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Market Watch

Ammonia, Ammonium Nitrate, Ammonium Sulfate, Black Sea, Central Florida, China, Eastern Cornbelt, India, Indonesia, Market Watch, Middle East, Nitrogen Solutions, Northeast, Northern Plains, Pakistan, Phosphate, Potash, Sulfur, Tampa, U.S. Exports, U.S. Gulf, Urea, Vancouver, Western, Western Cornbelt

AMMONIA

U.S. Gulf/Tampa: Negotiations were ongoing last week for the Tampa July business, with sources saying the deal could come at any time. The only question was would it be before deadline or the next week. Lower price ideas out of Yuzhnyy and Trinidad were putting pressure on sellers. Sources said the price range being discussed was somewhere below $200/mt DEL, with most honing in on the $175-$185/mt DEL range.

Over at NOLA, sources said the news that Terra was shutting down Donaldsonville was evidence of lower prices. Why produce, if it is cheaper to import? Even with low gas prices, sources said NOLA production would be hard pressed to compete with imports at $175/mt DEL. With a slump in industrial demand and the end of the spring season, sources said the last done numbers of $255/st could not stand. They suggested sub-$200/st FOB as more reasonable.

Eastern Cornbelt: Sidedress movement of ammonia and UAN was slowing down in the region. The ammonia market was quoted at $320-$340/st FOB in Illinois, with the low for spot tons and the high for fall prepay. The upper end of the regional range was pegged at the $345/st FOB level in Indiana for fill tons.

Western Cornbelt: The ammonia market was pegged at $300-$320/st FOB regional terminals last week, with reports from one Iowa source of fall prepay being offered at the $335/st FOB level. Forward contract ammonia for July was referenced by one supplier at $320/st FOB in Nebraska, $320-$325/st FOB in Iowa, and $345/st FOB Palmyra, Mo.

Northern Plains: One source said spring ammonia volumes were down from normal, but activity was heavy during a spring planting season shortened by wet weather. Cash market ammonia was reported at the $350/st FOB level in Minnesota, give or take, with one supplier referencing forward contract ammonia for July at $350/st FOB Pine Bend, Minn., and $355/st FOB Grand Forks and Velva, N.D., with $5/st per month increases slated for August and September.

Delivered ammonia was pegged at $365-$375/st in North Dakota to the dealer, with the low for summer fill tons. Fall prepay ammonia was reportedly referenced from several suppliers at the $385/st DEL level last week. Dakota Gasification’s ammonia plant in Beulah, N.D., was down during the month of June for a turnaround, with plans to restart in July.

Effective June 15, Agrium’s anhydrous ammonia postings moved to $405/st FOB and $425/st DEL in the Leal, Velva, Grand Forks, and Beulah sales area in North Dakota.

Black Sea: Word keeps coming out of more plants closing or ready to close. The cost of inputs continues to plague the producers, while the international market languishes below $200/mt FOB.

Sources now say the situation might get worse as Russia and Ukraine appear ready to once again do battle over the price of natural gas. Media reports say Ukraine President Viktor Yushchenko wants the gas agreement with Russia to be revised. He is particularly upset with potential penalties Ukraine will have to pay if it buys less gas than laid out in the contract. He said that without the review of gas transit fees, Ukraine could lose $2.5 billion in 2009.

In response, Russian gas giant Gazprom said Ukraine has no basis for its request and Gazprom will expect the contracts to be paid and honored in a timely manner.

Yushchenko said the potential penalty for the first quarter of 2009 could be as much as $1.5 billion, and nearly $4 billion for the second quarter. The penalties will be levied against Ukraine for gas it ordered last year but has yet to use.

The last time the two countries got into a spat over gas prices and supplies, Russia turned off the tap in January. The action not only forced Ukrainian plants to shut down, but also affected most of Europe, which gets it gas through pipelines that traverse Ukraine.

The European Community is worried that a similar shutdown could occur again, and has urged both sides to resolve their differences quickly.

Adding to the tension, Russia has been suggesting that Ukraine is cash-strapped and unable to pay its bills on time.

Ukraine’s energy envoy told the Interfax news service that his country expects a full apology from Gazprom and the Russian government once they make full payment.

Russian President Dmitry Medvedev told Interfax there was no reason for Ukraine to take offence. “Our Ukrainian partners took offence because Russia suggested they were unable or unwilling to make payment,” Medvedev said in St Petersburg. “Why should they take offence? Let them pay the money and everything will be all right.”

