Good day, ladies and gentlemen, and welcome to the 1st Quarter 2020 CF Industry Holdings Earnings Conference Call. My name is Natalia. I will be your coordinator for today. We will facilitate and an operator will be happy to assist you. I would now like to turn the presentation over to the host for today, Mr.
Martin Jarosick with CF Investor Relations. Sir, please proceed.
Good morning, and thanks for joining the CF Industries first quarter 2020 conference call.
I'm Martin Drosick, Vice President, Investor Relations for CF. With me today are Toni Wills, CEO Chris Bohn, CFO and Bert Frost, Senior Vice President of Sales, Market Development And Supply Chain. CF Industries reported its first quarter 2020 results yesterday afternoon On this call, we'll review the CF Industries results in detail, discuss our outlook, and then host a question and answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC
which are available
on site. Now let me introduce Tony Will, our President and CEO.
Thanks, Martin, and good morning, everyone. Before we jump into commentary about the quarter and our outlook, I just want to say how good it feels to be here today. It's a beautiful sunny day in Chicago and is both my privilege and my pleasure to be sitting around our conference table with all of the Deerfield based senior leadership team Of course, we're maintaining appropriate social distancing. It's been almost 10 weeks since we closed our headquarters office And although we have a standing conference call every day, it's great to be back together again in the same room as a team. This team has done an amazing job of not only keeping their organizations engaged in executing our business, but also keeping our people safe.
Globally, we're an organization of 3000 people, and we've only had a total of 4 employees test positive for COVID-nineteen. At the end of March, 3 of our employees tested positive in our Donaldsonville plant and all spent the month of April at home recovering. I'm delighted to say all three have fully recovered in our back at work. The other individual is a very recent event and works in our Deerfield headquarters. Given this result today, I'm particularly to make sure we keep our people safe and our operations running.
Lastly, we posted our financial results for the first quarter of 2020. In which we generated adjusted EBITDA of These results reflect the impact of higher sales volumes across all segments. The underlying story of the quarter however is the CF team. Our facilities are part of the critical infrastructure in all regions where we operate because we and run our plants while our nonoperations employees are supporting them remotely. The whole team is performing exceptionally well under the difficult circumstances created by the COVID-nineteen pandemic.
We produced 2,700,000 tons of ammonia in the first quarter, This is the 2nd highest quarterly volume in the company's history and continues to demonstrate our outstanding track record of asset utilization. Most importantly, we are working safely. As of March 31, we achieved our lowest ever 12 month recordable incident rate of 0.34 incidents per 200,000 labor hours. As we've said many times, we evaluate the company based on full year and half year performance rather than on individual quarters. This is because weather can significantly shift volume from Those temporary shifts tend to smooth out over longer periods.
That said, we're fortunate that 2020 has started with strong volumes Q1 and good demand in shipments so far through Q2. So at this point, we have good visibility on the first half of the year. As Bert will describe, we see strong nitrogen demand for the spring in North America and the UK. Compared to the last couple of years through this point in calendar, The weather has been significantly better for field work and planting. And to date, we have not experienced any significant disruption to our business from the pandemic.
We feel good about to the previous 3 years. Looking forward, there is more than the typical amount of uncertainty for the second half of the year and into 2021, due to the COVID-nineteen pandemic. Although we have not been impacted directly by the pandemic, and we are seeing very strong agricultural demand, as the global economy contracts industrial demand does soften. However, I'd like to provide some context for the magnitude of the uncertainty we're talking about. 1st, nitrogen is the only non discretionary plant nutrient.
Unlike potash and phosphate, which can be reduced or skipped entirely for a year, nitrogen must be applied. 2nd, our plants are some of the most efficient, lowest cost operations in the world, and we're on the very low end of the global cost curve. Further, we produce pendant regions, so our logistics costs to get our products into market are lower than imports. 3rd, North America has some of the most productive fertile farmland in the world. Additionally, the U.
S. Government has historically supported agriculture in times of distress and already there has been $19,000,000,000 of aid approved with more expected to come in the future. Given this, we continue to expect our full year production and sale volumes will be between $19,500,000 20,000,000 tons just like it's been in the last several years in a row. So the uncertainty is not about our sales volume. It tends to be more about price realization.
