Mark Pytosh

Thank you Richard. Good morning, everyone, and thank you for joining our second quarter earnings call. The summarized financial highlights for the second quarter of 2024 include net sales of $133 million, net income of $26 million, EBITDA of $54 million and the Board of Directors, declared a second quarter distribution of $1.90 per common unit which will be paid on August 19 to unitholders of record at the close of the market on August 12.
Our facilities ran well during the second quarter of 2024 with consolidated ammonia plant utilization of 102%. Combined ammonia production for the second quarter of 2024 was 221,000 gross tons of which 69,000 net tons were available for sale, and UAN production was 337,000 tons.
During the quarter, we sold approximately 330,000 tons of UAN at an average price of $268 per ton and approximately 43,000 tons of ammonia at an average price of $520 per ton.
Relative to the second quarter of 2023, UAN sales volumes were in-line and ammonia sales volumes were lower as a result of volume shifting into the first quarter as favorable weather allowed farmers to apply ammonia earlier this year.
Prices for the second quarter declined from the second quarter of last year with ammonia prices falling 26% and UAN prices falling 15%. Nitrogen fertilizer pricing for the second quarter remained fairly steady with first quarter 2024 pricing, and we saw strong demand for ammonia and UAN for the spring planting season.
We also saw better than expected pricing for the UAN fill and of ammonia fall prepay ordering in July and we have a good order book on for the fall, which I will discuss further in my closing remarks.
I will now turn the call over to Dane to discuss our financial results.

Dane Neumann

Thank you Mark. For the second quarter of 2024, we reported net sales of $133 million and operating income of $34 million. Net income for the quarter was $26 million or $2.48 per common unit and EBITDA was $54 million. Relative to the second quarter of 2023 the decline in EBITDA was primarily due to lower market prices for ammonia and UAN.
Direct operating expenses for the second quarter of 2024 were $47 million, excluding inventory impacts direct operating expenses decreased by approximately $1 million relative to the second quarter 2023, primarily due to lower natural gas and electricity costs.
During the second quarter of 2024, we spent $5 million on capital projects which was primarily maintenance capital. We estimate total capital spending for 2024 to be approximately $40 million to $43 million of which $29 million to $31 million is expected to be maintenance capital.
We anticipate a significant portion of the profit and growth capital spending planned for 2024 will be funded through cash reserves taken over the past six quarters. We ended the quarter with total liquidity of $98 million, which consisted of $48 million in cash and availability under the ABL facility of $50 million.
Within our cash balance of $48 million, we had $1 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $54 million and had net cash needs of $34 million for interest costs, maintenance CapEx and other reserves.
As a result, there was $20 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $1.90 per common unit. Looking ahead to the third quarter of 2024, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses, excluding inventory impacts, to be between $53 million and $58 million and total capital spending to be between $10 million and $15 million.
With that, I will turn the call back over to Mark.

