Good day, ladies and gentlemen, and welcome to the First Half and Second Quarter 2021 CF Industries Holdings' Earnings Conference Call. My name is Kristel (ph). I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. [Operator Instructions] I will now turn the presentation over to the host for today, Mr. Martin Jarosick with CF Investor Relations. Sir, you may proceed.

Good morning, and thanks for joining the CF Industries ' first half 2021 earnings conference call. I'm Martin Jarosick, Vice-President of Investor Relations. With me today are Tony Will, CEO, Chris Bohn, CFO, and Bert Frost, Senior Vice President of Sales, Market Development, and Supply Chain. CF Industries reported its first-half 2021 results yesterday afternoon. On this call, we'll review the CF Industries ' results in detail, discuss our outlook, and then host a question-and-answer session. Statements made on this call and in the presentation on our website that is not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now, let me introduce Tony Will, our President, and CEO.

Thanks, Martin. And good morning, everyone. Yesterday afternoon, we posted our financial results for the first half of 2021, in which we generated adjusted EBITDA of approximately $1 billion. billion. Strong nitrogen demand and lower overall production have tightened the global supply-demand balance supporting much higher prices than in recent years. At the same time, energy spreads between North America and high-cost regions have expanded considerably increasing margin opportunities for our cost advantage network. These factors helped drive an increase in adjusted EBITDA of nearly 25% compared to last year. And we produced our strongest first-half financial results in six years. Additionally, the business continues to generate strong free cash flow, giving us tremendous flexibility as we focus on achieving investment-grade metrics and executing our clean energy initiatives. The first half was not without its challenges, including the natural gas-driven production interruptions we described on the first-quarter call. The first half also saw a continued demonstration of the harm the UAN industry in the U.S. faces from subsidized and dumped imports from Russia and Trinidad. Until the last few years, UAN earned a substantial premium over other upgraded nitrogen products due to the higher capital investment required to produce it and the meaningful agronomic and operational benefit it offers to farmers. As you can see from our recent results, UAN now trades at a significant discount on all upgraded nitrogen products due to unfair trade practices. We have taken the necessary steps to address the situation by petitioning the Department of Commerce and the International Trade Commission to initiate anti-dumping and countervailing duty investigations. We look forward to the result of the ITC 's preliminary vote later this week. Looking forward, we are very bullish about the next 2 years. As Bert will describe in a moment, the need to…

Thanks, Tony. The global nitrogen supply and demand balance remain far tighter than we have seen in recent years. Underpinned by strong agricultural and industrial demand, plus higher energy prices in Europe and Asia. This has created a highly favorable pricing environment that has persisted into the second half of this year. Based on the agricultural and energy outlook we see today, we believe a positive pricing environment for fertilizer will remain in place, at least into 2023. Strong global nitrogen demand is being led by the world's need to replenish coarse grain stocks. The global coarse grain stocks-to-use ratio was the lowest since 2012, entering this year's spring planting season, commodity prices have risen significantly in response, and farmers are incentivized to maximize yield with fertilizer applications. Given this, we expect to see sustained demand in the second half led by India and Brazil. We expect similar strength from North America and Europe leading into the 2022 application season. We had a positive start to meeting this demand a few weeks ago when we launched our UAN Fill Program. We have built a solid order book for the third quarter at a no-load equivalent price of $285 per ton, though prices remain at a significant discount to urea for the reasons Tony mentioned. Further out, we expect that high demand for coarse grains, especially from China, will contribute to persistent low global stocks into next year. As a result, we believe that stocks won't still need to be replenished at least into 2023, supporting continued strong nitrogen demand. Increased economic activity is also driving higher global industrial demand for nitrogen. In North America, we've seen diesel exhaust fluid sales rise above pre-pandemic levels. Our first-half DES sales were a Company record and we expect overall demand will continue to grow. We've also seen higher demand for ammonia and nitric acid from our industrial customers. Globally, industrial-related demand in China and from phosphate producers has also increased. While we expect demand to remain strong for some time, we believe that global fertilizer inventory in the channel today is low and will need to be rebuilt. So far in 2021, high energy costs in Europe and Asia have lowered operating rates and reduced supply availability, particularly for ammonia and urea, further supporting global pricing. As you can see on Slide 9, energy costs in these regions have increased to over $14 for MMBtu. And Eastern European producers will become the global marginal producer for the time being. The higher energy costs have steepened the global nitrogen cost curve substantially. increasing margin opportunities for low-cost producers, such as CF. The forward curve suggests CF will benefit from favorable energy differentials for the foreseeable future. As a result, we believe we have a tremendous opportunity ahead of us that we leverage our manufacturing, distribution, and logistics capabilities to deliver for our customers. With that, let me turn the call over to Chris.

