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Prepared By Matthew W. Scullen




Terra Nitrogen
Company, L.P.
Analysis of Business, Competition, Demand,
Supply, Cost, Risk and Stock Valuation




                                             11
CONTENTS

Terra Nitrogen Company, LP  TNH [NYSE] ..................................................................................................................... 3

Summary Recommendation: .................................................................................................................................................... 3

Business Description: .................................................................................................................................................................. 3

Thesis Summary............................................................................................................................................................................. 4

Competition: .................................................................................................................................................................................... 5

Industry Demand: ....................................................................................................................................................................... 10

Industry Supply: ........................................................................................................................................................................... 15

Costs: ................................................................................................................................................................................................. 17

Principal Risks: ............................................................................................................................................................................. 19

Pro-Forma Cash Flows: ............................................................................................................................................................. 23

Valuation ......................................................................................................................................................................................... 24

Risk Adjusted Margin of Safety.............................................................................................................................................. 24

Conclusion ...................................................................................................................................................................................... 25

References ...................................................................................................................................................................................... 26
TERRA NITROGEN COMPANY, LP  TNH [NYSE]


 Style: Small Cap                            Market Cap: $2.01B         Buy Price: $65.48
 Industry: Agricultural Chemicals            Last Price: $139.66        Recommendation: Hold
 Type: Cyclical                              Fair Value: $95.59         short-term

SUMMARY RECOMMENDATION:

                          Through at least 2014, the agriculture chemicals industry outlook is very
 Price data as of:        attractive due to a number of factors discussed below in the thesis
                          summary. Despite the positive outlook for the industry and Terra Nitrogen,
 7/6/11
                          the stock is currently overvalued as compared to the estimated fair value.
 Prepared by:             Regardless of the lofty valuation, the outlook through the 2011 third
 Matthew Scullen          quarter is positive due to aggressive targets for corn production. I
                          recommend holding Terra Nitrogen at least through the third quarter.
 Analyst does not own a
 position in TNH while    Investors holding the stock are expected to be well compensated through
 initiating coverage      an approximate 8% dividend yield. Terra Nitrogen's MLP status means they
                          have a residual payout policy with a rich history of paying dividends.

BUSINESS DESCRIPTION i:

Terra Nitrogen Company, LP produces and distributes nitrogen (N) fertilizer products essential for
boosting key crop yields. The primary products are anhydrous ammonia (ammonia) and urea
ammonium nitrate solutions (UAN). Ammonia, UAN and other N fertilizers are mostly applied to
corn, wheat, cotton, rice and sugar cane in the North American region. Corn is the main crop focus of
Terra Nitrogen. Growth is therefore dependent on global demand for these crops. Due to N
absorption by crops and nitrogen evaporating or leaching, it must be reapplied every year to keep
crop yield and quality high. This typically results in steady demand for nitrogen fertilizer on a year-
to-year basis. The application is seasonal, where spring and fall traditionally have higher demand
because of planting and harvesting. Weather patterns can alter this trend if farmers decide to delay
planting or harvesting in anticipation of better conditions.

The company is a wholly owned subsidiary of Terra Industries, Inc., which is a wholly owned
subsidiary of CF Industries, Inc.

The manufacturing facility is located in Verdigris, Oklahoma where it is the second largest UAN
production facility in North America. It has two ammonia plants, two nitric acid plants, two UAN
plants, all owned by the partnership and a leased port terminal. The facility is designed to operate
continuously. The location is strategically located to serve the Corn Belt region. Capacity at the plants
is reflected below in Table 1:
Table 1



            Product                Annual Capacity (tons)   % of Total N. American Capacity


            Ammonia                1,100,000                7%


            UAN (32% N Content)    2,000,000                14%


Approximately 70% of the ammonia produced is used for upgrading to UAN.

Products are sold to dealers, national farm retail chains, distributors and other fertilizer producers
and users. Sales our exclusively wholesale, but ultimately the end-users are farmers. 26% of sales in
2010 were concentrated with 5 customers and 1 customer accounted for 9% of total sales. CF
Industries, effective 1/1/2011, is now the only customer of Terra Nitrogen Company.

Natural gas is the raw material used to produce N fertilizers. In 2010 it accounted for 50% of the
companies’ cost of goods sold. Natural gas prices therefore have a significant effect on gross margins.
The facility is served by the OneOK gas pipeline, which Terra Nitrogen states gives a basis advantage
as compared to Henry Hub.

Recent Developments

CF Industries acquired Terra Industries during the first quarter of 2010. Previously, Terra Nitrogen
Company was an indirect wholly owned subsidiary of Terra Industries. Subsequent to the
acquisition, CF Industries through their holding company took all of the rights and obligations from
Terra Industries to conduct the operations of the limited partnership for Terra Nitrogen. As a result,
Terra Nitrogen’s product is now sold exclusively to CF Industries.

Another consequence of the acquisition was its affect on Terra Nitrogen’s credit facilities. The event
triggered a “technical default” and terminated the $50 million credit facility in place. Fortunately,
Terra Nitrogen has adequate cash flows and cash deposits and had no outstanding credit used from
the facility; the “default” was non-material to the operations of the company.

THESIS SUMMARY
                                                                 N fertilizer application is essential to
       The growing global middle class is                        high crop yields
        experiencing diet shifts to meats,                       Domestically, anti-dumping policy,
        fruits and vegetables. Feeding                            lower natural gas prices and a lower
        livestock requires abundant sources                       trending dollar protects against low
        of feed, which require more fertilizer.                   cost importers
       Consumption is outpacing production                      The global financial crisis reduced
        and historically low stock to use                         global production and curtailed
        ratios are sending agriculture prices                     expansion plans, but not population
        higher                                                    growth
       Fertilizers are the most efficient way                   Ethanol mandates require large corn
        to boost crop yields                                      acreage devotion, which requires
                                                                  nitrogen fertilizer
COMPETITION:

The competitive landscape for N fertilizer products is based from “price, supply, delivery time and
quality of service”ii. Competition comes from both domestic and foreign N producers. Competition is
subsequently analyzed from the perspective of Porter’s Five Forces:

    Threat of entry

          The fertilizer industry is fairly mature with many large established firms. Many of these
          producers already have large capital investments in PP&E, long established relationships
          with buyers and suppliers, in some instances well-known brand names and strategic
          locations centralized in the Great Plains region. Facilities located in the corn-belt region
          where known supply chains lead to production efficiencies and centralized product
          distribution advantages to customers create barriers to new entrants. Extrapolating from
          Terra Nitrogen's 2010 PP&E and inventory balance along with total North American
          Capacity, an estimate can be made for the cost of start up, excluding labor costs. Table 2
          represents a hypothetical entrant firm, Firm ABC, which represents a 1.5% market share.

                           Table 2iii


                                                                         TNH     Firm ABC*
                            Gross PPE (in 000's)                         273,600      4,350
                            Inventory, net (in 000's)                     27,600        431
                            Total Investment                                          4,782

                                                                     Domestic     Firm ABC*
                            Total Capacity (000 metric tonnes)          13,396          209
                            *Firm ABC represents 1.5% domestic market share


          The considerable start up cost and time to bring a new facility on line suggest new
          entrants are unlikely. Persistently high ammonia, urea and UAN prices could theoretically
          lead to new entrants as profits are typically higher than normal, especially in conjunction
          with low natural gas prices as is the state currently.

          Most likely, additional capacity would come from existing competition expanding their
          production capabilities. The cost represents little extra above existing capex.

          Competition from foreign exporters can be a significant source of new competitors. Many
          of these foreign exporters have subsidized natural gas costs, which can make them more
          competitive in price. This is especially true when the dollar has been strengthening and
          imports of fertilizer become relatively more attractive. A weaker dollar leads to the
          opposite conclusion, where imports become relatively less attractive. Foreign exporters
          also gain advantage when domestic prices of natural gas become relatively high due to
          their gas subsidy advantages.
Power of suppliers

      Specifically for Terra Nitrogen, they receive natural gas materials through the OneOK
      pipeline. While this pipeline is strategically located for abundant access, any disruptions or
      disagreements with suppliers could adversely affect production at the Vertigris facility.
      That being said, natural gas is a widely used, exchange-traded commodity. Its pricing is not
      controlled by suppliers in a material way. Terra Nitrogen does not rely on any single
      natural gas supplier and therefore the power of suppliers is not a significant factor.

Power of buyers

      Farmers’ ultimately account for the majority of end users in N fertilizers. Due to the
      intensive needs of crops like corn and wheat, N fertilizer application is required annually
      from crops draining the soil of its natural N content. Therefore, buyers are limited in their
      power in that they must apply N to their soil at least annually and only have control over
      the timing of the application. In the case of Terra Nitrogen, a single customer accounted
      for 9% of their sales with 26% concentrated in the hands of 5 customers during 2010.
      Having a concentration of buyers in theory could limit the ability of Terra Nitrogen to pass
      along increasing costs and allow buyers to control terms by threatening to switch business
      to other suppliers. In reality, ammonia, UAN and urea are all commodity products with
      widely quoted prices. As a result, switching would most likely be triggered by untimely
      delivery and poor service.

Threat of substitutesiv

      There are several types of nitrogen fertilizers with distinct properties, advantages and
      disadvantages available. Soil type, product price, application process, safety, storage,
      transportation ease/cost and weather conditions all impact the source of nitrogen farmers
      decide to use. There is not significant differentiation among crop yields between nitrogen
      sources if applied correctly. Depending on the relevancy of these factors, buyers can easily
      substitute products. The most widely used types are described below.

           Anhydrous Ammonia AA (82% N): Must be injected into the soil. Of all of the forms
            of nitrogen fertilizer, AA has the slowest nitrate conversion rate. Most AA is
            upgraded to urea or solutions.
                  Benefits: No loss due to surface volatilization, low chance of leaching or
                     denitrification. (defined below)
                  Disadvantage: It is hazardous to handle, must be injected into the soil and
                     erosion can occur on steep slopes.