Mark Pytosh

Thanks, Dane. In summary, we are pleased with our second quarter results. We had another quarter of strong production from our facilities achieving 102% consolidated ammonia utilization. We saw strong demand for ammonia and UAN in the spring, and we are well positioned to meet the needs of our customers throughout the planting and sidedress season.
Spring planting season went well and demand for nitrogen was strong despite difficult weather causing the planting process to be paused a couple of times. The USDA estimates 91.5 million acres of corn and 86.1 million acres of soybeans were planted in the spring of 2024, a 3% decrease for corn and a 3% increase for soybeans compared to 2023.
Yield estimates from the USDA are 181 bushels per acre for corn and 52 bushels per acre for soybeans in 2024. Based on these planting and yield estimates, the USDA is projecting inventory carryout levels for 2025, approximately 14% for corn and 10% for soybeans, resulting in the inventories near the 10-year averages.
Grain prices have softened some recently in part due to concerns of our global demand and potential large US crop production. December corn prices are approximately $4.10 per bushel and November soybeans are approximately $10.35 per bushel.
In July we completed both summer UAN fill and fall prepay ammonia ordering from customers. And despite the recent softening in grain prices, we saw strong demand for both products at pricing that was above 2023 fill season pricing better than most were expecting.
We currently have a solid order book heading into the fall and UAN pricing has risen from our achieved fill prices. Geopolitical risk continue to represent a wildcard for the nitrogen fertilizer industry given the significant fertilizer production capacity residing countries across the Middle East, North Africa and Russia.
We continue to monitor developments in the Middle East that could impact energy and fertilizer markets and we expect the remainder of 2024 and 2025 will likely be periods of higher than historical volatility of the business.
Natural gas prices in Europe have been steady since our last earnings call, trending in the $10 to $11 per MMBtu range for the fall and $1.02 higher for the winter. The inventory fill rate, which typically increases significantly in the summer has been lower this year reducing the potential for reaching storage limits for winter.
Natural gas prices in the US have been hovering at $2 to $3 per MMBtu through the second quarter and into the third quarter with demand strong but production returning from the shut-ins in the spring.
Although the cost to produce nitrogen fertilizer in Europe has remained lower than in 2023, it is still at the high-end of the global cost curve, particularly compared to the US. We continue to believe Europe faces structural natural gas market issues, and that will likely remain in effect over the next couple of years.
At our Coffeyville facility, we are progressing on detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to third-party pet coke, which we expect to have those studies completed later this year.
If this project is approved by the Board and successfully implemented, it could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the US with that flexibility. We also began implementing certain debottlenecking projects at both plants that are expected to improve reliability and production rates.
The Board elected to continue to reserving capital in the second quarter that we expect to spend over the next two years to three years, as we focus on improving reliability and redundancy of the two plants in efforts to provide better production rates and lower downtime in the future.
We began spending capital on these projects in the third quarter of 2024 with funds coming from the reserves taken over the last six quarters.
Second quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we executed on all of the critical elements for our business plan, which includes safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors and communities prudently managing the cost, being judicious with capital maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint.
In closing, I would like to thank our employees for their excellent execution achieving 102% ammonia utilization and solid delivery on our marketing logistics plants, resulting in a distribution of $1.90 per common unit for the second quarter.
With that, we are ready to take any questions. Christine?

Question and Answer Session

Operator

We will now be conducting a question and answer session. (Operator Instructions)
Rob McGuire, Granite research.

Robert McGuire

Good morning Mark, Dane and Richard, thank you for taking my question.

Mark Pytosh

Good morning Rob.

Robert McGuire

So just to begin with you touched on the natural gas feedstock versus coke capabilities that coffees and all, -- can you remind us what do you anticipate the total cost of this project to be? And then I think you mentioned it a few minutes ago, but just if you go back through the timeline when you think it might be complete?

Mark Pytosh

So we haven't yet finished all the detailed engineering. So I'm not in a position to quantify what that's going to cost. I think what I've said on previous calls that we don't expect it to be a -- I'd call it, a material large material capital item, there will be some spending there.
And we have accounted for that in the reserves that we've been taking for last six quarters. The plan is to get those studies done by the end of this calendar year, get Board approval, if the numbers pencil out, which we feel very comfortable they will and we would execute the installation of what's required there during the first half of 2026 I mean -- I'm sorry, 2025, I'm skipping a year. And so the equipment should be in place later next year to make some decisions on the 2026 slate - feedstock slate.

Robert McGuire

Thank you for that color. And then I know Dane talked about your CapEx or maybe I heard that wrong. Can you give us an idea. So reserves this quarter for investing were at $25.2 million. Can you just talk about that increase? And what level of increase, we should see or level we should see in the second half of this year?

Dane Neumann

Yes. I will grab that one Rob. So with our capital profile the spending that's occurred thus far this year, it is been slower to ramp up. And as you can see in our guidance and full year numbers as well as the third quarter, we do expect that to increase.
The increase in the reserve for investing was primarily associated with that timing of the capital expenditures, ensuring that we weren't crossing the reserves and having adequate capital available to spend as we get into the third and fourth quarter. We won't guide on future expectations though.

Mark Pytosh

Yes. We didn't -- I'd say that for the growth capital reserves, we didn't change the quantum. It was really focused on matching up when the capital was going to be needed versus the free cash generation. We expected to spend more capital in the second quarter, but that is shifted to third and fourth. So we are just kind of matching up with that. But our reserves for growth capital have been consistent in same numbers in this quarter versus the last several quarters.

