CF Industries potential run-up to earnings and subsequent drop

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

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CF holding up well this morning

Thank you @Catalyst_59 for this DD. Great play so far (100% banger)

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Good to hear, I hope it keeps going. We are also seeing strength in the corn and wheat markets currently so if you can keep an eye on those it may provide guidance for short term stock movements. Ag in general held up pretty well through yesterday’s swing. Remember to take profits that you like. Good luck!

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Quick update, as of today this has basically hit resistance established earlier this month. Honestly this has come farther faster than I expected. Keep in mind we are still two weeks out from earnings. Take profits that you like!

Side note, rally continues in the grain markets. The two other companies that are major players in this sector are Nutrien (NTR) and Mosaic (MOS), both of which are also trending up. NTR also has earnings scheduled for 02/16 and as of close 02/18 $75c were actually pretty reasonable. I have not done any DD on NTR but I am familiar with the company, I may take a position as a gamble. Good luck and stay green!

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CF served me as well as market hedge.

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Really strong movement right now. I’ve taken profit after a rough week with other plays. I’m holding a 2/18 $80c as a fun gamble for next week. Not sure on a put play following earnings. This was fun!

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I believe right now it runs one the Ukraine news similar to other commodities. Could be the case that ER will not matter that much. Bought in this morning Match22 70C and already up 30%.

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Any particular reason on the sell off today that I’m not seeing? Profit taking before earnings perhaps?

Did not see any news, it jumped on the Russia/Ukraine news last week and had a good run the last weeks, so i believe it was profit taking before ER. Actually i will keep 1 call to see how it will play out.

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CF has been running this week. Maybe we can get some UW flows added to this thread.

Looks like CF broke out of an inverse HAS on the weekly and monthly. It’s tough to play this one at this level. However, it is setting new highs every day recently.

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I agree, CF MOS and NTR are all pretty high compared to where they were even two weeks ago. They are tough to play right now.

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So, fertilizer continues to run – and the Russian invasion of Ukraine is just going to compound things (as is evidenced by the current run on WEAT and CORN).

In addition to MOS, NTR, and CF – CVR Partners (confusingly: $UAN – I’ll use “$UAN” to distinguish it as the stock rather than the fertilizer) is a really interesting play in this space. It’s much smaller than the others, and it’s also structured as a Master Limited Partnership (MLP) which has some interesting tax implications… not the least of which is: if you buy $UAN in a tax-advantaged account (e.g. IRA, 401k, etc), you’ll owe taxes on its distributions (which are distinct from dividends).

Anyhow, the pattern for $UAN has been to basically remain pinned below a certain strike price before each earnings and distribution payout, and then rocketing upwards after expiry to catch/surpass the performance of the other fertilizer names. The current pin price seems to be $110 for March 18. There’s a lot more research that I need to do personally, but this is a good starting place: CVR Partners Stock: The Perfect Storm, Massive Earnings Are Imminent (NYSE:UAN) | Seeking Alpha – this guy lays out a pretty solid case for seeing $UAN nearing $500 towards the end of the year… and this was before the Russia/Ukraine situation ignited. It sounds ridiculous seeing as how the price is below $110 right now, but the fertilizer market was already beginning to experience a perfect storm – and this crisis is only adding to it.

Personally I added a bunch of shares today at $107, and will continue to add as long as its below $110.

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This seems to be holding true, at least so far. $UAN closed at 105.69 on Wednesday (3/16), and it’s over 125 right now—outpacing the big name fertilizer equities since then.

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Now up roughly 27% since Wednesday :open_mouth:

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Good find and congratulations

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