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How CF Industries’ Cash Flows per Ton Are Set to Increase

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The CHS deal

CF Industries (CF) is left primarily with its nitrogen fertilizer segment, which combines sales from ammonia, urea, UAN (urea ammonium nitrate), and other segments. The company also sells ammonium nitrate, urea liquor, diesel exhaust fluid, and aqua ammonia to industrial customers. The company announced that it had formed a strategic relationship with CHS. This relationship will help the company to earn $2.8 billion tax-free in exchange for 9% of its total capacity before the OCI deal.

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Increasing cash flows

Following the closure of the OCI deal, CF Industries is expected to add a capacity of about 3.6 million product tons. Without the OCI deal, CF Industries’ standalone production capacity across all products is 15.2 million tons. However, some of this capacity is not due to come online until 2017.

With production capacity increasing, cash flow per ton of product is also expected to increase. This is primarily because of the company’s tax bill dropping to 25% from 35%. Bear in mind that CF Industries amended its merger agreement to move to the Netherlands instead of the United Kingdom as previously planned. Such an amendment was made to satisfy the new US Treasury rule, which requires US corporations to adopt the address of the foreign company’s country they are merging with.

The VanEck Vectors Agribusiness ETF (MOO) invests 14.0% of its holdings in CF Industries (CF), The Mosaic Company (MOS), Agrium (AGU), and PotashCorp (POT).

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