is. Isn't that just the price/unit which we actually do see on our screens.

"I think I'd pay $120". You would not actually pay that though. What you would actually pay now for UAN you've already told me -- you won't pay anything, because you're not about to buy more shares. Because as you've said, you've already made you're commitment, and you're not buying more.

My methods are different, as I've said. I prefer to see if the thesis or facts work out, and add more as the stock rises. You might say, well then predict where the stock is going? I say, up: I'm going with the flow, everything we read seems -- still seems - like all-systems-go. So I will add. Continue to add. Small amounts.
I bought shares today at $86.75, $86.16, and $85.

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To: Paul Senior who wrote (256)10/11/2021 9:00:20 PM
From: Elroy
   of 353
 
I don't understand what you mean by not having an idea of what the unit price is.

What I mean is if the price of UAN weren't readily available, what would you think is a fair price?

If I had extra cash lying around that I wanted to invest, I'd likely buy some UAN at $86 or wherever it closed today. It seems like it's going to pay out a decent amount for a few years, but who knows, really.

I prefer to see if the thesis or facts work out, and add more as the stock rises.

I don't think that's your method. I think you prefer to add more as the stock rises. The thesis and facts have been in place since hurricane Ida trashed Louisiana. By that time we knew the refinance had completed, the tariffs on Russian imports of UAN were moving forward, and the price of UAN fertilizer was generally rising. UAN was about $60 then.

There hasn't been a lot of new facts since then (other than the steady increase in UAN futures, which is ongoing, and (TRUST ME) will continue until about April 2022.

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From: Elroy10/11/2021 11:46:07 PM
   of 353
 
DTN Fertilizer Outlook
Wholesale Fertilizer Prices Expected to Continue Rising on Lower Production, Higher International Demand


https://www.dtnpf.com/agriculture/web/ag/crops/article/2021/10/11/wholesale-fertilizer-prices-expected


AMMONIA


While August ammonia prices ended at $650-$665 per short ton (t) free-on-board (FOB) for October through December in the Corn Belt, prompt prices had risen to around $800 by the end of September on the back of a much stronger increase in the Tampa ammonia contract than many were expecting.


Trader estimates indicated that September ammonia production losses may be approximately 300,000 t in Louisiana as a result of Hurricane Ida and the shutdowns at Donaldsonville, Geismar, Waggaman and Faustina.


UAN

September was largely a slow month for UAN, not because there was no demand, but owing to no producers having availability until later in the month, if any. Hardly any sellers had length on UAN to sell, and those who did were resistant to do so without knowledge of their replacement costs.

The outage at Donaldsonville was a large concern before CF announced it had restored ammonia production and was working on restoring upgrades to UAN and urea.

On the last day of September, CF released long-anticipated UAN offers at its U.S. terminals and production sites for fourth-quarter shipment, at levels around $425-$435 NOLA equivalents depending on location. Most offers centered specifically around the November-to-December timeframe and were heavily allocated with offers pulled ahead of the weekend. Last offers from CF were at the $320/t FOB NOLA level.

The higher offers pushed river terminal volumes more than $100 higher from previous offerings at $455-$460/t FOB for UAN 32% at main river locations at St. Louis and Cincinnati and at equivalent levels throughout the system, bringing liquid closer in line to urea in terms of a value per unit of nitrogen basis (see graph accompanying this article).

Plant volumes were difficult to locate after CF pulled its offers but were reported in line with terminals at $455-$460/t in eastern Oklahoma. No offers were made out of CF's Port Neal plant.

UAN prices are expected to remain strong on a bullish nitrogen complex as a whole, as well as fewer volumes expected to come from Trinidad & Tobago and Russia as the U.S. government's antidumping case continues. Next developments are expected late in November when the U.S. Department of Commerce will announce its initial subsidy rates for foreign UAN production, which may reflect equivalent tariff rates down the line unless revised.

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To: Elroy who wrote (257)10/12/2021 12:07:03 AM
From: Paul Senior
   of 353
 
Ok, if the thesis and facts are known - and there are no unknown negatives - let's see it confirmed by the market- by the rise in the stock. That's what I say. Talking here about making a big commitment to the stock. If the business prospects are really that good, and so the stock could/might/should rise really a lot, even missing the early rise in the stock could still leave room for ok entree prices (or adds for me) as the stock price continues its journey.

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To: Paul Senior who wrote (256)10/12/2021 9:37:38 AM
From: Paul Senior
   of 353
 
Assuming we'll have distributions about $20 per unit over the next 18-36 months. I've been in stocks with questionable dividend (investors believe dividend is not sustainable) and the yield's been as high as 18%. At 10 or 11%, there are a number of companies and mlp's with such dividends or distributions. So in my opinion they'd compete with UAN for yield investors' attention, and UAN might be wanting. All of which means to me a range of minimum $111 (18% yield) through $167 (12%) if I could believe the distribution were sustainable for several years.
Seems to me other mlp's distributions are easier to forecast and don't seem like they fluctuate as much as I believe UAN's will in future. Another reason why I'll go with maybe a reasonable chance of seeing a 12% distribution yield. ($167) best case.

Thing is, we don't know if the presumed $20 distribution is sustainable, and it might go higher too. Until we see more in 2022, yes, maybe only up to $120 now is a safer place for buying.

My guess.

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To: Paul Senior who wrote (259)10/12/2021 10:23:57 AM
From: Elroy
   of 353
 
Ok, if the thesis and facts are known - and there are no unknown negatives - let's see it confirmed by the market- by the rise in the stock.

Yes, a rise in the stock sure does give one confidence in the bullish view.

Remember, I am no fertilizer or agriculture expert, so all of my positive comments should be received with that knowledge.

Having said that, UAN has been the least responsive to good news stock investment that I can recall. The newsflow since January 2021 has been tremendous, as far as I can tell, and the shares are still approaching what I think will be a 20% yield of the next four quarter's distributions. I think $20 is a fairly conservative estimate for the next four quarters of distributions, so $100 seems like a reasonable price today.

Hopefully a lot of the future outlook will become more clear (will the next four quarters of distributions be $12, or $36?) with the Q3 2021 distribution announcement, and clean financial results in a strong fertilizer price environment.

In other words, after we see what they do in Q3, and when we can see the futures prices in real time, we should be able to come up with a pretty good guess for Q4, Q1 and Q2.

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To: Paul Senior who wrote (260)10/12/2021 10:30:11 AM
From: Elroy
   of 353
 
if I could believe the distribution were sustainable for several years.

I don't think we're going to have that sort of visibility.

And this is where the lack of knowledge of fertilizer industry and agriculture industry and commodities in general comes in to make long term forecasting difficult.

Fertilizer prices were in the dumps from 2016 to 2020. Why? I'm not really sure. Without that basic understanding, it's hard to forecast what will pull them back down once their current uptrend reverses.

In 2021 the February cold spell, the tariffs on Russian and Trinidad and Tobago imports and then Ida all contributed to price increases which had already begun in January. Why did prices jump so strongly in January? Not really sure, so .... hard to predict how prices go next summer if there are no new major production disruptions.

Currently it seems like they'll go up for a long time, but all it takes to change that view is to have them go down for a while, and then who knows what happens next?

However, I think due to interest savings from the debt refinance the "break even" UAN fertilizer price has been somewhat reduced. So, as long as UAN is above $200/ton they're going to distribute something reasonable, and UAN today for H1 is about $550/ton, so we're way above the zero distribution prices.

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