           Urea (45-46% N): Has a relatively quick nitrate conversion, usually in less than two-
            weeks. It is available in prills or a granulated form. Best applied in spring when
            temperatures are cool.
                Benefits: Effective when applied correctly, is not hazardous, can be safely
                    stored and cheaply transported.
                Disadvantages: Denitrification on wet or compacted soil, leaching in coarse
                    soils, volatilization risk if surface applied.
    Urea Ammonium Nitrate Solutions UAN (28-32% N): a water solution of both
     urea and AN.
          Benefits: Ease of application, handling and storage. Can be applied through
             sprinkler irrigation systems. Has both a fast acting component and slow
             acting component of N. Not hazardous.
          Disadvantages: Subject to the same N losses as urea (application through
             dribbling can make volatilization risk minimal), is more costly to transport
             than urea.



    Ammonium Sulfate AS (21% N): All of the N is in ammonia form.
        Benefits: Suited best for high PH soils and where low sulfur content is
          suspected. Generally not subject to high volatilization loss.
        Disadvantages: Most acidic of nitrogen fertilizers, requiring more limestone
          to neutralize it. Higher cost.



    Ammonium Nitrate AN (34% N): 50% ammonium, 50% nitrate. The ammonium
     quickly converts to nitrate when added to the soil.
          Benefits: Has no urea, therefore ideal for conditions where volatilization is
              expected.
          Disadvantages: It is potentially hazardous and is subject to leaching and
              dentrification immediately.


    Definitions:

     Denitrification: results in nitrogen escaping the soil as N gas due to a deficit of
     oxygen in the soil. Wet soils, compact soils and warm temperatures promote this
     condition.

     Leaching: when more water (rain) enters the soil than it can hold and the N moves
     through the soil with it. Coarse soils (sands) pose the most risk. This risk can be
     minimized by limiting the time N is in the soil before plant uptake.

     Surface Volatilization: occurs in urea forms of N where it breaks down into ammonia
     gas and escapes the soil because there is not enough water to absorb it. This most
     often occurs when the urea is spread so there is no direct contact with the soil or
     when spread on corn residue. Volatilization loss results from warm temperatures,
     high moisture content, and high surface ph of the soil.
Rivalry among existing firmsv

             North American production of N fertilizer is dominated by a few firms. AA was chosen as
             the product to analyze from because it is generally widely produced and upgraded and
             therefore more comparable. To properly analyze the competition, two separate landscapes
             of domestic producers are presented; one with Terra Nitrogen as a separate distinct firm
             (Table 3) and one as a consolidated subsidiary of CF Industries (Table 4). The reason is
             that technically Terra Nitrogen and CF Industries are competitors. Since the acquisition of
             Terra Industries, CF industries has control over the operations of Terra Nitrogen and is
             now the sole customer. This relationship more closely resembles co-opetition in which
             firms work together and share market.

Table 3

2010 N. American Annual Capacity                       (‘000 metric nutrient tons per year)                  (000's short tons)
                                                     Anhydrous Ammonia, Gross                            UAN Nitrogen Solutions
                                                        % Share            # of Firms                                                # of Firms
                Company                       Capacity of Total HH Index w/ Even %            UAN**        UAN %         HH Index    w/ Even %
CF Industries                                    5,461       41%   1,662            2            4,520         33%           1,101             3
Koch                                             2,076       15%     240            6            1,700         12%             156             8
Agrium                                           2,403       18%     322            6            1,200           9%             78            11
Terra Nitrogen                                     980        7%       54          14            1,965         14%             208             7
Potash Corp                                      1,067        8%       63          13            2,000         15%             216             7
CVR Partners (est.)                                447        3%       11          30              739           5%             29            18
Other (est.)                                       962        7%       52          14            1,500         11%             121             9
Total Production*                               13,396             2,403           85           13,624                       1,908           64
*Data from Agrium 2010-2011 Agrium Fact Book
**Data from CF Industries Scotia Capital Global Fertilizer Conference 2011


Table 4

2010 N. American Annual Capacity                       (‘000 metric nutrient tons per year)                  (000's short tons)
                                                     Anhydrous Ammonia, Gross                            UAN Nitrogen Solutions
                                                        % Share            # of Firms                                                # of Firms
Company                                       Capacity of Total HH Index w/ Even %            UAN**        UAN %         HH Index    w/ Even %
CF Industries                                    6,441       48%   2,312            2            6,485         48%           2,266             2
Koch                                             2,076       15%     240            6            1,700         12%             156             8
Agrium                                           2,403       18%     322            6            1,200           9%             78            11
Potash Corp                                      1,067        8%       63          13            2,000         15%             216             7
CVR Partners (est.)                                447        3%       11          30              739           5%             29            18
Other (est.)                                       962        7%       52          14            1,500         11%             121             9
Total Production*                               13,396             3,000           71           13,624                       2,865           56
*Data from Agrium 2010-2011 Agrium Fact Book
**Data from CF Industries Scotia Capital Global Fertilizer Conference 2011



             The glaring reality from observing these charts is that CF Industries is a clear market
             leader in AA production and a dominant leader in UAN production. In either case, the
             Herfindahl-Hirschman Index (HH Index) indicates competition that more resembles a
             monopoly than perfect competition. What isn't perfectly known is how many other firms
             represent the "Other" portion of gross capacity. If more than 14 firms are represented than
             more competition will be present. Of course, imports represent a significant portion of
             competition and the market structure cannot be analyzed without it. Table 5 shows the
             trend in imports of Nitrogen fertilizer. Canada is excluded because it is already reflected in
             Tables 3 & 4.
Table 5vi


          Imports (Metric Tonnes), excl. Canada                                     2010         2009          2008               2007
          Anhydrous Ammonia                                                        5,730        4,683         6,409              7,019
          Urea                                                                     4,640        3,067         3,976              4,843
          UAN                                                                      2,069          779         1,954              2,415
          Source: USDA/ERS, see website www.ers.usda.gov/data/fertilizertrade/ for more information.


             There is a trend of decreasing imports, except during 2009 when the global financial crisis
             dislocated markets. This is most likely due to a weak trending dollar and domestic capacity
             beginning to expand as well as foreign natural gas costs exceeding domestic. Table 6 adds
             imports to the North American Capacity picture.

Table 6

2010 N. American Annual Capacity                       (‘000 metric nutrient tons per year)                     (000's short tons)
                                                     Anhydrous Ammonia, Gross                               UAN Nitrogen Solutions
                                                        % Share            # of Firms                                                    # of Firms
Company                                       Capacity of Total HH Index w/ Even %               UAN**        UAN %         HH Index     w/ Even %
CF Industries                                    6,441       34%   1,134            3               6,485         41%           1,662              2
Koch                                             2,076       11%     118            9               1,700         11%             114              9
Agrium                                           2,403       13%     158            8               1,200           8%             57             13
Potash Corp                                      1,067        6%       31          18               2,000         13%             158              8
CVR Partners (est.)                                447        2%        5          43                 739           5%             22             22
Other (est.)                                       962        5%       25          20               1,500           9%             89             11
U.S. Imports***                                  5,730       30%     898            3              2,281          14%             206              7
Total Production*                               19,126             2,369          104              15,905                       2,308            72
*Data from Agrium 2010-2011 Agrium Fact Book
**Data from CF Industries Scotia Capital Global Fertilizer Conference 2011
***Source: USDA/ERS, see website www.ers.usda.gov/data/fertilizertrade/ for more information.



             Market share among the domestic producers is noticeably reduced where imports are
             added to the picture. Unfortunately, the HH Index for this table provides very little
             information because there is no indication as to the number of importers, but a realistic
             assumption is that the number is not concentrated. Still, CF Industries (including Terra
             Nitrogen) has a dominant market share for N Solutions products.
INDUSTRY DEMAND:

Terra Nitrogen identifies several factors that contribute to global demand for fertilizers.

Long-term drivers

             population growth                                      increases in disposable income
             rising use of bio-fuels                                improvements in diet
Short-term drivers

       world growth rates                                       crop mix
       weather patterns                                         fertilizer application rates
       stocks to use ratios                                     farm income
       agriculture commodity prices                             trade policy
       energy prices


Demand for N is expected to grow modestly through 2014 at a CAGR of 1.01% in North America.

                        Figure 1vii




Positive outlook for bio-fuels and corn acreage

            Corn represents approximately 46% of fertilizer demand in North America viii. A newer
            source of demand for corn through the emergence of ethanol as an alternative energy is
            driving marginal demand for fertilizer through increased acreage of corn.

            The Energy Independence and Security Act (EISA) of 2007 includes provisions for a
            Renewable Fuel Standard (RFS) to increase the supply of alternative fuel sources by
            requiring fuel producers to use at least 36 billion gallons of biofuel by 2022. The RFS
            provision establishes a level of 15 billion gallons of conventional ethanol by 2015 and at
            least 21 billion gallons of cellulosic (noncornstarch) ethanol and advanced biofuels
            (including ethanol from sugarcane and biodiesel) by 2022ix.

            Figures 2 and 3x show that acreage outlooks for corn remain positive through the next 4
            years. A low corn stocks to use ratio and low natural gas prices combine to represent a
            favorable demand scenario and abnormal margins for nitrogen fertilizer for years to come
            and especially for 2011.
Figure 2




Figure 3
Improving diets

         As developing countries grow and technology and disposable incomes increase, diets
         switch from rice based to meat, dairy, fruit and vegetable based. IMF research predicts
         emerging and developing economies will grow at over 6% through 2016 while advanced
         economies will only grow at slightly over 2% during the same time framexi. This requires
         more use of fertilizers to boost crop yields. According to The Fertilizer Institute,
         “Production of a pound of beef requires 7 pounds of feed and every pound of pork
         produced requires 4 pounds of feed.” “With the increased world population, the United
         Nations Food and Agriculture Organization (FAO) estimates that the total world demand
         for agricultural products will be 60 percent higher in 2030 than it is today. FAO projects
         that more than 85 percent of this additional demand will come from developing
         countries.”xii

         We’re already witnessing signs of this as evidenced by world consumption of grains
         outpacing growth in production. Figure 4 displays four charts showing world consumption
         patterns and their respective affect on fertilizer prices. Potash predicts “fertilizer as a
         percentage of farm revenue remains below historical average levels. We believe this is a
         much more sustainable situation and provides greater opportunity for improved pricing
         levels in the coming months and years.”xiii

         Figure 4xiv
Farm income

         The 2011 forecast from the ERS for farm income is broadly positive as shown in Figure 5.

