All posts by hlancey@bloomberg.net

Brazilian Grower Bankruptcy Filings Surge

Brazil, Featured, Natural Gas, Nitrogen, Russia, Ukraine

Agricultural powerhouse Brazil is harvesting one bumper crop after another. However, growers are going bankrupt at an alarming rate, according to a recent Bloomberg report, dealing a blow to investors in the fast-growing $7 billion market for agribusiness funding.

Tumbling corn and soybean prices are sparking defaults, undermining returns for so-called Fiagros, the Brazilian investment funds backed by agricultural receivables such as interest, dividends, and land-lease payments. Funds including Galapagos Recebiveis do Agronegocio and SFI Investimentos do Agronegocio have plunged below the value of their underlying assets after farmers skipped payments on some credit facilities.

It’s a surprising turn of events for a country that has seen its agribusiness expand quickly over the past decade. Brazil first overtook the US as the world’s largest soybean shipper in 2013 and climbed to the top spot for corn just last year. The number of growers filing for bankruptcy protection surged six-fold in 2023, according to credit data provider Serasa Experian.

“There’s a wave of bankruptcies in the Brazilian agriculture sector, and that’s very worrying,” said Paulo Sousa, who heads the Brazilian operations of Cargill Inc. “That brings uncertainty for financiers. A lot of new money has entered the sector in recent years, and that’s a risk.”

Fiagros were first introduced in 2021 and gained popularity with retail investors seeking high returns and exposure to the fastest-growing sector in Latin’s America’s biggest economy. These investment funds had more than 34 billion reais ($7 billion) under management in January, up 43% from a year earlier, according to capital markets association Anbima.

Brazil’s agriculture boom was in part funded by these new instruments. Prior to Fiagros, the sector had been largely shut out of capital markets, relying on funding from banks and trading firms. Fresh cash helped growers expand soybean plantings at a record pace, adding 4.6 million acres a year on average since 2019, according to Conab, Brazil’s national supply company.

Now a rash of defaults is fueling concern about the health of those funds and jeopardizing a push to broaden access to capital through debt securitization. If more and more farmers file for bankruptcy, it could also pose a risk for the Brazilian economy, which has grown increasingly dependent on agriculture.

Big banks including Itau BBA SA are tracking clients with debt coming due in the short term to renegotiate maturities and avoid defaults. “2024 will be a more challenging year,” Pedro Fernandes, Director of Agribusiness at Itau, said in an interview. “Some farmers will have to put off debt payments.”

Crop prices have been in decline since mid-2022 as bumper global supplies offset trade disruptions caused by Russia’s invasion of Ukraine. A Bloomberg gauge of key agricultural commodities tumbled almost 16% last year, the biggest drop in a decade. In Brazil, prices fell even further, with corn and soybeans trading at large discounts to futures in Chicago.

Farming companies filing for bankruptcy protection have included Elisa Agro Sustentavel Ltda., a soybean and corn producer in the state of Goias. The company is part of a group that sold 293 million reais in local bonds known as CRAs to investors including Galapagos. Grupo Castilhos, which grows crops on roughly 222,000 acres in Bahia and Parana states, has also skipped payments on CRAs.

Elisa Agro said it is working with creditors and advisers to find a “feasible” restructuring plan. Grupo Castilhos did noy reply to a request for comment.

The profitability squeeze has also hurt other sectors. Sales of tractors and other farming machinery plunged 20% last year, the biggest drop in nearly a decade, and a blow for the likes of Deere & Co. and CNH Industrial NV. Pesticide maker FMC Corp. and seed producer Corteva Inc. were also hard hit.

Nitrogen fertilizer producer Unigel, citing high natural gas costs and low fertilizer prices, has been trying to stave off bankruptcy and announced the closure of its two plants last week (GM March 8, p. 34).

AgroGalaxy Participacoes SA, a crop-input distributor, lost almost 80% of its value over the past year following a decline in sales and higher delinquency rates. The Aqua Capital-backed company reported in February that it was seeking a covenant waiver after its leverage rose above the level agreed with debt holders.

The Fiagro industry “grew too quickly and there has been a governance issue with excessive exposure to rural producers,” said Leandro Albuquerque, an analyst at S&P Global Ratings. Most issuers of receivables backing those investments have no rating and provide no public information to investors.

