All posts by hlancey@bloomberg.net

Potassium Sulfate

California, Market Watch, Pacific N.W., Potassium Sulfate, U.S. Exports, U.S. Imports

US Imports:

January SOP imports moved up 209.1%, to 11,457 st from the year-ago 3,707 st. Imports totaled 29,437 st in July-January, however, down 46.7% from 55,203 st in the prior year. Canadian imports were counted at 16,678 st in July-January, Germany moved into second place with 8,173 st, and Taiwan sent 2,100 st. 

US Exports:

SOP exports lifted 5.4% in January, to 2,918 st from 2,769 st in January 2023. July-January totals softened 46.4% year-over-year, however, to 16,094 st from 30,020 st. Mexico purchased 7,323 st of US product in July-January, followed by Canada with 5,066 st. Singapore received 2,142 st, unchanged from one month earlier.

California:

The SOP market was steady at $640-$650/st FOB in California, with the low reported at Stockton.

Pacific Northwest:

The SOP market remained at $640-$650/st FOB for the last offers in the Pacific Northwest.

SOP Magnesia

California, Pacific N.W., Southern Plains, Sulfate of Potash Magnesia

California:

Granular SOP Magnesia was unchanged at $445-$450/st FOB Stockton in late March.

Pacific Northwest:

The SOP Magnesia market was steady at $440-$450/st FOB for granular tons in the Pacific Northwest, with rail-DEL offers pegged at the $450/st level on a spot basis.

Southern Plains:

Intrepid’s Trio postings at Carlsbad, N.M., firmed another $10/st on March 20, to $315/st for standard, $345/st for granular, $355/st for premium, $390/st for OMRI standard and fine standard, and $420/st for OMRI granular.

ADM Corrects Accounting Errors; SEC, DOJ Scrutiny Continues

Featured, U.S.

In response to accounting problems reported earlier this year that prompted an investigation by federal authorities and the suspension of the company’s CFO (GM Jan. 26, p. 26), Archer Daniels Midland Co. on March 12 revised three years of results for the operating segments at the center of its accounting woes via a so-called “Little R” revision, Bloomberg Law reported.

ADM tucked the corrections into its 10-K and told analysts and investors that while Securities and Exchange Commission (SEC) and Department of Justice (DOJ) investigations continue, the errors were a small part of the company’s financial results. It simultaneously said the revision did not trigger a review under new executive compensation clawback rules.

“We determined that the adjustments are not material to our consolidated financial statements, taken as a whole for any period,” CEO Juan Luciano told analysts on the company’s earnings call on March 12. The quiet correction that does not require the fanfare of releasing a special 8-K announcing a restatement or re-issuing old financial reports.

When the accounting errors were revealed, the news stunned the trading and processing world. ADM shares plunged 24% on Jan. 22, the most on record, wiping $8.8 billion from the company’s market value. ADM also placed CFO Vikram Luthar on leave after announcing that the SEC was probing inter-segment sales between the nutrition segment and the company’s other business arms. ADM launched an internal investigation and appointed an interim finance chief.

The SEC requires companies that uncover errors in their past financial statements to correct them. Significant errors are considered red flags in financial reporting, forcing companies to issue statements that they need to fix their mistakes and then file updated financials with the SEC. Smaller errors can be corrected by revisions, which get disclosed in the next period’s financial statements.

That’s what ADM did, with the most significant revisions to the operating profits for its nutrition segment, the unit of the business that includes livestock feed and pet food. The nutrition business is the smallest of the company’s operating segments, but its performance had a big impact on executive bonuses in 2020 and 2021, Bloomberg reported in January.

The company on March 12 shrank its previously reported operating profit in the nutrition segment by $31 million, or 7%, for the year ending 2023. It also reduced operating profits for 2022 by $68 million, or 9%, and revised the 2021 operating profit by $59 million, an 8.5% reduction. The accounting fixes won’t affect executive bonuses, the company said. ADM declined to comment for this article.