                       Figure 5xv




Trade policy

         China is the world's largest producer of nitrogen fertilizers. Due to local conditions, the
         Chinese government has raised existing export tariffs to promote higher domestic use of
         fertilizers. Given that from 2007 to 2008 the United States imported nearly 1 million tons
         of urea from China, this trade policy could promote more production and capacity
         expansion domestically in North Americaxvi.

         Russia and Ukraine are the largest urea exporters, but due to subsidized natural gas costs
         they are able to sell product at below market prices. Anti-dumping orders have been in
         place since 1987, as a result very little urea has been imported as compared to their
         production capacity. A review by the International Trade Commission is set to complete in
         late 2011 to determine if the anti-dumping orders should remain in place.

         Anti-dumping orders are also in place for Russian and Ukrainian fertilizer grade
         ammonium nitrate where for Russia prices are set to market and volumes are capped at
         150,000 metric tons. Ukrainian imports are subject to a 156% duty. These agreements are
         under review and a decision will be reached by 2012. xvii

         These anti-dumping policies serve to protect North American fertilizer producers from
         unfair trade practices. If the orders are removed in the future, added competition will
         bring price pressures on fertilizer prices and suppress production leading to a period of
         low margins and depressed earnings.
Current conditions

         Figure 6 provides a global breakdown of the current crop conditions. If conditions improve
         through the summer and into fall crop yields could be expected to improve. However, if
         conditions remain unaccommodating to crop growth fertilizer demand will be pushed
         forward.

         Figure 6xviii
INDUSTRY SUPPLY:

From 1999 to 2008, rising natural gas costs and a long period of capacity additions from the 90's led
to a period of plant closures and low production volumes. Figure 7 illustrates this history.

                        Figure 7xix




During this time period imports rose to meet the demand no longer being served domestically,
displayed in Figure 8. Below is a copy of previously referenced Table 5, which shows the trend in
imports since 2007. Production has recently stabilized with imports falling.

        Table 5


         Imports (Metric Tonnes), excl. Canada             2010          2009          2008            2007
         Anhydrous Ammonia                                5,730         4,683         6,409           7,019
         Urea                                             4,640         3,067         3,976           4,843
         UAN                                              2,069           779         1,954           2,415
         Source: USDA/ERS, see website www.ers.usda.gov/data/fertilizertrade/ for more information.

                         Figure 8xx
The distinction should be made, that the discrepancy in N imports from Figure 8 vs. Table 5 is due to
N sources. Table 5 tabulates specific N sources where Figure 8 aggregates all sources.

Operating rates

Table 7xxi



                    2010 Ammonia Capacity           2010 UAN Capacity         2010 N Segment Capacity
  Company
                          Utilization                   Utilization                  Utilization


CF Industries                 83%                          60%


       Agrium                                                                            76%


         Terra
                              104%                         98%
     Nitrogen


        Potash                100%


         CVR
                              94%                          92%
    Partners*


*Represents annualized data

             Table 8 visualizes the utilization rates among the top domestic producers for N fertilizers.
             CF Industries represents a large share of the market and has considerable room to expand
             operations, as does Agrium.
COSTS:

Natural gas is the primary raw material for producing nitrogen fertilizers. The process for producing
anhydrous ammonia, the basic building block for upgrade products, is summarized in figure 9 in a 5-
step process. For Terra Nitrogen, natural gas represented 50% of overall costs in 2010 due to low
natural gas prices. Higher prices lead to lower gross margins as overall costs rise.

                             Figure 9xxii
Globally, natural gas costs can vary significantly. Figure 10 is a chart that shows production costs
among the largest producing regions globally. Currently, the US has a significant cost advantage over
the majority of other producers.

                   Figure 10xxiii




Figure 11 breaks down N importers by country during 2007/08. Surely this profile has changed due
to the dramatic decrease in US natural gas prices, giving US producers a cost advantage over major
exporting countries.

                   Figure 11xxiv
PRINCIPAL RISKS xxv:

Business risks

      Reliance on the Verdigris facility as the sole operations center is subject to the risk of plant
       disruptions caused by accidents, natural disasters or severe weather. If any disruptions were
       to occur, sales could be materially affected. For the most part, disruptions of this nature are
       largely unpredictable.
      Natural gas costs are highly volatile and difficult to forecast. Because natural gas prices
       account for the majority of production costs, any unexpected rise in price that is not hedged
       will have an adverse impact on margins.
      The fertilizer industry is cyclical in nature, subject to periods of optimism where oversupply
       lowers profitability and may lead to losses. 1999 through 2003 represents such a period.
      Fertilizer products including N are commodity products with very little differentiation and
       are traded globally. Foreign competitors may have lower material costs and more abundant
       access to resources like in the Middle East. Other foreign competitors have subsidized
       natural gas costs, which can result in their fertilizers having a cost advantage.
      Agricultural demand for fertilizers is dependent on ideal weather conditions, inventory
       stocks, government policies, trade policies, price volatility and population growth to name
       some factors. Any adverse change in any of these factors can result in lower demand for
       fertilizers.
      Terra Nitrogen, through its operating agreement, relies on CF Industries and third parties to
       operate. If CF Industries were to experience hardship, Terra Nitrogen may be impacted
       adversely as a result. Third parties provide services such as deliveries and transportation
       subject to similar risks as the Vertigris facility. Any disruptions in the operations of third
       party servicers could materially impact Terra Nitrogen.
      Health, safety and environmental laws are numerous in the US. These include the Clean Air
       Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and
       Liability Act, or CERCLA, the Toxic Substances Control Act and various other federal, state,
       provincial, local and international statutes. Accidents are an ongoing part of operations and
       therefore any major accident could result in major disruptions or litigation, which could
       have a material impact on results.
      Derivatives hedging is used to manage price risk in natural gas costs. Ineffective hedging
       could result in reduced cash flows and profitability.
      Any demand forecast error could result excess inventories or too few inventories to meet
       demand.
      Terra Nitrogen relies exclusively on operating cash flow to carry business and fuel growth.
       In the event cash flows are insufficient, additional equity and/or credit would be necessary
       which may not be accessible if market conditions are depressed during the time of need.
      A weak global economy could result in insufficient demand for agriculture and fertilizer
       products.
      Dividends are paid on a residual basis after other working capital and investment needs
       have been met. If there is insufficient cash on hand or to meet these needs, a dividend may
       not be paid. Dividends may be in jeopardy during periods of oversupply when profitability is
       suppressed.
Financial risk

          In aggregate, Terra Nitrogen's financial position in terms of solvency, liquidity, accounting
          quality, efficiency and profitability is conservative and does not pose serious risks. The
          following tables illustrate the analysis.

          DuPont Analysis
                              Profit     Asset      Financial
           2010 ROE =       Margin x Turnover x     Leverage Solvency Ratios
                  96.79%       0.36       1.90          1.41 Debt / Equity        -
                              Profit     Asset                EBIT / Interest   504.75
           2010 ROA =       Margin x  Turnover                Current Ratio      2.24
                  68.51%       0.36       1.90                Cash Ratio         1.52


          The DuPont analysis reveals that Terra Nitrogen is well balanced in terms of profitability
          and not reliant on leverage to produce a profit. Their position is highly solvent and liquid
          with no debt. Operating leases are present, but would not be material if present values
          were included in the balance sheet.

          Margins                2010        2009          2008         2007     2006
          Gross
          Margin                 39%          32%           48%         35%       12%
          Profit
          Margin                 36%          28%           47%         32%       11%
          Free Cash Flow
          Margin                 41%          26%           32%         52%       21%


          Margins are volatile, mainly due to volatility in natural gas prices and UAN/ammonia
          prices. This makes quarterly predictions in earnings subject to a high degree of
          uncertainty.

          Payout Ratio          2010         2009          2008        2007      2006
          Payout Ratio          64%         183%           89%         70%       79%


          Terra Nitrogen is a Master Limited Partnership, which requires that it pays all available
          cash to its partners (shareholders). The policy is a residual dividend policy, dependent on
          plans for capex, cash on hand and operating cash flows. The company has a history of
          paying quarterly dividends dating back to 1994. The year 1999 represents the only year it
          did not pay at least one quarterly dividend.
Accrual Ratio         2010       2009      2008        2007       2006
Accrual Ratio        (0.35)      0.43      6.65       (5.88)     (0.23)

Accruals have no apparent trend and have averaged only 0.12 since 2006, suggesting no
suspicious accounting gimmicks.

Fixed Assets          2010      2009       2008       2007        2006
Average Age          11.13     11.03       7.94       9.38       10.89
Total Life           16.00     15.86      11.11      13.42       16.04
Remaining Life        4.87      4.84       3.17       4.03        5.15


PP&E investments are fairly aged, but Terra Nitrogen consistently replaces investments at
a stable enough rate that no major capex should be expected to reduce cash flows in a way
that would significantly reduce cash available to partners.

Efficiency            2010      2009       2008       2007        2006
Receivables
Turnover             19.71     16.40      20.60      14.58      12.19
Inventory
Turnover             12.15      8.00      12.30      19.72      15.05
Payables
Turnover             14.55     14.37      17.50      14.63      19.57
Days of Sales
Outstanding          18.51     22.26      17.72      25.04      29.95
Days of Inventory
on Hand              30.03     45.63      29.67      18.51      24.26
Days of Payables
Outstanding          25.09     25.39      20.86      24.95      18.65
Cash Conversion
Cycle                23.46     42.50      26.54      18.60      35.56


Inventory and sales are generally sold and collected within 30 days. Sales collection times
have trended favorably, while inventory holding times have been stretched. Payables
appear to have been managed more efficiently, signaling confidence by creditors. Since
2006, with the exception of 2009 and the global financial crisis, Terra Nitrogen has
effectively improved its cash conversion cycle.

