Greetings folks, first DD so I appreciate any input.
Who:
CF Industries (ticker CF) NYSE
CF Industries refines natural gas into anhydrous ammonia which is the largest source of nitrogen used in agriculture.
What:
Earnings play
When:
Earnings are expected to be released 02/16/22 after hours, still subject to confirmation.
Why:
Recently CF has received an updated earnings estimate of $3.05 compared to an expected $0.40 which is an increase of 662%.
CF raised guidance for 2021 citing higher than expected usage of fall nitrogen and higher prices due to increased global demand.
CF has bounced off a recent high of $74.77 and is trading in the mid 60s as of 01/19/22. Recent support appears to be around $55.00 with a nice double bottom on the daily going back to December and November.
Potential play:
First, basic fundamentals as to the usage of nitrogen in agriculture. Nitrogen is a macro-nutrient that crops use to grow and make grain/fruit. The highest usage in the US goes to corn(maize) and wheat production as these crops do not produce their own nitrogen (soybeans do, to a limited extent). There are three form of commercial nitrogen that see the widest usage, anhydrous ammonia in gas form, urea in granular form, and UAN in a liquid solution. Urea and UAN can volatilize and leach due to weather factors which means these forms are usually applied when the growing crops need them, basically spring and early summer. Anhydrous is unique in that it can be injected into the ground and will remain inert with soil temperatures under 56 degrees. The fall of '21 was drier than normal which allowed much of the corn belt to apply anhydrous ammonia to a greater extent than normal. This will result in a net lower amount needed/purchased in the spring.
I believe we will see a run-up to earnings and then a subsequent drop following earnings release. CF will have difficulty repeating such a performance with their earnings going forward.
On earnings release we may see a strong bullish reaction driven by algos picking up the EPS increase.
Following earnings I expect a pullback as traders reason that the above average fall application of nitrogen will lead to lower that average spring application.
This is an earnings play so it is definitely a gamble. I would love more looks at this and please tell me what you all think.
And it goes without saying, not financial advice.
Good luck Valhalla