And while it is true that energy prices are generally lower globally, Chinese based anthracite coal remains the high cost marginal production in the industry. Chinese anthracite coal is currently over $7 per MMBtu on an equivalent basis. So Additionally, we're beginning to see somewhat of a supply side response with announced curtailments in foreclosures in Europe, Asia and South America, particularly for those plants that were principally serving industrial demand, which has soft I said on our last conference call that we expect 2020 full year EBITDA to come in somewhere between 20182019 performance. So far this year, our first quarter results are pacing ahead of 2019. As I said, we also expect good volume movement in Q2 this year, but we are comping against an all time record Q2 volume from 2019.
Furthermore, prevailing prices are lower than last year. And given the additional uncertainty for the second half of this that lead me to think we are likely to be more in the range of 20 eighteen's full year financial performance. Now there's a lot of the years still to play for and we are off to a strong start with the business running well. So we feel really good about our situation compared to many companies industries out there today. Given the uncertainty we face in the second half of the year, we are focusing our efforts on controlling those things we can control.
First and foremost, as always, our top priority is protecting the health and well-being of our employees and contractors at our location. Next, we remain focused on operating safely and achieving high asset utilization. As you can see on Slide 6 of our materials The CF team has delivered consistently strong performance. In fact, on a trailing 12 month basis, we have produced 10,300,000 tons of ammonia, and sales volumes have exceeded 20,000,000 tons, both of which are company records. Finally, we continue to manage the company responsibly for both short and the long term.
As Chris will describe, we are ensuring that our capital expenditures, manufacturing controllable costs and SG and A expense all reflect the broader economic environment. With that, let me turn it over to Bert discuss the market, then Chris will talk about our financial position before I return for some closing comments. Bert? Thanks, Tony. For
the
the end of March through April. As we noted in our press release, we have moved the highest volume of ammonia for agricultural application for the month of April 32,000 tons of ammonia from our facilities, the highest single activity and our order book going forward supports our projection for an increase in nitrogen consuming corn and coarse grain planted acres in North America. We continue to anticipate $92,000,000 to 94,000,000 acres of corn will be planted in the United States in 2020. This is lower than the U. S.
Department of Agricultural Estimate of 97,000,000 acres from March, but it will be about 2 to 4000000 Acres higher than 2019. To meet this demand, we've been in constant conversations with our customers and transportation partners as we specialism and dedication of everyone involved, including our rail and barge carriers, trucking companies and truckers, and distributors and retailers provide these essential materials to farmers. We believe that global demand for agricultural use remains strong overall for 2020 growing seasons, led by increased corn and wheat acres here in North America and demand in India and Brazil for urea imports. India just issued its 2nd urea tender of the year, which we expect results for soon. The country likely won't reach last year's urea import levels
but we expect it to
in 2020, given that domestic production in that country is not expected to operate this year and currency devaluation may growing corn more profitable. As Tony said, there is a great deal of uncertainty ahead due to the negative impact to the global economy pandemic. We are monitoring how the pandemic will affect the global nitrogen market in the rest of the year and into 2021. Some of the declined along with economic activity. We expect demand for these products to increase as economic activity increases the meantime, we can leverage the flexibility of our system do today, we can granulate more urea.
We're also watching closely the economic impact on farmers. Challenge conditions for ethanol and feed in industries have caused crop future prices to fall. For 2020. Should those challenges persist, we would expect an impact on planting decisions for 2021. However, Those decisions are at least 6 to 10 months away and will be based on conditions then, a forecast that would be difficult to make today.
Additionally, any government to protect farm income and the impact Because we are seeing such high demand now, we expect to end the first half with low inventories. This will give us a great deal of flexibility for fill programs in the second half based on economic and demand considerations as farmers, customers and the industry at large adapt to the challenges caused by the pandemic. With that, let me turn the call over to Chris.
Thanks Bert. As the pandemic developed in early 2020, we constantly evaluated our financial position to ensure we had the flexibility we needed to manage the uncertainty that we anticipated ahead. As we sit here today, we feel we are well positioned for this unprecedented event, both operationally and financially. This starts with the actions management has taken over the last 3 years to create a strong and flexible balance sheet. This includes reducing our gross debt by 2017.
For the first quarter of 2020, the company reported net earnings attributable to common stockholders of $68,000,000 or $0.31 per diluted share. EBITDA $18,000,000. As Tony noted in his remarks, these results reflect a positive impact of higher volumes and lower realized natural gas costs that were partially offset sales was more than $1 lower than the same period in 2019. Looking ahead to the rest of 2020, we expect natural gas costs continue to benefit the company and offset in part the impact of lower year over year product prices. Our trailing 12 months net cash provided by operating activities was approximately $1,500,000,000 and free cash flow was $912,000,000.