Inventories are accounted for using FIFO. Because natural gas prices are so volatile, a FIFO
policy for inventory accounting is not necessarily aggressive.
Valuation risk

         The forecast of fair value for Terra Nitrogen is based upon past growth and margin
         observations, historical demand growth for N fertilizers and expected demand growth for
         N fertilizers. The probabilities of these growth scenarios are unknown due to cost and
         product price volatility and the fair value calculation was equal weighted. The actual
         revenue growth and free cash flow margin outcomes may differ significantly from what was
         forecast.

         The range of prices in the forecast scenarios is $38.21. The standard deviation of the
         forecasted values (aka the growth sensitivity factor) is 14.55. In the analysts view, the
         wider the forecast range and larger the standard deviation relative to fair value, the more
         uncertainty is present in the forecast of fair value, and therefore more risk. The ratio of
         standard deviation to fair value is 0.15. The conclusion then is that the forecast itself is not
         based on wildly different assumptions and contains a normal amount of uncertainty.

         The cost of equity capital is not calculated by use of CAPM, GGM, ABT or other widely
         accepted models. Instead it is the percentage of capex to equity, averaged over 5 years. The
         theory to using this method is that the cost of equity capital is the amount of investment
         needed to maintain and grow the business. There is no empirical research to suggest using
         capex as a % of equity is a superior method.
PRO-FORMA CASH FLOWS:

Free cash flow has been projected for Terra Nitrogen though 2014 based on scenarios of revenue
growth estimates and free cash-flow margins. Margins are estimated using historically observed
margins.

 (in thousands)                                  Terminal*      2014 E       2013 E      2012 E       2011 E      2010 A

 Scenario 1 - Historical Revenue Growth
Total revenues (4% Growth)                         686,922     660,502      635,098     610,671      587,184     564,600
 Revenue CAGR 3%                                                    3%                                            111.20%
FCFE Margin (Average 30%)                                                                                             41%
Free Cash Flow to Equity                         2,575,958     198,151      190,529     183,201      176,155     230,300


 Scenario 2 - Historical Nitrogen Demand
Total revenues (2% Growth)                         623,364      611,141     599,158      587,410      575,892     564,600

FCFE Margin (Average 30%)                                                                                                 41%
Free Cash Flow to Equity                         1,870,092      183,342     179,747      176,223      172,768     230,300


 Scenario 3 - Expected Nitrogen Demand w/ Abnormal Profits
Total revenues (1% Growth)                  593,400     587,525             581,708     575,948      570,246     564,600

FCFE Margin                                             30%         30%          30%         40%          50%         41%
Free Cash Flow to Equity                         1,780,201     176,258      174,512     230,379      285,123     230,300


 Scenario 4 - Expected Nitrogen Demand w/ Abnormal Profit, Overcapacity & Return to Normal Profits
Total revenues (1% Growth)                  593,400     587,525    581,708     575,948     570,246               564,600

FCFE Margin                                            30%          30%         20%           7%         50%          41%
Free Cash Flow to Equity                         1,780,201     176,258      116,342      40,316      285,123     230,300


 Scenario 5 - Expected Nitrogen Demand w/ Overcapacity then Return to Normal Profits
Total revenues (1% Growth)                   593,400     587,525    581,708    575,948               570,246      564,600

FCFE Margin                                             30%         30%          30%         20%           7%         41%
Free Cash Flow to Equity                         1,780,201     176,258      174,512     115,190       39,917      230,300


*Terminal cash flow estimated using the Gordon Growth Model. cost of equity capital 12%. The cost of equity capital was
calculated by using average capex as a % of equity over the past 5 years.
VALUATION

Terra Nitrogen's fair value is calculated using a free cash flow to equity holders model, as estimated
in the pro-forma cash flows. Fair value is the arithmetic average of all 5 scenario values. Shares
outstanding have been constant since the IPO at 18,502,000.

  (in thousands)                    Terminal             2014 E      2013 E       2012 E         2011 E

 Scenario 1
 Discounted Cash Flows              1,637,068           125,928     135,615      146,047        157,281
 Value per share                       $119.01

 Scenario 2
 Discounted Cash Flows              1,188,477           116,517     127,941      140,484        154,257
 Value per share                        $93.38

 Scenario 3
 Discounted Cash Flows              1,131,350           112,015     124,214      183,657        254,574
 Value per share                        $97.60

 Scenario 4
 Discounted Cash Flows              1,131,350           112,015      82,810       32,140        254,574
 Value per share                        $87.17

 Scenario 5
 Discounted Cash Flows              1,131,350           112,015     124,214       91,829         35,640
 Value per share                        $80.80

                          Fair Value: $95.59            Purchase Price: $65.48

RISK ADJUSTED MARGIN OF SAFETY

The purchase price was calculated using a model that determines the margin of safety through 5 risk
factors less the dividend yield.

Margin of Safety                                            5 Factors:
 Beta                              0.70          0.14
 D/E                                -             -
                                                            Beta
 AQR                               0.12          0.02
                                                            D/E - Debt to Equity
 CFRF                              0.99          0.20       ACR - Account Quality
 GSF                               0.14          0.03
                                                            CFRF - Cash Flow Volatility
 - Dividend Yield                                0.08
                                                            GSF - Growth Estimate Sensitivity
RAMS                                             0.32
CONCLUSION

Terra Nitrogen is a well run business in a favorable competitive position with modest, but likely
attainable growth prospects. Financially, they are conservatively positioned and have not had a
history of large disruptions from other business risks aside from industry oversupply.

The generous payout policy is attractive to investors looking for total return, where income can be
reinvested back into Terra Nitrogen at favorable prices or into other opportunities. Because of the
residual policy, income investors bear extra risk that dividends are not paid every quarter.

It is not recommended that investors purchase Terra Nitrogen at this price. Current partners are
advised to hold the stock as no catalyst is expected to pose significant downside momentum in the
next 3 months. Partners are expected to be well compensated with generous income from the low
cost environment and aggressive corn acreage projections for 2011. Beyond this time-frame there is
considerable more uncertainty. If valuations remain high above fair value with no positive changes in
the outlook, a sell recommendation is advised.
REFERENCES



i Terra Nitrogen Company. (2010). form 10-k.
             Item 1. Business. (pp. 1-5).
ii Terra Nitrogen Company. (2010). form 10-k.
             Item 1. Business, Competition. (pp. 4.)
iii Agrium, Inc. (2010-2011). Agrium Fact Book.
             Industry Participants, 2010 Ammonia Plant Capacities & Location. (pp. 23).
iv Johnson, W. Jay. Selecting Forms of Nitrogen Fertilizer. The Ohio State University Extension:
             The Department of Horticulture and Crop Science. Retrieved from http://ohioline.osu.edu/agf-fact/0205.html
    Vitosh, M.L. (2005). N-P-K Fertilizers. Michigan State University Extension Bulletin.
             Retrieved from http://web3.canr.msu.edu/vanburen/e-896.htm
v Agrium, Inc. (2010-2011). Agrium Fact Book.
             Industry Participants, 2010 Ammonia Plant Capacities & Locations, (pp. 23)
    Terra Nitrogen Company. (2010). form 10-k.
             Item 1. Business, Our Facilities. (pp. 4.)
   CF Industries Holdings, Inc.. (2010). form 10-k.
             Item 1. Business, Nitrogen Segment. (pp. 4.).
   Will, Tony. (2011). Scotia Capital Global Fertilizer Conference 2011: CF Industries.
             UAN: A High Value-Added Product. (pp. 12). Retrieved from http://phx.corporate-
             ir.net/External.File?item=UGFyZW50SUQ9OTc2OTZ8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1
vi Huang, Wen. Beckman, Jayson. (2011). USDA/ERS US fertilizer imports/exports 1995 - 2010.
             Data Files. Standard Tables, 1995-2010. Retrieved from www.ers.usda.gov/data/fertilizertrade/
vii Food & Agriculture Organization of the United Nations. (2010). Current world fertilizer trends and outlook to 2014.
             Annex 2. World & regional nitrogen fertilizer demand forecasts. (pp. 28).
viii Terra Nitrogen Company. (2009) form 10-k.
             Item 1. Business. (pp. 4.).
ix Malcolm, Scott. Aillery, Marcel. (2009). Growing Crops for Biofuels Has Spillover Effects.
             Retrieved from http://www.ers.usda.gov/AmberWaves/March09/Features/Biofuels.htm
   x Will, Tony. (2011). Scotia Capital Global Fertilizer Conference 2011: CF Industries.
             UAN: A High Value-Added Product. (pp. 15, 18). Retrieved from http://phx.corporate-
             ir.net/External.File?item=UGFyZW50SUQ9OTc2OTZ8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1
xi IMF World Economic Outlook Database. (2011).
             Retrieved from
             http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/weorept.aspx?sy=2009&ey=2016&scsm=1&ssd=1
             &sort=country&ds=.&br=1&pr1.x=64&pr1.y=10&c=001%2C110%2C163%2C119%2C203%2C123%2C998%2C20
             0%2C904%2C901%2C505%2C511%2C205%2C406%2C603&s=NGDP_RPCH&grp=1&a=1
xii The Fertilizer Institute. (2011). Population Growth & the Food Crisis.
             Retrieved from http://tfi.org/factsandstats/foodcrisis.cfm
xiii Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report.
             Rise in crop prices has outpaced fertilizer prices. (pp. 19). Retrieved from
             http://www.potashcorp.com/media/SCGFC_June_2011.pdf
xiv Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report.
             World Agriculture & Economic Overview. (pp.12-14, 19). Retrieved from
             http://www.potashcorp.com/media/SCGFC_June_2011.pdf
xv Park, Timothy. (2011). Farm Income and Costs: 2011 Farm Sector Income Forecast.
              Retrieved from http://www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm
xvi The Fertilizer Institute. (2011). Fertilizer is a Strategic Commodity.
             Retrieved from http://tfi.org/factsandstats/strategiccommodity.cfm
   xvii CF Industries Holdings, Inc.. (2010). form 10-k.
             Item 1A. Risk Factors. (pp. 18-19).
xviii Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report.
             World Agriculture & Economic Overview. (pp.15). Retrieved from
             http://www.potashcorp.com/media/SCGFC_June_2011.pdf
xix Huang, Wen-yuan. (2009). Factors Contributing to the Recent Increase in U.S. Fertilizer Prices, 2002-08, USDA/ERS.
             Background. (pp.4). Retrieved from http://www.ers.usda.gov/Publications/AR33/AR33.pdf
xx The Fertilizer Institute. (2009). The U.S. fertilizer Industry and Climate Change Policy.
             (pp.5). Retrieved from http://www.kochfertilizer.com/pdf/TFI2009ClimateChange.pdf
xxi All data taken from respective firm form 10-k or 40-F
xxii Canadian Fertilizers Limited. (2011). Ammonia Production Process.
           Retrieved from http://canadian-fertilizers.com/AmmoniaProduction.htm
xxiii Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report. page 27
           Nitrogen Outlook. (pp.27). Retrieved from http://www.potashcorp.com/media/SCGFC_June_2011.pdf
xxiv The Fertilizer Institute. (2009). The U.S. fertilizer Industry and Climate Change Policy.
           (pp.5). Retrieved from http://www.kochfertilizer.com/pdf/TFI2009ClimateChange.pdf
xxv Terra Nitrogen Company. (2010). form 10-k.
           Item 1A. Risk Factors. (pp. 6-12).

