Washington—The Fertilizer Institute (TFI) and other organizations representing rail shippers filed the third and final round of comments with the Surface Transportation Board (STB) last week, asking the board to determine the reasonableness of tariff provisions that require shippers of toxic by inhalation (TIH) materials, including anhydrous ammonia, to indemnify the Union Pacific (UP) Railroad for all liabilities except to the extent caused by UP’s own negligence. The filing results from a Dec.12, 2011, decision by the STB to initiate a public proceeding regarding tariff provisions that apply to a much broader range of products than just TIH materials. According to TFI, the tariff would make TFI members and other shippers responsible for environmental liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), for which UP otherwise would be responsible. Other groups submitting comments include the American Chemistry Council, the Chlorine Institute, and the National Industrial Transportation League. Should the STB rule that UP’s indemnity tariff is reasonable, the industry groups claim that TIH and non-TIH shippers could face similar tariffs from other railroads, effectively making the shippers insurers of the railroads against all liabilities caused by third parties, including environmental clean-up charges and Acts of God, even when there is no release of a TIH material. According to a statement by TFI, a reasonableness determination by the STB would also narrow the common carrier obligation of the railroads. “TFI and other petitioners have reminded the STB that the common carrier obligation of the railroads comes with corresponding benefits, such as protection from the application of normal bankruptcy and antitrust laws,” TFI said.
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TFI applauds bill to halt EPAÆs guidance
Washington—The Fertilizer Institute (TFI) on March 28 praised U.S. Sens. John Barrasso (R-Wyo.), Jim Inhofe (R-Okla.), Dean Heller (R-Nev.), Jeff Sessions, (R-Ala.) and 26 other Senators for introducing the “Preserve the Waters of the U.S. Act” (S. 2245), which TFI said seeks to prevent the U.S. EPA and the U.S. Army Corps of Engineers from issuing their “Final Guidance on Identifying Waters Protected by the Clean Water Act.” The final guidance document, issued in draft form by EPA and the Corps in May 2011, would significantly change and expand the scope of federal jurisdiction under the Clean Water Act, according to TFI. If finalized, TFI said it has “the potential to make it more difficult for Americans to build in their backyards, grow crops, manage livestock, expand small businesses, and carry out other activities on private lands.” S. 2245 was introduced just days after the Supreme Court’s decision in Sackett v. EPA, a ruling that supports the rights of property owners to challenge EPA compliance orders that are found to be arbitrary and capricious. In 2007, according to TFI, the Sackett family was told by EPA that the property they had recently purchased in Idaho on which to build their home was a wetland covered under the Clean Water Act. Although the Sacketts attempted to prove that their property was not a wetland, EPA proceeded to issue a compliance order that if not obeyed would result in fines of up to $75,000 a day. The case eventually ended up before the Supreme Court, which ruled in favor of the Sacketts last week. “The Fertilizer Institute believes the Supreme Court’s decision in Sackett v. EPA is a victory for land owners throughout the country,” said TFI President Ford B. West. “We are pleased that the legislation introduced by Senators John Barrasso, Dean Heller, Jim Inhofe and Jeff Sessions seeks to prevent additional situations where EPA may be overstepping and infringing on the rights of property owners, including farmers and other land use stakeholders.” In related efforts on this issue, TFI joined sixty other organizations in sending a letter to the Office of Management and Budget (OMB) earlier this week to express serious concerns with EPA and the Corps’ draft guidance. The letter also urged OMB to conduct a thorough review of the final guidance document, noting that the coalition believes EPA significantly underestimated the costs associated with implementation.
CVR board rejects Icahn offer; company reports record year
CVR Energy Inc.’s board of directors on March 1 said that after consultation with its independent financial and legal advisors, it has unanimously determined that the unsolicited tender offer by entities controlled by Carl Icahn (GM Feb. 27, p. 8; GM Feb. 20, p. 1) to acquire all of the outstanding shares of CVR Energy for $30.00 per share in cash (subject to downward adjustment), plus a “contingent cash payment right,” is inadequate and not in the best interests of its stockholders.