Agropecuaria Tres Irmaos Bergamasco Ltda., which filed for bankruptcy protection in December, agreed to pay a staggering 12.3% a year plus inflation to investors buying its 36 million reais in CRAs maturing in 2027. That compares with an average coupon of 7.26% for a basket of 256 dollar-denominated bonds from Brazilian companies with at least $300 million in outstanding debt. The company did not respond to a request for comment.

“Fiagros went for issuers with high debt loads that are less able to withstand a downturn,” said Vitor Duarte, Chief Investment Officer at asset manager Suno Asset. Any drop in earnings would make it hard for them to pay back debt, he said.

Galapagos, whose Fiagro is already contending with bankruptcy filings and defaults, said lenders are becoming more cautious.

“It’s highly likely that lending will become constrained, maturities will be shorter,  and capital will be more expensive,” said Carlos Fonseca, a partner at the Sao Paulo-based fund. “But the agriculture industry is solid. We have a lot of great producers and entrepreneurs. I believe this issue will be solved soon.”

For Cargill’s Sousa, the risk is that much needed credit will disappear. “Capital is skittish, and any threat could lead it to seek calmer waters,” he said. “Working capital in agribusiness is like oxygen.”

K+S Reports Decreased Revenue, Profit

Belarus, Brazil, China, Earnings, Potash, Russia

K+S Group on March 14 posted a 71% decline in EBITDA, to €712.4 million (approximately $779.1 million at current exchange rates) for the 12 months to Dec. 31, 2023, down from €2.42 billion the previous year but beating analysts’ average estimate of €691.6 million (Bloomberg Consensus).

EBITDA came in a little above the midpoint of K+S’s forecasted guidance for FY2023 of €600-€800 million (GM Nov. 17, 2023), which it lowered in late July due in part to lower potassium chloride prices in the second quarter, particularly in the Brazilian market (GM July 28, 2023). The original EBITDA forecast for FY2023 was €1.15-€1.35 billion (GM May 12, 2023).

FY2023 revenue fell 32%, to €3.87 billion from the prior year’s €5.67 billion, while adjusted net income for the year slumped by 89%, to €161.9 million from €1.49 billion, missing analysts’ estimate of €178.1 million.

Agriculture customer segment revenues fell 39%, to €2.72 billion from €4.47 billion in 2022, with K+S citing mainly price factors. It noted that price pressure intensified after the conclusion of China’s contract price at the lower-than-expected $307/mt CFR level and spread into other sales regions. It said the subsequent price recovery later in the year could not offset that development.

On a positive note, K+S said the segment’s sales volumes increased 3%, to 7.31 million mt from 7.11 million mt in 2022. Sales volumes in Europe grew by 6%, to 2.97 million mt from 2.81 million mt, while Overseas volumes were up 0.9%, to 4.34 million mt from 4.30 million mt. Overseas sales volumes dipped 7% in the fourth quarter of 2023, to 1.14 million mt.

Potassium chloride sales volumes were up 4% in 2023, to 4.62 million mt from 4.44 million mt in the previous year. Fertilizer specialties sales volumes grew 1%, to 2.69 million mt, and were up by 21% year-over-year in the fourth quarter.

K+S Chairman and CEO Burkhard Lohr told analysts at a company earnings call on March 14 that K+S has seen its market share grow in Europe and that demand is higher than a year ago and prices are quite stable. He said K+S currently isn’t doing much in Brazil, and will potentially ship less than 100,000 mt to that country in the first quarter.

Lohr said the company expects to produce roughly 2.3 million mt at Bethune, Sask., in 2024 after recording output of 2.1 million mt last year. The plan is to add 100,000-150,000 mt output there every year, he said.

  4Q-2023 4Q-2022 % change FY2023 FY2022 % change
Total Sales Volumes
(million mt) 		2.04 1.89 +8 7.31 7.11 +3
Europe 0.90 0.66 +36 2.97 2.81 +6
Overseas 1.14 1.23 (7) 4.34 4.30 +1
Potassium Chloride 1.22 1.20 +2 4.62 4.44 +4
Fertilizer Specialties 0.82 0.68 +21 2.69 2.67 +1
Average Price €/mt 333.9 592.2 – 372.1 628.1 –
Europe €/mt 367.0 617.7 – 404.8 594.1 –
Overseas $/mt 330.8 585.6 – 377.7 682.4 –
Potassium Chloride €/mt 315.2 602.1 – 359.4 671.0 –
Fertilizer Specialties €/mt   361.7 576.6 – 393.9 557.0 –

Revenues declined 5% in the Industry+ customer segment, to €1.15 billion from €1.21 billion the previous year. K+S said lower prices for industrial products containing potash were offset by rising prices for salt products.