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Terra nitrogen company report

  • 1. Prepared By Matthew W. Scullen Terra Nitrogen Company, L.P. Analysis of Business, Competition, Demand, Supply, Cost, Risk and Stock Valuation 11
  • 2. CONTENTS Terra Nitrogen Company, LP  TNH [NYSE] ..................................................................................................................... 3 Summary Recommendation: .................................................................................................................................................... 3 Business Description: .................................................................................................................................................................. 3 Thesis Summary............................................................................................................................................................................. 4 Competition: .................................................................................................................................................................................... 5 Industry Demand: ....................................................................................................................................................................... 10 Industry Supply: ........................................................................................................................................................................... 15 Costs: ................................................................................................................................................................................................. 17 Principal Risks: ............................................................................................................................................................................. 19 Pro-Forma Cash Flows: ............................................................................................................................................................. 23 Valuation ......................................................................................................................................................................................... 24 Risk Adjusted Margin of Safety.............................................................................................................................................. 24 Conclusion ...................................................................................................................................................................................... 25 References ...................................................................................................................................................................................... 26
  • 3. TERRA NITROGEN COMPANY, LP  TNH [NYSE] Style: Small Cap Market Cap: $2.01B Buy Price: $65.48 Industry: Agricultural Chemicals Last Price: $139.66 Recommendation: Hold Type: Cyclical Fair Value: $95.59 short-term SUMMARY RECOMMENDATION: Through at least 2014, the agriculture chemicals industry outlook is very Price data as of: attractive due to a number of factors discussed below in the thesis summary. Despite the positive outlook for the industry and Terra Nitrogen, 7/6/11 the stock is currently overvalued as compared to the estimated fair value. Prepared by: Regardless of the lofty valuation, the outlook through the 2011 third Matthew Scullen quarter is positive due to aggressive targets for corn production. I recommend holding Terra Nitrogen at least through the third quarter. Analyst does not own a position in TNH while Investors holding the stock are expected to be well compensated through initiating coverage an approximate 8% dividend yield. Terra Nitrogen's MLP status means they have a residual payout policy with a rich history of paying dividends. BUSINESS DESCRIPTION i: Terra Nitrogen Company, LP produces and distributes nitrogen (N) fertilizer products essential for boosting key crop yields. The primary products are anhydrous ammonia (ammonia) and urea ammonium nitrate solutions (UAN). Ammonia, UAN and other N fertilizers are mostly applied to corn, wheat, cotton, rice and sugar cane in the North American region. Corn is the main crop focus of Terra Nitrogen. Growth is therefore dependent on global demand for these crops. Due to N absorption by crops and nitrogen evaporating or leaching, it must be reapplied every year to keep crop yield and quality high. This typically results in steady demand for nitrogen fertilizer on a year- to-year basis. The application is seasonal, where spring and fall traditionally have higher demand because of planting and harvesting. Weather patterns can alter this trend if farmers decide to delay planting or harvesting in anticipation of better conditions. The company is a wholly owned subsidiary of Terra Industries, Inc., which is a wholly owned subsidiary of CF Industries, Inc. The manufacturing facility is located in Verdigris, Oklahoma where it is the second largest UAN production facility in North America. It has two ammonia plants, two nitric acid plants, two UAN plants, all owned by the partnership and a leased port terminal. The facility is designed to operate continuously. The location is strategically located to serve the Corn Belt region. Capacity at the plants is reflected below in Table 1:
  • 4. Table 1 Product Annual Capacity (tons) % of Total N. American Capacity Ammonia 1,100,000 7% UAN (32% N Content) 2,000,000 14% Approximately 70% of the ammonia produced is used for upgrading to UAN. Products are sold to dealers, national farm retail chains, distributors and other fertilizer producers and users. Sales our exclusively wholesale, but ultimately the end-users are farmers. 26% of sales in 2010 were concentrated with 5 customers and 1 customer accounted for 9% of total sales. CF Industries, effective 1/1/2011, is now the only customer of Terra Nitrogen Company. Natural gas is the raw material used to produce N fertilizers. In 2010 it accounted for 50% of the companies’ cost of goods sold. Natural gas prices therefore have a significant effect on gross margins. The facility is served by the OneOK gas pipeline, which Terra Nitrogen states gives a basis advantage as compared to Henry Hub. Recent Developments CF Industries acquired Terra Industries during the first quarter of 2010. Previously, Terra Nitrogen Company was an indirect wholly owned subsidiary of Terra Industries. Subsequent to the acquisition, CF Industries through their holding company took all of the rights and obligations from Terra Industries to conduct the operations of the limited partnership for Terra Nitrogen. As a result, Terra Nitrogen’s product is now sold exclusively to CF Industries. Another consequence of the acquisition was its affect on Terra Nitrogen’s credit facilities. The event triggered a “technical default” and terminated the $50 million credit facility in place. Fortunately, Terra Nitrogen has adequate cash flows and cash deposits and had no outstanding credit used from the facility; the “default” was non-material to the operations of the company. THESIS SUMMARY  N fertilizer application is essential to  The growing global middle class is high crop yields experiencing diet shifts to meats,  Domestically, anti-dumping policy, fruits and vegetables. Feeding lower natural gas prices and a lower livestock requires abundant sources trending dollar protects against low of feed, which require more fertilizer. cost importers  Consumption is outpacing production  The global financial crisis reduced and historically low stock to use global production and curtailed ratios are sending agriculture prices expansion plans, but not population higher growth  Fertilizers are the most efficient way  Ethanol mandates require large corn to boost crop yields acreage devotion, which requires nitrogen fertilizer
  • 5. COMPETITION: The competitive landscape for N fertilizer products is based from “price, supply, delivery time and quality of service”ii. Competition comes from both domestic and foreign N producers. Competition is subsequently analyzed from the perspective of Porter’s Five Forces: Threat of entry The fertilizer industry is fairly mature with many large established firms. Many of these producers already have large capital investments in PP&E, long established relationships with buyers and suppliers, in some instances well-known brand names and strategic locations centralized in the Great Plains region. Facilities located in the corn-belt region where known supply chains lead to production efficiencies and centralized product distribution advantages to customers create barriers to new entrants. Extrapolating from Terra Nitrogen's 2010 PP&E and inventory balance along with total North American Capacity, an estimate can be made for the cost of start up, excluding labor costs. Table 2 represents a hypothetical entrant firm, Firm ABC, which represents a 1.5% market share. Table 2iii TNH Firm ABC* Gross PPE (in 000's) 273,600 4,350 Inventory, net (in 000's) 27,600 431 Total Investment 4,782 Domestic Firm ABC* Total Capacity (000 metric tonnes) 13,396 209 *Firm ABC represents 1.5% domestic market share The considerable start up cost and time to bring a new facility on line suggest new entrants are unlikely. Persistently high ammonia, urea and UAN prices could theoretically lead to new entrants as profits are typically higher than normal, especially in conjunction with low natural gas prices as is the state currently. Most likely, additional capacity would come from existing competition expanding their production capabilities. The cost represents little extra above existing capex. Competition from foreign exporters can be a significant source of new competitors. Many of these foreign exporters have subsidized natural gas costs, which can make them more competitive in price. This is especially true when the dollar has been strengthening and imports of fertilizer become relatively more attractive. A weaker dollar leads to the opposite conclusion, where imports become relatively less attractive. Foreign exporters also gain advantage when domestic prices of natural gas become relatively high due to their gas subsidy advantages.
