Why Does Natural Gas Drive CF Industries?
CF Industries makes ammonia, urea and other nitrogen fertilizer from natural gas, so its profit is the spread between what nitrogen sells for and what gas costs. In the second quarter of 2026 its ammonia sold for $677 a ton, up from $452, while its gas cost was $3.37 per million BTU, flat on the year, and net earnings rose to $727 million with a 51.5% gross margin.
- A rough rule of thumb of about 33 million BTU of gas per ton of ammonia puts the gas cost near $110 a ton, around 16% of the price.
- That spread is why profits can jump when nitrogen prices rise, and why they can fall quickly when prices normalise.
This is analysis, not a recommendation.
How does natural gas drive CF's profit?
Natural gas is both the raw material and the energy source for nitrogen fertilizer, and CF's filings call it the largest and most volatile single component of manufacturing cost. CF's plants are in North America, where gas has been cheap compared with Europe. When nitrogen prices rise and its gas costs stay low, almost the whole price change drops into profit.
| Measure | Q2 2025 | Q2 2026 |
|---|---|---|
| Average ammonia price per ton | $452 | $677 |
| Average granular urea price per ton | $460 | $593 |
| Average UAN price per ton | $321 | $441 |
| Average ammonium nitrate price per ton | $310 | $550 |
| Gas cost in cost of sales, per million BTU | $3.36 | $3.37 |
| Gross margin | 39.9% | 51.5% |
| Net earnings | $386 million | $727 million |
CF's Q2 2026 average selling prices per ton from its August 5, 2026 release, against an estimated gas cost per ton of ammonia (about 33 million BTU at $3.37, an industry rule of thumb, not a CF figure).
Gas cost per million BTU barely changed, while the nitrogen price rose 39% on average, from $376 to $523 a ton across its products, which is why earnings nearly doubled. Henry Hub gas averaged $2.93 in the quarter against $3.16 a year earlier.
Why did nitrogen prices rise?
CF says supply tightened. A Middle East conflict cut traded supply by about 4.0 to 4.5 million tonnes of urea and about 1 million tonnes of ammonia, in a region that normally supplies 25% to 30% of traded ammonia and 35% to 40% of traded urea. Prices rose from mid-February into the second quarter, then by the end of the quarter fell back to pre-conflict levels. European gas prices rose significantly, which pressures European nitrogen production, and Russian production remains at risk from the war. China is expected to export 4 to 6 million tonnes of urea in 2026.
The lesson is that the spread is set by global supply, so CF cannot control it. Management says supply and demand look constructive into 2027 and that North American demand for the 2027 season will be firm.
What is CF doing with the cash?
| Item | Detail |
|---|---|
| First-half net earnings | $1.34 billion ($8.71 a share), including about $170 million from a litigation settlement |
| Dividend | Raised 20% to $0.60 a quarter |
| Buybacks | $230 million in Q2 under a $2 billion programme, with about $1.48 billion left |
| Debt | About $3.2 billion of long-term debt against $2.48 billion of cash |
| Blue Point | A low-carbon ammonia plant in Louisiana owned 40% by CF, 35% by JERA and 25% by Mitsui, with construction starting in August 2026 and production expected in 2029 |
| Yazoo City outage | Production lost since a November 2025 incident is expected to resume in the first half of 2027, with a substantial part of the cost insured |
Sales volume fell 15% in the quarter (to 4.25 million tons), so the profit rise came entirely from price. Capital spending for 2026 is about $1.3 billion, including about $750 million for Blue Point.
What could narrow the spread?
- Nitrogen prices fall: the second-quarter price rise was driven by supply loss, and it has already reverted to pre-conflict levels, so profits depend on supply staying tight.
- US gas rises: a gas cost near $3.37 is low, and each dollar higher adds about $33 a ton of cost.
- New supply: new capacity and Chinese exports can pressure prices.
- Execution: Yazoo City, plant outages and the Blue Point project cost.
How does CF look on this site's checks?
From the weekly data of October 23, 2026, on the CF Industries stock page:
| Measure | CF | What it tells you |
|---|---|---|
| Price | $120.68 | 13% below its 52-week high of $141.96 |
| Market value | $18.0 billion | Total value of all shares |
| Trailing / forward P/E | 8.6 / 10.4 | A forward P/E above the trailing one means analysts expect earnings to fall |
| Price to sales / price to book | 2.3 / 3.1 | This site's limits are 7 and 8 |
| Revenue growth / net margin | +20.0% / 27.1% | Trailing twelve months, flattered by higher nitrogen prices |
| Dividend yield | 1.74% | Payout ratio 15% of earnings |
| Debt to equity | 0.56 | Total debt against shareholders' equity |
| 1-year change / RSI | +40.4% / 52.9 | RSI below 30 is oversold, above 70 is overbought |
| Value filters passed | 5 of 8 | This site's eight mechanical value filters |
| Margin of safety (DCF) | +44.7% | A neutral model that fades growth from 8% to 2.5% |
A low P/E on peak margins is the classic cyclical trap, because the multiple looks cheap just before earnings fall. How to check if a stock is a value trap covers the tests, and the DCF margin of safety above assumes margins hold, so treat it with the same care.
What should you read next?
Two more explainers on companies in the same screen: what is Charles River and why do biotechs need it, and how does Schwab earn money from your cash.
Sources
- CF Industries Q2 and first-half 2026 results (SEC, August 5, 2026): prices, gas cost, supply, capital returns
- CF Industries 8-K (Stock Titan, August 5, 2026): Blue Point and cash flow
- CF Industries on this site: price and ratios, October 23, 2026
The gas-per-ton figure is a widely used industry rule of thumb, not a CF number. Part of the release was read from a summary, and buyback figures differ slightly between sources. This is educational content, not investment advice.
CF Industries FAQ
Why does natural gas matter to CF Industries?
Gas is the raw material and main cost of nitrogen fertilizer, so profit is the spread between the nitrogen price and the gas cost.
How much did CF earn in 2026?
Net earnings were $727 million in the second quarter and $1.34 billion in the first half, including a litigation gain of about $170 million.
Why did nitrogen prices rise?
A Middle East conflict cut traded urea and ammonia supply, and European gas costs rose, which tightened the market.
Does CF pay a dividend?
Yes, $0.60 a quarter after a 20% raise, plus a $2 billion buyback programme.
What is Blue Point?
A low-carbon ammonia plant in Louisiana, owned 40% by CF with JERA and Mitsui, with construction begun in August 2026 and production expected in 2029.