Good day, ladies and gentlemen, and welcome to the First Quarter 2020 CF Industries Holdings Earnings Conference Call. My name is Natalia. I will be your coordinator for today. [Operator Instructions]

I would now like to turn the presentation over to the host for today, Mr. Martin Jarosick with CF Investor Relations. Sir, please proceed.

Martin A. Jarosick - Investor Relations

Good morning, and thanks for joining the CF Industries First Quarter 2020 Earnings Conference Call. I'm Martin Jarosick, Vice President, Investor Relations for CF. With me today are Tony Will, 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 our website. Also, you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website.

Now let me introduce Tony Will, our President and CEO.

Tony Will - President and Chief Executive Officer

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 it 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 distance. But 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 3,000 people, and we've only had a total of four employees test positive for COVID-19. At the end of March, three 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 and are back at work. The other individual is a very recent event and works in our Deerfield headquarters. Given this result today, I'm particularly proud of the processes and procedures this team has established to make sure we keep our people safe and our operations running. Last night, we posted our financial results for the first quarter of 2020 in which we generated adjusted EBITDA of $318 million, approximately 4% higher than the same period a year ago. These results reflect the impact of higher sales volumes and lower natural gas costs, partially offset by lower product prices 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 serve a vital role in helping to feed the world. Our operations employees continue to come into our facilities and run our plants while our non-operations employees are supporting them remotely. The whole team is performing exceptionally well under the difficult circumstances created by the COVID-19 pandemic. We produced 2.7 million tons of ammonia in the first quarter. This is the second 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 one quarter to another. Those temporary shifts tend to smooth out over longer periods. That said, we're fortunate that 2020 has started with strong volumes in 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 U.K. Compared to the last couple of years through this point in the calendar, the weather has been significantly better for fieldwork and planting. And to date, we have not experienced any significant disruption to our business from the pandemic. We feel good about how the second quarter is progressing, and we expect our first half 2020 total product sales volumes to be similar to the previous three 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-19 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.

First, nitrogen is the only nondiscretionary plant nutrient. Unlike potash and phosphate, which can be reduced or skipped entirely for a year, nitrogen must be applied. Second, 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 in import-dependent regions, so our logistics cost to get our products in the market are lower than imports. Third, 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 billion of aid approved with more expected to come in the future. Given this, we continue to expect our full year production sales volumes will be between 19.5 million and 20 million 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 with our gas costs currently trading below $2, we have a significant built-in margin structure. Additionally, we're beginning to see somewhat of a supply-side response with announced curtailments in or closures in Europe, Asia and South America, particularly for those plants that were principally serving industrial demand, which has softened. I said on our last conference call that we expect 2020 full year EBITDA to come in somewhere between 2018 and 2019's 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 year, that leads to me to think we are likely to be more in the range of 2018's full year financial performance. Now there is a lot of the year 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 in the 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 locations. Next, we remain focused on operating safely and achieving high asset utilization. As you can see on slide six of our materials, the CF team has delivered consistently strong performance. In fact, on a trailing 12-month basis, we have produced 10.3 million tons of ammonia, and sales volumes have exceeded 20 million tons, both of which are company records. Finally, we continue to manage the company responsibly for both the short and the long term. As Chris will describe, we are ensuring that our capital expenditures, manufacturing controllable costs and SG&A expense all reflect the broader economic environment.

With that, let me turn it over to Bert, who will discuss the market, then Chris will talk about our financial position before I return for some closing comments. Bert?

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

Thank you, Tony. For the first time in several years, weather patterns in North America have been relatively normal for farmers. This allowed a strong spring ammonia application season to develop at 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 since 2015. On this day on one day this past month, we had more than 1,600 ammonia trucks pick up over 32,000 tons of ammonia from our facilities, the highest single-day volume in about five years. We believe that this level of 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 million to 94 million acres of corn will be planted in the United States in 2020. This is lower than the U.S. Department of Agriculture estimate of 97 million acres from March but it will be about two million to four million acres higher than in 2019.

To meet this demand, we have been in constant conversations with our customers and transportation partners as we collectively navigate the COVID-19 pandemic. From our perspective, the fertilizer supply chain is operating efficiently. This is due to the professionalism and dedication of everyone involved, including our rail and barge carriers, trucking companies and truckers, and distributors and retailers who 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 second 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 continue to drive market sentiment in the second half. Demand for urea imports in Brazil should also be positive in 2020, given that domestic production in that country is not expected to operate this year and currency devaluation makes growing corn more profitable.

