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


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From: Elroy6/21/2023 5:07:47 PM
   of 811
 
DTN Retail Fertilizer Trends
Anhydrous, UAN32 Lead Fertilizer Prices Lower


https://www.dtnpf.com/agriculture/web/ag/crops/article/2023/06/21/anhydrous-uan32-lead-fertilizer


Anhydrous was 13% lower compared to the prior month, and the nitrogen fertilizer had an average price of $781 per ton. UAN32 was 8% less expensive than last month with an average price of $476/ton.

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To: Elroy who wrote (787)6/28/2023 2:32:00 PM
From: Area51
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Interesting post by Publius today (I'll copy it just in case I want to refer to it later) and UAN at least briefly back above that 80 support line. Maybe UAN investors will still do well longer term. The 3rd quarter looks tough ($1 distribution in Q3 maybe), but hopefully that may be the bottom as far as UAN distributions.

I've been buying some ALTO as a bit of a hedge to my UAN position (corn is an input into their ethanol so it tends to do well on days like today where corn sells off, looks like rain coming to many of the corn producing areas this weekend). twitter.com

GRVY, SIMO, NGL all doing well (ok SIMO a little rough today) so you should be happy. I bought a little GRVY at around 60.

Publius
Hi guys. Just got back from vacation in a blissfully internet/cellphone free location. So I have a lot of stuff to catch up here, but let me address a few things now.

Pricing for nitrogen fertilizer has clearly bottomed, even though we won't see the results of these prices in earnings and distributions until November. As usual, urea led prices down, but spot pricing bottomed in early April and Q3 pricing (futures) bottomed about three weeks ago and has rebounded strongly since. And the fact that urea has bottomed and rebounded is the best leading indicator for ammonia and UAN.

Ammonia has been in free fall since December, but retail prices are still really high. The summer fill re-set prices were set so retailers can average down their high cost inventory and drain their tanks at prices farmers will pay. These prices are WAY below what ammonia should be selling for given a whole host of factors. For starters, it looks like urea will sell at a higher price per ton than ammonia this summer. Urea has a little over half the nitrogen content than NH3, so you can see how absurd this is. Secondly, Tampa ammonia at $285 for July would indicate a corn belt price in the $450-$490 range, not $300-$375. Finally European and Asian natural gas prices now show a natural gas cost of ammonia of $400 for this summer and $600 for the winter. This excludes carbon taxes and any other expenses. I think that ammonia prices rebound strongly in Q4. My best guess right now is to $450 (corn belt), but obviously there is a lot of room for error here.

UAN is the most difficult, as pricing information has very limited availability. But based on a few things, it looks like summer fill prices will be in the $225-$250 range. Much as I hate to use CME futures indications (with no actual contracts outstanding or trading), they indicate summer cornbelt pricing in the $230 range. Based on urea summer pricing (which actually has quite a bit of trading activity) on a nitrogen equivalent basis, UAN would sell for about $250 for the summer. Finally, last week there was a significant UAN summer fill pricing in Europe (Belgium ports) for July, August and September delivery of $244 per ton. I wouldn't rely completely on any one of these indications, but the fact that all three give similar numbers, gives me a fair bit of confidence.

Going forward for UAN, those CME futures are indicating cornbelt pricing of $260 for Q4 and $300 for the first half of next year. Again, I would not rely on CME UAN futures alone, but in combination with production costs in Europe and Asia (including India), these numbers look pretty reasonable. In addition recent corn prices can certainly support pricing of UAN at $300, so these numbers will not chase off farmers the way $650 UAN did last year.

What does this mean in terms of UAN distributions? Well, I did some quick and dirty numbers, making a few assumptions. For Q3, if pricing is $225/$325, CVR sells only 80% of its production and they pay the expected capital expenses out of Q3 cash flow, but add no reserves, the distribution would be a little over $1 per unit. Now, they could sell a lot more, and they can draw down from the huge reserves from Q1 (and I expect, from Q2 as well), but this is kind of a worst case here.

In Q4, I assumed prices of $250/$450 and sales of all of production plus inventory from Q3, paying all capital expenses and adding reserves of $5, I get a distribution of about $7.