Continue to generate substantial cash flow through the remainder of the year. At the end of the quarter, $3,000,000 on release, we drew $500,000,000 in borrowings under our revolving credit facility. We repaid the revolver in full on April 20, when it became apparent the credit markets had stabilized. Today, our cash balance is $500,000,000 and our total liquidity is over one point $2,000,000,000 including the now undrawn revolver. We also continue to focus on managing our spending during this uncertain time Our manufacturing controllable costs per ton were 10% lower in the first quarter of 2020 compared to the first quarter of 19.
Additionally, we reduced certain activity in light of the pandemic, contributing to lower SG and A spending in the first quarter of 2020, compared to
2019.
In line with our focus on protecting the health and well-being of our employees, we are differing certain activities scheduled for 2020 that would have brought 100 of contractors pandemic, such as Italy. This is why we lowered our estimated range for capital expenditures in 2020 from $400,000,000 to $450,000,000 to $350,000,000 any activities critical to our ability to operate safely, and we expect our capital expenditures to return to the $400,000,000 to $450,000,000 range annually in 2021 and beyond. Our capital deployment focus remains the same. We are committed to redeeming the remaining $250,000,000 of our 2021 senior secured notes honored before the maturity date. We also continue to view share repurchases as our primary way of returning excess cash to shareholders As Tony and Bert both pointed out, there is uncertainty ahead.
With our strong capital structure, substantial free cash flow generation and ample liquidity, we believe we are well positioned to continue to do what is best for the long term health of the company throughout the pandemic. With that, Tony will provide some closing remarks before we open the call to Q and
strong quarter and for their commitment and dedication continuing to work safely and responsibly to do what we can do. Part of the critical infrastructure in each country where we operate. Most of all, I want to congratulate them for their tremendous safety achievements. The CF team brings our do it right value to life every day which continues to drive our success as a company. Since that been with CF, we have faced 2 other periods of challenging conditions.
1st, during the financial crisis of 2000 and 8 and 9, and then the cyclical lows are industry based in 2016 2017. Today CF is better positioned for the uncertain conditions associated with the pandemic than at any other time since I've been here. We have the best team and the best assets in the industry. We remain among the lowest cost and most efficient producers in the world. And our balance sheet and cash generation is strong.
By doing the things that make us an industry leader, we and position ourselves for continued
you. Your first question is from the line of Chris Parkinson with Credit Suisse.
Great. Thank you very much.
Good to hear from you guys.
So you've done a pretty solid job of getting the Midwest prices back to attractive levels especially in UAN. Can you speak to the current inland supply demand dynamics now that we're in May for both urea and UAN And also just touch on any additional expectations, at least initially for summer fill activity. Thank you very much.
So looking at the premiums in the Midwest, what we achieved, the team did a very good job of positioning product and moving product, working with our transportation partners in the Terminalling system in Q1 to have product in position when it was ready to go. And we caught a wave where the urea price and then the end price valued increase in value during that March, April time period and we sold into that. So I do think that there will still be a very healthy carry going into through Q2 for those inland positions just because of the logistical difficulties of getting product for this volume of acreage that needs to be planted and fertilized. Through June. So I would expect that the normal premiums we see, let's say $30 for the interior will probably be extended and expanded and continue that for the quarter.
Our expectations for Phil, we've done a lot of different things in Phil programs over the years. In terms of when they start, duration volume. And when we look at those things, it's with the view of an economic value, what is the value to the company and what is the value and value at risk to our customers. And trying to incorporate many of those questions and variabilities together to put together a package. It's been as small as a month of volume and as large as 6 months in volume.
And so when we get to that point and again, depending on our inventory, which we expect to be low, which gives us a lot of flexibility going into that program. If the global price is low, you'll see a smaller program. If the global price and then the NOLA price is better, you'll see a bigger program and then we'll flex the production mix accordingly.
Just a little bit more of
a longer term question, I'd say. So there's obviously been a lot of discussion about the future global Urea cost curve. Regarding concerns on the U. S. Associated gas at the low ends versus Chinese anthracites at the high ends.
Can you speak to the current slope of the cost curve? How it may change positively or negatively in your view? And then also just touch on your citation for new supply as it now appears. So construction is now idle and supply chains appear disrupted. Thank you.
