CVR Partners LP produces urea ammonium nitrate (UAN), a fertilizer that helps to boost crop yields.
Since the V-MLP went public in 2011, CVR Partners’ unit price has tracked movements in corn prices; domestic corn producers are the company’s biggest end-market.
Source: Bloomberg, Energy & Income Advisor
These days, corn fetches about $4.25 per bushel, near the low end of its three-year range. Meanwhile, CVR Partners’ unit price has tumbled to about $18.00 per unit from more than $30.00 per unit in early 2012.
What sets CVR Partners apart from the competition? For one, the V-MLP’s strategic location in Kansas ensures ready access to several rail lines that supply agribusiness in the Midwest. Profits are proximity: CVR Partners enjoys lower transportation costs relative to UAN producers on the Gulf Coast or imported supplies.
The V-MLP also benefits from lower-priced feedstock relative to its peers.
Whereas most UAN producers run natural gas through their plants, CVR Partners’ facility processes petroleum coke–a by-product of the refining process. The partnership sources about 70 percent of its needs from sister V-MLP CVR Refining LP’s (NYSE: CVRR) neighboring refinery under an agreement that expires in 2027.
According to management, using petroleum coke instead of natural gas yields superior profit margins when gas prices exceed $4.00 per million British thermal units (mmBtu).
Although robust domestic production should prevent US natural-gas prices from rising sharply over the next few years, market dynamics suggest that the commodity will range between $4.00 and $5.00 per mmBtu. (See Commodity Price Outlook for 2014.)
But none of these advantages will offset the short-term headwinds facing the corn, UAN and fertilizer markets.
Your complete guide to energy investing, from growth stocks to high-yielders.
In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Feb. 28, 2017
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.