Middle East: Fertil remains down as it converts its prilled urea operation to granular. For now, that means it is out of the ammonia market as well. Sources report steady demand and supply in the area is keeping the price at an even keel.

UREA

U.S. Gulf: Urea barges remained stable last week as sources reported the market remaining within the $240-$245/st FOB range.

Eastern Cornbelt: The urea market remained at $275-$285/st FOB regional terminals for prompt tons, with the low FOB river terminals.

Western Cornbelt: Granular urea was steady at $270-$280/st FOB regional terminals to the dealer.

Northern Plains: The granular urea market was quoted at $270-$275/st FOB the Twin Cities and out of North Dakota warehouses. Delivered urea was pegged at the $270-$280/st level in North Dakota. Forward contract pricing for July was referenced at $280/st FOB Pine Bend and $295/st DEL in North Dakota and northern Minnesota.

Effective June 15, Agrium’s granular urea postings moved to $310/st FOB Marion, S.D., and out of North Dakota terminals at Alton, Carrington, Colfax, Scranton, and Grand Forks. Agrium’s rail-delivered urea postings moved on that date to $315/st in Minnesota, Wisconsin, and the Dakotas.

Northeast: Sources reported limited supplies of granular urea, with several locations out of product. The dealer market was pegged at $310/st FOB Philadelphia, reflecting a slight increase from last report. A Pennsylvania source pegged the delivered urea market at $323/st, which he said backs up to roughly $308/st FOB for the last done business.

India: Sources say MMTC is continuing talks with traders and producers hoping to get as much as 500,000 mt out of the tender that closed June 17. The buying house immediately took 225,000 mt from Helm and Middle East producers. It later tentatively accepted the 150,000 mt Helm offered as an option. And late last week it accepted a cargo of 15-20,000 mt from Swiss Singapore of Iranian urea.

Reportedly, MMTC has been leaning heavily on the Middle East suppliers to offer more tons at the same $260-$261/mt FOB range. The producers seem to be pushing back just as hard.

Sources say the Middle East producers – especially Sabic – are under no pressure to lower prices or provide more material at prices they see as too low already.

Some traders reportedly walked away from the talks when the Indian representatives refused to raise their pricing ideas.

Talks should continue into this week.

Sources say the Indians may be holding firm to their pricing ideas because they expect to see more low-cost material entering the market after July 1, when China reduces its export tariff from 110 percent to 10 percent. The announcement last week that China extended the period of the lower tax rate through Sept. 15 added fuel to the speculation that Chinese urea could head offshore.

Pakistan: Industry sources say Pakistan really needs the urea it is asking for, but the way it is going about the asking has some wondering if politics is trumping practicality. In just one week, TCP changed one tender to close early and issued two more to close in the first half of July. The total tonnage being asked for in the tenders is 135,000 mt.

The tenders were called after pressure started from political figures, who claimed Pakistan is more than 300,000 mt short of the urea needed for the upcoming application season.

Industry watchers said while the stockpiles were indeed lower than expected this time of year, there was more than enough urea on hand to start the season and to maintain applications for a while. Eventually, sources say, TCP would have to buy more as the season progressed.

Sources were arguing that TCP tried to hold off making any major moves on urea while rumors of a tender from India flooded the marketplace.

One trader noted that if Pakistan asked for 300,000 mt when India was clearly ready to buy 500,000 mt, the market price would have shot upward dramatically, only to plummet much lower when the buying was done.

Sources figure the current tenders are just vehicles to get multi-ton offers.

Observers speculate that reasonably-priced offers into the tenders will come to a few hundred thousand tons. TCP would then be in a position to buy more than the 50,000 mt or 35,000 mt called for in the tenders.

The bottom line is that Pakistan needs the 300,000 mt. How TCP will secure the tons is the big question.

Media reports out of Pakistan point to financial woes for the import agency.

The finance minister reportedly called in representatives of the country’s commercial banks to pressure them to issue and open letters of credit for urea purchases.

The problem first became known when TCP could not pay for the 260,000 mt it awarded in a previous tender because the banks would not open the LCs. The State Bank said TCP had overdrawn its account limit of Rs110 billion when it issued the awards.

The government is concerned enough about the potential shortage of urea that it is authorizing private buyers to import up to 300,000 mt in the next couple of months.