Good morning, Chris. Good to hear from you as well. So in terms of the shape of the the cost curve or the supply curve, it's pretty clear that there's been some massive dislocations in the energy market lately when you've got for a period of time oil trading at on the spot basis negative numbers. And things just cratering. Obviously, there's been a lot of craziness going on out there.
But sort of the longer term dynamics that we firmly believe in is now that oil is back in the call it $30 range the LNG based contracts that are linked against oil are well above where Henry Hub is priced today. And then the spot price of LNG on the sort of the extraneous cargoes, there's been some sloppiness in there. So we've actually paid, believe it or not, some days in this last quarter, UK gas costs below what we've been paying at Henry Hub. And that is almost unprecedented from at least from my time in this industry. So there has been some strange occurrences, but we think that that's really sloppiness in terms of inventory work and its way through the system on the LNG side.
So again, the oil index contracts are trading well above where hub is and eventually the inventory of LNG works its way through the system and replacement economics because all of that spot gas is coming from NOLA has to trade at NOLA Plus. So our view is as you see beginnings of the economy on a global basis kind of recovering, you'll see energy prices kind of stabilize and come back up a bit. And then the rest of the world from a spot LNG standpoint will be above where NOLA So we'll continue to operate at the very low end and you'll probably see some increase in terms of the slope of the curve. Now that the high end of the curve has been established by Chinese anthracite. As I said, in my remarks, that's above $7 or $7.25 or something today on an equivalent basis.
Even if it softens a little bit, we still have a really substantial cushion with less than $2 at hub today. And then we got basis differentials that put us at lower cost yet still inland. And in our view is with gas at the $30 range or maybe even strengthening a bit, there's an awful lot of wet gas plays that come back into profitability at that point. So we're not taking a doom and gloom view of where the U. S.
Natural gas trades. And we think the rest of the world will likely be paying higher prices compared to where we are over the mid to long term.
Your next question is from the line of P. J. Juvekar with Citigroup.
Good morning, everyone. Good to hear from you. Hello?
Yes, that's better.
Hey,
good morning. Thank you. So You mentioned about China anthracite coal prices. China coal prices haven't come down, but that hasn't stopped the recent Urea slide. Is that more of a short term supplydemand imbalance?
And then talking about China, what are their expectations for what are your expectations for Chinese exports this year for urea?
Yes. So, good morning, P. J. So China exports year to date are running a fair bit behind where they were last year. I think last year total exports were in the range of about 5,000,000 tons.
This year, we're expecting somewhere in the 3,000,000 to 4,000,000 tons coming out of China. So we actually think there's going to be a reduction in the amount of channels coming out of China this year. I think part of what's going on with the softening in urea pricing is, given the fact we've had really favorable early spring weather in the UK and also in the U. S. Now there's been a lot of field work that's happened earlier in the year and what people are afraid of in Tory and material that cascades over past planting into the fall.
I think you're seeing kind of a lot of just in time purchases where they can do back to back and get it out the door again because they don't want to be holding Material and that's led to a little bit of softening. Prompt shipments is much stronger than if you're talking about plus six 50 days in terms of pricing. And I think that that tended to weigh on things a little bit. But we're very constructive in terms of On the supply side, we think you're not going to see some of the new plant startups had originally been planned for the year. As I said, you have seen some announcements on curtailments or shutdowns, particularly on industrial focus.
Plants around the world. And yet, our plants are running, as well as they do every year day in and day out. So we feel really good about I think the overall S and D balance burden. Anything else you want to add?
I agree. Considering where we are in this, in the cycle where we are with the pandemic, where we are with costs, I think remarkable what we achieved, but also your question on the urea slide, it is that it's a inventory release and then you're going to have to build that back up. So there will be a floor and the Chinese costs we expect is going to be expressed in this India tender that you won't see as much participation. And the world is not long. And so we will eventually recover back up to an acceptable level.
Thank you. Hibbert quickly on your answer on summer fill that you expect. There is increased caution. And then going back to last year, growers who bought UAN last year ended up losing money. Who bought early ended up losing money.
And you think that experience might change their behavior this year?
Thank you.
I
disagree that they lost money. When you if we launched in August at about $150 NOLA were above that today. And so, and the interior values were are below where we are today. So those that purchased right and then layered in, 1, logistically got to deliver 2, we're prepared for bringing 3 priced appropriately with the retail margin that comes with that base. So, the feedback from our customers on this fertilizer season, which started in July and will go through June is they're well positioned and especially with these large acres are going to work through all of their inventory.
