But I think that’s reflective of the relatively tight labor market and inflation in general, particularly around some of the exotic metals that are required. But what that also suggests is that the value of existing assets is that much higher as we saw with the sale of the Weaver asset here just recently and suggest that the value of the rest of our network is, again, even that much higher as well. So we’re still in process of evaluating whether there’s a project that we want to fund here or not. And as part of that, we are evaluating different production technologies and different amounts of carbon reduction levels. And we’ll make that ultimate decision kind of sometime in the back half of this year, along with our partner, Mitsui.
Richard Garchitorena: Okay. Great, thanks for that. And then just talking about the nitrogen market. It looks like you cited about 40% of ammonia capacity in Europe being shut down in early January. And that’s up versus around 25%, I believe, as of early November. And this is during a period when European natural gas prices have actually come down over 40%. So I guess, what is driving that? Is that — is part of that curtailment maintenance shutdowns? Or are these — part of these permanent shutdowns they expect to continue through 2024?
Tony Will: I mean I think it can be both of that. There’s also an issue of if you can acquire deepwater traded ammonia at a cost that’s lower than what you can produce using domestic gas. There’s no reason not to do it. If you are in a facility primarily doing nitrite as opposed to urea, you don’t need the CO2.
Bert Frost: And I think a reflection of the gas — current gas price today is in the cash market that was not available just a short time ago. And so the reflection of 40% as a look back on Q4 and entering into Q1, and you’re probably going to see some of those plans restart, especially with the Russian announcement of limiting ammonium nitrate exports that just came out today, that’s going to have a substantial impact on Eastern Europe and Central Europe and probably the ability to export for the Western European producers who can export, for example, Brazil had a 1 million-ton consumer of ammonium nitrate and Central America will need someone to supply that. So let’s say, today, that’s $8 gas that’s doable in relation to the absence of the product coming out of Russia. So things are changing. And I think the gas as well as the supply market as well.
Operator: The next question is from Edlain Rodriguez with Mizuho. Please go ahead.
Edlain Rodriguez: Thank you. Good morning everyone. Maybe this is for Tony or maybe for Bert. I mean if you compare where we are today with three, four, five months ago, are you more positive or less positive on the prospect of the industry or NCF for 2024, and that’s looking at some of the big drivers, like corn prices, corn acreage, the energy complex supply demand? Like anything else you want to address? Like do you see things being more — are you more or less positive?
Tony Will: Yes. I mean, I think gas has been very constructive for us. Our cost, it looks like as they’re shaping up for the balance of the year should be down substantially relative to where we were back in kind of November when we put together our thoughts of where we expected the year to come out. I also think that some of the other changes kind of structurally, whether it’s potential imports running slower than expected in early spring what we believe is lower channel inventories than kind of many expect out there. All of those things, I think, are net positives for our business, particularly for the first half. So overall, my sense is we’re feeling pretty good about the way the year is shaping out.
Bert Frost: I agree. In terms of where we were coming into a falling market, falling urea price market in Q4 and now in Q1 are rising urea market. Why is that? Related to energy, of course, and the inability of — or the non-economic position of the European producer and higher imports, but you’re seeing in terms of the global market of a very tight market, you’ve had downtime in Malaysia, export restrictions in Indonesia, export restrictions in China, as well as heavy imports and continued imports into India, but heavy imports into Brazil. And we’re just entering our season, as we talked about previously with a tight market and needing to be — to bring in product and so you have a tighter global market and then that’s reflected in price.
For the values for the feed grains, corn at $4.60, $4.70 is very attractive, especially when you look at trend yield over 180 and yields in Iowa, Illinois, Indiana above 200, it’s very profitable. This will be the fourth best year in 10 years for the American farmer. And so when you couple that all together, as well as global supply and demand, I would say we’re positive for 2023 — 2024.
Edlain Rodriguez: Okay, thank you. That’s all I have.
Operator: The next question is from Ben Theurer with Barclays. Please go ahead.
Ben Theurer: Yes Good morning, and thanks for taking my questions. Just wanted to follow up a little bit on the international trade dynamics and in particular, the export market versus the import markets and where you’re seeing especially in South America, Brazil inventory levels. We’ve talked about the North American as being low, but we all know Brazil has been a little bit more of an issue. So within that 7 million to 8 million tons of import need. What’s your sense on the ground inventories in Brazil right now? And how does that shape up for your opportunities to potentially export into the region? Thank you.
Bert Frost: Yes. So CF is an active exporter of our major products, ammonia, UAN, urea and some ammonium nitrate. The UAN has predominantly gone to Europe, Argentina and Australia and urea is more spot and situational. Where we are in Brazil today with about 44 million tons of consumption of NPK and the targets for 2024 are closer to 46 million tons, you’re going to need our projections are over 8 million tons of urea imports to Brazil for the calendar year. And that’s a very positive move. That will push Brazil to the largest importing country surpassing India who is between 6 million and 7 million tons now. Brazil did have high levels of inventories and imports entering the year. Much of that was consumed during the Safrinha season of which is January, February and March of applications, and they are low-level importers 200,000 tons, 300,000 tons a month.
