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Rentech Nitrogen Partners' CEO Discusses Q2 2012 Results - Earnings Call Transcript

The drought has now affected most of the nation’s corn crop with only 23% of the corn crop in good to excellent condition. This number could continue downward as the dry weather persists. Any rains from this point forward will offer little benefit to this year’s corn crop.

This morning, the USDA significantly reduced its yields estimates for corn to 123.4 bushels per acre in its’ August WASDE report reflecting lower yields, lower harvested acreage, and lower ending stocks.

As the last three drought years of 1983, 88, and 1991, it took two full years of corn crops to return to normalized inventory levels. Based on these historical precedents, many believe it will take multiple years to bring ending corn stocks back above the billion bushel mark. So corn prices should be strong while stocks are below normal levels. Corn prices have soared over recent weeks with 2012 corn above $8 per bushel, up 45% from mid-May when the USDA first published its corn crop estimates for the year. As we look forward, 2013 corn prices are strong hovering in the mid-$6 range.

Nitrogen usage and prices have historically increased following a drought due to the expectation of higher plantings to replenish stocks in a response to higher corn prices. These pricing patterns held through as ammonia and UAN prices marched steadily higher as the drought progressively impacted the corn crop over the last few months. We’ve seen pre-paid sales follow deliveries of ammonia rise from $600 per ton in early May to posted prices of $770 per ton today. While UAN prices increased from $290 per ton in late June to posted prices of $370 per ton today.

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