So I think we'll be positioned and they will also well for the next phase. If that comes later, fine. If that comes earlier, we're good with that too. P. J, the other thing is retail pricing to farmers was a lot stickier than wholesale pricing was.
So even though you saw a
little bit of softening in, on the wholesale side or some volatility, the retail price was pretty sticky. So I'm with Bert on this one, which is the retailers that layered in and went with us. Sunfield got really reasonable return on that purchase
Your next question is from the line of Joel Jackson with BMO Capital Markets.
But on the guide first for 2020, two things on that. So I think on the last call, you talked about achieving, you thought you could achieve roughly the same free cash flow in 2020 as 2019, even if EBITDA was a little bit lower. So I wanted to just check-in on that. And also, I mean, I think you're about $20,000,000 ahead on the year in Q1 versus ATN19. You seem to be guiding down maybe $50,000,000 or $75,000,000 now versus your prior expectations for EBITDA.
Where are we seeing that is on pricing in the second half of the year? Is that ammonia any granularity you can give a bit on the lower guide would be great. Thanks.
Yes. It's the big issue is year in and year out, our plant utilization rate is very high. And so the total tonnage that we produce is very consistent And we can really only sell what we make, right? So our sales volumes don't shift much the change between $19,300,000, $19,500,000, $20,000,000, a lot of that has to do with product mix because the more ammonia and urea, you sell the more nutrient content going out the door. So the less total number of tons you're selling the more UAN you sell, the more product comes throughout the door.
So as Bert tweaks the dials on what the product mix is, it changes our volumes a little bit. But it's very consistent, right, in that range. So the change in expectations for the year is all being driven off of the price side. And that's if you look at where our pricing is today versus where it was a year ago, we're softer across the board. And even though gas price is down a lot relative to where it was and as Chris mentioned, our controllable costs across all segments are down quite a bit relative to where they were, there's a lot more leverage on the price side than there is the cost side of this equation.
So when prices are softer, you can't really make all of that back up on the cost side. But look, we feel very good about where we are. And even that the 2018 kind of range, we can generate a heck of a lot of free cash flow. And we're in a really good position.
Your next question is from the line of Ben Isaacson with Scotiabank.
Thank you. You talked about weak industrial demand and some closures you've seen around the world. What is CS exposure to various industrial end markets? And are you considering curtailing any plants?
Yes. So we're not, as I mentioned, our expectation is our production and sales volume this year going to be the same as it's been the last 3 years in a row.
So we're
not anticipating any kind of curtailments. Our operating rates to remain high. We do have a fair bit of industrial business, but a lot of that is on contractual basis whether it's take or pay or index off of different things where there's required patterns of movement And so again, our expectation is at least for the customers that we tend to serve, which is in a lot of spot business, is it's going to be very consistent. And our for instance, 2 of our bigger industrial chunks of business, one is with with Orca and Nelson Brothers on AN. And the other one is with Mosaic on ammonia.
And both of those are kind of cost plus based contracts and both of them have take or pay requirements associated with them. So we feel really good about our ability to continue to run our assets well and to have movement of all of our products. Brady, anything to add?
Yes, just in terms of the industrial mix in that segment. It's a diverse mix of customers and segments from mining to phosphate to emissions control to resins. And then as feedstock for raw material nitric acids, urea liquor, ammonia. And so no one product is dominant nor is no one segment dominant. And then as a mix between ag when we look at our business between ag exports and industrial, we view that as a key component to the 24 7365 offer that with Ag being a seasonal product helps balance our production.
And that percentage of our business is, we think, a very good place and we'll keep that size of that segment in our mix.
The other thing is, the places where you're tending to see shutdowns are ones that don't have the same cost position that we have in the There's been, I think, 5, 4 or 5 day gas processing plant in Trinidad ads, not processing, but gas input based plants in Trinidad that have curtailed or shutdown And those are based on the fact that the old Caribbean style gas contract had hit its end. The government NGC and the government renegotiated a higher cost. That's frankly not competitive based on where today's cost structure is So I think what you're seeing is supply coming out in the regions of the world that are a little bit higher costs, which is exactly the places that it should, contract.
Your next question is from the line of Steve Byrne with B.
