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


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From: Elroy10/12/2021 10:56:58 AM
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CVR Partners’ Coffeyville, Kansas, nitrogen fertilizer manufacturing facility includes a 1,300 ton-per-day ammonia unit, a 3,000 ton-per-day UAN unit and a dual-train gasifier complex having a capacity of 89 million standard cubic feet per day of hydrogen. CVR Partners’ East Dubuque, Illinois, nitrogen fertilizer manufacturing facility includes a 1,075 ton-per-day ammonia unit and a 1,100 ton-per-day UAN unit.


https://finance.yahoo.com/news/cvr-partners-names-dane-neumann-122300956.html


I think the first plant (Coffeyville) uses Pet Coke as the feedstock for making the fertilizers, whereas the second plant (East Dubuque) uses natural gas, same as most other fertilizer makers.


Using pet coke may be a good thing in the current high natural gas price environment.

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From: Elroy10/12/2021 4:10:44 PM
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Supply Disruptions Add Costs
Bottlenecks Loom for Critical Ag Supplies

https://www.dtnpf.com/agriculture/web/ag/livestock/article/2021/10/11/bottlenecks-loom-critical-ag

-- FERTILIZER. This week, the upward trend continues for the fertilizer market, showing large, year-over-year increases in all key areas. DTN Staff Reporter Russ Quinn, who focuses on retail fertilizer prices, said he has been covering these markets for more than 13 years with a data set that goes back to 2008. The industry is seeing the largest year-over-year (YOY) increases to date by that data set. Quinn reported this week these YOY percentage increases as follows: potash at up 101%, UAN28 at up 91%, anhydrous at 89% higher, UAN32 at up 83%, urea at 81% higher, DAP (diammonium phosphate) at up 67%, MAP (monoammonium phosphate) at up 78% and starter fertilizer (10-34-0) at up 40%.

Quinn noted, "These are not the highest prices we've ever seen, but we've seen prices climbing nearly a full year now, so we could easily set some all-time highs." He added that prices on these inputs tend to peak during spring and fall, when demand is at its highest.

"The people I've talked to, retailers and Extension and farmers, who are talking to suppliers and wholesalers and retailers, tell me not to expect any slowdown in prices anytime soon," Quinn said. "We've seen 11 months now of continuously higher prices. In past years, it was more a demand issue. This time, it's a supply issue, and the fact we can't get enough supply because of weather disruptions domestically and China cutting back on exports of fertilizer to the U.S. will only make it worse."

-- NATURAL GAS. DTN Refined Fuels Editor Brian Milne says it is possible natural gas prices could hit $10 per 1,000 cubic feet (MMCF) moving into 2022. Global supply issues will have a major impact on whether these price levels are realized.

"We've seen a lot of volatility in this market already, with the front month (November 2021) at $6.46," reported Milne. The previous highs, he added, were set in February 2014 during a cold period, and in December 2008, coming off of a financial crisis.

"By a historical perspective, we are at a seven-year high and ready to go to a 13-year high," he said. Milne noted that in the U.S. supplies are ample, even though they are below the five-year average. Price spikes for natural gas in Europe and Asia, however, are driving upward market trends. In parts of Europe, natural gas prices have spiked as countries move away from coal and nuclear energy. Wind energy in parts of the United Kingdom, he added, has not generated the amount of power expected this past season, leading to unexpected drawdowns on natural gas. Seasonally, Milne says, peak demand for natural gas is from October through March.

"We are going to see prices up from here as we move into the winter months. If it is very cold in Europe and Asia, expect more price spikes," he said. "We could easily get above $8 this winter, possibly over $10. But, speculating a little, there are things that could derail all of this, like a warm winter."

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To: diegosan who wrote (251)10/13/2021 2:53:07 PM
From: Area51
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It doesn't seem right but it seems to me that UBTI income will be taxed significantly higher in an IRA than it is a non-taxable account (certainly for amounts over 13K but less than 500K for married joint filers in a tax year). Consider the UDFI capital gains tax: In a taxable account I think you will be subject to long term capital gains tax (15% up to about 400K depending on your marital status etcetera, and then 20%) although a significant portion of the gain may be taxed as ordinary income (still only 24% for married filers to 326K) whereas the IRA will be taxed at 37% over 13K of capital gain, and then it will be taxed again as ordinary income when you or your heirs withdraw it.

And I'm not even sure that Elroy is right that on death you will get a step up in basis (Do MLP shares even in a taxable account get a stepped up cost basis on death? Perhaps not. And although the IRS may be lenient on not auditing those that do step up their cost basis in this circumstance, the IRA trustee may be a stickler and do the calculation more conservatively).