As Tony said, there's a great deal of uncertainty ahead due to the negative impact to the global economy of the 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 impacts are clear today. Demand for nitrogen for industrial use, such as explosives and emission abatement, has declined along with economic activity. We expect demand for these products to increase as economic activity increases. In the meantime, we can leverage the flexibility of our system to change our product mix. For example, producing as much diesel exhaust fluid and urea liquor, as we do today, we can granulate more urea. We're also watching closely the economic impact on farmers. Challenging conditions for ethanol and feed industries have caused crop future prices to fall. We do not believe the challenges those industries face today have affected significantly planting decisions for 2020. Should those challenges persist, we would expect an impact on planting decisions for 2021. However, those decisions are at least six to 10 months away and will be based on conditions then, a forecast that would be difficult to make today. Additionally, any government efforts to protect farm income and the impact of crop insurance payments will also factor into farmer planting decisions in the fall.

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.

Chris Bohn - Senior Vice President and Chief Financial Officer

Thanks, Bert. As the pandemic developed in early 2020, we constantly evaluated our financial position to ensure we have 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 three years to create a strong and flexible balance sheet. This includes reducing our gross debt by nearly $2 billion and fixed charges by $190 million compared to the beginning of 2017. We also benefit from our operational and structural advantages that support our cash generation capability. For the first quarter of 2020, the company reported net earnings attributable to common stockholders of $68 million or $0.31 per diluted share. EBITDA was $314 million, and adjusted EBITDA was $318 million. As Tony noted in his remarks, these results reflect the positive impact of higher volumes and lower realized natural gas costs that were partially offset by lower product prices. For the first quarter, our cost of natural gas and our cost of sales was more than $1 lower than the same period in 2019. Looking ahead to the rest of 2020, we expect natural gas costs to 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 $1.5 billion, and free cash flow was $912 million. We remain the most efficient converter of EBITDA into free cash flow in the industry, and we expect to continue to generate substantial cash flow through the remainder of the year. We also have the liquidity we need to manage the company through the pandemic. At the end of the quarter, the company had about $1 billion of liquidity, comprised of cash and cash equivalents of $753 million on the balance sheet, and $250 million available on the revolver. As we noted in the press release, we drew $500 million 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 million, and our total liquidity is over $1.2 billion, including the now undrawn revolver. We also continue to focus on managing our spending during this uncertain time. Our manufacturing controllable cost per ton were 10% lower in the first quarter of 2020 compared to the first quarter of 2019. Additionally, we reduced certain activity in light of the pandemic, contributing to lower SG&A spending in the first quarter of 2020 compared to 2019. We expect that trend to continue throughout the year.

We have also adjusted our capital spending plans. In line with our focus on protecting the health and well-being of our employees, we are deferring certain activities scheduled for 2020 that would have brought hundreds of contractors onto our sites. These activities may also have faced delays in receiving equipment fabricated in areas heavily impacted by the pandemic, such as Italy. This is why we lowered our estimated range for capital expenditures in 2020 from $400 million to $450 million to $350 million to $400 million. We will not forgo any activities critical to our ability to operate safely. And we expect our capital expenditures to return to the $400 million to $450 million range annually in 2021 and beyond. Our capital deployment focus remains the same. We are committed to redeeming the remaining $250 million of our 2021 senior secured notes on or 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&A.

Tony Will - President and Chief Executive Officer

Thanks, Chris. Before we move on to your questions, I want to thank everyone at CF for a strong quarter and for their commitment and dedication, continuing to work safely and responsibly to do what we can do as 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 I've been with CF, we have faced two other periods of challenging conditions: first, during the financial crisis of 2008 and '09 and then the cyclical lows our industry faced in 2016 and 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 will serve both our customers and shareholders well in the short term and position ourselves for continued success over the long term.

With that, operator, we will now open the call to your questions.

Question & Answers

Operator

[Operator Instructions] Your first question is from the line of Chris Parkinson with Credit Suisse.

Chris Parkinson - Credit Suisse - Analyst

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 dynamic 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.

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

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 and terminaling 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 N price valued increased 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 fill, we've done a lot of different things in fill programs over the years in terms of when they start, duration, volume. And what 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 six 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.

Chris Bohn - Senior Vice President and Chief Financial Officer

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 U.S.-associated gas at the low ends versus Chinese anthracite 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 expectation for new supply as it now appears some construction is now idle and supply chains appear disrupted?

Tony Will - President and Chief Executive Officer

So in terms of the shape of 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 a 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 extraneous cargoes, there's been some sloppiness in there. So we've actually paid, believe it or not, some days in this last quarter, U.K. gas cost 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 just sloppiness in terms of inventory working 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 that's 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 is. 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 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 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.

Operator

Your next question is from the line of P.J. Juvekar with Citigroup.

P.J. Juvekar - Citigroup - Analyst

Tony, hello?

Tony Will - President and Chief Executive Officer

Yes, that's better.