Thanks, Bert. For the first half of 2021, the Company reported net earnings attributable to common stockholders of $397 million or $1.83 per diluted share. EBITDA was $994 million, and adjusted EBITDA was $997 million. The trailing 12 months net cash provided by operating activities was approximately $1.2 billion and free cash flow was $700 million. Based on the outlook Tony and Bert had shared, we're well-positioned to build on these results and continue to generate significant free cash flow. I want to provide additional context to the 2 items we covered in our press release. First, we raised our estimate for capital expenditures for 2021 from around $450 million to approximately $500 million. The increase is driven primarily by our decision to pull a significant maintenance event scheduled for next year into this year. We believe that performing this activity in 2021 is best for the asset and reduces the risk of an unplanned outage during the 2022 spring application season. Going forward, we expect capital expenditures to return to the range of $450 million per year. With this additional maintenance project, the high level of previously planned maintenance, and the additional maintenance from severe weather in February, we estimate that gross ammonia production and sales volume will be around 9.5 million tons and 19 million product tons respectively, both at the low end of our forecasts earlier this year. Looking into 2022, we have a more typical maintenance schedule and would expect to return to approximately 10 million tons of ammonia production and sales volume of 19.5 million to 20 million product tons. Second, we are taking additional steps in line with our focus on achieving investment-grade ratings and positioning the Company to execute our clean energy initiatives. We have announced that we will redeem $250 million of our Senior Notes due June 2023. Which will reduce our gross debt to $3.5 billion. We expect to lower our gross debt to $3 billion by or before the maturity of the 2023 notes. We'll also continue to return cash to our shareholders through quarterly dividends and opportunistic share repurchases at attractive levels. With that, Tony will provide some closing remarks before we open the call to Q&A.

Thanks, Chris. Before we move on to your questions, I want to recognize everyone at CF for their strong work during the first half. They successfully managed many challenges in the first 6 months of the year, setting us up well for the second half. Most importantly, we did this safely with our recordable incident rate at the end of June at just 0.28 incidents per 200,000 labor hours, significantly better than the industry averages. As we look ahead, we expect strong agricultural and industrial demand to create all-time record global nitrogen demand. The forward curve show very favorable energy spreads to Europe and Asia over the same timeframe which should support robust margins and cash generation. We see good progress on our clean energy initiatives. Taken together, we are well-positioned to create significant shareholder value in the near and longer-term. With that, Operator, we will now open the call to questions.

[Operator Instructions] Your first question comes from the line of Joel Jackson with BMO Capital Markets.

Hi. Good morning, everyone.

Good morning, Joel.

It's very rare where your second half EBITDA is higher than your first half EBITDA. I think it's been a decade. Is that a situation you were expecting this year? And then maybe as you answer that, maybe you could talk about what type of pricing you think you -- visibility you have in the third quarter which happens to fourth-quarter? Thanks.

We're really pleased with how the year is shaping up. Obviously, we were disappointed with where UAN values were as a result of Russian and Trinidadian dumped imports in the first half of the year. And -- but as you look at our balance sheet at the end of the second quarter, you see it -- our customer advances have basically all of that had moved through the system. And when we launched Phil at 285 [Indiscernable] for UAN, that's a substantial uptick and that's really the price environment that we're looking at in the third quarter of the order book going forward. And then, subsequently, we've been able to get a little bit of further appreciation off of the 285 number. So we're really pleased with how the order book is set up right now and what the back half of the year looks like. We've seen strong interest in ammonia for the fall already, Urea continues to trade in a reasonable spot, and, as I said, UAN looks very good. So, we're really excited about the second half, and we think that it's not just the second half, but it sets up well for both 2022 and 2023.

Okay. Thank you for that. And just on -- maybe following up on free cash flow. Do you think that this year you'll end up with more free cash flow than last year? Obviously, prices are higher and you've got some working capital outflow in the second quarter. [Indiscernible]

Good morning, Joel. From a free cash flow, standpoint is, we talked about in the prepared remarks, we expect to continue to see significant strength. As you mentioned, in this particular quarter, we had a few working capitals, both with accounts receivable and then as we talked about the bleed through the customer advances, which was pretty -- that was about $0.5 billion between those 2. But as Tony just got done mentioning, we're seeing pricing strength due to the energy differential spreads that we're seeing globally for the second half of the year. We still do have, as we mentioned, our product tons will be on the lower end, probably around 19 million product tons. But outside of that, we see a really strong second half of the year from our free cash flow standpoint.

And overall for the year, as Chris mentioned in his remarks, we are seeing higher Capex this year, principally due to all of the major turnaround events that we've done. That -- that's a little bit of a hit, relative to where we were last year. But we're really, again, really excited about where we sit and what the forward picture looks like.

Your next question comes from the line of Adam Samuelson with Goldman Sachs.

Yes, thanks. Good morning, everyone.

Good morning, Adam.

Good morning. The first question on the balance sheet and capital allocation and was hoping to just make sure to clarify, the value you see in having the investment-grade rating, I guess, I'm still trying to get my head around the idea of repaying early status sub 3.5% when your stock trades at, what I think would be north of 10% free cash flow yield. And just where you see the value of the investment-grade credit rating over the long to medium term as you think about the green investment figure you were contemplating.