Wall Street’s top regulator pays close attention to cases where companies are perceived to sweep accounting errors under the rug without calling them out in a “Big R” restatement. SEC Chief Accountant Paul Munter in March 2022 warned companies against using stealth revisions to fix accounting mistakes if those errors could be considered relevant to investors and analysts. He also said companies have to consider not just the numerical materiality of mistakes.

New SEC rules forcing executives to pay back bonuses if earnings turn out to be erroneous put further pressure on accounting mistakes. Under the rules that went into effect in December, companies have to consider both “Big R” and “Little R” corrections when they develop executive pay clawback policies. They also have to check a box on the front of their annual financial reports indicating whether an error correction triggered such an analysis.

Given the regulator spotlight on accounting mistakes, ADM likely didn’t take the decision to do a “Little R” revision lightly, said Phil Lamoreaux, accounting professor at the W.P. Carey School of Business at Arizona State University.

“I would bet a lot of very expensive people spent a lot of time thinking about this,” Lamoreaux said, referring to attorneys and consultants. “They all knew there was going to be a lot of scrutiny when this 10-K came out.”

Regardless of how ADM corrected its numbers, its problems are not over, said Francine McKenna, accounting lecturer at the University of Miami and author of The Dig, an accounting newsletter. The SEC and DOJ are still investigating, and the company showed signs of stress within the nutrition business unit, McKenna said, pointing to a $137 million goodwill impairment the company recorded this past quarter related to its animal nutrition line.

“At this point it’s technical semantics,” McKenna said of the debate over the type of error correction the company did. “They’ve drawn enough attention to themselves with this issue, even if they didn’t make the disclosure that they had a Big R restatement.”

Federal authorities will closely look at every company move, she said. “They kind of cooked their own goose by putting an executive on leave and really attacking this with a massive investigation,” McKenna said. “Someone’s going to look at it more strenuously.”

Massive UAN Spill Reported in Iowa; Diesel Leaked in Separate Incident

Featured, Nitrogen, U.S., UAN

NEW Cooperative, Red Oak, Iowa, on March 11 notified the Iowa Department of Natural Resources (DNR) of a release onsite of approximately 1,500 st of UAN 32. The product was discharged into a drainage ditch, then into the East Nishnabotna River. Dead fish were observed but the extent of the fish kill is still to be determined.

DNR Senior Environmental Specialist Wendy Wittrock, who investigated the incident, told The Des Moines Register that the incident involved “a lot of fertilizer” and is likely the largest fertilizer spill she has investigated. Based on current Midwestern retail pricing, the UAN would be valued between $540,000-$615,000.

As of March 14, DNR said clean-up efforts were still underway. It said the product flowed several miles downstream of Red Oak on the East Nishnabotna River, reaching Missouri. The Missouri Department of Natural Resources was notified.

The DNR encouraged private well owners in Montgomery, Page, and Fremont counties with wells in near proximity to the East Nishnabotna River to contact their county health department to test their wells for nitrate. It said this service is free using Iowa’s Grants-to-Counties (GTC) program. The DNR will be providing county health officials with lists of registered private wells that may be vulnerable.

Due to low water levels in the East Nishnabotna, the concentration of the liquid nitrogen fertilizer is higher than during normal stream flows, causing concern for all animals due to high nitrate and urea levels.

Iowa State University College of Veterinary Medicine Toxicologist Scott Radke recommended that all animals be kept away from the East Nishnabotna River until the plume of contaminant moves out of the area.

The Iowa DNR is working with local, state and federal officials, and will continue to investigate impacts of the spill. DNR reported that the release occurred due to a valve left open on an aboveground storage tank overnight. It said areas of pooled fertilizer were pumped into a vac truck and will be land applied later.