In reaching its decision, the board said it determined that the offer substantially undervalues the company and the significant growth opportunities inherent in its current plan, particularly given its proven track record of delivering value to its stockholders, including producing 65 percent in total returns for CVR stockholders over the last year. It said the Icahn offer also contains an extraordinarily long list of conditions that provide Icahn with maximum flexibility to avoid closing the offer. The board said it also completely fails to protect minority stockholders who choose not to tender into the Icahn offer; makes no provision for the $670 million in indebtedness that would be triggered if Icahn prevails in his offer or his announced proxy contest; and contains a contingent cash payment right that is unlikely to provide stockholders with any additional value. Accordingly, the board strongly recommends that CVR Energy shareholders reject the Icahn offer and not tender any shares into the offer.
“We believe the Icahn offer is an opportunistic attempt by Mr. Icahn to acquire CVR Energy at an inadequate price and at a time when we are about to reap the benefits of our recent acquisition and our valuable position as a leading mid-continent refiner,” said CVR Chairman and CEO Jack Lipinski in a letter to shareholders. He called the offer paltry, and reiterated that CVR stockholders have realized total returns of 527 percent over the past three years and 65 percent over the past year, significantly outperforming its peers and the S&P 500. He noted that the offered price of $30 per share was only 3.9 percent above the company’s highest close in the prior six months, and that it is at the low end of the $30-$35 per share price targets given by Wall Street analysts for the company as of Feb. 15, 2012.
Lipinski also noted that the contingent cash payment promised by Icahn is only effective if there is a sale of the company within nine months, and that Icahn would be incentivized to prolong the date of the sale as a result.
Icahn argues that CVR Energy should be sold, and has listed a number of competitors that might be interested should the company officially be put up for sale.
Earlier in the week, CVR Energy reported net income attributable to shareholders of $345.8 million ($3.94 per diluted share) for the year ending Dec. 31, 2011, compared to the prior year’s income of $14.3 million. Net sales were up by almost $1 billion, to $5.03 billion from $4.08 billion.
“CVR Energy turned in an exceptional financial performance for 2011, far eclipsing the results of any previous year,” said CEO Jack Lipinski. “The favorable crack spread coupled with our Midcontinent location allowed us to take advantage of the cost differential between Brent and West Texas Intermediate crudes. These results were achieved despite the expense and lost production from our planned turnaround at the refinery in Coffeyville during the fourth quarter.”
“2011 was a watershed year for us in many ways,” said Lipinski. “We completed an initial public offering in our nitrogen fertilizer business, placing it in a publicly traded master limited partnership that provided a way to recognize the value of that business. We also completed acquisition of Gary-Williams Energy, adding a 70,000 bpd refinery at Wynn
LSB reports record year; outlines expansion plans
LSB Industries Inc., reporting net income of $83.8 million ($3.58 per diluted share) on sales of $805.2 million, broke major performance records for the year ending Dec. 31, 2011. 2010 income was $29.6 million ($1.32 per share) on sales of $609.9 million. 2011 operating income was $136.4 million versus 2010’s $55.9 million, with an EBITDA of $131.4 million versus 2010’s $45 million.
“2011 was the best year in the history of the company in terms of sales, operating income, and earnings per share,” said Chairman and CEO Jack Golsen. “It also marks the first full year of operations of our Pryor facility in our Chemical business segment and the opening of our new modular chiller plant in our Climate Control business segment. These achievements were accomplished while further strengthening our balance sheet by reducing long-term debt, increasing LSB’s net worth, and building our capital position.”
“Our fourth quarter results were strong due to significant increases in our Chemical business sales and operating income,” said Golsen. “Sales in the Chemical segment increased 46 percent and operating income increased 91 percent, reflecting the strong demand for nitrogen fertilizer accompanied by lower natural gas prices and increases in industrial and mining products sales volumes. The first full year of production and sales in our Pryor facility had a significant impact on the top and bottom line results for the quarter and the year.”