I'll take the first cut at this Adam, and then I'll turn it over to Chris for probably more and insightful comments. But there are some real frictional costs that we face in the business from not having investment grade that has to do with lines of credit and some other embedded derivatives with our CHS venture, and those frictional costs go away if we go ahead and regain investment grade. I also believe that there is a signal to the equity holders about the stability and strength of the Company with an investment-grade rating. And we think both of those things are important. So, that's really our focus on why to get back to investment grade.

Yeah. And I would add to that. As we look at some of our growth plans going forward with having the Senior Secured Notes, which are 2026, does limit a little bit of some of the asset moves we can do within our structuring to get the most efficient, whether it be from a tax basis or others in an asset. By getting investment-grade, that Senior Secured drops off of that and allows us a little bit more activity. But I think really where your question's going is, with a return to capital and different things like that, I think what we see over the next several years here with free cash flow generation is we're really going to be able to reduce our debt to that gross target of $3 billion, invest in our clean energy initiatives, specifically those that we've announced already. And then additionally, return cash to shareholders. I think what we're seeing over the next couple of years will allow us to do all 3 of those.

And the investments that we're looking at right now, both from a green and from a blue perspective, are not huge dollars and are managed easily with our cash flow. And the issue, as you mentioned on the yield, while the yield flow we've got -- we've been building some cash on the balance sheet which is terrific, but for which we're not really earning any kind of return. And so even though it's taken out something that looks nominally like a fairly low-interest rate, it's still better than what we're generating on the cash. And while you're certainly correct that the equity trades at a higher effective overall cost to the business from a cash flow yield perspective, I think that by getting rid of some of those residual costs and drag on the business having the flexibility that Chris talked about in terms of internal structuring of assets to optimize the tax consideration, all of those things that are pretty important things for us to be able to do, and we want to do that first.

Okay that's really helpful. And then a quick follow-up, in the second quarter, you had about a $100 million year-on-year of incremental costs in the business related to maintenance and the fixed cost absorption with higher turnarounds. And I'm just trying to get a sense of how we should think about the second half in that light, seems like the turnaround maintenance activity is going to be heavy again in the second half. And just thinking about the P&L impact of that for the balance for the year.

Yeah., so 2 big pieces I would put in the cost side that, and I want to compare it to a year ago. Based on the amount of turnaround activity and other maintenance work that was going on, we ended up with almost $60 million of incremental maintenance and fixed cost write-off associated with the plans in Q2 versus last year. And then on top of that, we ended up with about $100 million that hits the cost of goods salting through the first half of the year. That's based on purchased products for resale, and part of it was based on the commitments we had made to customers. With the plant outages and the turnarounds, We needed to cover those positions and make sure we could provide reliable supply on our commitments. And so, we went out to purchase both urea and ammonia to cover some of those requirements. And so, in an average, or in an otherwise normalized year, you wouldn't see that $100 million hit the COGS line in that kind of way. And so, those are 2 big pieces that I'm thinking we won't have to the same magnitude second half. But you're certainly right that there is ongoing pretty significant turnaround activity in the second half of the year and that may very likely lead to some ongoing fixed costs write-off. But --

Yeah. I would say probably the best way to look at that is just that the total gross ammonia production we talked about at 9.5 million tons and then the product tons at 19 million tons, if you look at that as what we're going to produce in the second half of the year, I think that gives you a pretty good indication of the additional work. But as Tony mentioned, we did have some additional drag here in the first half of the year that we don't expect in the second half.

Your next question comes from the line of P.J. Juvekar with Citi.

Hi, good morning. You're purchasing 100% fuel energy in the UK, which could be renewable energy, which is a great step. What is the cost of renewable energy in the UK? And how does that compare to your prior electricity contracts?

Hey, P.J. Good morning. The incremental cost to us is pretty at de minimis actually. As we are looking at it, it's somewhere in the neighborhood of like 60,000 pounds to 100,000 pounds just to move to renewable versus what we're paying today. So the incremental cost will not be noticeable at all in the system which is why it's so easy to -- per year, the 60,000 to 100,000 is per year, which is why it was very easy to go ahead and move to the 100% renewable on this and reduce our scope to emissions. We're looking at similar opportunities in the U.S. where we can get some incremental renewable energy into the system without significant cost to the overall operations and so we're trying to do this where it makes good sense. We provide a really good baseload for some people because of the consistency of drawing that we have of the network and so we're able to negotiate pretty good rates on that.

Great. Thank you. And then today's miss, if you want to call that, came from higher maintenance activity, which you outlined just now, and also higher natural gas costs. How much higher were gas costs compared to your forecast? And I know it can change anytime, but what's your -- based on your hedges and all that and forward curve, what natural gas cost do you expect for you in the second half? Thank you.