P.J. Juvekar - Citigroup - Analyst

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 supply-demand imbalance? And then talking about China, what are their expectations for what are your expectations for Chinese exports this year for urea?

Tony Will - President and Chief Executive Officer

Yes. 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 five million tons. This year, we're expecting somewhere in the three million to four million tons coming out of China. So we actually think there's going to be a reduction in the amount of material coming out of China this year.

I think part of what's going on with the softening in urea pricing is given the fact that we've had really favorable early spring weather in the U.K. 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 the channel is ending up with inventory and material that cascades over past planting into the into the fall. So 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 60 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 start-ups that had originally been planned for the year. As I said, you have seen some announcements on curtailments or shutdowns, particularly on industrial-focused 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&D balance. Bert, anything else you want to add?

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

I agree. Considering where we are in the cycle, where we are with the pandemic, where we are with costs, I think it's remarkable what we achieved, but also your question on the urea slide, it is that. It's an inventory release. And then you're going to have to build that back up. So there will be a floor, and the Chinese cost we expect that's 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.

P.J. Juvekar - Citigroup - Analyst

And Bert, 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?

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

I disagree that they lost money. When you if we launched in August at about $150 NOLA, we're 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, one, logistically got it delivered; two, were prepared for spring; and three, 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, they're 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.

Tony Will - President and Chief Executive Officer

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 on fill got a really reasonable return on that purchase.

Operator

Your next question is from the line of Joel Jackson with BMO Capital Markets.

Joel Jackson - BMO Capital Markets - Analyst

Hi, good morning, everyone, Just 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 million ahead of on the year in Q1 versus 2018 and 2019. You seem to be guiding down maybe $50 million or $75 million now versus your prior expectations for EBITDA. Where are we seeing that? Is that in 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.

Tony Will - President and Chief Executive Officer

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 $19.3 million, $19.5 million, $20 million, a lot of that has to do with product mix because the more ammonia and urea you sell, the more nutrient content is going out the door, so the less total number of tons you're selling. The more UAN, you sell, the more product tons go out 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 at the 2018 kind of range, we can generate a heck of a lot of free cash flow. And we're in good in a really good position.

Operator

Your next question is from the line of Ben Isaacson with Scotiabank.

Ben Isaacson - Scotiabank - Analyst

Thank you. You talked about weak industrial demand and some closures you've seen around the world. What is CF's exposure to various industrial end markets? And are you considering curtailing any plants?

Tony Will - President and Chief Executive Officer

Yes. So we're not as I mentioned, our expectation is our production and sales volume this year are going to be the same as it's been the last three years in a row. So we're not anticipating any kind of curtailments and 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 indexed off the 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, two of our bigger industrial chunks of business, one is with Orica 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. Bert, anything to add?

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

Yes. Just in terms of the industrial mix in that segment, there'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 acid, 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 24/7, 365 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.

Tony Will - President and Chief Executive Officer

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 U.S. There's been, I think, five four or five gas processing plants in Trinidad, not processing, but gas input-based plants in Trinidad that have curtailed or shut down. 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 cost, which is exactly the places that it should contract.

Operator

Your next question is from the line of Steve Byrne with BofA.

Steve Byrne - BofA - Analyst

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.

Tony Will - President and Chief Executive Officer

Yes. 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 just 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 ag ammonia 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, it's 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 that Bert 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 the product that's going to have the most variability and seasonality across the year is 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.

Chris Bohn - Senior Vice President and Chief Financial Officer

Yes. The other thing I would note, Steve, is if you look at it from an adjusted gross margin, so adding back to the 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.

Tony Will - President and Chief Executive Officer

Yes, that that's also a big piece, which is the D'ville 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…

Chris Bohn - Senior Vice President and Chief Financial Officer

The cash cost.

Tony Will - President and Chief Executive Officer

The cash cost. You've got numbers that are a much better representation of the true economics of operating the assets.

Operator

Your next question is from the line of Jonas Oxgaard with Bernstein.

Jonas Oxgaard - Bernstein - Analyst

Good morning, guys.

Tony Will - President and Chief Executive Officer

Good morning.

Jonas Oxgaard - Bernstein - Analyst

I was wondering, so before COVID hit, I think the forecast was for something around 10 million tons of new ammonia capacity to be built in the next three years. Do you have a sense for what that number looks like today? Are we seeing cancellations, delays, anything of that sort?

Chris Bohn - Senior Vice President and Chief Financial Officer

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 time frame when those particular projects are going to be coming online. And that's really a couple of 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 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.

Tony Will - President and Chief Executive Officer

Yes. And the longer you see kind of a global economic hangover effect, I think the longer those kinds of supply-side restrictions are 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 have 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.