Industry+ sales volumes were down 3% year-over-year, to 6.62 million mt from 6.83 million mt. De-icing sales volumes showed a modest increase of 1%, to 2.10 million mt from 2.08 million mt.

Despite the upheaval in the market over the past two years and challenges on the cost side, Lohr said K+S is optimistic that the balance between supply and demand in the potash market can return in 2024.

“The observable return of supply from Russia and Belarus outside Europe and North America should be accompanied by a further normalization on the demand side worldwide,” the company said. “An oversupply on the potash market is, therefore, not to be expected for the year as a whole.”

K+S expects global potash demand to rise by 4 million mt in 2024, with nearly the same amount of additional supply coming mostly from Belarus and Russia, Lohr told analysts.

K+S expects EBITDA of €500-€650 million for FY2024. The upper end of the range assumes a price recovery overseas during the spring season and sales volumes in the Agriculture customer segment of 7.6 million mt, up from 7.31 million mt in 2023.

The company warned, however, that EBITDA could be at the lower end of the range with fertilizer sales volumes at 7.3 million mt if potash prices in Brazil remain at February 2024 levels, which is estimated at $290/mt CFR, with possible spillover effects into other sales markets.

“We have a strong footprint in Europe and we have specialties, and that is what makes us optimistic for 2024,” Lohr said.

K+S said it expects energy and freight costs to decrease by some €100 million in 2024 compared with 2023, based on the midpoint of sales volume guidance of 7.3-7.6 million mt. The company noted it had achieved a hedging of less than €40 per megawatt hour in gas, and said the unhedged part will be below that. In terms of labor costs, K+S said it has reached a settlement of a 2% increase for 2024.

K+S expects adjusted free cash flow in 2024 to break even, taking into account the continued high level of capital expenditure of around €550 million, particularly in the strategic projects at Werra in Germany and Bethune in Canada. FY2023 adjusted free cash flow was €311 million versus €932 million in FY2022.

K+S is proposing a dividend of €0.70 per share for 2023, below analysts’ estimate of €0.76 (Bloomberg Consensus). The company paid a dividend of €1.00 per share for 2022.

Several analysts saw K+S’s results as “encouraging” and noted the positive tone for the start of 2024. The company’s shares rose as much as 7.2%, the most in four months, immediately following the release of its results.

Citi analysts led by Ranulf Orr, as cited by Bloomberg, said “the ground seems set for earnings to continue to inflect upwards into 1Q” due to “supportive” farm economics. But Baader analyst Konstantin Wiechert highlighted the implied dividend miss to market expectations, and noted the FY2023 free cash flow was weaker than expected.

Morgan Stanley analysts Lisa De Neve and Jonathan Chung said that although K+S’s FY2024 outlook is “soft,” the free cash flow guidance brings some relief.

Uralkali FY2023 Profits Slump, Sales up 10%

Earnings, Potash, Russia

Russian potash producer Uralkali PJSC reported an 89% slump in net profit based on International Financial Reporting Standards (IFRS), to RUB11.7 billion (approximately $128 million at current exchange rates) for the 12 months ended Dec. 31, 2023, down from RUB105.3 billion the previous year, according to Interfax, citing a company financial report.

Sales revenue increased almost 10%, however, to RUB367.5 billion.

Uralkali cited a 1.5-fold increase in the cost of sales due partly to increased logistics costs and export duties. The company paid RUB6.74 billion in export duties last year, according to the report.

Uralkali’s total debt increased by 60% compared with year-end 2022, to RUB577.2 billion as of Dec. 31, 2023. It reported that its company accounts held RUB59.6 billion, of which RUB20.2 billion were blocked or restricted for use due to sanctions.

Uralkali said it paid RUB105 billion on preferred shares in 2023. It paid no dividends in 2022. Uralchem owned 78.03% of the authorized capital of Uralkali as of the end of 2021, according to the Interfax report.

Sulvaris Inc. – Management Brief

Africa, Asia, Europe, Management Briefs, Saskatchewan

Sulvaris Inc., a developer of enhanced efficiency fertilizer products and proprietary technologies including Micronized Sulfur Technology (MST®) and Carbon Control Technology (CCT®), announced several changes to its executive leadership team on March 7. Adam Darbellay has joined Sulvaris as Chief Financial Officer, and Dandan Xiang has been promoted to the role of Chief Commercial Officer.

