CF Industries Holdings Inc., along with major importers, farmers, and their representatives in Congress, all came out swinging in testimony presented at a hearing of the International Trade Commission on June 16.

CF President and CEO Tony Will testified that CF responded to E.U. antidumping duties “in a responsible and commercially reasonable way: we reduced UAN production and increased shipments to our U.S. customers from 2018 to 2019.” However, he said despite CF selling more UAN into the domestic market, that Russian and Trinidadian producers significantly increased their exports to the U.S. in 2019, resulting in a 33% surge in subject imports.

“They stuffed U.S. distribution terminals and tanks well into 2020 – but that did not deter Russian and Trinidadian exporters from sending more and more. They behaved like the state-backed, subsidy-fueled entities that they are – and importers Gavilon and IRM were there to help them, clipping a risk-free profit-guaranteed coupon on every subsidized ton they imported,” he continued.

“We chose to compete,” said Will, “but it was not a fair fight. The respondents’ artificial advantages, aggressive sales practices, and oversupply of product caused prices to spiral downward, precipitating a collapse in the U.S. industry’s revenues and profitability in 2020.

“Subject imports continued to harm us in 2021,” he added. “The low prices of 2020, and continued imports, depressed our prices in the first half of 2021.” He said CF’s first-quarter 2021 financial performance was even worse than in 2020, which caused the company to file the petitions.

“All signs point to Russian and Trinidadian imports returning in significant volumes if this case goes away,” said Will. CF said it has received reports that the Russians have been positioning UAN vessels for export to both the U.S. East and West Coasts.

“Confronting the prospect of unfair imports for the foreseeable future, we would eventually be forced to make difficult decisions about bearing the cost to maintain excess capacity for UAN production and logistics assets that were being underutilized,” he said. “I would expect the domestic UAN production and transportation capacity to shrink, making U.S. farmers permanently dependent on Russian UAN.”

Will warned that Europe has become critically dependent on Russian natural gas, among other things, and that Russia has weaponized natural gas, recently reducing or cutting off supplies.

“For the U.S. to become dependent on Russian UAN, and beholden to Russian benevolence, is not a risk this country should embrace,” said Will, “particularly when the U.S. industry stands ready to completely serve the full needs of the domestic market, using domestic gas reserves and U.S. labor to do so.”

According to its testimony, CF produces approximately one-half, or 8 million tons, of U.S. total production capacity of 16.1 million tons.

Will noted that in March USDA Secretary Thomas Vilsack said “we have to recognize that we are too reliant on outside sources of fertilizer and the ingredients of fertilizer.”

CF took issue with claims that it has not and cannot adequately serve coastal markets. “CF has invested to build UAN storage tanks in California and worked with Burlington Northern rail line to develop competitive rail rates to our tanks there, and we have added additional railcars to our existing fleet of several thousand,” said CF. “Additionally, we have contracted several Jones Act vessels to be able to serve the East Coast cost-effectively. The fact is we can serve and do ship UAN to both coasts very cost-efficiently, as well as to the heartland.”

As for allegations that CF has near monopolistic pricing power, Will said the “truth is that prices reflect supply and demand. We are price takers, as evidenced by the need to test the market and modify prices along the way as we have done with tender offers and our traditional summer fill campaigns.”

As for the arguments that its giant UAN expansion at its Donaldsonville, La., plant was to serve the export market, Will said Gavilon and IRM were not at the Board meetings. “The Donaldsonville plant was justified on the basis of serving customers in the United States by displacing imported UAN tons that would no longer be needed.

“Finally, the respondents argue that because the American UAN industry was profitable in 2021, we are not being injured by subject imports,” said Will. “In reality, the improvement during 2021 proves exactly the opposite. The imposition of preliminary duties in 2021 caused subject imports to withdraw from the United States almost entirely at the end of 2021. This has contributed significantly to the U.S. industry’s recent improvement. In fact, in the fourth-quarter of 2021, precisely because of the reduction in subsidized imports, CF was able for the first time to run our UAN production assets at capacity. This is a reason to issue duties – not a reason to deny relief.”

