The agricultural investments work off the theme that ever increasing populations, coupled with inflation, will see increases in food prices. If that is truly the case, then one possible inflationary play would be in fertilizer. If you feel this way, then CVR Partners, LP (UAN) is definitely worth a look.
UAN is a partnership formed by CVR Energy (CVI) to own, operate, and grow the nitrogen fertilizer business. The nitrogen fertilizer manufacturing facility is located in Coffeyville, Kan. It is the only such operation in North America that uses a petroleum coke gasification process to make hydrogen, a key ingredient in its manufacturing process. UAN produces about 5% of the total urea ammonium nitrate demand in the United States.
Fiscal-year 2012 was a challenge for UAN. The company's production was held back by a planned turnaround, plus a plant expansion project that is scheduled to come into play by March 2013. As we wait for fourth-quarter reporting figures that will be released in late February 2013, let's look at UAN's third-quarter production totals. For the third quarter of 2012, CVR Partners produced 104,200 tons of ammonia. Of that total, 29,400 net tons were available for sale while the rest was upgraded to 181,900 tons of more profitable urea ammonium nitrate. In the 2011 third quarter, the plant produced 102,700 tons of ammonia with 25,900 net tons available for sale. The remainder upgraded to 185,800 tons of urea ammonium nitrate.
When looking at the financial aspect, we see that UAN had third-quarter 2012 net income of $31.6 million on net sales of $75.0 million. For the third quarter of 2011, the net income was $36.3 million on net sales of $77.2 million. For the nine-month period, the net income was $96.9 million on net sales of $234.7 million. This was an increase when compared to $91.2 million of net income on net sales of $215.3 million for the comparable period a year earlier.
The key to UAN is its expansion project. Management hopes to increase urea ammonium nitrate production capacity to more than 3,000 tons per day. After a noted delay, UAN projects the expansion to start up in early March 2013. This delay is anticipated to impact 2013 full-year cash available for distribution by approximately 5 cents per common unit. While this is not good news, the company continues to expect a significant double-digit increase in cash available for distribution for full-year 2013 as compared to 2012.
In 2013, UAN's management is expecting a continuation of higher prices in fertilizer, as well as growing demand for its products. Population growth and severe drought conditions on the corn crops will also prop up UAN's business model for some time to come. In an inflationary environment, UAN should be one stock to own.
In conclusion, inflation has yet to appear in the economy. Only time will tell if Gross will be proven right, but his predictions seem very plausible. The real question is: Will investors be ready if the inflationary dragons do finally make their appearance?
Definately a good read...thanks for posting it. I think its underpriced here becasue of the divy reduction due to the plant shutdown....once the next quarter divy is in, this should fly to over $30. in short order...at least, that is my opinion.