With ammonia costs tripling from final 12 months, CF Industries Holdings (NYSE: CF) is reaping the advantages. CF is the most important international ammonia community, with over 9.3 million tons of Gross Ammonia Manufacturing in 2021. In the meantime, CF Industries Holdings inventory is down 12% because the market continues promoting off, presenting an attention-grabbing shopping for case.

Though the ammonia market was in a surplus earlier than the pandemic, a number of key elements are squeezing costs greater. For one factor, rising meals and vitality costs result in a pure rise in worth.

However costs skyrocketed when Russia invaded Ukraine. For instance, ammonia costs have been round $480 per ton in 2020, and on February 24, costs reached $1,503, a rise of 213%. But, CF Industries doesn’t see the market slowing anytime quickly.

Actually, the corporate says fertilizer costs are prone to stay excessive for a minimum of one other two years whereas the world replenishes. With this in thoughts, is it time to purchase CF Industries Holdings inventory?

World’s Largest Ammonia Manufacturing Community

After promoting its phosphate enterprise a number of years in the past, CF solely focuses on the ammonia market. That stated, ammonia is a essential compound farmers depend on to develop crops.

The three most important plant vitamins embrace…

• Nitrogen
• Potash
• Phosphates

As farmers use the land to develop meals, it depletes the pure minerals within the soil. Because of this, fertilizer is required to replenish the very important minerals and compounds required for wholesome meals to develop. With this in thoughts, CF Holdings produces nitrogen fertilizer merchandise, with its core product being ammonia (82% nitrogen).

Then, CF upgrades its nitrogen merchandise to incorporate granular urea, urea ammonium nitrate resolution (UAN) and ammonium nitrate (AN).

Fertilizer Costs Hovering

Earlier than the pandemic, fertilizer shares flew underneath the radar because the market perform correctly. Nonetheless, provide chain disruptions began pressuring the market as transportation and transport grew to become scarce.

Then, Russia’s invasion of Ukraine ignited it additional, with each nations taking part in an important function within the international fertilizer and meals industries. As an example, Russia accounts for 23% of the worldwide ammonia provide.

Provide is tight between sanctions and firms refusing to do enterprise with the nation. With practically 1 / 4 of the world’s ammonia coming from Russia, nations might want to look elsewhere to fill the availability hole.

Nonetheless, there’s one other key factor to contemplate. The warfare is inflicting skyrocketing pure gasoline costs, a key vitality supply to make fertilizer. With this in thoughts, the price of pure gasoline doubled YOY, costing $6.48 (per MMBtu) in Q1 in comparison with $3.22 a 12 months in the past. Will the rise in prices have an effect on CF inventory?

Why It Issues for CF Industries Holdings Inventory

Round 90% of ammonia is utilized in fertilizer because the world depends on it to take care of meals manufacturing. Presently, vegetation depend on nitrogen to develop. So, with out fertilizer, the price of meals will proceed working as much as make up for the shortage of provide.

We already see a number of the results as protests erupt over rising meals costs. With this in thoughts, demand for meals is at its highest in a long time.

What this has to do with CF Industries Holdings Inventory:

CF Industries sees a chance with international meals demand anticipated to stay excessive. For one factor, international grain shares are down as consumption exceeds manufacturing. Based on the latest Grains Report from the U.S. Division of Agriculture (USDA), inventory is down in all main grains, together with…

Nonetheless, the inventory will have to be replenished, creating a good greater demand for fertilizer sooner or later. Because of this, the market helps greater planting and fertilizer use as we advance. For that reason, CF administration expects U.S. corn plantings to be between 91-93 million acres this 12 months, close to historic highs.

Though pure gasoline costs proceed climbing, CF Industries is overcoming it with a positive vitality unfold. Not solely that, however the firm is in a greater place than friends exterior the U.S. Particularly, Europe’s pure gasoline prices round $34 per Btu in comparison with about $5.2 within the U.S.

A Clear Power Alternative?

The opposite 18% of fertilizer comes from hydrogen. With hydrogen displaying promise as a renewable vitality supply, CF Holdings is on a mission “to offer clear vitality to feed and gasoline the world sustainably.”

With the fertilizer business relying closely on fossil fuels to function, this could be a huge alternative for CF Industries.

The corporate is working to decarbonize its ammonia community so it may well produce inexperienced and blue ammonia merchandise. CF targets to scale back its emissions by 25% per ton of product by 2030. After which it desires to realize net-zero by 2050.

It will be spectacular if CF Holdings may accomplish this, given its present reliance on fossil fuels. Thus far, the corporate is making progress with a number of new initiatives advancing blue ammonia manufacturing.

Actually, the fertilizer maker believes it would have the power to provide 1.7 million tons of it yearly. Or in different phrases, about 1 million tons of net-zero carbon ammonia.

CF Industries Holdings Inventory Forecast

CF Industries is attaining document free money circulation with demand anticipated to stay excessive and provide missing. Because of this, buyers are seeing important returns this 12 months, with CF Industries Holding Fill up 42% YTD.

The necessity for fertilizer is climbing, and as meals consumption exceeds manufacturing, demand will proceed to develop. Most significantly, CF is well-positioned regardless of rising vitality prices to proceed its run.

Moreover, CF inventory is down from its excessive of over $113 per share final month. Regardless that fertilizer demand expects to stay excessive, the market selloff is leaving few secure spots to cover your cash.

CF Industries Holdings inventory seems able to proceed its uptrend after taking a step again. The development nonetheless seems intact regardless of the continued market selloff. Although there could also be a number of bumps within the highway, CF inventory seems like take care of strong money circulation, rising demand and a plan to assist clear vitality.

Lastly, fertilizer shares are cyclical, and when provide meets demand, we will see decrease costs. Hold a watch out for indicators that the market is easing in case you plan to purchase.