Decent article from someone that understands all this better than I do: seekingalpha.com

Good Luck, A51

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To: Area51 who wrote (266)10/13/2021 4:09:09 PM
From: Area51
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OK googling the stepped up basis for MLPs I found several sources that claim you are allowed the stepped up basis for MLPs and didn't see anything that claimed otherwise perusing page one of the results. Of course if Biden gets his way that may change anyway.
seekingalpha.com

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To: Area51 who wrote (267)10/13/2021 4:30:17 PM
From: Paul Senior
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re stepped-up basis. When this term is discussed, in my mind I envison middle aged or old people who are in or planning to be in a stock until they die -- years of holding. UAN is in such a cyclical business though, I have to ask, do you really believe this is a type of stock you/we/they will still be in years from now until you/we/they kick-off? The issue of stepped-up basis seems like an irrelevancy to me (and I'm a geezer who has a position). Oh well, jmo.

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From: Elroy10/13/2021 5:01:59 PM
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Interesting past few days. The Nov and Dec 2021 prices have moved up, while 2022 prices haven't moved.

I take this to mean 2022 is likely not trading at all, while the remaining 2021 months are selling fertilizer, with rising prices.

cmegroup.com

Last year in Q1 UAN informed us that most of Q1 2021 sold out in Nov and Dec 2020. If that pattern remains the same this year, I think we'll start to see Q1 2022 prices move up in the coming few months.

The only thing going the wrong way now is the price of corn, which has dipped from about $5.50 back toward $5.00. Even at $5.00 per bushel corn remains much higher than the price of the past few years.

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To: Paul Senior who wrote (268)10/13/2021 5:07:52 PM
From: Elroy
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UAN is in such a cyclical business though, I have to ask, do you really believe this is a type of stock you/we/they will still be in years from now until you/we/they kick-off?

I don't know the real evidence that selling fertilizer is so cyclical, as you claim.

The latest info on building new plants (which makes other capital intensive industries cyclical) is that there's probably no new US nitrogen fertilizer plants that are going to be built, ever. The CEO of CF said something to that extent recently.

So.....as prices go up, what's going to bring them back down? In other cyclical industries, when prices go up EVERY maker builds a new plant, prices collapse due to waaaaaay too much supply, and then the market has to grow to absorb this newly built supply. When the market grows enough that the existing supply is too little, prices go up, and EVERY maker again builds a new plant, producing excess supply, falling prices, and the cycle.

Have you heard any announcements by any fertilizer maker that they are going to build a new nitrogen fertilizer plant? I haven't. So again......where's the "cycle"?

----------------------------------

UAN runs two large fertilizer manufacturing plants, and distributes all the free cash from those operations to unit holders. I would guess that's a great thing to own forever. Maybe some year you receive $30, and in another year you receive $6, but with interest rates at something like 1% any distribution is pretty good.

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To: Elroy who wrote (270)10/13/2021 5:30:41 PM
From: Paul Senior
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Well I Google and I read commentary that agriculture has been and will be a cyclical business.

If fertilizer prices remain high, I certainly will believe some company, maybe more than one -- maybe companies with government subsidies - at some point will try to significantly increase their output. You don't see this as a possibility? I see it as a good probability.

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To: Elroy who wrote (270)10/13/2021 6:04:58 PM
From: Area51
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<<
Have you heard any announcements by any fertilizer maker that they are going to build a new nitrogen fertilizer plant?>>

Looks like this company in Russia may be expanding. kuazot.ru
As part of the joint venture with Maire Tecnimont Group, the implementation of one of the most ambitious projects of the Company continues - the construction of a urea unit with a capacity of 1,500 tons / day. The project envisages the use of advanced technologies that ensure environmentally friendly and safe production, as well as the resource consumption at the level of the best world analogues. The total investment is estimated at 11 billion rubles. Project completion is scheduled for 2021-2022.


Granted Russia exports are more likely to go to Europe and the cost advantage may not be large when you add in the transport costs to middle America?. With corn at $5.2x and UREA at $710 demand destruction may also be something to worry about. I wouldn't count on fertilizer staying high ad-infinitum unless corn also stays high. I suspect there will still be future down cycles in the price of fertilizer. But not until after 2023 I hope <g>.
https://twitter.com/JLinvilleFert/status/1447938979236618246

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To: Paul Senior who wrote (271)10/13/2021 6:12:37 PM
From: Elroy
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I'm just telling you what the CEO of CF said on the topic.

I think they believe it makes more sense for companies located in regions with low cost natural gas (Iran, Russia, etc.) to build new nitrogen fertilizer plants.

Another poster says it takes four years to build such a plant. So.....the cycle should be quite long.

We can't expect the supply interruptions (Feb cold storm, Hurricane Ida in Aug) to recur every year, but I believe there is no new significant nitrogen fertilizer supply coming online in the USA for years.

But as I've said, I'm no expert.

When the companies do normal planned maintenance plant "turnarounds", one of the goals is to reduce bottlenecks and increase production capacity at existing plants. But this is incremental supply, not the type of supply increase that would cause an industry to be cyclical.

If some US-based fertilizer company plans to build a new factory, I'm sure we'll read about it and know about it years before it begins production. So far, nothing at all like that in the news I've read.

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