The government expects it will need 2.9 million mt of urea during kharif season, with 2.5 million mt of that from local production.

China: Beijing central planners changed the export duty tariffs. As previously announced, the duty on urea will drop to 10 percent July 1 from the current 110 percent. The period for the lower rate, however, will be extended through Sept.15. The extra 15 days of lower tax rate may be enough to ease the pressure on the producers, who are facing growing stockpiles with no domestic buyers, without causing a major run on the urea reserves to the international market.

At present, sources peg the Chinese prilled market at $260/mt FOB and granular at $265/mt FOB. The prilled rate is just at the margins for being competitive into India. The granular rate is already good enough for some exports.

Sources say a cargo of Chinese granular urea was purchased for a U.S. West Coast buyer at $265/mt FOB.

The extension of the lower export rate appears to have prompted India and Pakistan – two major buyers – to rethink their buying strategy. Both countries need urea, but now seem willing to hold off a week or so on making major buying decisions to see what kind of price the Chinese producers will accept.

Traders are testing the waters throughout China looking for a deal.

Sources report that so far no producer has nibbled at any of the bids. One trader added that producers are not even talking about pre-positioning tons near ports just in case a deal is struck.

The Chinese government has been walking a fine line between trying to keep the urea plants running and healthy with minimal direct national financial support and keeping farmers happy with inexpensive urea.

When the government did not restrict the export of urea, domestic prices shot up to meet the much higher international price and local stockpiles dwindled to dangerously low levels.

After duties of more than 100 percent were imposed the domestic stockpiles rose, but soon the price became close to the break-even point for many small- and medium-sized producers.

These producers threatened to shut down unless the price went up or the government supplied direct subsidies to the factories. The central planners in Beijing were reluctant to do either. The compromise was to institute a series of on- and off-season tariffs. When local demand was high, the export tariff was high. And now that the country is entering an offseason, the tariffs are low.

Unfortunately for the producers, the international market has also dropped. Now Chinese urea needs to come down into the low $250s/mt FOB to be seriously competitive in the few remaining major markets such as India, Pakistan, and Bangladesh.

Black Sea: Producers want to dig in their heels on lower prices, but the lack of new business is making their position hard to defend. Sources say last week showed practically no interest in tons from the area. Buying to cover the old IPL tender is done, and nothing is online for the current MMTC tender.

Observers say some interest could be coming soon from South America, but it will not be enough to move the market unless India or Pakistan also step up.

Industry watchers say the bottom of the market has dropped to $230/mt FOB, but the range has narrowed with a top price at $235/mt FOB.

Middle East: Producers report being in good shape into July. Orders from India and Pakistan, combined with smaller purchases from other buyers, are keeping inventories under control.

One of the positive factors for those trying to control a price slide is the conversion from prills to granular Fertil is undertaking. The plant is expected to be out of operation for another month or so.

Prices, set in the MMTC tender at $260-$261/mt FOB, remain steady.

Sources say producers could easily argue that any new deals will have to start at $265/mt. One trader said producers would argue for more, but in the current market there is no place to sell urea at any higher levels than the current price.

The big danger to the producers’ plan to raise the price is the threat of Chinese urea that could enter the market. Everyone seems to be watching what happens to the price of urea in China.

Indonesia: Industry watchers expect to see PIM announce a major selling tender soon. Sources report that stockpiles are building up, but the government first wants to make sure domestic demand is fully covered before any urea is exported. Observers say the tender could be called as early as this week, but many figure the first full week of July is more likely.

NITROGEN SOLUTIONS

U.S. Gulf: Several sources last week indicated that a lot of product was sold in the $120-$125/st FOB range, and that inventories have been brought back in shape. As a result, sellers are now quoting $127-$130/st FOB for the next round of business.

Eastern Cornbelt: Sources continued to report soft UAN pricing as sidedress demand wanes. The summer fill market was well underway for shipments completed now through August or September, but several sources said most buyers were moving cautiously and booking smaller volumes. “It’s not a typical fill where guys are buying 100 percent,” said one source. “Most are stepping in at about 20 percent. It’s active, but we’re not seeing one big purchase. It’s more frequent smaller ones.”

Sources pegged the upper end of the UAN market at $176/st ($5.50/unit) FOB terminals for prompt sidedress tons. Fill UAN was quoted in the $155-$170/st ($4.85-$5.31/unit) FOB range, with the low end reportedly out of regional production points. One supplier was referencing forward contract UAN-32 for July-August at $168-$177.60/st ($5.25-$5.55/unit) FOB regional terminals.