  • 6. Power of suppliers Specifically for Terra Nitrogen, they receive natural gas materials through the OneOK pipeline. While this pipeline is strategically located for abundant access, any disruptions or disagreements with suppliers could adversely affect production at the Vertigris facility. That being said, natural gas is a widely used, exchange-traded commodity. Its pricing is not controlled by suppliers in a material way. Terra Nitrogen does not rely on any single natural gas supplier and therefore the power of suppliers is not a significant factor. Power of buyers Farmers’ ultimately account for the majority of end users in N fertilizers. Due to the intensive needs of crops like corn and wheat, N fertilizer application is required annually from crops draining the soil of its natural N content. Therefore, buyers are limited in their power in that they must apply N to their soil at least annually and only have control over the timing of the application. In the case of Terra Nitrogen, a single customer accounted for 9% of their sales with 26% concentrated in the hands of 5 customers during 2010. Having a concentration of buyers in theory could limit the ability of Terra Nitrogen to pass along increasing costs and allow buyers to control terms by threatening to switch business to other suppliers. In reality, ammonia, UAN and urea are all commodity products with widely quoted prices. As a result, switching would most likely be triggered by untimely delivery and poor service. Threat of substitutesiv There are several types of nitrogen fertilizers with distinct properties, advantages and disadvantages available. Soil type, product price, application process, safety, storage, transportation ease/cost and weather conditions all impact the source of nitrogen farmers decide to use. There is not significant differentiation among crop yields between nitrogen sources if applied correctly. Depending on the relevancy of these factors, buyers can easily substitute products. The most widely used types are described below.  Anhydrous Ammonia AA (82% N): Must be injected into the soil. Of all of the forms of nitrogen fertilizer, AA has the slowest nitrate conversion rate. Most AA is upgraded to urea or solutions.  Benefits: No loss due to surface volatilization, low chance of leaching or denitrification. (defined below)  Disadvantage: It is hazardous to handle, must be injected into the soil and erosion can occur on steep slopes.  Urea (45-46% N): Has a relatively quick nitrate conversion, usually in less than two- weeks. It is available in prills or a granulated form. Best applied in spring when temperatures are cool.  Benefits: Effective when applied correctly, is not hazardous, can be safely stored and cheaply transported.  Disadvantages: Denitrification on wet or compacted soil, leaching in coarse soils, volatilization risk if surface applied.
  • 7. Urea Ammonium Nitrate Solutions UAN (28-32% N): a water solution of both urea and AN.  Benefits: Ease of application, handling and storage. Can be applied through sprinkler irrigation systems. Has both a fast acting component and slow acting component of N. Not hazardous.  Disadvantages: Subject to the same N losses as urea (application through dribbling can make volatilization risk minimal), is more costly to transport than urea.  Ammonium Sulfate AS (21% N): All of the N is in ammonia form.  Benefits: Suited best for high PH soils and where low sulfur content is suspected. Generally not subject to high volatilization loss.  Disadvantages: Most acidic of nitrogen fertilizers, requiring more limestone to neutralize it. Higher cost.  Ammonium Nitrate AN (34% N): 50% ammonium, 50% nitrate. The ammonium quickly converts to nitrate when added to the soil.  Benefits: Has no urea, therefore ideal for conditions where volatilization is expected.  Disadvantages: It is potentially hazardous and is subject to leaching and dentrification immediately. Definitions: Denitrification: results in nitrogen escaping the soil as N gas due to a deficit of oxygen in the soil. Wet soils, compact soils and warm temperatures promote this condition. Leaching: when more water (rain) enters the soil than it can hold and the N moves through the soil with it. Coarse soils (sands) pose the most risk. This risk can be minimized by limiting the time N is in the soil before plant uptake. Surface Volatilization: occurs in urea forms of N where it breaks down into ammonia gas and escapes the soil because there is not enough water to absorb it. This most often occurs when the urea is spread so there is no direct contact with the soil or when spread on corn residue. Volatilization loss results from warm temperatures, high moisture content, and high surface ph of the soil.
  • 8. Rivalry among existing firmsv North American production of N fertilizer is dominated by a few firms. AA was chosen as the product to analyze from because it is generally widely produced and upgraded and therefore more comparable. To properly analyze the competition, two separate landscapes of domestic producers are presented; one with Terra Nitrogen as a separate distinct firm (Table 3) and one as a consolidated subsidiary of CF Industries (Table 4). The reason is that technically Terra Nitrogen and CF Industries are competitors. Since the acquisition of Terra Industries, CF industries has control over the operations of Terra Nitrogen and is now the sole customer. This relationship more closely resembles co-opetition in which firms work together and share market. Table 3 2010 N. American Annual Capacity (‘000 metric nutrient tons per year) (000's short tons) Anhydrous Ammonia, Gross UAN Nitrogen Solutions % Share # of Firms # of Firms Company Capacity of Total HH Index w/ Even % UAN** UAN % HH Index w/ Even % CF Industries 5,461 41% 1,662 2 4,520 33% 1,101 3 Koch 2,076 15% 240 6 1,700 12% 156 8 Agrium 2,403 18% 322 6 1,200 9% 78 11 Terra Nitrogen 980 7% 54 14 1,965 14% 208 7 Potash Corp 1,067 8% 63 13 2,000 15% 216 7 CVR Partners (est.) 447 3% 11 30 739 5% 29 18 Other (est.) 962 7% 52 14 1,500 11% 121 9 Total Production* 13,396 2,403 85 13,624 1,908 64 *Data from Agrium 2010-2011 Agrium Fact Book **Data from CF Industries Scotia Capital Global Fertilizer Conference 2011 Table 4 2010 N. American Annual Capacity (‘000 metric nutrient tons per year) (000's short tons) Anhydrous Ammonia, Gross UAN Nitrogen Solutions % Share # of Firms # of Firms Company Capacity of Total HH Index w/ Even % UAN** UAN % HH Index w/ Even % CF Industries 6,441 48% 2,312 2 6,485 48% 2,266 2 Koch 2,076 15% 240 6 1,700 12% 156 8 Agrium 2,403 18% 322 6 1,200 9% 78 11 Potash Corp 1,067 8% 63 13 2,000 15% 216 7 CVR Partners (est.) 447 3% 11 30 739 5% 29 18 Other (est.) 962 7% 52 14 1,500 11% 121 9 Total Production* 13,396 3,000 71 13,624 2,865 56 *Data from Agrium 2010-2011 Agrium Fact Book **Data from CF Industries Scotia Capital Global Fertilizer Conference 2011 The glaring reality from observing these charts is that CF Industries is a clear market leader in AA production and a dominant leader in UAN production. In either case, the Herfindahl-Hirschman Index (HH Index) indicates competition that more resembles a monopoly than perfect competition. What isn't perfectly known is how many other firms represent the "Other" portion of gross capacity. If more than 14 firms are represented than more competition will be present. Of course, imports represent a significant portion of competition and the market structure cannot be analyzed without it. Table 5 shows the trend in imports of Nitrogen fertilizer. Canada is excluded because it is already reflected in Tables 3 & 4.
  • 9. Table 5vi Imports (Metric Tonnes), excl. Canada 2010 2009 2008 2007 Anhydrous Ammonia 5,730 4,683 6,409 7,019 Urea 4,640 3,067 3,976 4,843 UAN 2,069 779 1,954 2,415 Source: USDA/ERS, see website www.ers.usda.gov/data/fertilizertrade/ for more information. There is a trend of decreasing imports, except during 2009 when the global financial crisis dislocated markets. This is most likely due to a weak trending dollar and domestic capacity beginning to expand as well as foreign natural gas costs exceeding domestic. Table 6 adds imports to the North American Capacity picture. Table 6 2010 N. American Annual Capacity (‘000 metric nutrient tons per year) (000's short tons) Anhydrous Ammonia, Gross UAN Nitrogen Solutions % Share # of Firms # of Firms Company Capacity of Total HH Index w/ Even % UAN** UAN % HH Index w/ Even % CF Industries 6,441 34% 1,134 3 6,485 41% 1,662 2 Koch 2,076 11% 118 9 1,700 11% 114 9 Agrium 2,403 13% 158 8 1,200 8% 57 13 Potash Corp 1,067 6% 31 18 2,000 13% 158 8 CVR Partners (est.) 447 2% 5 43 739 5% 22 22 Other (est.) 962 5% 25 20 1,500 9% 89 11 U.S. Imports*** 5,730 30% 898 3 2,281 14% 206 7 Total Production* 19,126 2,369 104 15,905 2,308 72 *Data from Agrium 2010-2011 Agrium Fact Book **Data from CF Industries Scotia Capital Global Fertilizer Conference 2011 ***Source: USDA/ERS, see website www.ers.usda.gov/data/fertilizertrade/ for more information. Market share among the domestic producers is noticeably reduced where imports are added to the picture. Unfortunately, the HH Index for this table provides very little information because there is no indication as to the number of importers, but a realistic assumption is that the number is not concentrated. Still, CF Industries (including Terra Nitrogen) has a dominant market share for N Solutions products.
  • 10. INDUSTRY DEMAND: Terra Nitrogen identifies several factors that contribute to global demand for fertilizers. Long-term drivers  population growth  increases in disposable income  rising use of bio-fuels  improvements in diet Short-term drivers  world growth rates  crop mix  weather patterns  fertilizer application rates  stocks to use ratios  farm income  agriculture commodity prices  trade policy  energy prices Demand for N is expected to grow modestly through 2014 at a CAGR of 1.01% in North America. Figure 1vii Positive outlook for bio-fuels and corn acreage Corn represents approximately 46% of fertilizer demand in North America viii. A newer source of demand for corn through the emergence of ethanol as an alternative energy is driving marginal demand for fertilizer through increased acreage of corn. The Energy Independence and Security Act (EISA) of 2007 includes provisions for a Renewable Fuel Standard (RFS) to increase the supply of alternative fuel sources by requiring fuel producers to use at least 36 billion gallons of biofuel by 2022. The RFS provision establishes a level of 15 billion gallons of conventional ethanol by 2015 and at least 21 billion gallons of cellulosic (noncornstarch) ethanol and advanced biofuels (including ethanol from sugarcane and biodiesel) by 2022ix. Figures 2 and 3x show that acreage outlooks for corn remain positive through the next 4 years. A low corn stocks to use ratio and low natural gas prices combine to represent a favorable demand scenario and abnormal margins for nitrogen fertilizer for years to come and especially for 2011.