Pryor operating income for 2011 was $52 million, compared to only $300,000 for 2010. Fourth-quarter income was $17 million versus the year-ago $11.4 million.
Golsen is upbeat for 2012. “Because grain stocks are low versus demand, we expect that the corn planted in the spring will reach an estimated 93-94 million acres and will require near-record levels of nitrogen fertilizer to optimize the yield. Despite the downward pressure on fertilizer prices during the winter months, we believe the agricultural outlook for 2012 is positive.”
2011 Chemical operating income was $116.5 million on sales of $511.8 million, up from 2010’s $31.9 million on sales of $351.1 million. Sales prices increased 30 percent and volume of tons sold increased 14 percent. Agricultural sales increased $96 million due to strong demand for UAN and ammonia and higher prices. Industrial chemical product sales increased $34.9 million and mining product sales by $29.8 million. Most of the increase in gross profit was attributed to higher margins on UAN and ammonia. LSB also recognized an $8.6 million business interruption insurance recovery in 2011, which was recorded as a reduction to cost of sales. In 2010, it recognized an insurance recovery of $7.3 million, which was included in other income.
LSB fourth-quarter net income was $28 million ($1.19 per share) on sales of $215.4 million, compared to the year-ago $18 million ($.79 per share) on sales of $172.1 million. Operating income was $41.6 million, up from $30.2 million. EBITDA was $41.5 million versus the year-ago $23 million.
Fourth-quarter Chemical operating income was $37.6 million on sales of $142 million, versus the year-ago $19.6 million on sales of $97.2 million. The improved income was attributed to higher UAN volumes and prices, primarily for product produced at Pryor and the Cherokee Nitrogen facility in Alabama. UAN volumes surged to over 130,000 st versus those of a year ago, which were just under 50,000 st. During the quarter, agricultural sales were up $27 million, or 65 percent. Mining and industrial sales were up $13.1 million and $4.9 million, respectively.
LSB told analysts that it sold about 42,000 st of UAN forward for shipment during first quarter 2012 that was priced much higher than the current market. It said it exited the year with $18-$19 million in forward UAN sales, with $14 million of that
Green Markets panel tackles 2012 crop/fert trends; is corn bullish or bearish?
Registrants who tuned in Feb. 29 to the Green Markets 2012 Agriculture & Fertilizer Outlook webinar heard from three industry experts who offered the latest projections for 2012 crop acreage, crop prices, and fertilizer supply and demand.
The interactive event, presented on the cusp of the busy spring planting season, was the seventh annual spring outlook conference sponsored by Green Markets. Registrants were able to view a wide range of slides and graphs and to hear, via telephone or computer, 90 minutes worth of projections and statistics about the upcoming crop and fertilizer year.
Dr. Gerald Bange, chairman of the World Agricultural Outlook Board for USDA, kicked off the event with a look at the USDA’s most recent acreage estimates for major crops in 2012/13. Bange said world wheat production has outpaced consumption by a considerable margin in three of the last five years, but global corn production has seen the exact reverse. As a result of consumption exceeding production, world corn ending stocks are at the lowest level since 1973/74.
USDA is projecting 94 million acres of corn in the U.S. for 2012/13, Bange reported, with average yields at 164 bushels/acre. The average market price for corn is projected at $5/acre in 2012/13, down some 19.4 percent from 2011/12, and Bange said USDA sees prospects for corn prices falling even further during the year.
While U.S. ethanol exports to Brazil and others surged in 2011, Bange said corn use for ethanol will decline in 2012/13. With the removal of the ethanol blending credit at the end of December, Bange said ethanol production right now shows a negative return.
The U.S. wheat crop is projected at 58 million acres for 2012/13, up 6.6 percent, with an average market price projected at $6.30/bushel. Bange said U.S. soybeans are forecast at 75 million acres for 2012/13, with average yields up slightly to 43.9 bushels/acre. Strong soybean exports will keep the average market price at $11.50/bushel in 2012/13, he said. China remains a major soybean importer, he added, noting that one out of every four rows in a U.S. soybean field is going to China.