Will said the respondents are throwing as many arguments against the wall and hoping that something sticks, but in the end they fail to distract from the central issue. “The one indisputable fact is that UAN producers Russia and Trinidad benefit from significant government subsidies and distortions of their natural gas prices, a clearly unfair advantage,” he said.

“They leverage this unfair advantage by offering importers favorable pricing terms,” continued Will. “Importers like Gavilon, IRM, and Helm bring those subsidized tons into the U.S. freely, without bearing any real economic risk of loss. In fact, those subsidized tons often arrive unpriced, on consignment, only to be ‘priced’ to the importer when the tons are sold onto the next customer in the chain.”

He said the producers virtually guarantee the three a profit from every subsidized ton they import, and the importers take no real economic risk of loss and are guaranteed a profit. “With this as the backdrop, is it no wonder that Gavilon, IRM, and Helm continue to import large volumes of unneeded, state-subsidized tons; the more they import, the more money they make, and the more damage they do to the U.S. producer.”

CF Director of Market Research, Planning, and Analysis David Bilby recounted the investment the U.S. industry has made in UAN-producing capacity; more than $8 billion from 2012-2017 in production, logistics, distribution, and storage assets, including CF’s $2 billion at Donaldsonville.

Bilby added that CF would have shipped even more to the coasts if it were not for unfair competition, not an inherent logistical disadvantage.

CF Vice President of Product Management Frank O’Connell responded to Gavilon allegations that CF refused to supply it during the July 2021 summer fill, saying the fill was from July-September, that Gavilon had multiple opportunities to buy product during that period, and that CF actually made sales to Gavilon during that period.

He noted that summer fill is low prices for a limited quantity. O’Connell said CF aims to sell a quarter to one-half of its annual UAN production during summer fill. “We don’t sell the whole years’ worth of production during summer fill, because that would be financially irresponsible for CF,” he said.

While Gavilon is one of its highest volume customers, O’Connell said there are also times it is not in CF’s interest to sell to Gavilon, as when the company is simply serving as a middleman. “And sometimes it’s even worse,” he said. “We’ve had instances where we’ve sold UAN to Gavilon, and then Gavilon turns around and competes against CF for a downstream sales to a retail customer – with CF’s own product, sold out of CF’s own storage tank, at a lower price.”

O’Connell said CF has been told by customers that Russian suppliers promised to continue to send product to the U.S. no matter what U.S market conditions were. “Normal companies operating according to market principles would have reduced export shipments to the U.S., recognizing that overflowing inventories would push down prices,” said O’Connell.

Because UAN prices dropped so low, the lowest in the Midwest in 15 years, CF believes it was unprofitable for both the Russians and Trinidadians to sell in the U.S. “Yet, the subject producers kept dumping more low-priced UAN in the U.S. I can’t see any market-based rationale for subject producers’ behavior in this period,” O’Connell said.

O’Connell said CF’s UAN business went from profitable in 2018 and 2019 to loss-making in 2020 and first-quarter 2021.

Importers Say CF Dumped E.U. Sanctioned Tons into U.S.; IRM Cites “Greedflation”

Respondent importers continued with their arguments that it was CF that dumped the tons that formerly went to the E.U. back into the domestic market, and that is what caused a supply glut. “CF’s flooding of the West Coast market with “repatriated” E.U. exports is just one example of CF’s opportunistic selling behavior on the coasts,” said IRM President William O’Neill.

“Once its spring season is over in the Midwest, CF is known for trying to capture the tail end of the West Coast season by undercutting the market with aggressive ‘fill’ programs at discounted pricing and terms. Storage facilities for UAN solution are highly specific and limited, so CF is eager to make space in its production facilities for UAN production year-round. CF’s ‘clearance sales’ establish it as the downward price leader,” he added.