Yes. P.J., on the cost of gas, what I'd say is more important than the absolute cost that we face is what the energy spread differential is. And so while last year, you saw very low gas costs both in the U.S. and also in the U.K., you also saw global energy costs that were dramatically reduced, partly COVID - driven. And as a result, although our costs were low, our margin opportunity was also compressed because you saw really high operating rates. Right now, what you see is energy cost differentials between the U.S. and Europe, and Asia. It's like $10 or $11 per MMBtu. And so you see a huge margin differential between what the high-cost producers are running at and what our network runs at. And so, as we think about it, despite the fact that our costs are going up, our margins are expanding much more rapidly than what our costs are going up, this is a great environment for us. In fact, I think -- and this is a chart that we'll likely be producing in the future. We've looked at this analysis, that the higher the gas cost is in Henry Hub, because the U.S. is such an important contributor into the LNG market, particularly on more of a spot basis, which you tend to see as higher energy differentials in LNG import regions. And as a result of that, there's typically margin expansion when our cost structures are a little bit higher. This is a good thing for us instead of a headwind. But as we look forward, we tend to just believe in the forward energy -- where the forward curve trades on the NYMEX and some of the other major pricing indices, feeling that we don't have a lot of additional insight over where the market puts forward.

Yeah. P.J., I agree with everything Tony just said. And maybe instead of looking at the overall COGS in total, it's the controllable COGS side that was really hit by maintenance because, as Tony mentioned, when we see expanded gas, sometimes that helps us even more from the pricing. So, the controllable cost per ton, which generally runs in the mid-80s and is significantly higher than that over this first half of the year. We expect that to get back closer to the mid-80s when next year, as we mentioned, we'll be back to normalized operating rates of around 20 million product tons.

And to add to that what Chris just said, we're -- in a normal year, we do about 4 major turnarounds, which would be an ammonia plant plus some associated upgrades. Because of COVID last year and us trying to protect our employees and minimize the number of contractors we had on-site, We reduced it to just 2 major turnarounds last year, which is one of the reasons we set an all-time ammonia production record last year because we had fewer turnaround activities. This year, we've got 7 instead of 4, so the 2 that we were supposed to do last year that we moved forward, the 4 that were already scheduled for this year. And as Chris mentioned earlier, we're bringing 1 of them from next year backward into this year to make sure that we've got a reliable operation on that asset. In addition to being seven instead of four, two of the turnarounds were our major expansion plans. So our two biggest plants in the network, both the Donaldsonville Six and Port Neal Two ammonia plants and those tend to be a little longer and a little more expensive than the rest of the network, or the average size plants. This is the first time they've undergone a major turnaround. But our expectation as a result of this is that we're well-positioned to be looking at potentially able to set an all-time production record next year for ammonia, and that's one of the reasons why we wanted to make sure that we got Port Neal 2 done this year because our view is, as good as the pricing opportunity is right now, we think next year looks very strong as well and we want to make sure we can run flat out. So, what we're really doing is setting up for the future here and I feel very good about where we're positioned.

Your next question comes from the line of John Roberts with UBS.

Good morning. This is Lucas Beaumont on for John. I just wanted to follow up on your discussion there on the gas costs, if I can. I take your point that the differentials are super high right now between Europe and Asia and North America. But just looking at where Chinese coal is, that's probably quite a bit more of a normal historical spread. Just as we look forward then, I was just wondering what gives you confidence that the European and Asian spreads are going to persist as opposed to come back to a more normal level and Chinese coal shifts back into being the marginal cost reducer?

I think currently Chinese coal is about $9 an MMBtu on the anthracite side. So you're still looking at a $5 relative differential to Henry Hub. $5 is a great place to be. And we don't see indications that China is trying to reduce coal prices. If anything, it wouldn't shock us to see further restrictions on urea exports or really trying to push that down instead of up. And so I think that just the lack of substantial availability, and also a pretty stable price outlook on that suggests to us that China, while always important, may not be the global price setter going forward. Again, Lucas, as we look at the forward curves, we tend to look at what TTF and JKM are and -- as well as the NYMEX on Henry Hub. And if you just look at those differentials, that provides a really terrific margin opportunity for our network.

Yeah. I think, to that point, the spreads right now on the TTF and NBP are $11 compared to Henry Hub, and next year, Strip has them over $7 for the average of the year, so significantly higher than anthracite. And as Tony mentioned earlier, and Bert in his remarks, the supply side is so tight that you have to bid at that particular higher cost. so right now, the marginal producer is European and other Asian producers. And you're seeing that in prices. So the cost curve in a demand-driven market was well above what cost curve economics are right now.

And as I also mentioned in my remarks, we're expecting an all-time record global nitrogen demand next year. And so as Chris said, what we're really talking about is the very, very highest cost production that needs to be bid in. And in a demand-driven market, we're trading above where the cost curve economics are right now. So again, all of that provides a really great operating environment for us.

Your next question comes from the line of Steve Byrne with Bank of America.

Yes, thank you. Tony, you mentioned a forward book on UAN and the 285 or maybe higher in the third quarter. Can you just comment on your forward book in urea and ammonia, how much of your third quarter volumes do you think you already have locked in, and roughly the price? Can you shift volumes to urea just, given it's got a higher gross margin per ton?