Darbellay brings to Sulvaris more than 20 years of professional experience in senior finance positions across several industries and sectors, including agriculture and chemicals, life sciences, and biotech. He most recently served as the CFO of a Canadian biotech company, and also worked with Nutrien Ltd. for 12 years, playing an active role in the merger between Agrium Inc. and PotashCorp of Saskatchewan Inc. and as lead of the Finance Transformation Program.

Ms. Xiang has served as EVP, Business Development and Strategy at Sulvaris since 2022. Prior to joining Sulvaris, she established a career leading and directing marketing and sales teams at global agricultural companies and successfully creating and executing business development strategies in Europe, Latin America, Asia, Africa, and Oceania.

“I’m excited to have Adam joining the Sulvaris team as CFO and the promotion of Dandan to CCO. Along with the highly talented employees already at Sulvaris, Adam and Dandan will further shape and lead our organization in the upcoming years with their proven results as experienced executives,” said Jake Underwood, Sulvaris President and CEO. “I’m grateful to work alongside such an innovative group of ag industry leaders and look forward to the continued growth and commercialization of our proprietary MST® and CCT® technologies.”

Compass Minerals – Management Brief

Europe, Management Briefs

Compass Minerals recently announced the appointment of Gordon Dunn as the company’s new Chief Operations Officer (COO). He will have executive management responsibility over all global operations within the company’s Salt and Plant Nutrition businesses, building upon his tenure leading the company’s UK operations since January 2012.

Dunn succeeds George J. Schuller Jr. who had served as the company’s COO since September 2019. As part of this transition, Schuller has left Compass.

“In addition to Gordon’s extensive experience leading safe and responsible operations, his technical expertise will serve us well as we focus on operational efficiencies and cost reduction initiatives across our operating footprint,” said Compass President and CEO Edward C. Dowling Jr. “His deep familiarity with our salt mining assets will be particularly important. I’m confident his steady leadership will further bolster the strong performance culture we are building, which we expect will ultimately translate to improved returns for shareholders.”

The company said Dunn brings more than 40 years of combined experience in mining. Prior to joining Compass in October 2007, he held positions of increasing responsibility at Air Liquide UK Ltd., Linde Gas, and UK Coal. Dunn earned a Master of Business Administration from the University of Hull and a Bachelor of Science in mining and mining engineering from Nottingham Trent University.

Compass also announced that it has promoted Gary Sinclair to Managing Director, UK operations. He will be responsible for leading all of the company’s operations in the UK, specifically Winsford salt mine and DeepStore records management.  

Sinclair joined Compass in 2009 and has held positions of increasing responsibility, most recently as Operations Director for Compass’s UK operations. Prior to joining the company, he was Head of Engineering at Building Adhesives Ltd. Compass said he brings more than four decades of engineering and operations management experience to his new role.

Sinclair received a Bachelor of Science in mechanical engineering from Staffordshire University and a Master of Business Administration from Keele University, both in Staffordshire, England.

Compass on March 7 announced the election of Vance O. Holtzman to the company’s Board of Directors at its fiscal 2024 annual meeting of shareholders. Holtzman was nominated for appointment by Koch Industries Inc. (Koch), pursuant to the terms of the strategic equity investment in Compass in 2022 by Koch Minerals and Trading LLC (KM&T), a Koch subsidiary (GM Sept. 16, 2022).

Holtzman has served as the Senior Vice President of Investments at KM&T since 2018. Prior to that, he served in a number of other roles of increasing responsibility at Koch Minerals (KM&T’s predecessor), including as CFO. Before joining Koch, Holtzman was a Relationship Manager at Cullen Frost Bank. He is currently a member of the Board of Directors of KOMSA, PQ Corp., and Hybar LLC.

Holtzman earned a Bachelor of Science in business administration from the University of Kansas and a Master of Business Administration in energy finance from the University of Texas.

Former Compass board members Jon Chisholm and Jill Gardiner did not stand for re-election at the annual meeting. With these changes, the Board of Directors is now eight members.

First Phosphate – Management Brief

Canada, Management Briefs

Junior miner First Phosphate, Saguenay, Quebec, announced on March 13 that it has appointed Armand MacKenzie as Vice President, Government Relations. He was raised in traditional Innu territory, practiced law for 15 years, and served as Chief Legal Advisor on land rights for the Innu Nation. He has also been a mining executive for the last 15 years. Prior to this appointment, MacKenzie served on the First Phosphate Advisory Board and was Vice President, Government Relations for Sayona Mining Ltd.