O’Neill said these sporadic sales do not provide a reliable source for UAN to West Coast farmers. “Although CF established a limited storage terminal near Fresno, Calif., in 2020 – presumably in connection with this trade case – logistical challenges and lower profit margins still dissuade CF from shipping sufficient supply to the West Coast.

“It baffles me that CF, which already supplies a huge portion of the domestic market but supplies the West Coast only to offload excess product at low prices, can claim that it is injured by the small portion of imports that serve these coastal markets,” said O’Neill. “In fact, CF has recently taken advantage of its dominance in the UAN market to promote a wave of ‘greedflation,’ jacking up UAN prices in the face of global supply shortages.”

O’Neill added that CF is more profitable than ever, while American farmers – and IRM’s West Coast customers in particular – are facing a real supply crisis. “If there was any financial injury to the domestic industry over the POI (period of investigation), it was caused by CF’s own actions and miscalculations. CF misjudged the global growth of the UAN market, expanded production too quickly, and drove down U.S. prices by repatriating its dumped E.U. exports and engaging in aggressive pricing tactics on the coasts.”

Helm Fertilizer Co. (HFC) President and CEO Michael Peyton said since the company entered the U.S. UAN market in 2010, it has catered to U.S. purchasers who have been inadequately served by CF, primarily the West and East Coasts, Eastern Cornbelt, and Texas Gulf Coast, where CF has simply been unable to meet purchasers’ demand.

Peyton said HFC’s UAN volumes have constituted a small share of the U.S. UAN market, and that its business strategy and approach has been consistent since it entered the market. Likewise, it said its supplier, Methanol Holdings (Trinidad) Ltd. (MTHL), has similarly approached the U.S. market with consistency, exporting consistent proportions of its annual production to the U.S. and the remainder to Europe.

While CF is focused on the Midwest, Peyton said HFC serves as an important, though modest in absolute volume terms, supplier into other regions of the country.

“In the U.S. market, the price of UAN is established by CF Industries, the largest supplier and the undisputed price leader,” said Peyton. “CF Industries sets the price of UAN, and other parties, including HFC, must react to it. We are frequently advised by customers of the CF Industries price, and are then given a short period of time – often just 24 hours – to meet that price or lose the sale. Accordingly, it has been HFC’s experience that UAN prices are driven by CF Industries, with supplemental suppliers like HFC situated in a responsive position.”

As for the use of “consignment-like terms,” Peyton said with respect of HFC the allegation is entirely false. He said a significant quantity of the UAN HFC sells is purchased outright by HFC from MTHL prior to the resale. He said for this product, any profit earned is related directly to HFC’s sales price and HFC is incentivized to price as high as possible – within the parameters set by the market – in order to earn the highest returns possible. He said for all sales, HFC’s commission is based on sales price and is structured such that both HFC and MHTL have every incentive to earn the highest price possible.

Peyton said HFC consults frequently with MTHL on commercial activity in the U.S. market and decides jointly whether to pursue certain sales at certain prices. “We do not have the ability to unload UAN into the U.S. market at fire sale prices in order to generate commission revenue – our supplier, MTHL, simply wouldn’t allow us to do so.”

“Given the U.S. industry’s stellar performance in both 2019 and 2021, petitioner by necessity focused its analysis on 2020, arguing that an overhang of subject import inventories carried over into 2020 and depressed market prices,” said James Dougan from ION Economics LLC, a Washington consulting firm. “… there was no buildup of subject import inventories, nor was there significant subject import underselling at this time. Any inventory buildup in 2020 was caused by domestic producers, and any decline in the U.S. industry’s financial health in 2020 was related to the domestic producers’ use of low prices to repatriate previously-exported shipments to the U.S. market.”