Yeah. We're -- good morning, Steve. This is Bert. And we're pleased with our -- I'd say very pleased with our order book going into Q3. As we exited Q2, and you can see from our information that we had worked through our order book from the first half and entered into Q3 with very few orders on the books, we built a nice ammonia book for fall and the public pricing in there is $600 to $640 at the terminal level, and then we launched the UAN Fill Program at that 285 NOLA and then stair-stepped it up as we go through -- up through the Midwest, and built a healthy order book for Q3, and now have looked at Q4 pricing. For urea, the market has stayed in the range of $420 to $440 FOB NOLA. And then obviously stair-stepped up to the Midwest and into Canada. And so we have a healthy book on for all 3 products. And we look forward to, as Tony and Chris have both articulated to their comments and questions, we see just due to the structural nature of the global markets for grains and oilseeds, and just some of the climatic difficulties that have taken place, both in the U.S., the Upper Midwest, and Brazil, and just low inventories. All these things coupled together and low inventories of fertilizer probably see a positive pricing environment for Q4 and into the next year. So we're anticipating a nice year.

Thank you, Bert. And just wanted to drill in a little bit on the blue ammonia opportunity for you. It sounds like the engineering to capture and treat that carbon is pretty well understood and underway. But is the rate-limiting step to move forward in that less about demand and more about sequestration? And if so, would you ever consider pursuing a Class VI injection well on your own property just to have control like at Donaldsonville?

Hi, Steve. Yeah. Currently, the availability of Class VI permanent geological sequestration is potentially the limiting factor. Although, there are opportunities to sequester CO2 tomorrow if we had the dehydration and compression in place for EOR applications. And even for EOR, you are provided some level of the 45Q tax benefit from that. It's not quite the full benefit, but it's available now if we're ready. And that's one of the reasons we're pushing so quickly on dehydration and compression because we want to get that in place and really have that up and running, availing ourselves of the opportunity available now and be able to go immediately into ejection wells when those permits are issued and are ready to go. Relative to us wanting to get into that, that's not really our area of expertise. That's one of the areas where we look to other market participants and want to rely on their expertise. And there's a lot of subsurface geology and things that we just are not set up to do. And so instead of trying to replicate that, we want to partner and work with other people that that's their bread and butter.

Thank you, Tony.

I would say there are a number of people that have come to us and said the geology within just a couple of miles of Donaldsonville is well situated for Class VI permits and they're going after those kinds of things. And so what we're talking about is, generally speaking, a pretty short-haul run in order to get to them. And -- so that's very encouraging, just in terms of what the overall timeframe and cost structure look like to do the injection.

Thank you.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Sorry. Thank you. Good morning, everyone. Tony, last October when you brought the green and blue strategy to the investment community. Obviously, the free cash flow outlook was a lot different and obviously a lot lower than it is today. And I think at the time, you characterized what the spending levels would be with, at least initially, it was going to be within your annual Capex budget. You mentioned a few questions ago that you weren't talking about big sums of money for the types of stuff that I think you've had in the press release overnight. But maybe you could just size for us over the next few years, as we think about these efforts, is there a dollar range that you're anticipating spending within? And is there a max level that you would spend or any parameters you want to put around this for us?

Yes. So, the ones that we've announced, the green hydrogen/ammonia project at Donaldsonville, is in the range of $100 million. The dehydration and compression systems that we're looking at for CO2 in Donaldsonville is probably in the range of about 200 million and that should be able to provide us with about 1 million tons of blue ammonia, and I think we can get there in 2 years or by the beginning of 2024. And then, we're also looking at, potentially, a similar dehydration compression unit in Yazoo City, Mississippi, which should be able to provide us another, call it 300 000 -- 250,000 tons to 300,000 tons of blue ammonia. And that would probably be in the $70 million to $80 million range. The projects that we've announced so far are sub 400 million spread over the next 2 to 3 years. And based on the increased margin and cash flow that we're seeing from operations that easily account taking care of, just based on normal spending levels. Plus with the big slug of turnaround activity that we'll have in the rearview mirror here going next year back to more normalized rates, I think we're in a good position to be able to manage all of that. The thing that's exciting though is, as you mentioned, a couple of our announcements, both with the Singapore port ITOCHU consortium looking at ammonia as a marine fuel, which we think there are real legs to that, and probably happening sooner than we initially thought, along with our Mitsui announcement around evaluating blue ammonia opportunities. Since there is a very likely -- chance for us to potentially accelerate some of those opportunities and help this market develop more quickly. And so we're certainly interested in thinking about additional investments above and beyond. But I think again based on our enhanced free cash flow generation right now, we're not worried about being able to fund that. We feel that we're really in a great spot given our ability to leverage our existing asset base and get to blue and green ammonia much more -- both quickly and much more cheaply than other people can replicate that.

So that -- is it fair to say then that the probability of a very large-scale announcement with a big price tag on it over the next, say 3 years, is pretty low?

