Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
We are exposed to significant market risk due to potential changes in prices for fertilizer products, pet coke, and natural gas. Pet coke and natural gas are the primary raw materials used in the production of various nitrogen-based products manufactured at our Coffeyville Facility and East Dubuque Facility, respectively. We have commitments to purchase pet coke and natural gas for use in our Facilities through short-term, fixed price, and index price purchase contracts.
In the normal course of business, we produce nitrogen-based fertilizer products throughout the year to supply the needs of our customers during the high-delivery-volume spring and fall seasons. The value of fertilizer product inventory is subject to market risk due to fluctuations in the relevant commodity prices. Prices of nitrogen fertilizer products can be volatile, and we believe they are affected by changes in grain prices, demand, natural gas prices, and other factors. A $1.00 per MMBtu change in the price of natural gas would change the cost to produce a ton of ammonia and UAN by approximately $14.29 and $5.86, respectively. A $1.00 per ton change in the price of pet coke would change the cost to produce a ton of ammonia and UAN by approximately $0.66 and $0.27, respectively. In the opinion of our management, there are no financial instruments that correlate with our firm pet coke commitments and forecasted commodity sales transactions that could be used to effectively reduce commodity price risk.
Interest Rate Risk
We may be exposed to risk based on changes in interest rates related to our ABL Credit Facility, which bears interest at the daily simple Secured Overnight Financing Rate (“SOFR”) plus a premium. As of December 31, 2025, there was no outstanding borrowings under the ABL Credit Facility or other variable rate borrowings. Further, fixed-rate debt, such as our 2028 Notes, exposes us to changes in the fair value of our debt due to changes in market interest rates, but not our earnings or cash flows.
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Based on the 2028 Notes, a hypothetical 50-basis point fluctuation in market interest rates at December 31, 2025 would have resulted in a change of $25.6 million in fair value disclosure. Fixed-rate debt also exposes us to the risk that we may need to refinance maturing debt with new debt at higher rates, or that we may be obligated to pay rates higher than the current market.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.