U.S. cotton acreage will drop 10.2 percent to 13.2 million acres in 2012/13 due to the “attractiveness of other crops,” Bange said. Average cotton yields are projected at 777 pounds/acre, with the average market price projected at 80 cents/pound in 2012/13.
Richard Brock, president of Brock Associates, warned that we are on the verge of a “big bear market in corn,” noting that “high corn prices have hurt corn usage numbers in every category.” Brock is predicting 94.5 million acres of corn for 2012/13, with average yields at 161 bushels/acre and farm prices forecast in the $4.25-$5.75/bushel range.
Brock also talked of the loss of the blender tax credit for ethanol producers, and said ethanol exports from the U.S. dropped significantly in January and February after reaching a record 172.7 million gallons in December. The average ethanol plant in the U.S. is breaking even at best, he said, and most are losing money. “We’ll see some more closures of ethanol plants in the next two months,” he said.
Brock said higher soybean prices in late February may be enticing some producers away from corn this year. He predicts a 74.5 million acre soybean crop in 2012/13, with average yields at 44 bushels/acre and average farm prices of $9.50-$11.25/bushel.
Tom Blue of Blue, Johnson & Associates detailed U.S. fertilizer demand for nitrogen, phosphates, and potash in each of the last three years, noting an 18 percent increase in consumption in 2010 after the huge drop experienced in 2009. He said consumption was up again by 5-6 percent in 2011, and will likely experience the same increase in 2012. Blue said UAN demand was up 7 percent in 2011, urea up 4 percent,
Ammonia
U.S. Gulf/Tampa: Nothing new was reported in the market last week, though there was speculation that the Tampa price for April would rebound in light of higher international prices.
Sources expect more domestic product to continue to be available on the NOLA market with PotashCorp bringing up its Geismar, La., plant in the third quarter. That will add 500,000 st/y more domestic product, on top of the recently started OCI/Beaumont production and a few extra tons that might now be available due to Mosaic’s cut in phosphate production.
Eastern Cornbelt: The anhydrous ammonia market remained in the $630-$650/st range FOB regional terminals, with the low reported in the Illinois market on a spot basis.
Sources reported little in the way of field activities in the Eastern Cornbelt. Parts of Illinois and Indiana were hit with severe weather at midweek that included tornadoes and hail, and another round of severe weather was in the forecast for parts of the Ohio and Tennessee Valleys late in the week.
The worst of the tornado damage was reported near Harrisburg, Ill., where six people were killed and hundreds injured at midweek. Another tornado caused considerable damage in Newburgh, Ind., and storm damage was evident in many locations, including Indianapolis, Cincinnati, Memphis, St. Louis, Nashville, and in Tennessee’s Cumberland and Dekalb Counties.
A total of 16 tornadoes were confirmed as part of the massive Feb. 29 weather system that slammed the Midwest. Another system was expected to bring significant severe weather again on March 2 to southern Indiana and Ohio down to northern Mississippi and Alabama
Western Cornbelt: The anhydrous ammonia market was tagged at $605-$635/st FOB regional terminals for prompt tons, with the low end reported out of spot locations in Iowa and Nebraska.
Parts of Iowa reported 70 mph wind gusts and light snow at midweek, while Nebraska experienced heavy snow in the northern counties and tornado activity in west-central areas of the state. The biggest storm impact was reported in southern Missouri, however. Significant tornado damage was reported in numerous locations, including Branson and Buffalo, Mo., prompting Gov. Jay Nixon to issue a state of emergency order at midweek.
One Missouri contact reported some fertilizer applications to the field in his location last week, but most of the work was confined to sandy soils and high spots. He said if the location missed more rain forecast for late in the week, growers there would be starting “for real” the following week.