Look, we're excited and believe, just like Mitsui and a lot of other participants, that blue and green hydrogen, blue and green ammonia is going to be to be in short supply relative to the demand that's coming. I think the world is going to need more of it than what exists today. That suggests some of it's got to get built, blue in particular. And if you think about who the best ammonia operators are in the world with the largest network and where there ought to be significant scale advantages, it's us. I'm not taking anything off the table. I'm also not saying there's going to be something that happened. We're going to see how things develop here. But we're excited that there's already an opportunity for us to generate significant volumes at a very low dollar investment.

Okay. Very clear. Thanks for the update.

Your next question comes from the line of Mark Connelly with Stephens.

Thanks. Tony, expectations for corn acres are obviously pretty solid next year. Assuming we continue to have the kinds of logistic challenges that we've had for the past year, is there anything materially different you would do? Given the flexibility of your system, I'm just curious if there's something you learned, and said, "Bert, if we had known this at the beginning we would have changed this?"

Yeah. I'm going to turn that over to Bert here in just a minute. I would say we continue to look opportunistically at expanding some distribution assets and whether that means incremental UAN tanks or other points of in-market distribution where we can either lease them or buy them, but just to make sure we've got that product staged in-market and take full advantage of supply chain disruptions. I think those kinds of things are easy to do, but I'll turn it over to Bert and ask for other things.

I agree. You're spot on. I think the biggest step we've taken is this case with the International Trade Commission. We've been monitoring this for years and suffering for a number of years with the innovation of product coming in at subsidized levels with -- whether it be gas or freight, as well as on consignment to some of the end receivers in the U.S.. And so those 2 issues we brought to the front and advocated for our case, and we believe we'll have a positive outcome. With that, we've been, as Tony said, structurally moving over the last several years in anticipation of supplying a greater amount of UAN into this market. UAN is growing. It has traded as a -- at a discount to urea over the years because of the reasons we have already articulated but planned on growing that and supplying a higher portion of the U.S.' needs with a system that is built for the logistics on all the major railroads, on the rivers, and now with our reach in California and on the East Coast, we feel very good about our position for the future. And I think that another thing, where we've talked about blue and green ammonia and blue and green products, as we were able to bring those products to the market, we believe ammonia in the Ag market and blue ammonia being able to create a low valued -- or low carbon value chain, will bring substantial value to the agricultural community, as well as to CF.

And one other thing I would add, Mark, we didn't -- we weren't specific about it although Bert touched on ideas. He and his team have worked really hard to try to develop the best relationships we can on the rail side. That can be challenging with certain carriers at some times but we have very competitive rates now out to California. We've invested with some partners out there around tank space and our logistics into that region are really attractive for us, and so our ability to go ahead and satisfy domestic U.S. demand is better now than it's ever been. And again we're really looking forward to the ITC verdict here at the end of the week.

Sure. Just switching gears to Brazil for a second. Brazil farmers clearly want to plant more corn. Last year, they didn't quite get there. But the trend is for more corn down there. How will that -- if you look at this global cost curve and the import situation, if Brazil does finally start to see that corn tick higher, is that going to improve your situation in terms of competition in the Gulf? You've talked about price parity issues being out of whack every once in a while, and I'm curious if that's a partial resolution to it?

Mark, I think anytime you see international demand continue to tick up and we're seeing record levels of demand for imports in Brazil, India, this year, it's really, really strong. That helps take a little bit of the relief valve pressure off of the U.S. Gulf in terms of product, trying to find liquidity out there. So I think that that's always a good thing. But given where soy prices are, and in fact, given what we view is going to be increasing movement toward biodiesel, and a lot of that coming from oilseeds, I think you'll see ongoing competition between the acre, whether it's soy or corn. And so I think all of this is good because on the one hand, what we don't want to see is a huge oversupply of corn acres, driving a high stocks-to-use ratio, and then you end up being depressed. So I think a nice healthy balance where acres are being competed for is really good, particularly given the fact that now in the -- as economic activity is picking back up after COVID, We're seeing all-time demand into the industrial sector for nitrogen products. And so we don't need to see huge increases in corn acres. In fact, that would be a bad thing for us. I think nice, steady-as-she-goes with the increase in industrial demand is just what the doctor ordered here.

In terms of -- what we're seeing in Brazil is exciting for urea demand, or I just say overall nitrogen demand because ammonium sulfate has also increased in imports. We're close to 7 million -- a little over 7 million tons of demand. And the growth in corn acres was negatively impacted by the drought this year, and that's going to impact that whole region. And it has, especially for shipping on the Parana, the river there coming out of Argentina. And so what we're looking at is some structural changes that are taking place in Brazil with ethanol production, especially in the interior, and then combined feeding which is also consuming more feed grains. So when you look at the whole picture and what they're looking at in terms of it doesn't necessarily require more acres, but just higher yields. Higher yields are driven by more nitrogen. So the combination of looking at what they're doing structurally in the interior, and for exports, for higher-end protein production, all combined for a positive nitrogen environment for Brazil.