Their wheat application starts in April, and then we moved to corn applications in July, August, September and then cotton later in the year and again, repeating the cycle. So Brazil is the positive, I’d say, consumption train in the world of fertilizer economies, and it’s going to continue to play a major part and so the S&D right now is balanced type globally for urea.
Ben Theurer: Thank you.
Operator: The next question is from Andrew Wong with RBC Capital Markets. Please go ahead.
Andrew Wong: Hi, good morning. So regarding your hurdle rate that’s required for the investment decision at Blue Point, if you say — like if you get take-or-pay offtake with steady volumes and steady margins, does that lower the rate for the hurdle versus some of your other projects or buybacks or anything else you’d be considering?
Chris Bohn: Yes, I think as you look at any return on a project, it’s a set return with a risk premium based in there. If you have take-or-pay, that’s offtake on a ratable basis, you’re probably willing to take a lower return profile on that. I mean that allows a lot of additional synergies that run throughout the entire network as we see with our [Mosaic] contract with them taking ammonia on a ratable basis, lower inventory, lower receivables, different things like that, lower risk involved and therefore, that allows you to have a lower risk premium and therefore, taking a slightly lower return on that.
Andrew Wong: Okay. Great. And then just regarding the Donaldsonville ammonia project, could you just provide the latest update for the injection well permits? And I think you mentioned this Louisiana gaining primacy on the classic wells. What does that mean? And how quickly can you get approvals there? And how quickly can drilling be completed?
Chris Bohn: Yes. So the approval time line on that is really based on our partner, Exxon, and what they’re doing both with the Class 6 and some of that’s probably been accelerated some by their acquisition of the Denbury pipeline because it allows the other access to different states with Class 6 that may have a — I would say, a shorter queue time than what Louisiana or some of the other states, so we are confident that in 2025, we will economically be receiving a benefit related to the 45Q and therefore, we’ll have low carbon ammonia ready.
Andrew Wong: It’s great. Thank you.
Operator: The next question is from Vincent Andrews with Morgan Stanley. Please go ahead.
Vincent Andrews: Thank you. Tony, on the blue ammonia JV with Mitsui, I guess a couple of questions. One, if we get to the second half of ’24, and I assume that’s probably the third quarter call or maybe you’ll have an update and you’re not moving forward at that point, what’s happened, do you think? And then just secondly, I believe there are several other potential MOUs or JV partners that you have out there. Is there any update on those? Or is that all pending sort of the outcome with Mitsui?
Tony Will: Yes, we’re very happy with the agreements that we have in place and the partners that we have lined up to pursue these kind of opportunities with us. A lot of them that we have come out publicly with tend to be Asian focus. So a couple of Japanese firms as well as South Koreans. I would say that the Korean government and the customers as a result are a little bit behind from a time line perspective compared to the Japanese. And so we’ll likely be making a decision around a plant principally targeting the Japanese market first, and then we’ll eventually look at both Korean market and potentially European partners that we’ve discussed with as well further out. And that could be served by one in the same plant or it might have different requirements associated with it.
But if we decide not to proceed, I think it’s a combination of very likely just aggregate costs associated with moving forward and lack of line of sight on making sure that we can earn an appropriate risk-adjusted rate of return against that cost nut. Relative to the global S&D. I think I kind of went through that a bit in my prepared remarks, which is we’re constructive on where we sit right now. Our results last year were strong. We’re looking at another good year this year. Longer term, traditional applications for nitrogen continue to grow in the kind of 1.5 plus or minus percent range per year, and there’s not enough new projects that are currently under construction globally to meet that requirement. Adding into the either supply deficit or demand increase is you’ve got some plants around the world, including Trinidad and probably Europe that are facing challenges with gas availability and gas cost.
And then you’ve got new or potentially new applications for ammonia that are also developing. So all of those things lead to a tighter global S&D marketplace bidding in higher and higher cost of production around the world. And that provides, I think, a reasonable backdrop for us to be considering building new production capacity. But we have to, at the end of the day, be comfortable that we can earn an appropriate rate of return that’s well above our cost of capital for us to want to proceed with a project like that.
Vincent Andrews: Okay, thanks very much.
Operator: The next question is from Aron Ceccarelli with Berenberg. Please go ahead.
Aron Ceccarelli: Hi good morning. Thanks for taking my question. My first one is about the comments you made on farmer incomes in your press release. You talked about improving farmer income in North America and in 2024. I was wondering what’s the thought process here, considering that we saw John Deere on year-to-date being a little bit more downbeat and I think USDA report last month was a little bit down bit to. My second question is around blue ammonia and the news around the potential partnership with POSCO. Is there any color you can provide about the implied blue premium you are assuming or you have in mind? And my final one is on exports from China. I think Yara last week in Europe mentioned that Chinese export could potentially come back a little bit messaging today in the presentation seems that there could be some temporary windows about where Chinese could export.