  • 12. Improving diets As developing countries grow and technology and disposable incomes increase, diets switch from rice based to meat, dairy, fruit and vegetable based. IMF research predicts emerging and developing economies will grow at over 6% through 2016 while advanced economies will only grow at slightly over 2% during the same time framexi. This requires more use of fertilizers to boost crop yields. According to The Fertilizer Institute, “Production of a pound of beef requires 7 pounds of feed and every pound of pork produced requires 4 pounds of feed.” “With the increased world population, the United Nations Food and Agriculture Organization (FAO) estimates that the total world demand for agricultural products will be 60 percent higher in 2030 than it is today. FAO projects that more than 85 percent of this additional demand will come from developing countries.”xii We’re already witnessing signs of this as evidenced by world consumption of grains outpacing growth in production. Figure 4 displays four charts showing world consumption patterns and their respective affect on fertilizer prices. Potash predicts “fertilizer as a percentage of farm revenue remains below historical average levels. We believe this is a much more sustainable situation and provides greater opportunity for improved pricing levels in the coming months and years.”xiii Figure 4xiv
  • 13. Farm income The 2011 forecast from the ERS for farm income is broadly positive as shown in Figure 5. Figure 5xv Trade policy China is the world's largest producer of nitrogen fertilizers. Due to local conditions, the Chinese government has raised existing export tariffs to promote higher domestic use of fertilizers. Given that from 2007 to 2008 the United States imported nearly 1 million tons of urea from China, this trade policy could promote more production and capacity expansion domestically in North Americaxvi. Russia and Ukraine are the largest urea exporters, but due to subsidized natural gas costs they are able to sell product at below market prices. Anti-dumping orders have been in place since 1987, as a result very little urea has been imported as compared to their production capacity. A review by the International Trade Commission is set to complete in late 2011 to determine if the anti-dumping orders should remain in place. Anti-dumping orders are also in place for Russian and Ukrainian fertilizer grade ammonium nitrate where for Russia prices are set to market and volumes are capped at 150,000 metric tons. Ukrainian imports are subject to a 156% duty. These agreements are under review and a decision will be reached by 2012. xvii These anti-dumping policies serve to protect North American fertilizer producers from unfair trade practices. If the orders are removed in the future, added competition will bring price pressures on fertilizer prices and suppress production leading to a period of low margins and depressed earnings.
  • 14. Current conditions Figure 6 provides a global breakdown of the current crop conditions. If conditions improve through the summer and into fall crop yields could be expected to improve. However, if conditions remain unaccommodating to crop growth fertilizer demand will be pushed forward. Figure 6xviii
  • 15. INDUSTRY SUPPLY: From 1999 to 2008, rising natural gas costs and a long period of capacity additions from the 90's led to a period of plant closures and low production volumes. Figure 7 illustrates this history. Figure 7xix During this time period imports rose to meet the demand no longer being served domestically, displayed in Figure 8. Below is a copy of previously referenced Table 5, which shows the trend in imports since 2007. Production has recently stabilized with imports falling. Table 5 Imports (Metric Tonnes), excl. Canada 2010 2009 2008 2007 Anhydrous Ammonia 5,730 4,683 6,409 7,019 Urea 4,640 3,067 3,976 4,843 UAN 2,069 779 1,954 2,415 Source: USDA/ERS, see website www.ers.usda.gov/data/fertilizertrade/ for more information. Figure 8xx
  • 16. The distinction should be made, that the discrepancy in N imports from Figure 8 vs. Table 5 is due to N sources. Table 5 tabulates specific N sources where Figure 8 aggregates all sources. Operating rates Table 7xxi 2010 Ammonia Capacity 2010 UAN Capacity 2010 N Segment Capacity Company Utilization Utilization Utilization CF Industries 83% 60% Agrium 76% Terra 104% 98% Nitrogen Potash 100% CVR 94% 92% Partners* *Represents annualized data Table 8 visualizes the utilization rates among the top domestic producers for N fertilizers. CF Industries represents a large share of the market and has considerable room to expand operations, as does Agrium.
  • 17. COSTS: Natural gas is the primary raw material for producing nitrogen fertilizers. The process for producing anhydrous ammonia, the basic building block for upgrade products, is summarized in figure 9 in a 5- step process. For Terra Nitrogen, natural gas represented 50% of overall costs in 2010 due to low natural gas prices. Higher prices lead to lower gross margins as overall costs rise. Figure 9xxii
  • 18. Globally, natural gas costs can vary significantly. Figure 10 is a chart that shows production costs among the largest producing regions globally. Currently, the US has a significant cost advantage over the majority of other producers. Figure 10xxiii Figure 11 breaks down N importers by country during 2007/08. Surely this profile has changed due to the dramatic decrease in US natural gas prices, giving US producers a cost advantage over major exporting countries. Figure 11xxiv
  • 19. PRINCIPAL RISKS xxv: Business risks  Reliance on the Verdigris facility as the sole operations center is subject to the risk of plant disruptions caused by accidents, natural disasters or severe weather. If any disruptions were to occur, sales could be materially affected. For the most part, disruptions of this nature are largely unpredictable.  Natural gas costs are highly volatile and difficult to forecast. Because natural gas prices account for the majority of production costs, any unexpected rise in price that is not hedged will have an adverse impact on margins.  The fertilizer industry is cyclical in nature, subject to periods of optimism where oversupply lowers profitability and may lead to losses. 1999 through 2003 represents such a period.  Fertilizer products including N are commodity products with very little differentiation and are traded globally. Foreign competitors may have lower material costs and more abundant access to resources like in the Middle East. Other foreign competitors have subsidized natural gas costs, which can result in their fertilizers having a cost advantage.  Agricultural demand for fertilizers is dependent on ideal weather conditions, inventory stocks, government policies, trade policies, price volatility and population growth to name some factors. Any adverse change in any of these factors can result in lower demand for fertilizers.  Terra Nitrogen, through its operating agreement, relies on CF Industries and third parties to operate. If CF Industries were to experience hardship, Terra Nitrogen may be impacted adversely as a result. Third parties provide services such as deliveries and transportation subject to similar risks as the Vertigris facility. Any disruptions in the operations of third party servicers could materially impact Terra Nitrogen.  Health, safety and environmental laws are numerous in the US. These include the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the Toxic Substances Control Act and various other federal, state, provincial, local and international statutes. Accidents are an ongoing part of operations and therefore any major accident could result in major disruptions or litigation, which could have a material impact on results.  Derivatives hedging is used to manage price risk in natural gas costs. Ineffective hedging could result in reduced cash flows and profitability.  Any demand forecast error could result excess inventories or too few inventories to meet demand.  Terra Nitrogen relies exclusively on operating cash flow to carry business and fuel growth. In the event cash flows are insufficient, additional equity and/or credit would be necessary which may not be accessible if market conditions are depressed during the time of need.  A weak global economy could result in insufficient demand for agriculture and fertilizer products.  Dividends are paid on a residual basis after other working capital and investment needs have been met. If there is insufficient cash on hand or to meet these needs, a dividend may not be paid. Dividends may be in jeopardy during periods of oversupply when profitability is suppressed.
  • 20. Financial risk In aggregate, Terra Nitrogen's financial position in terms of solvency, liquidity, accounting quality, efficiency and profitability is conservative and does not pose serious risks. The following tables illustrate the analysis. DuPont Analysis Profit Asset Financial 2010 ROE = Margin x Turnover x Leverage Solvency Ratios 96.79% 0.36 1.90 1.41 Debt / Equity - Profit Asset EBIT / Interest 504.75 2010 ROA = Margin x Turnover Current Ratio 2.24 68.51% 0.36 1.90 Cash Ratio 1.52 The DuPont analysis reveals that Terra Nitrogen is well balanced in terms of profitability and not reliant on leverage to produce a profit. Their position is highly solvent and liquid with no debt. Operating leases are present, but would not be material if present values were included in the balance sheet. Margins 2010 2009 2008 2007 2006 Gross Margin 39% 32% 48% 35% 12% Profit Margin 36% 28% 47% 32% 11% Free Cash Flow Margin 41% 26% 32% 52% 21% Margins are volatile, mainly due to volatility in natural gas prices and UAN/ammonia prices. This makes quarterly predictions in earnings subject to a high degree of uncertainty. Payout Ratio 2010 2009 2008 2007 2006 Payout Ratio 64% 183% 89% 70% 79% Terra Nitrogen is a Master Limited Partnership, which requires that it pays all available cash to its partners (shareholders). The policy is a residual dividend policy, dependent on plans for capex, cash on hand and operating cash flows. The company has a history of paying quarterly dividends dating back to 1994. The year 1999 represents the only year it did not pay at least one quarterly dividend.
  • 21. Accrual Ratio 2010 2009 2008 2007 2006 Accrual Ratio (0.35) 0.43 6.65 (5.88) (0.23) Accruals have no apparent trend and have averaged only 0.12 since 2006, suggesting no suspicious accounting gimmicks. Fixed Assets 2010 2009 2008 2007 2006 Average Age 11.13 11.03 7.94 9.38 10.89 Total Life 16.00 15.86 11.11 13.42 16.04 Remaining Life 4.87 4.84 3.17 4.03 5.15 PP&E investments are fairly aged, but Terra Nitrogen consistently replaces investments at a stable enough rate that no major capex should be expected to reduce cash flows in a way that would significantly reduce cash available to partners. Efficiency 2010 2009 2008 2007 2006 Receivables Turnover 19.71 16.40 20.60 14.58 12.19 Inventory Turnover 12.15 8.00 12.30 19.72 15.05 Payables Turnover 14.55 14.37 17.50 14.63 19.57 Days of Sales Outstanding 18.51 22.26 17.72 25.04 29.95 Days of Inventory on Hand 30.03 45.63 29.67 18.51 24.26 Days of Payables Outstanding 25.09 25.39 20.86 24.95 18.65 Cash Conversion Cycle 23.46 42.50 26.54 18.60 35.56 Inventory and sales are generally sold and collected within 30 days. Sales collection times have trended favorably, while inventory holding times have been stretched. Payables appear to have been managed more efficiently, signaling confidence by creditors. Since 2006, with the exception of 2009 and the global financial crisis, Terra Nitrogen has effectively improved its cash conversion cycle. Inventories are accounted for using FIFO. Because natural gas prices are so volatile, a FIFO policy for inventory accounting is not necessarily aggressive.
