CF Industries Holdings (CF) currently rides its nitrogen fertilizer business on high corn prices and low prices for natural gas, reaping rewards for the conflation of these two separate trends in North America and making it a favorite fertilizer stock for Edlain Rodriguez, Senior Vice President and Senior Analyst of Lazard Capital Markets.
“Right now, I like CF Industries,” Rodriguez said. “Approximately 90% of its earnings come from nitrogen. The reason we like nitrogen fertilizer better than the other ones, and the reason we like companies exposed to the nitrogen fertilizer, is because as farmers plant a record amount of corn, they need to use nitrogen.”
Rodriguez adds that, unlike potash and phosphate, nitrogen needs to be added to the corn crops more often because nitrogen does not stay in the soil.
Production costs for CF are also relatively low relative to European counterparts. Rodriguez says the low natural gas prices bring cost for nitrogen to nearly a third for CF relative to its peers across the Atlantic, further benefiting the agricultural chemicals company.
“As 75% of the cost of production of nitrogen is natural gas, the U.S. has a significant advantage because natural gas prices in the U.S. have become extremely competitive compared to the rest of the world,” Rodriguez said. “Essentially, you have the European producers of nitrogen paying $8, $9 for natural gas, while in the U.S., the cost is only $3. That is a significant difference that benefits CF and the other North American names.”
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