Yes thank you. I'd like to drill into the fairly significant differences in gross margin between your various nitrogen products. Is are those differences logical to you, or is there something in there that's has to do with how you allocate internal costs, but more importantly, the margin on ammonia is so much lower than the others Is that driven by your need to move that volume? Because it's counter seasonal in the fall? Or is there an option for you to push price there because the margin is lower and if growers don't take it, you could pick up more volume in urea and UAN?
Yes. So, one of the things is the costs are allocated on a manufacturing cost basis. As you know, everything starts with ammonia. So the ammonia cost structure flows through to the other products and then we go from there. So it's not a cost allocation piece.
It really is a couple of things. One of which is agammonia tends to be, pretty good pricing and industrial ammonia, particularly right now, if you look at where Black Sea price is and even Tampa price is very low price. And that's why you're seeing industrial contract based ammonia production around the world shut in because it's not competitive. And so in quarters where we're doing less ag ammonia you'd expect ammonia gross margins to be compressed because the sales volume is going to be driven off of the industrial sales. And again, as we talked about, deepwater traded, industrial kind of ammonia is cheap.
In quarters where we have a much higher percentage of our ammonia business being done by ag, then you'll see that margin expand back out again. And ag application of ammonia is a very seasonal thing. And so you get a little bit of it in Q1 that spreads into Q2. The really big days of shipment, the FERC was talking about where April day is. So we're going to have more ag shipments of ammonia in the second quarter than we had in the first quarter.
And then sometimes we see a little bit in Q4 as well. But largely Q3 is almost 100% other than a little bit of side dress here and there, almost 100% industrial and a big chunk of Q1 is also industrial. So But the product that's going to have the most variability and seasonality across the year going to be ammonia. And that's also one for which the U. S.
Is really the biggest and almost only market for direct application for agricultural use. So there's not a lot of other places to take that product, other than here. So we're very fortunate that we've got our big terminaling and distribution network across the U. S. It represents a great value to farmers.
It's one of the reasons why they put ammonia down because it tends to be the cheapest form of nutrients that they can apply to their fields. So it's a good value to them. And, we're pleased with it.
Yes. The other thing I
would note, Steve, is if you look at it from an adjusted gross margin, so adding back to depreciation, as Tony mentioned, we produced a lot of ammonia and sold a lot of ammonia. So there's a higher depreciation level. So on an adjusted gross margin, the percent is the same. As Q1 of 2019 for all the reasons Tony just talked about.
Yes, that's also a big piece which is the Deville plant and the Port Neal plant have a lot of depreciation associated with them. So when you take out the depreciation portion of COGS, and you're really looking at just the manufacturing the cash costs. You've got numbers that are much better representation of true economics of operating assets.
Next question is from the line of Jonas Oxgaard with Bernstein.
Good morning.
I was wondering, so before COVID hit, I think the forecast was for some being around 10,000,000 tons of new ammonia capacity to be built in
the next 3 years.
Do you have a sense for what that number looks like today? Are we seeing cancellations delays or anything of that sort?
Yes. Jonas, this is Chris. I think what we're looking at here is largely in line with what Tony and Bert have been talking about that not only are you seeing curtailments, but probably a shift in the timeframe when those particular projects are going to be coming online. And that's really a couple fold there similar to what I talked about with our own CapEx, that being a lot of the fabricators that, produce the vessels and the equipment for these particular projects have been in, in lockdown mode, some of which are beginning to come back on in Northern Italy. But then additionally with that, it's the amount of contract workers that come on-site.
So I think our expectations over and above the general delays that we see just by these projects running longer than what people estimate is going to be that there's just going to be an overall shift along with probably continued curtailments specifically for those that are oriented towards industrial production.
Yes. And the longer you see kind of a global economic hangover effect, I think the longer those kinds of supply side restrictions going to be and in that sort of environment, it's really hard to justify new projects or even continuing to put, work into things that started if you're still a long way to go because the payout based on where Deepwater traded ammonia is today just doesn't warrant putting new assets in the ground.
Your next question is from the line of Don Carson with Susquehanna Financial.
Thank you.
Bert, a question on the outlook for the fall season in the U. S. It looks like with an early planting, we could have a early harvest the first time in 3 years, which would be positive for demand. But obviously a lot of uncertainties as to the outlook for corn next year given feed and ethanol outlook. So how do you see those 2 playing out this year?
Do you think it's going to be an above trend fall season for for ammonia in the U. S? And then just one cash flow question. Are share repurchases off the table in the interim just given some of the uncertainty out there in the right now.