For the first half of 2024 (total) with prices at $300/$520 and reserving $4MM per quarter, I get distributions of about $12 (for the two quarters combined).

So, after Q2's distribution of $9-$12 (depending on reserves taken), I expect distributions of $20 for the following 12 months. Am I promising that? No. It is just what I expect at this time.

Oh, and yes, I still have my full position in CVR and just added another 1,000 units. I see a lot of gloom and doom here while I was gone, but I think that that is just another indication of a bottom.

UAN (the stock) still may sell off in the second half

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To: Area51 who wrote (788)6/28/2023 2:35:23 PM
From: Elroy
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My concern now with UAN is I have zero confidence that UAN fertilizer prices will go up after the "Summer Fill" Q3 price is set.

If UAN fertilizer prices can decline from November 2022 to today, through planting season, what's the reason to believe they will increas from Aug/Sep on? How do we know they won't just keep dropping to the floor for another 6-12 months?

Without increasing fertilizer prices, UAN is a bad investment. How can you or me or we be confident that prices will go up seasonally as they normally do since the past six months was six months of normally seasonally strengthening prices, but prices didn't go up, they instead collapsed.

How do you know the price collapse is over?

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From: Elroy6/28/2023 4:47:29 PM
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DTN Retail Fertilizer Trends
Nitrogen Products Lead Retail Fertilizer Prices Lower


https://www.dtnpf.com/agriculture/web/ag/crops/article/2023/06/28/nitrogen-products-lead-retail-prices

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To: Area51 who wrote (788)6/28/2023 4:48:56 PM
From: Paul Senior
   of 811
 
Thanks for the post.

I'm still have units, but have reduced position with a view to maybe adding back after 3rd quarter.

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To: Elroy who wrote (789)6/29/2023 1:42:57 PM
From: Area51
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Well I don't know that the price collapse is over (it's dangerous to make predictions especially about the future <g>). But I think if demand for UAN stays strong (which correlates roughly with corn over $5 for upcoming crops) the Publius analysis seems like a reasonable extrapolation of what future UAN results might look like.

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To: Area51 who wrote (792)6/29/2023 8:32:46 PM
From: Elroy
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But I think if demand for UAN stays strong (which correlates roughly with corn over $5 for upcoming crops) the Publius analysis seems like a reasonable extrapolation of what future UAN results might look like.

I don't think we can say much of anything about future prices for fertilizer. They have collapsed over the past six months, as we have been moving through the high demand seasonal period. Whether the future will bring higher or lower prices than today, I have no idea.

So with a stock where I really have no idea about future prices (and therefore revenues), I am more inclined to give it a pass rather than express any confidence in future performance.

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To: Elroy who wrote (793)7/1/2023 1:42:33 AM
From: Area51
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<<I don't think we can say much of anything about future prices for fertilizer.>>

But as an astute investor once so eloquently stated; ( Message 34159272 ) Sure, it's possible fertilizer prices collapse toward the 2016-2020 lows. But.....why would they?

Significantly lower corn prices might do it (and Friday was another disaster on that front, now sitting percariously close to the $5 per bushel level where I will have to start to worry about it).

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To: Area51 who wrote (794)7/24/2023 4:23:46 PM
From: diegosan
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Earnings to be released 7-31-23 after the close. Diego

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From: Elroy10/10/2023 8:27:50 AM
   of 811
 
I've still got a small chunk of UAN which is exposed to short Nov covered calls at $80 and $85. Naturally, UAN's unit price has been sitting at about $82 for months!

I may still own this guy depending on how these covered calls progress. Oddly, I'm rooting for bad news for the Q3 results, hopefully pushing the price below $80 on Nov expiration, and good news thereafter....

And to make it more interesting, these UAN units are in my Roth account. I've been trying to get answers from my brokerage about what happens if I turn 59 1/2, and then transfer them out of the Roth into a regular account. The question is whether that transfer will be scored for tax purposes as a sale in the Roth and repurchase at the same price in the regular account (which would trigger UBTI in the Roth), or whether it will be treated as a transfer in kind from the Roth to the regular account (which means no sale in the Roth, and no UBTI triggered by selling units in the Roth). I await their response......

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