NextChem Adds Low-Carbon Firms

Ammonia, Carbon, Clean Ammonia, Germany, Green Hydrogen, Hydrogen, Low-Carbon, Methanol

Milan-based MAIRE on March 4 announced that subsidiary NextChem (Sustainable Technology Solutions) has signed a binding agreement to acquire 100% of GasConTec Gmbh (GCT), Bad Homberg, Germany, a technology development and process engineering company.

The agreement provides for an overall consideration of €30 million, with closing expected in second-quarter 2024. MAIRE said that GCT, which was founded in 2017, owns more than 80 patents and has experience in the synthesis of low-carbon products such as hydrogen, ammonia, methanol, olefins, gasoline, and integrated methanol/ammonia processes.

“This acquisition, the second one so far this year, marks an important step to further strengthen NextChem’s portfolio with distinctive low-carbon technologies,” said MAIRE CEOAlessandro Bernini. “GCT’s know-how and process engineering competences will strongly support the development of innovative processes for the production of low-carbon chemicals and products, further strengthening MAIRE’s strategic positioning as industrial enabler of the energy transition.”

GasConTec’s portfolio includes the Autothermal Reforming (ATR), a technology to produce low-carbon hydrogen with high rates of carbon capture, as well as an industrial-scale demonstration plant in Germany.

NextChem on Feb. 24 announced that its subsidiary, NextChem Tech, signed a binding agreement to acquire 80% of HyDEP Srl and 100% of Dragoni Group Srl. Both are Italian-based engineering services companies in the mechanical and electrochemical sectors with a 20+ year track record in green hydrogen.

Mario and Matteo Dragoni, founders and current shareholders of both entities, will remain involved in the management of the companies, which will continue to operate independently in their respective markets. The purchase price for the two stakes is approximately €3.6 million. Closing is expected in second-quarter 2024.

Worley to Provide Services to Shell, Air Products

Australia, Clean Ammonia, Europe, Hydrogen, Low-Carbon, The Netherlands

Australian engineering company Worley announced that it has been awarded a services contract by Shell supporting the delivery of Europe’s largest renewable hydrogen project located in the Port of Rotterdam in the Netherlands.

Worley will provide detailed design and procurement, as well as construction management support services including the integration needed with key vendors and other assets such as offshore wind, pipelines, electrical grids, and the refinery.

The 200 MW electrolyzer will be powered by renewable energy from an offshore wind farm that is currently under development. Once complete, Holland Hydrogen 1 will be the largest commercial renewable hydrogen production facility in Europe, producing around 60,000 kg of hydrogen per day, enough to keep 2,300 hydrogen trucks rolling.

Air Products Canada, a subsidiary of US-based industrial gas supplier Air Products, has also signed an agreement for Worley to provide procurement, fabrication, and modularization services for its net-zero hydrogen energy complex in Edmonton, Alba. Worley will supply the hydrogen complex from an adjacent facility.

Air Liquide, Vopak Partner on Low-Carbon Project

Ammonia, Asia, Clean Ammonia, Hydrogen, Low-Carbon

Air Liquide and Vopak have signed a Memorandum of Understanding to collaborate on infrastructure for ammonia import, cracking, and hydrogen distribution infrastructure in Singapore.

The parties said they will study and explore the joint development of low-carbon ammonia supply chains in Singapore, including the potential development of ammonia cracking facilities, associated ammonia storage, and handling infrastructure at Vopak’s Banyan terminal, and the distribution of low-carbon hydrogen through a hydrogen pipeline network.

“Air Liquide is committed to partnering with industry partners, such as Vopak, to offer innovative and sustainable solutions in support of Singapore’s decarbonization efforts,” said Zhang Xi, Southeast Asia Cluster Vice President, and Managing Director of Air Liquide Singapore.

“Air Liquide’s industrial scale ammonia cracking pilot plant is under construction in Belgium,” Xi added. “We are proud to apply our expertise to crack low-carbon ammonia into low-carbon hydrogen, aimed at reducing carbon emissions in industrial basins and hard to abate sectors, advancing towards a more sustainable future.”

“As Singapore gears up for receiving and handling ammonia for power generation and bunkering, cracking of ammonia into hydrogen presents an additional application to help the industry shift to lower carbon feedstock,” said Rob Boudestijn, President of Vopak Singapore. “We are excited about collaborating with Air Liquide to accelerate the adoption and commercialization of industrial ammonia cracking in Singapore.”