So first question I'll take and then I assume Tony will take the second. Regarding the fall season, you're correct, where you are seeing and with the planting information that just came out this week, we are ahead at over 50%. I expect that trend to continue with the weather we're seeing. And so looking towards fall, with a good dry out, we would see the beans and corn coming off of those corn on corn or following beans with corn. We would expect to see you talked about the season.
What is a healthy fall season? Because we've had several be interrupted by bad weather or different circumstances. And so We are looking forward to the fall, and we think ammonia will be priced attractively. And those who are, who have been able to apply, they've been rewarded with being able to get in the fields on time and plant for spring. So we expect probably a healthy ammonia season for the fall.
And the outlook for corn, I think when you look at where we are today on the board with, kind of the harvest price at 3:30 to 3:35 today. You're getting close to a low number with or a number that is you get below $3, it's difficult for any rented land to be profitable. When you throw back in government payments, And like Tony said, $19,000,000,000 to date, we're expecting more on top of that. When you throw in all of the costs for Farmer and all of the revenue options with revenue guarantee program, it said in the February at 3 70. You can make a pretty good case for this year's harvest and the profitability coming off the farm.
And then next year, with what acres would be being hopefully above this level. So like we said, we're structurally positive for this year and then watching, but anticipating not as bad as what everybody's thinking or saying for 2021.
On the share repo question, as we, we have an open authorization, we did repurchase about $100,000,000 of shares in Q1. And Our target really is to make sure we're maintaining at least $1,000,000,000 of liquidity. We think that that's completely ample to be able to support the kind of ups and downs in the business as we move forward. And as Chris said, we've generated some good cash flow here year to date, we're at $500,000,000 of cash on the balance sheet and an undrawn revolver today. And particularly given where the share price is and the fact that that is our preferred method to return cash to shareholders it's something that we're spending a lot of time talking about.
I will say just given the broader uncertain global economic outlook, we're probably going to air a little bit on the side of caution, but I think it certainly available to us. And as the balance of the year unfolds, if Phil program comes in and what of a normal fashion, although that's kind of an oxymoron given that every single year in Phil is different from the previous year's side. I'm not quite sure what normal looks like, but as long as we're comfortable in terms of cash flow generation and where the year is trending, I think we're going to certainly leave ourselves open to avail ourselves of taking out some price, some shares at low price
Your next question is from the line of Adam Samuelson with Goldman Sachs.
Yes. Thank you. Good morning, everyone.
Good morning, Adam.
Hi. So I was hoping, I mean, you talked about this on the urea cost curve. I guess a moment too, but just UAN specifically is there. I mean, the markets had some changes in demand patterns with the tariffs. The last couple of years, you've got some reduction in production in the former Soviet Union, but would still seem like there's some high cost production out there that doesn't seen particularly economic at these prices.
Maybe just your thoughts on how that looks over the next 12 months given the changing energy landscape?
Yes. I think you've hit on several components that put together for the complete analysis of UAN. And, I'm really pleased with the UAN team what they've done in conjunction with all the disruptions with the EU changes, which forced us to move 700,000 to 800,000 tons that were going there back into the U. S. Market.
We've moderated production a little bit for increased urea. But what we've done, and what we're going to do is continue to expand our terminal operation where we can reach markets. We probably weren't that focused on like California, the PNW and the East Coast, and plan to continue to do that. So for what we're seeing in UAN overall on demand, there's some positive things in South America and Brazil and Argentina, and as well as in the United States. In production, with what Acron has done, dropping in a urea granulation unit, we anticipate fewer tons coming from the, from Russia into North America over time.
And that makes sense. As we stay around the 90,000,000 Acre plus or minus range, the demand for UAN is about 15,000,000 should be importing about 2,000,000 tons and we will be an import dependent market. And that can be supplied by a few of the suppliers that we of today.
Your name
question is from the line of Michael Piken with Cleveland Research.
Yeah, hi. Just following up on
the last question, there any update in terms of what's happening in Europe in terms of potentially getting some of those antidumping duties reduced or eliminated? And how does that sort of play into kind of your longer term thoughts?
No, I mean, I think those duties are going to be with us for the foreseeable future. I don't the EU Court does not have a history of going back and changing their mind about things once they've put those things in place. So I'd be shocked if that changed.
That being said, I think like I said in the last call, We've prepared for what Tony said that eventuality and we have good options available to us with some changes to our system. And I think we're going to at least for CF sake, we'll be fine and see a positive market going forward.