Dougan argued that UAN prices began to rise at the end of 2020, and increased at a faster rate in the months before the petition was filed than the months afterward. In addition, he added that no preliminary duties were in effect until December 2021 – at the very end of the POI.

He said the domestic industry’s enormous success in 2021 was not attributable to preliminary duties. And as for their first-quarter 2021 performance, he noted that several U.S. producers experienced shutdowns and curtailments during the quarter due to extreme weather conditions and not due to subject imports.

“CF leads the market, sets prices, dominates supply, is highly profitable, and does not need trade protection to succeed,” said Brian Harlander, President Emeritus of Gavilon Fertilizer LLC.

As for the summer fill program, Harlander said, “CF gives a very short window of time to request tons – sometimes just a few hours. Then CF sets prices at each location. CF does not negotiate these prices. Gavilon then submits final ton requests at those prices, and CF determines exactly how much it will supply.”

Harlander said Gavilon tries to buy as much as it can from CF each July but that CF consistently chooses to provide significantly less than Gavilon’s stated needs, even at CF’s prices. He said the company cannot understand how CF can claim that imports are causing a decline in prices when CF is the company that sets market prices.

He said foreign imports provide diversity given that the domestic industry is highly consolidated. He said if CF met Gavilon’s needs, it would buy fewer imports. He added that CF and other domestic producers choose not to meet farmers’s needs on the coasts, which forced those farmers to rely on imports.

Harlander also said CF frequently puts Gavilon on “allocation.” “This means that CF will ration supply and fail to deliver the full quantity at promised times. CF often ships late and puts Gavilon’s business at risk. This causes major problems for our customers that need the fertilizer on time to grow their crops.” He said Gavilon has found imports to be more reliable.

Harlander said UAN prices began rising before CF filed this case and there are several reasons for the steep increases, including rising crop prices, weather disruptions, short supply problems, high natural gas, and logistics costs. “CF’s filing of this case is not the reason for CF’s extraordinary prices and profits.

“For these reasons, CF in not injured by imports,” said Harlander. “Imports should continue to play an important role in the market to supplement U.S. product, provide needed supply diversity in this highly consolidated industry, and serve segments of the country where CF and other domestic producers won’t meet farmer’s needs. Imports will continue to follow the lead of CF – not the other way around.”

“Petitioner CF cannot demonstrate injury or threat thereof by reason of subject imports in this case,” said Deen Kaplan, attorney for Gavilon. “CF leads a thriving domestic industry that has enjoyed massive success irrespective of imports and at the expense of the American farming community. CF has been celebrating its record-breaking profits, surging stock price, and sky-high fertilizer prices, all of which began well before the filing of this petition.”

“Yet, CF has asked for trade protection,” continued Kaplan. “Such protection is unwarranted in this case. The record shows that CF has left its customers in the lurch for years by undersupplying the coastal markets, delaying shipments, missing delivery windows, and placing customers on allocation. All while farmers are suffering.”

Members of Congress, Farmers Weigh In;
Some Focus on Keeping Trinidad Imports

“Commissioners, let me be clear – the determination to impose duties on UAN imports from Trinidad and Tobago should be suspended,” said Rep. Tracey Mann (R-Kan.). Citing the March letter from the 85 other Members of Congress, Mann said “this body must be part of the solution to the fertilizer crisis – not part of the problem.”

“There may be a risk that the current cure is worse than the disease,” said Rep. Randy Feenstra (R-Iowa). “I believe the Commission should consider providing temporary duty relief on fertilizer imports to provide the most immediate opportunity for a near term, partial remedy to the high costs of fertilizer facing U.S. farmers before the end of the 2022 planting season.”

Sen. Bill Hagerty, (R-Tenn.), while not supplying testimony, sent a letter dated June 16 to the ITC, urging it to reconsider its preliminary determination on duties as it is outdated due to the inflationary pressures facing the U.S. economy, as well as Russia’s invasion of Ukraine, which threw global energy and fertilizer supply chains into disarray. “Fresh consideration is needed,” said Hagerty.