Western Cornbelt: UAN pricing continued to fall. The dealer market was quoted at $4.85-$5.50/unit FOB regional terminals, with the low for fill tons on a spot basis, and the upper end reflecting prompt loads for any remaining sidedress business.

Northern Plains: The UAN market was quoted at $5.60-$6.25/unit FOB terminals in the region, down significantly from last report, with the low for summer fill tons and the upper end for prompt, cash market sales. Delivered UAN-28 in North Dakota was pegged at $190-$195/st ($6.79-$6.96/unit).

Northeast: The UAN-30 market was pegged at $180-$187/st ($6.00-$6.23/unit) FOB in the region, with the dealer market at Baltimore pegged at the $185/st ($6.17/unit) FOB level for spot loads. UAN-32 was referenced at $212/st ($6.63/unit) FOB terminals in upstate New York for prompt spot tons. Delaware sources quoted the UAN-32 market at $197/st ($6.16/unit) truck-DEL from Chesapeake, Va., where the FOB market was tagged as low as $174.40/st ($5.45/unit).

AMMONIUM NITRATE

Western Cornbelt: Ammonium nitrate was unchanged at $265-$270/st FOB in the region.

AMMONIUM SULFATE

Eastern Cornbelt: Granular ammonium sulfate was steady at $225-$235/st FOB, with rail-delivered sulfate referenced at the $225/st level in the region.

Western Cornbelt: Granular ammonium sulfate pricing remained at $225-$245/st FOB to the dealer.

Northern Plains: Granular ammonium sulfate was tagged at $225/st FOB or rail-DEL in the region.

Northeast: Granular ammonium sulfate was reported at $225/st FOB or DEL in the region, down slightly from last report.

PHOSPHATES

Central Florida: Although no one was swamped with business out of Central Florida last week, both truck and rail deals were concluded as the price settled near the low end of the previous week’s range. As the market becomes increasingly static, consumers appeared to be more comfortable with the prospect of putting in fill for fall.

As the summer churns onward, the prospect of production curtailments seems to have dimmed. Producers have been able to find sufficient export demand to keep inventories essentially in check. One signal of continued production has been the steady supply of sulfur producers have sought, as opposed to reducing supply as they approach curtailment preparations.

Normally, truck sales bring a premium price for phosphate, but last week both truck and railcar transactions were done in the same range. The Central Florida DAP price range was unchanged last week at $250-$255/st FOB. PCS Sales had no published price. Mosaic had no list prices for Central Florida, but was making sales within the current price range. CF’s price was $250/st FOB for DAP and $10/st FOB higher for MAP. Agrifos was no longer posting prices, but was charging based on market conditions.

U.S. Gulf: A source pointed out that before the Southwestern Conference at San Antonio in July traders normally purchase a few barges to make deals during the affair, but transactions have been so low that might be a rarity this year. Producers, of course, would be in a different position.

Few NOLA DAP barges were available last week and most sales were primarily by producers, although all were around the previous week’s high end of the price range.

“It’s slow,” said one. Another added, “The summer doldrums came a little early this year.” Early, it seemed, was in the spring.

Still, many dealers were making efforts to build inventories, primarily because phosphate prices have been lower and steady for some time, which means they would be less likely to get caught holding the high-priced bag, if the cost was to take a sudden drop. That appeared unlikely.

In Oklahoma, where temperatures were 100 or better most of last week, the heat and lack of rain was removing water from the soil. Still, farmers there were cutting the wheat crop and preparing to plant soybeans, which do not require massive amounts of phosphate.

The price of corn was headed south last week, but was still sufficient to allow farmers to fertilize and make a decent profit – all of which was good for the industry.

The NOLA DAP barge price range narrowed last week to $259-$260/st FOB. Both Mosaic and CF had a $10/st FOB additional charge for MAP. Mosaic was scheduled to meet last Friday and decide whether it would hike its prices for the Gulf market.

Eastern Cornbelt: The DAP market was quoted at $290-$310/st FOB regional warehouses, with the low for summer fill tons and upper end reflecting prompt pull. One source said reference levels for summer fill had firmed to the $300/st FOB level from some suppliers last week. One supplier was posting forward contract DAP for July at $300/st FOB Peoria, Ill., and $305/st FOB Cincinnati.

