Agrium Inc. reiterated its plans to remain in the retail business last week – and to double it – even though a wire report ran the headline indicating Agrium may consider spinning off its retail business. The headline referred to remarks made by Agrium President and CEO Mike Wilson in response to a question at an Agrium Investor Day held in Baltimore June 10.
“He said no such thing, very poor reporting, entirely incorrect,” said Richard Downey, Agrium senior director, investor relations. Downey added that Wilson said retail is an integral part of the business with lots of benefits, although a spin off is always an option in the future. He said it was no different than how he always responds.
In fact, just a day earlier, Wilson told analysts at the RBC Capital Markets 2009 Global Mining and Materials Conference that Agrium plans to double its retail business within North America, with any new retail outside North America being on top of that. Wilson said the company is looking more aggressively in Canada. In addition, it is taking its Argentina model and has already moved into Chile and now into Uruguay. “Our model works very well in North America. We know we can transport it to South America. It has the potential of working in Europe and Australia. Places like Brazil, China, India, it’s not the model you’d take in.”
He added that the retail business this year has outperformed. He said while it might be off 15 percent, that is not bad considering the nutrients are off 70 percent. The company is now projecting overall phosphate and potash demand to be off 40-50 percent.
Relating to the offer for CF Industries Holdings Inc., Wilson said that when it talks to their shareholders, with the exception of one or two, they’re all saying “we want this deal to go forward, it makes sense, it’s good for CF, it’s good for Agrium, it’s better than CF’s alternatives and we’re going to support you.” “Now, at the end of the day, whether they do or don’t, it’s going to be their decision on the 22nd. If they support us, I can’t believe CF would not listen to the shareholders, the people that own the company. And if they don’t support us, we’ll leave.” Agrium has extended the expiration date of the exchange offer until 12:00 midnight, New York City time, on June 22, 2009 (GM June 8, p. 1).
As for the international potash negotiations, Wilson now says China may hold off until August. “If they start to try to hold off beyond July, they’re taking a huge risk. And that risk is when their season starts, their fall season goes, they just won’t have the product because it takes a fair amount of time. So, our view is China could hold off until July, maybe August, but we’re thinking July.”
He added that India has said they may not buy until August/September. “I’d be amazed if they do that, because that means their farmers will not have product. They only have 500,000 mt of inventory … I think there’s more pressure on India than there is on China to settle it and hopefully, we settle it at some reasonable price that both parties are happy at.”
As for NPK prices in general going forward, Wilson said there is going to be more downward pressure than upward between now and September/October. “We’re coming out of spring. We always get that. And so, you’ve got that play.” Beyond that period, he says the view switches fairly aggressively. “If corn stays at $4 and soybeans at $9-$10 … I think the farmers are going to want to buy nutrients.
“The supply chain is – with the exception of the manufacturers who are full … the PCS’s, the Mosaic’s, the CF’s, the Terra’s, the Agrium’s – the supply chain is rapidly depleting. And so, you can see the potential of a bump coming at you.”
Wilson said retailers, and to some degree Brazil, are going to buy what they have to buy and not build inventory. However, he said as they work their way through the fall and the market tightens, their purchasing will get a little more aggressive. He said Agrium is not positive about this year’s third quarter versus the past two years; however, it is very positive beyond then.
“The good news about ag is it’s this huge global commodity and the business is very large,” said Wilson. “Even in this difficult financial time, the latest view coming out of the World Food Organization was that there’s still going to be a 1.5 percent growth in grain consumption, which is below what it’s been. But, find another commodity that’s actually getting a 1.5 percent growth.”