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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (66610)	2/21/2021 6:51:27 PM
From: Elroy	Respond to of 78819

Since UAN’s fertilizer manufacturing volume is unchanged by sales price (they try to always manufacture at 100% capacity) their costs don’t have to fluctuate with sales. In theory, the direct costs when they manufacture 200 tons and sell it for $200/ton should be the same as the direct costs when they manufacture 200 tons and sell it for $400/ton. Therefore using COGS as a percentage of revenue (rather than a fixed number) won’t work. Your model will lose the leverage inherent in the UAN model. All else being equal, UAN’s sales should rise due to higher fertilizer prices caused by excess fertilizer demand and lower imported fertilizer supply, but costs to produce the same amount of fertilizer as produced last year should stay flat with last year’s production costs, unless we have some reason to believe fertilizer production costs have themselves increased (see below on nat gas). That’s part of the appeal of commodity stocks. Unfortunately, the material cost of one of UAN’s two plants is largely dependent on natural gas (the other plant uses pet coke). So the mess in Texas could muck everything up. I’m sure UAN will comment on the weather and natural gas prices in the Tuesday call next week.