Your next question comes from the line of Michael Piken with Cleveland Research.

Yeah, good morning. Just wanted to get a sense of how your ammonia price realizations may trend. I understand that you guys booked some products around 600 and I know Tampa's gone up, but you also have the Mosaic contracts. Could you talk a little about how the price realizations might look for ammonia in the third quarter, and moving forward in terms of the meta volume you have committed, that kind of cost-plus?

Yeah, you're right. We have a cost-plus contract with Mosaic that is consistent with month-by-month consumption. And we like that contract. They're a very good customer and a good partner. And you have the industrial contracts that are -- many of them are based off Tampa, and Tampa is at a high price today and we anticipate that continuing just due to the global issues we articulated in our preparation as well as Q&A remarks. Just to the high-cost structure in Asia and Europe, they're consuming all the low-cost produced ammonia which is then shipping to those regions, keeping the market tight. And then you look at fall ammonia demand in the U.S.. We're really anticipating corn acreage increasing, probably over 94 million acres. And last year, we had an exceptionally good ammonia season. And we've got a lot of that booked for this fall at those prices that we articulate within a short time, you have to remember. And so we have some very good margin opportunities going forward in the ammonia book.

Okay, great. And then you just talked about, on the call being towards the lower end of the volume guidance, 19 million product tons. In terms of the split of where some of those tons might have come out versus last year, could you give us a rough breakdown of how much of it's going to be ammonia versus urea versus UAN? Thanks.

When we look at it on an ammonia basis, it's easier to communicate that on ammonia because then you're right. The upgrades are moved around, but we shift our production based on margin. And today, we've got some very good margin opportunities across the board. It's a fight for the ton. And I would say at this point with the projections for urea and UAN, that fight will continue. I would say more to come.

Okay, thank you.

Your next question comes from the line of Andrew Wong with RBC Capital Markets.

Hey. Good morning. So just given the very strong cash flow that you'll probably be generating and it seems like it's more than enough for your Capex priorities and debt reduction, would you consider a bigger share repurchase program or some sort of special dividend?

Probably not a special dividend, but certainly are considering what we would do in the way of a share repurchase program. Although as Chris has talked about in the past, I think we are much more likely to be larger, bigger chunks opportunistic as opposed to a ratable program. We think that going about it that way provides even additional leverage and return opportunity for our equity holders but, certainly, that's one of the things that we're talking about.

Your next question comes from the line of Duffy Fischer with Barclays.

Good morning. Just a question on the timing around the anti-dumping, so a favorable versus unfavorable decision coming up here. What are the steps after that? And then if it's favorable in the near-term, do you think you'll see a similar phenomenon here with UAN as we saw with phosphate where the parties this is against extensively just stopped delivering and fought this until some kind of conclusion [Indiscernable] What should we expect from this process before its final and its impact on the market?

Morning, Duffy. The decision I think is coming out on Friday. Our expectation is that if we get a favorable outcome, we would expect UAN to go back to the historical practice of trading at a premium to other upgraded nitrogen products. That's really where I should trade as I mentioned in my remarks, it's both more capital intensive, and therefore, you need to earn an appropriate rate of return on that incremental capital investment to incent people to make that product. And it also has significant agronomic and operational efficiencies for farmers. And so because it's both good for the grower and its higher cost to produce, it ought to carry a premium, and that's where it was, and that's really where it should be in the absence of dumped tons. So that's where we think it goes to the longer term. The U.S. domestic manufacturing capacity is sufficient to serve the U.S. demand. And so there's really no need for those imported, particularly the subsidized tons to show up over here. And so -- think we're well-positioned to satisfy U.S. demand and what it does then is it just means we don't have to export those tons not like we used to. In terms of overall timing on when imports would stop showing up, I think that's a little bit TBD but we're talking about relatively short-term on that. In the event that it's not a favorable outcome, I think it's just business as usual because that's the world that we're living in currently. So it's not like there's a downside to what today is that -- we're operating with all of those dumped tons coming in today and we're finding a way to navigate it despite the fact that it's challenging. Bert, do you have other thoughts on the timing?

Well, we've been given some timing ideas and expectations and that -- the official first response is on Friday. And then something by early Q4, we're expected to have a result. And then final decisions could go as long as into Q1 of next year. But I want to address more of the customer position. We have long-term relationships that are obviously decades-long but also contractually laid out and some soft contractual commitments that we work very closely with our customers on supply. And so those who have been with us or against us in this case, we've been talking to and will continue to work with. And that's why we did a Fill Program in anticipation, just as a good faith that was appropriately priced based on the constraints of today which, again, are high levels of imported subsidized product. But going forward, we will still work with our customers and be aligned with what is an appropriate price in the market and continue to communicate and support and help them grow their business which in the long-term helps the American farmer and the American economy.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Thanks very much. My understanding is that in the third quarter and at some other times, you sell ammonia to industrial customers on a cost-plus basis. Should those legacy contracts be revisited? That is, are you giving away too much in this environment? Can you move the contractual terms, or are you just stuck because they buy seasonally in a weak quarter for you in terms of volume?