He said geopolitical events involving Russia highlight the importance of distinguishing between different sources of this essential product. “In contrast, Trinidad and Tobago is a nearby hemispheric ally and reliable trading partner. I strongly urge you to consider the full range of the serious downstream economic damage that AD/CVD duties on UAN solutions would cause for American farmers and families,” Hagerty said.

Ben Riensche of Blue Diamond Farming, which operates in Idaho, Iowa, and Washington, testified that nitrogen fertilizers, UAN specifically, are extremely hard to get. “CF announced that even less UAN, among other fertilizers, is available from it now than before. Retail fertilizer inventory is very short, especially on the East and West Coast.”

Missouri farmer Wes Shoemyer said it is simply not debatable that domestic fertilizer production, including UAN, has not and cannot meet the demands of the domestic market.

Andy Jobman, President of the Nebraska Corn Growers Association, said that the current supply of UAN does not meet demand, and due to shortages, association members are concerned that they are not going to be able to get consistent access to UAN regardless of any duties that might be applied.

Jobman said UAN shortages are changing farmer behavior in two ways: they are planting less corn and more alternative crops, and they are cutting UAN rates of application. He took issue with a comment by Bert Frost, CF Senior Vice President for Sales, Distribution, and Market Development, to Wall Street investors that farmers were “just not that intelligent” if they minimize UAN applications due to market shortages. “… As a farmer and agronomist, I can assure you that we study the optimal rate of UAN that should be applied and are cutting back given the shortages in the market,” he said.

“CF Industries has always been seen in the U.S. market as the price setter,’ said Jobman. “In fact, CF Industries’ pricing power is so great that our members are deeply concerned about anti-competitive behavior. This is why we are participating in investigations by a number of state Attorneys General and the USDA into soaring fertilizer prices.”

Jobman said farmers need diversity of supply, noting that Hurricane Ida shut down one of CF’s key facilities, leading to market shortages. “Winter storms have often led to market disruptions, as well as when other domestic producers go offline,” he added. “U.S. fertilizer producers also export needed production out of the United States.”

“And finally,” added Jobman, “CF Industries bought back $1 billion dollars’ worth of shares last year. I am not a trade lawyer – but it seems to me that a company that can buy back a billion in shares is not being injured.”

ITC Still Had Questions Hearing,
Seeks Answers in Next Filings

The International Trade Commission (ITC) still had questions for the fertilizer industry after its June 16 hearing. In a June 17 letter, ITC’s Office of Investigations requested that CF and the respondents answer certain questions in their post-hearing briefs.

For CF, ITC noted that CF testified it had to lower its UAN price multiple times in the 2020 summer fill program because its price wasn’t generating sales, yet Gavilon Fertilizer LLC testified that CF determines the price and purchasers are only able to negotiate volume at this time.

ITC asked CF to explain how the summer fill programs operate, including whether prices are negotiated with purchasers, whether subject import prices are discussed during any negotiations, and how much of CF’s annual volume is usually sold during the fill program. It said to provide any available contemporaneous documentation to support the answer, including any documentation showing purchasers were not accepting CF’s proposed prices in the 2020 fill season.

ITC also asked CF to respond to the conflicting assertions regarding CF’s role in the market with respect to prices, with CF contending that CF is a price taker, while respondents assert that CF is a price setter.

ITC wants CF to explain how subject imports being sold under consignment-like terms affects U.S. market pricing, and to describe this in practical terms, including how it affects interactions with purchasers.

ITC asked respondents to report whether their firm sells UAN in the U.S. market under consignment-like terms. And if so, to report the portion of the company’s annual U.S. sales that are made under such terms and discuss whether these arrangements require a minimum price for the sale.

ITC asked all parties what is the best way to consider storage and inventory data. Should it be considered by business activity (producer, importer, purchaser) or on a (net) total basis.