“Upon discovery of the spill, management immediately initiated containment protocols as per our established safety procedures,” NEW Cooperative said in a prepared statement on March 13, cited by The Des Moines Register. “We promptly notified the appropriate local authorities and regulatory agencies and have been working diligently in close cooperation with them ever since.”

Just a few days earlier on March 8, DNR said an Adair County Conservation Officer reported a “red sheen” on an unnamed tributary of the Middle Nodaway River. DNR responded and discovered that diesel had overflowed a vent tube of an above ground storage tank at a farm operation owned by Kading Land Co. Inc.

DNR said the discharged diesel reached a stormwater intake located inside the secondary containment area and continued flowing via field tile, eventually reaching the tributary and then the Middle Nodaway River.

The amount of diesel spilled is unknown. No dead fish have been observed. Staff will continue to work with the responsible party to clean up the spill. The investigation is ongoing.

TFI Praises Move to Add Phosphate, Potash to Critical Minerals List

Belarus, Canada, China, Featured, Phosphate, Russia

The Fertilizer Institute (TFI) on March 14 praised the US Senate for introducing bipartisan legislation to include phosphate and potash on the final list of critical minerals of the Department of the Interior.

The legislation was introduced by Sens. Sherrod Brown (D-Ohio), Thom Tills (R-N.C.), Tammy Baldwin (D-Wisc.), Roger Marshall (R-Kan.), Pete Ricketts (R-Neb.), and Rick Scott (R-Fla.), and TFI said it will recognize the importance of ensuring a strong and sustainable domestic fertilizer supply for American farmers.

“We thank Senators Brown, Tillis, Baldwin, Marshall, Ricketts, and Scott for coming together and introducing this important legislation,” said TFI President and CEO Corey Rosenbusch. “The majority of the world’s phosphate and potash resources are concentrated in only a few countries, leaving them open to supply chain vulnerabilities and geopolitical instability. The events of the past few years have shown us that food security is national security and now is the time to change how we talk about these vital resources.”

TFI noted that the US imports roughly 95% of its potash needs, the bulk of which comes from Canada. Only 14 countries in the world produce potash, with Belarus and Russia comprising nearly 40% of global production. Regarding phosphate, China accounts for more than 40% of global production.

“It is vital that we, as a country, take proactive steps to secure our own agricultural future by recognizing the role these minerals play in putting food on our tables,” Rosenbusch said. “Without these two minerals, modern agricultural systems would crumble and the ability to feed our growing population would be nearly impossible.”

TFI noted that while the US has both phosphate and potash production, expanding mines and opening new ones is a costly and time-consuming process measured in years and in the tens of millions of dollars for permitting alone. Being listed as critical minerals would not exclude these projects from environmental reviews but would streamline the process by assigning responsibility to a single permitting agency.

“By adding phosphate and potash to the Critical Minerals list, we can take a significant stride towards securing our own future and sending the clear message that safeguarding our nation’s food supply is not only an economic imperative, but a strategic priority that ensures our well-being,” Rosenbusch concluded. “We look forward to working with Congress to support this vital legislation.”

Bayer Weighs ‘Texas Two-Step’ Bankruptcy Filing Over Roundup

Featured, Texas, U.S.

Bayer AG is weighing whether to use a controversial legal maneuver known as the Texas Two-Step bankruptcy to try to resolve tens of thousands of US lawsuits claiming its Roundup weedkiller causes cancer, according to a Bloomberg report, citing people familiar with the company’s thinking. 

Faced with a recent string of costly jury verdicts over the herbicide, Bayer executives are consulting with law firms and advisers about how to prompt a bankruptcy judge to halt further trials scheduled for this year. The object is to wrangle a settlement of more than 50,000 cases, said the people, who asked not to be identified discussing a confidential matter.

The bankruptcy maneuver gets its name from the use of a Texas state law that lets companies split their assets and liabilities into separate units, then place the unit loaded with liabilities into bankruptcy to drive a global settlement. Courts have rejected the tactic by 3M Co. over suits targeting faulty hearing protection devices for US soldiers and by Johnson & Johnson in litigation tied to its talc-based baby powder.