California: Sources reported a significant price drop in ammonia pricing in California, fueled by much lower Tampa numbers. Effective Feb. 27, Calamco republished anhydrous ammonia at $585/st truck-DEL, a drop of $190/st from its previous reference price. Aqua ammonia pricing dropped to $160/st FOB on Feb. 27, also down significantly from the previous posting of $206/st FOB in the state.
A late-season storm brought gusty winds and as much as five feet of snow to the northern Sierra Nevada at midweek. The moisture was long overdue and comes after an unseasonably dry winter in the state. The system also brought rain to lower elevations in northern California.
As of late February, snow pack levels in California’s Sierra Nevada were just 30 percent of normal for this time of year. San Jose has received just 2.84 inches of rain since July 1, about 25 percent of normal, while the Los Angeles area was at about 50 percent of normal precipitation since that date. Despite the lack of rainfall, California’s major reservoirs were still rated at 104 percent of normal due to heavy moisture in 2010.
Pacific Northwest: The anhydrous ammonia market was quoted at $630-$
UREA
U.S. Gulf: The news early in the week was that prompt granular barge prices were taking off. The news by Thursday, however, was that they had fallen back.
Generally, the range for the week was put between $495-$525/st FOB, with the price quickly running up to $525/st FOB and then falling back to just below the $500/st FOB mark. By late Thursday, sources said the market was again on the rise, with sources calling it $500-$505/st FOB.
The price increase, depending on who you talked to, was either because of legitimate demand or trader hype – or a bit of both. Some sources said there had been a week’s worth of good demand from the Southern Plains and that inland supplies in those areas had been depleted. As a result, regional prices moved up, and there were unconfirmed reports of glitches in production at some inland plants.
Eastern Cornbelt: Fueled by NOLA barge values that climbed to as high as $525/st FOB at midweek before settling back to the low $500s/st, terminal prices in the Eastern Cornbelt region reportedly firmed to as high as $540-$550/st FOB last week – at least on paper.
Western Cornbelt: The urea market was surging last week. Driven by another swift spike in NOLA barge values during the final days of February, urea pricing out of regional terminals firmed to $525-$540/st FOB last week, a $55-$65/st jump from the previous week. The low end of the range was quoted in southern Missouri, while the upper end was reported in the Iowa market at midweek.
Effective Feb. 28, Koch’s urea postings in Oklahoma firmed to $550/st FOB Enid and Inola. That level was up $60/st from Koch’s Feb. 23 posting, and $85/st higher than the Feb. 15 reference price. Sources in the Southern Plains said brisk demand in that market, coupled with rumors of production problems and unconfirmed reports of plant outages at some locations, had depleted urea supplies. As a result, some were calling the Enid/Inola market as high as $555-$560/st FOB late in the week.
California: The granular urea market was quoted at $510-$535/st FOB in California, down slightly from last report. “We’ll see what the urea thing in the Gulf will bring,” commented one source.
Pacific Northwest: Granular urea pricing in the Pacific Northwest had firmed to $540/st FOB and $590/st rail-DEL by late February.
Western Canada: UAN-28 was quoted in the $417-$435/mt ($14.89-$15.54/unit) DEL range in the region, with the low reported in the Manitoba market and the upper end in Alberta.
Indonesia: Pusri is back in the export market. The conglomerate received export licenses in enough time to sell a few cargoes and call a tender before February ended.
The tender closed Tuesday, Feb. 28, just as the U.S. NOLA market was heating up.
Prior to the calling of the tender, sources report that two buyers each took cargoes of granular material at $425/mt FOB, a dramatic leap up from the last done business.
The tender closed with an additional $30 added to the price. Indevco took the 30,000 mt granular award at $455.05/mt FOB.
Details of the bids for 30,000 mt of granular urea from Kaltim follow.
| Bidding Company | US$/mt FOB |
| Indevco | 455.05 |
| Ameropa | 453.50 |
| Interframe | 451.05 |
| Helm | 451.05 |