Your next question is from the line of John Roberts with UBS.
Thank you, and glad you're all well in the office. You're deferring some maintenance. Are we likely to see maintenance globally being deferred so that product availability globally is going to be down a few percent. And, likewise, or, excuse me, up a few percent this year. And then likewise, down a few percent next year as we get a lot of maintenance done next year that wasn't going to get done this year.
Let me, Ken, let me talk about the maintenance aspect of it. So for instance, as Chris mentioned, in his remarks earlier, we've got some new vessels, replacement vessels on things like high temperature shift and so forth that are being fabricated in Northern Italy, because those are some of the premier shops in the world that do this kind of work. And obviously with Northern Italy, when on the lockdown, they noticed force majeure that all those deliveries were going to get extended out in time. And so part of the issue is critical spares or critical equipment that was coming to us to be in stalled during turnaround activity didn't reach us. And the other piece was we didn't want to have 500 tractors in sort of a relatively hot spot area of, NOLA and the Gulf Coast show up in our facilities and put our employees at risk.
And so, for us, what we're doing is not really deferring. We're just waiting until we get the right equipment. And until we feel we can bring people into facility in a manner that's safe. And I think that that probably more of that is happening than less on a global basis. So I would think now for us because we're very much focused on high up time, high on stream.
We do ventative maintenance. We don't run stuff until it breaks. I think we're going to be fine relative to not having any kind of unusual outages relative to our plants and equipment. I think other people that run a little closer to the edge could well see significant downtime. And that's another piece that doesn't always get calked into the supply side equation, but there's a lot of companies that don't really run their asset plant on a basis that is really long term thinking about high on stream.
And so as you start deferring some of this maintenance or putting it out, you're going to get a lot more kind of break fix issues, which tend to lead to a lot of up and downtime. So overall, I would expect industry operating rates to drop over the next couple of years for that reason. And it's not obvious that things are going to return to normal anytime soon. So it could that this trend could push out not just from 'twenty into 'twenty one, but it could be sort of a cascade effect over the next couple of years. I think Chris or Yes,
I was just going to add that. I mean, there's a difference between planned outages and unplanned. And I think what you'll see is less planned outages, but more unplanned outages being exactly what Tony said, where you're going to have some operating rates that are going to be on and off just because of CapEx that hasn't been spent over the years unlike what we've done with our program.
Your final question is from the line of Mark Connelly with Stephens Inc.
Keep it to 1. Your controllable costs were down a lot more than I expected. Can you just walk us through what happened there?
Controllable costs, really there's 2 elements of it. Obviously, it's the asset utilization that we had during the quarter. That being high producing more tons. But then it's also on the spending. So having seen this beginning to go and even prior to that, we started to take a focus on really what are the potential projects we need to be working on and only working on the critical projects.
So you saw less maintenance spending because of the asset utilization, but less engineering and professional services spent because of the focus we had on what what we really needed to be focusing on. So the expectation is that we'll probably continue with a lower controllable costs and what we've had in the previous year over the next quarters. In addition to that, one of the elements that I talked about also in the remarks was on SG And A too, just given the level of travel, as you look at Q1, we were down about $4,000,000 quarter over quarter. And that was really before any impact of the closed office. As Tony mentioned, we didn't close the office until mid March.
So the expectations would be our run rate on Q1 SG and A, maybe a little south of that too, that'll provide us, some cushion. So everything that we can control back to Tony's comment we're focused on controlling.
The other thing I'd add to that, Mark, is, Chris highlighted a couple of these things, but spend really goes along with activity. And as you dial back the activity, then spend comes down quite a bit. And I don't think our travel expense is going to bounce back anytime soon. We've learned to function pretty well on Webex and Zoom and teams doing conference calls and so forth. We're going to try to keep that going.
We have provided our employees that have to go into the facilities every day to keep plants running a kind of the equivalent of a hazard duty pay. So we've provided sort of a monthly bonus to that group of people and we're going to keep place here for the foreseeable future. So there's one element of cost that's come up. But despite that, all the other costs have come down and we're running as a result of the net positive. And I'm just really proud of the team and the organization that they've continued to run and keep everything operating, keep themselves safe.
It's really been remarkable given the conditions we're facing out there.
Call back over to Martin Jarosick for closing remarks.
Thanks everyone for joining us and we look forward to your follow-up calls. Have a great day.
This concludes today's conference call. Thank you for participating. You may now disconnect.