Jeff, most of our industrial business, part of the reason that it tends to be lower priced because is it's ratable. It doesn't tend to be seasonal. And so there certainly is some level of our business that is on a cost-plus basis. A lot of those contracts either come up every year, every couple of years for reevaluation. And we think about what the market dynamics are from an S&P balance in terms of how much of that business we want to look at and what the -- how big the plus is in terms of the adder. Some of those contracts at various points in time were pretty attractive to us. Obviously, right now, the ammonia supply agreement with Mosaic is far in their favor but for a number of years, it was way in our favor and that was a very helpful contract when the rest of the business was under pressure to have enhanced margin coming out of that. So some of those end up being a natural hedge for us which isn't a bad thing at all. But it's certainly one of those things that Bert and his team evaluate how much and how high. And those are the things that will come probably under a little bit of pressure more than anything else as we see ammonia applications in clean energy beginning to expand. And so when we're able to make the blue ammonia that we're talking about earlier and are able to service the demand that we'll pay appropriate premiums for it. The place that's going to come out of it is the relatively lower value industrial business that we serve today.

The reason Q3 ammonia is the lowest generally, is because Q2 and Q4 are our Ag ammonia movement periods, and they're obviously at higher prices. So the actual price throughout the 12 months for our industrial book is fairly consistent, gas-based or Tampa-based. But you'll see that, I think, do well, just based on where the Tampa average is today.

And then for my follow-up, I realize that CF has been a pretty good stock this year but if you look at it over a longer period of time, the share price has struggled. And it sounds like you don't really want to buy back shares in that you want to buy them at a more attractive price. And historically, CF has really not been interested in raising the dividend. And the market doesn't seem to want to pay a high multiple for your cash flow, for whatever reason. So, what do you do? How do people make money in CF over a longer period of time? You don't want to lever up. What are the levers that are going to lead to an above-average return over time, or are those out of your hands?

Yeah. No, Jeff, I appreciate that question. And I think you have to look at our return in the context of other companies within the space or within the nitrogen space. And I'd say if you look at, I think 10-year return numbers, we're at the top of the heap in terms of where our peer group has been. And I think that, certainly, there have been some challenges in the interim during that period of time. But I also think we've done some things that make the Company stronger today than it's ever been in the past. And if you look at how much cash flow we're generating today and how many shares there are outstanding, the ratio is better today than it was even back in the highest-priced days of the stock and/or the highest EBITDA that we were generating in the Company's history. And so I think the sector may not be in that much favor right now in the marketplace, but I think the fundamentals of this business are better than they've ever been in the past. And I would also say, we've taken out, I think over 50 million shares out of our share count through repurchases. And it's probably even more than 50 million shares. And that actually has not led to any dramatic improvement. And so I'm not sure to share repurchase is the answer. I think what really does drive value for investors in the near term, it's the fundamentals that we're looking at, which are better than anything we've seen in the last 7 or 8 years. And in the longer term, it is the fact that ammonia and hydrogen, I think, are really the clear, clean energy sources of the future as economies decarbonize. And we're in the best position to capitalize on that. And as demand starts ramping up and exceeding supply, I think what you'll see is asset values will tend toward replacement costs, which is way above where they are today. And so it gives us the opportunity to think about how we want to participate in that market place and it puts growth clearly back on the radar screen, whether that's inorganic or organic. But the fact of the matter is, I firmly believe that you move the clock forward several years and ammonia is going to be in tight supply, and people are going to be racing to need to build it. And when that happens, you see a dramatic uptick in terms of asset value. So we're very optimistic about the return profile that we offer to our investors.

Your next question comes from the line of Adrien Tamagno with Berenberg.

Good morning. I have a question about the UAN volumes. It seems it went down much less than urea and ammonia in Q2. Can you explain why it was that the case and if these products will be more subject to maintenance in H2 relative to others?

The UAN volume, we did a very good job of moving that product but, as Tony mentioned in one of the first questions, the pricing was lower and we had a book to carry it in from Q1 and Q4 and then just finished out in Q2. And so, as we've talked about, we have a competition for value in the Company. And after the freeze-offs in February, we stepped in and purchased urea -- a substantial amount of urea compared to our historical actions in that market to cover our customer commitments which we value and make sure that we do cover, because of our ability to produce more UAN s. So if it's not easily available to go into the market and purchase UANs, we chose to purchase urea and some ammonia and run UAN on a very high level to meet customer commitments. So across-the-board, on every product we were able to deliver on time, and even with the substantial disruption that took place in February and March. And so that's why you saw a volume uptick. And we covered the volume deficit with urea, and you will see how that goes going forward.

Ladies and gentlemen, that is all the time we have for questions today. I would like to turn the call back to Martin Jarosick for closing remarks.

Thanks to everyone for joining us this morning. And we look forward to speaking with you in follow-up calls and also at upcoming conferences.

This concludes today's conference call. You may now disconnect.