Bayer is looking for breathing room after it was hammered over the last four months with Roundup jury verdicts totaling about $4 billion. While the company has won more recent trials than it has lost, its latest courtroom defeat was its biggest yet, with a Pennsylvania jury awarding $2.25 billion to a man who blamed his cancer on long-term exposure to Roundup. Bayer maintains the product is safe.

“Given the recent rulings on Texas Two-Step bankruptcies, I’m pretty sure Bayer knows this is a long-shot bid for a settlement,” said Bruce Markell, a former federal bankruptcy judge who now teaches law at Northwestern University. “But they may feel like they don’t have any other choice.”

Bayer declined to comment on any plans for a bankruptcy filing over the Roundup litigation. But Bill Anderson, the company’s new CEO, has said he is prepared to “explore every reasonable option to protect the company and protect our mission from the litigation industry.” 

The company’s stock has lost about 70% of its value since Bayer’s 2018 acquisition of Monsanto, from which it inherited Roundup, for $63 billion. Bayer officials acknowledged earlier this month that profits are falling partly because of the ongoing litigation.

The German conglomerate is taking steps that may be in preparation for a unit’s bankruptcy filing. Last month it proposed to add veteran activist investor Jeff Ubben to its Supervisory Board. Ubben publicly called for Bayer to consider a Texas-Two Step filing to deal with the Roundup litigation more than a year ago. 

Bayer is also proposing to bring on former McKesson Corp. General Counsel Lori Schecter as a Director. Before joining McKesson, a drug distributor that paid $6 billion to settle litigation over its alleged mishandling of opioid painkillers in 2012, Schecter was a partner at the Morrison & Foerster law firm, where she handled complex litigation and corporate investigations. 

Part of Bayer’s problem is that the company is facing tens of thousands of lawsuits in state courts across the country. When it tried to consolidate the litigation through a class settlement program in 2021, a federal judge rejected its efforts.

Since then Bayer has sought to settle Roundup suits when it makes sense for the company and to go to trial when necessary. For a while, that strategy appeared to work, as Bayer won nine cases in a row. But in the fall Bayer lost several trials, with big jury verdicts. Those losses have damaged its leverage in negotiating settlements and spurred plaintiff lawyers to bring new claims against the company.

The idea of a filing would be to collect the scattered Roundup cases before a bankruptcy judge in hopes of negotiating a settlement. The company has spent about $10 billion of the $16 billion it set aside to resolve more than 110,000 Roundup cases so far. The remainder is intended for resolutions of newly filed cases, existing suits that bowed out of previous settlement efforts, and future claims. 

One way for Bayer to foster a settlement would be to move a unit to Texas so it can take advantage of the state’s laws. While Bayer is a foreign company, Monsanto was based in Missouri and the company retains major operations there. It is unclear whether Bayer would use Monsanto or another entity name for any Texas Two-Step, the people familiar with the discussions said.

The Texas Two-Step has drawn criticism from some legal experts for allowing solvent companies to use bankruptcy court to force settlements on claimants. While the legitimacy of a Two-Step aimed at the Roundup litigation was hashed out in court, a bankruptcy judge would likely halt all litigation against the company, said Melissa Jacoby, a University of North Carolina law professor and bankruptcy expert.

“Given the track record of recent Texas Two-Step bankruptcies, the pursuit of this strategy looks like a strong sign that the company is more interested in delay than honoring the legal rights of cancer patients or a comprehensive settlement at a fair price,” she said. 

Ralph Brubaker, a University of Illinois professor who teaches bankruptcy law, said bankruptcy could give Bayer time to come up with a settlement proposal. “Even if Texas Two-Steps are ultimately repudiated” by the courts, “the strategy allows defendants to shut down all tort litigation indefinitely,” Brubaker said.