Robert McGuire

I appreciate that. Okay. Then switching gears on that. Can you give us an idea of how much your ammonia is sold outside of the agricultural market and what those markets are and perhaps what that percentage might be or vary quarter to quarter?

Mark Pytosh

I would say that we typically -- I would say, we sell probably 30% to 40% of our total and into the industrial markets. There is a kind of, I call it, a wide range of markets. Ammonia is a feedstock for a lot of different chemical production for -- in the -- I call it, non-row crop ag supply chain.
So I'd say, it is kind of a broad mix of usages, predominantly feedstock based. And it tends -- the [Ag] part of it tends to be very heavy. Ag sales -- or tends to be in ammonia, it tends to be very heavy in the second and the fourth quarter for spring pre-plant and fall effectively fall pre-plant for the spring -- the following spring. So those are the big ag periods, and then it is much more of an industrial sale in between.
So the first and third quarters have more as a percentage. This is percentage, it is not volume, have more percentage sales because they are more consistent through the year of industrial. And so hopefully, that gives you an idea of the curve.
But -- so you can see in our numbers that this year is unusual because the weather was so good in the first quarter. We sold a bunch of ag ammonia in March which we typically don't sell that nearly the quantum that we did this year. But typically, we sell a lot of our ag in the second and the fourth quarter.

Robert McGuire

That's helpful. Thank you. And do you sell any of that ammonia into the industrial market on contract? Or is it all spot?

Mark Pytosh

No, there is several contracts there. So there is, I would say, a big -- a good chunk of that is under contract, not spot. And it is more ratable, it is a ratable sale during the year because we're matching up with the buyer's production. So they are generally all takers on a ratable basis during the course of the year.

Robert McGuire

I appreciate that color. And you -- Mark, you have been doing this for a while. Can you just tell us your view of the price of corn, how that impacts fertilizer sales?

Mark Pytosh

I mean clearly, it is like I will view this with any business, the health of your customers and their ability to spend is critical. And so our customers are farmers and the higher the grain price, the better. $4 or north of $4 in corn is outside of the last couple of years, is usually pretty good.
We got used to like seeing corn numbers at $7 or $8. That is extraordinary. But $4 -- in the $4 area, where we are now is a good -- the economics are good for farmers. And the price of fertilizer from the peaks, when it was $7 or $8 the price fertilizer was very high.
So if you look at the P&L from a farm perspective, it's not quite as good as it was a couple of years ago, but at over $4 corn with fertilizer prices kind of settling into what I call mid-cycle pricing, pretty attractive economics for our farmer these days. And so that -- we always -- that's one of our critical measures is farm health, farm economics. And we are in a, I'd say a pretty good, sweet spot right now.

Robert McGuire

That $4 number I've been hearing for, it just seems like years now. Is there a point where there's inflation just causes you to bump that up to by 10% or something along those lines? Or -- I mean you talked about farmer economics a moment ago, so it's profitable. But is inflation playing a role in bumping that number up over time?

Mark Pytosh

I think there is some factor in it, too. And a factor in fertilizer prices, I think most commodity-oriented manufacturing same fundamentally inflation raise cost for everybody. So if you go back to pre-COVID, our cost to produce is a little bit higher, inflation based, driven by inflation and farmer economics are the price -- I think the price of corn is going to stay a little higher. And so yes, I think inflation is embedded. It is embedded in our cost structure. It's embedded in the farmer cost structure.
So I think some of those historical measures probably aren't as good. But when the corn got down to $3, that's a tougher -- that's really tough economics for the farmer. But at these levels even with the inflationary costs that are embedded in there, is still pretty attractive because our cost of what we sell for have adjusted too. So all in their economics are pretty solid here.

Robert McGuire

Thank you for answering my questions. That's all for me.

Mark Pytosh

All right. Thank you, Robert.

Operator

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Mark Pytosh

All right. Well thank you everybody. We appreciate you being on the call today, and we look forward to reviewing our third quarter results in about three months. So I look forward to speaking to everybody again. Thank you. Thank you for your time.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.