  • 22. Valuation risk The forecast of fair value for Terra Nitrogen is based upon past growth and margin observations, historical demand growth for N fertilizers and expected demand growth for N fertilizers. The probabilities of these growth scenarios are unknown due to cost and product price volatility and the fair value calculation was equal weighted. The actual revenue growth and free cash flow margin outcomes may differ significantly from what was forecast. The range of prices in the forecast scenarios is $38.21. The standard deviation of the forecasted values (aka the growth sensitivity factor) is 14.55. In the analysts view, the wider the forecast range and larger the standard deviation relative to fair value, the more uncertainty is present in the forecast of fair value, and therefore more risk. The ratio of standard deviation to fair value is 0.15. The conclusion then is that the forecast itself is not based on wildly different assumptions and contains a normal amount of uncertainty. The cost of equity capital is not calculated by use of CAPM, GGM, ABT or other widely accepted models. Instead it is the percentage of capex to equity, averaged over 5 years. The theory to using this method is that the cost of equity capital is the amount of investment needed to maintain and grow the business. There is no empirical research to suggest using capex as a % of equity is a superior method.
  • 23. PRO-FORMA CASH FLOWS: Free cash flow has been projected for Terra Nitrogen though 2014 based on scenarios of revenue growth estimates and free cash-flow margins. Margins are estimated using historically observed margins. (in thousands) Terminal* 2014 E 2013 E 2012 E 2011 E 2010 A Scenario 1 - Historical Revenue Growth Total revenues (4% Growth) 686,922 660,502 635,098 610,671 587,184 564,600 Revenue CAGR 3% 3% 111.20% FCFE Margin (Average 30%) 41% Free Cash Flow to Equity 2,575,958 198,151 190,529 183,201 176,155 230,300 Scenario 2 - Historical Nitrogen Demand Total revenues (2% Growth) 623,364 611,141 599,158 587,410 575,892 564,600 FCFE Margin (Average 30%) 41% Free Cash Flow to Equity 1,870,092 183,342 179,747 176,223 172,768 230,300 Scenario 3 - Expected Nitrogen Demand w/ Abnormal Profits Total revenues (1% Growth) 593,400 587,525 581,708 575,948 570,246 564,600 FCFE Margin 30% 30% 30% 40% 50% 41% Free Cash Flow to Equity 1,780,201 176,258 174,512 230,379 285,123 230,300 Scenario 4 - Expected Nitrogen Demand w/ Abnormal Profit, Overcapacity & Return to Normal Profits Total revenues (1% Growth) 593,400 587,525 581,708 575,948 570,246 564,600 FCFE Margin 30% 30% 20% 7% 50% 41% Free Cash Flow to Equity 1,780,201 176,258 116,342 40,316 285,123 230,300 Scenario 5 - Expected Nitrogen Demand w/ Overcapacity then Return to Normal Profits Total revenues (1% Growth) 593,400 587,525 581,708 575,948 570,246 564,600 FCFE Margin 30% 30% 30% 20% 7% 41% Free Cash Flow to Equity 1,780,201 176,258 174,512 115,190 39,917 230,300 *Terminal cash flow estimated using the Gordon Growth Model. cost of equity capital 12%. The cost of equity capital was calculated by using average capex as a % of equity over the past 5 years.
  • 24. VALUATION Terra Nitrogen's fair value is calculated using a free cash flow to equity holders model, as estimated in the pro-forma cash flows. Fair value is the arithmetic average of all 5 scenario values. Shares outstanding have been constant since the IPO at 18,502,000. (in thousands) Terminal 2014 E 2013 E 2012 E 2011 E Scenario 1 Discounted Cash Flows 1,637,068 125,928 135,615 146,047 157,281 Value per share $119.01 Scenario 2 Discounted Cash Flows 1,188,477 116,517 127,941 140,484 154,257 Value per share $93.38 Scenario 3 Discounted Cash Flows 1,131,350 112,015 124,214 183,657 254,574 Value per share $97.60 Scenario 4 Discounted Cash Flows 1,131,350 112,015 82,810 32,140 254,574 Value per share $87.17 Scenario 5 Discounted Cash Flows 1,131,350 112,015 124,214 91,829 35,640 Value per share $80.80 Fair Value: $95.59 Purchase Price: $65.48 RISK ADJUSTED MARGIN OF SAFETY The purchase price was calculated using a model that determines the margin of safety through 5 risk factors less the dividend yield. Margin of Safety 5 Factors: Beta 0.70 0.14 D/E - - Beta AQR 0.12 0.02 D/E - Debt to Equity CFRF 0.99 0.20 ACR - Account Quality GSF 0.14 0.03 CFRF - Cash Flow Volatility - Dividend Yield 0.08 GSF - Growth Estimate Sensitivity RAMS 0.32
  • 25. CONCLUSION Terra Nitrogen is a well run business in a favorable competitive position with modest, but likely attainable growth prospects. Financially, they are conservatively positioned and have not had a history of large disruptions from other business risks aside from industry oversupply. The generous payout policy is attractive to investors looking for total return, where income can be reinvested back into Terra Nitrogen at favorable prices or into other opportunities. Because of the residual policy, income investors bear extra risk that dividends are not paid every quarter. It is not recommended that investors purchase Terra Nitrogen at this price. Current partners are advised to hold the stock as no catalyst is expected to pose significant downside momentum in the next 3 months. Partners are expected to be well compensated with generous income from the low cost environment and aggressive corn acreage projections for 2011. Beyond this time-frame there is considerable more uncertainty. If valuations remain high above fair value with no positive changes in the outlook, a sell recommendation is advised.
  • 26. REFERENCES i Terra Nitrogen Company. (2010). form 10-k. Item 1. Business. (pp. 1-5). ii Terra Nitrogen Company. (2010). form 10-k. Item 1. Business, Competition. (pp. 4.) iii Agrium, Inc. (2010-2011). Agrium Fact Book. Industry Participants, 2010 Ammonia Plant Capacities & Location. (pp. 23). iv Johnson, W. Jay. Selecting Forms of Nitrogen Fertilizer. The Ohio State University Extension: The Department of Horticulture and Crop Science. Retrieved from http://ohioline.osu.edu/agf-fact/0205.html Vitosh, M.L. (2005). N-P-K Fertilizers. Michigan State University Extension Bulletin. Retrieved from http://web3.canr.msu.edu/vanburen/e-896.htm v Agrium, Inc. (2010-2011). Agrium Fact Book. Industry Participants, 2010 Ammonia Plant Capacities & Locations, (pp. 23) Terra Nitrogen Company. (2010). form 10-k. Item 1. Business, Our Facilities. (pp. 4.) CF Industries Holdings, Inc.. (2010). form 10-k. Item 1. Business, Nitrogen Segment. (pp. 4.). Will, Tony. (2011). Scotia Capital Global Fertilizer Conference 2011: CF Industries. UAN: A High Value-Added Product. (pp. 12). Retrieved from http://phx.corporate- ir.net/External.File?item=UGFyZW50SUQ9OTc2OTZ8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 vi Huang, Wen. Beckman, Jayson. (2011). USDA/ERS US fertilizer imports/exports 1995 - 2010. Data Files. Standard Tables, 1995-2010. Retrieved from www.ers.usda.gov/data/fertilizertrade/ vii Food & Agriculture Organization of the United Nations. (2010). Current world fertilizer trends and outlook to 2014. Annex 2. World & regional nitrogen fertilizer demand forecasts. (pp. 28). viii Terra Nitrogen Company. (2009) form 10-k. Item 1. Business. (pp. 4.). ix Malcolm, Scott. Aillery, Marcel. (2009). Growing Crops for Biofuels Has Spillover Effects. Retrieved from http://www.ers.usda.gov/AmberWaves/March09/Features/Biofuels.htm x Will, Tony. (2011). Scotia Capital Global Fertilizer Conference 2011: CF Industries. UAN: A High Value-Added Product. (pp. 15, 18). Retrieved from http://phx.corporate- ir.net/External.File?item=UGFyZW50SUQ9OTc2OTZ8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 xi IMF World Economic Outlook Database. (2011). Retrieved from http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/weorept.aspx?sy=2009&ey=2016&scsm=1&ssd=1 &sort=country&ds=.&br=1&pr1.x=64&pr1.y=10&c=001%2C110%2C163%2C119%2C203%2C123%2C998%2C20 0%2C904%2C901%2C505%2C511%2C205%2C406%2C603&s=NGDP_RPCH&grp=1&a=1 xii The Fertilizer Institute. (2011). Population Growth & the Food Crisis. Retrieved from http://tfi.org/factsandstats/foodcrisis.cfm xiii Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report. Rise in crop prices has outpaced fertilizer prices. (pp. 19). Retrieved from http://www.potashcorp.com/media/SCGFC_June_2011.pdf xiv Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report. World Agriculture & Economic Overview. (pp.12-14, 19). Retrieved from http://www.potashcorp.com/media/SCGFC_June_2011.pdf xv Park, Timothy. (2011). Farm Income and Costs: 2011 Farm Sector Income Forecast. Retrieved from http://www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm xvi The Fertilizer Institute. (2011). Fertilizer is a Strategic Commodity. Retrieved from http://tfi.org/factsandstats/strategiccommodity.cfm xvii CF Industries Holdings, Inc.. (2010). form 10-k. Item 1A. Risk Factors. (pp. 18-19). xviii Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report. World Agriculture & Economic Overview. (pp.15). Retrieved from http://www.potashcorp.com/media/SCGFC_June_2011.pdf xix Huang, Wen-yuan. (2009). Factors Contributing to the Recent Increase in U.S. Fertilizer Prices, 2002-08, USDA/ERS. Background. (pp.4). Retrieved from http://www.ers.usda.gov/Publications/AR33/AR33.pdf xx The Fertilizer Institute. (2009). The U.S. fertilizer Industry and Climate Change Policy. (pp.5). Retrieved from http://www.kochfertilizer.com/pdf/TFI2009ClimateChange.pdf xxi All data taken from respective firm form 10-k or 40-F
  • 27. xxii Canadian Fertilizers Limited. (2011). Ammonia Production Process. Retrieved from http://canadian-fertilizers.com/AmmoniaProduction.htm xxiii Brownlee, Wayne. (2011). Potash Q2 Market Analysis Report. page 27 Nitrogen Outlook. (pp.27). Retrieved from http://www.potashcorp.com/media/SCGFC_June_2011.pdf xxiv The Fertilizer Institute. (2009). The U.S. fertilizer Industry and Climate Change Policy. (pp.5). Retrieved from http://www.kochfertilizer.com/pdf/TFI2009ClimateChange.pdf xxv Terra Nitrogen Company. (2010). form 10-k. Item 1A. Risk Factors. (pp. 6-12).