Operator

Your next question is from the line of Don Carson with Susquehanna Financial.

Don Carson - Susquehanna Financial - Analyst

Thank you. Bert. Bert, a question on the outlook for the fall season in the U.S. It looks like with an early planting, we could have an early harvest for the first time in three years, which should 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 two playing out this year? Do you think it's going to be above-trend fall season 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 market right now?

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

So first question, I'll take and then Chris and Tony will take the second. Regarding the fall season, you're correct, we 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 with corn on corn or following beans with corn. We would expect to see you talk 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 have 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 a 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 billion to date, we're expecting more on top of that. When you throw in all of the costs for a farmer and all of the revenue options with revenue guarantee program that's 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 is thinking or saying for 2021.

Tony Will - President and Chief Executive Officer

On the share repo question, as we have an open authorization, we did repurchase about $100 million of shares in Q1. And our target really is to make sure we're maintaining at least $1 billion 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 million 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 err a little bit on the side of caution, but I think it's certainly available to us. And as the balance of the year unfolds, if a fill program comes in, in somewhat of a normal fashion although that's kind of an oxymoron, given that every single year in fill is different from the previous year, so 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 prices.

Operator

Your next question is from the line of Adam Samuelson with Goldman Sachs.

Adam Samuelson - Goldman Sachs - Analyst

Yeah. Thank you. Good morning, everyone.

Tony Will - President and Chief Executive Officer

Good morning.

Adam Samuelson - Goldman Sachs - Analyst

Yes. So I was hoping I mean, you talked about this on the urea cost curve and I guess, ammonia too, but just UAN specifically. And there, I mean, the markets had some changes in demand patterns with the EU tariffs the last couple of years. You've got some reduction in production in the former Soviet Union, but I would still feel like there's some high-cost production out there that doesn't seem particularly economic at these prices. Maybe just your thoughts on how that looks over the next 12 months given the changing energy landscape.

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

Yes. I think that you hit on several components put together for the complete analysis of UAN. And I'm really pleased with the UAN team and 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 is 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 million-acre plus or minus range, the demand for UAN is about 15 million. We should be importing about two million tons, and we will be an import-dependent market, and that can be supplied by a few of the suppliers that we have today.

Operator

Your next question is from the line of Michael Piken with Cleveland Research.

Michael Piken - Cleveland Research - Analyst

Yeah, hi. Just following up on the last question. Is 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?

Tony Will - President and Chief Executive Officer

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 put those things in place. So I'd be shocked if that changed.

Bert Frost - Senior Vice President, Sales, Market Development and Supply Chain

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's sake, we'll be fine and see a positive market going forward.

Operator

Your next question is from the line of John Roberts with UBS.

John Roberts - UBS - Analyst

Thank you. 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 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.

Tony Will - President and Chief Executive Officer

Yes. Let me we can only 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, when northern Italy went on 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 installed during turnaround activity didn't reach us.

And the other piece was we didn't want to have 500 contractors in sort of a relatively hot spot area of NOLA in 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 the facility in a manner that's safe. And I think that probably more of that is happening than last on a global basis. So I would think for us, because we're very much focused on high uptime, high onstream, we do preventative 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 calc-ed into the supply-side equation, but there's a lot of companies that don't really run their asset, plants on a basis that is really long-term thinking about high onstream. 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 this trend could push out not just from 2020 into 2021, but it could be sort of a cascade effect over the next couple of years, I think. Chris, or…

Chris Bohn - Senior Vice President and Chief Financial Officer

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. That 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.

Operator

Your final question is from the line of Mark Connelly with Stephens Inc.

Mark Connelly - Stephens Inc - Analyst

Thank you. In the interest of time, I'll just keep it to one. Your controllable costs were down a lot more than I expected. Can you just walk us through what happened there?

Chris Bohn - Senior Vice President and Chief Financial Officer

Yes. Controllable costs, really, there's two 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 essential 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 we really needed to be focusing on. So the expectation is that we'll probably continue with the lower controllable costs than 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&A, too, just given the level of travel. As you look at Q1, we were down about $4 million 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&A, maybe a little south of that, too. That will provide us some cushion. So everything that we can control, back to Tony's comments, we're focused on controlling.

Tony Will - President and Chief Executive Officer

The only 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. So 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 the 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 that in 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 to 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.

Operator

Ladies and gentlemen, that is all the time we have for questions for today. I would now like to turn the call back over to Martin Jarosick for closing remarks.

Martin A. Jarosick - Investor Relations

Thanks, everyone, for joining us, and we look forward to your follow-up calls. Have a great day.

Operator

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CF INDUSTRIES HOLDINGS INC

Q1 2020

Earnings Transcript

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