MAP was $10/st higher. 10-34-0 was pegged at $425-$450/st FOB most regional shipping points.

Western Cornbelt: DAP was tagged at $285-$310/st FOB warehouses to the dealer, with the low for summer fill tons. MAP was $10/st higher than DAP. 10-34-0 pricing remained at $400-$450/st FOB in the region.

Agrium on June 25 released updated phosphoric acid postings for the Midwest. Effective July 1, postings for super phosphoric acid (SPA) and merchant grade acid (MGA) will move to $705/st rail-DEL in Iowa, Missouri, Nebraska, Kansas, Colorado, Oklahoma, New Mexico, and Texas. Agrium’s postings will firm to $730/st rail-DEL in August. Last week’s pricing announcement updates an earlier list from the company that had phos acid postings moving to $635/st DEL in July and $660/st DEL in August.

Northern Plains: DAP was pegged at $305-$315/st FOB in the region, with MAP roughly $10/st higher. Delivered MAP in North Dakota was reported at the $350/st level. 10-34-0 pricing had dropped dramatically, with North Dakota sources quoting the market at $350/st FOB and $365/st DEL last week.

Agrium reposted its phos acid prices last week. Effective July 1, the company’s SPA and MGA postings will move to $705/st rail-DEL in Minnesota, Wyoming, and the Dakotas, instead of to $635/st DEL as was originally announced.

Northeast: MAP was pegged in a broad range at $315-$370/st FOB, with the low quoted by Pennsylvania sources for summer fill and the upper end quoted in New York for spot market tons. DAP was roughly $10/st less than MAP, with one source quoting the spot market for DAP at the $365/st FOB level in Pennsylvania. 10-34-0 pricing had reportedly fallen to $650/st FOB the tank in upstate New York, but sources reported few sales to test the market.

Western U.S.: Simplot announced new dry phosphate postings, effective June 23. For western and central Montana, Wyoming, and the west slope of Colorado, DAP and MAP postings moved to $345/st DEL, and 16-20-0 to $255/st DEL. Simplot’s postings for dry phosphate products with the Avail® additive in that region moved on June 23 to $428/st DEL for 11-52-0 and $338/st DEL for 16-20-0.

Simplot’s postings in eastern Montana moved on June 23 to $355/st DEL for DAP and MAP, $260/st DEL for 16-20-0, $438/st DEL for 11-52-0 with Avail®, and $343/st DEL for 16-20-0 with Avail®.

For Washington, Oregon, and the Idaho panhandle, Simplot’s postings moved to $355/st DEL for DAP and MAP from Pocatello, and $360/st DEL from Hedges, Wash. 16-20-0 postings moved to $260/st DEL from Pocatello and $265/st DEL from Hedges. Simplot’s postings for dry phosphate products with Avail® in that region moved on June 23 to $443/st DEL for MAP from Hedges, and $348/st DEL for 16-20-0 from Hedges. 0-45-0 with Avail® moved to $383/st FOB Pocatello and $398/st FOB Hedges. The company’s postings FOB Hopmere, Ore., moved to $350/st FOB for MAP and $255/st FOB for 16-20-0.

For the rest of Idaho and Utah, Simplot’s postings moved on June 23 to $350/st DEL for DAP and MAP, $255/st DEL for 16-20-0, $433/st DEL for 11-52-0 with Avail®, and $338/st DEL for 16-20-0 with Avail®.

In Nevada, Simplot’s postings moved to $355/st DEL for DAP and MAP, $260/st DEL for 16-20-0, $438/st DEL for 11-52-0 with Avail®, and $343/st DEL for 16-20-0 with Avail®.

In California, Simplot’s postings moved on June 23 to $360/st DEL or FOB warehouses for DAP and MAP; 16-20-0 moved to $265-$272/st FOB, and $265/st rail-DEL; and 0-45-0 moved to $388/st FOB or rail-DEL.

Agrium also announced new postings last week, updating its phosphoric acid prices for July 1 to $705/st rail-DEL for both SPA and MGA in Arizona, California, Idaho, Montana, Nevada, Oregon, Utah, and Washington. Postings will firm to $730/st rail-DEL in those states effective Aug. 1.

U.S. Export: PhosChem made a sale of 6,000 mt of MAP into Central America at $285/mt FOB.

Outside of India, which always seems to be in the market, Latin America was doing more tire kicking than the rest of the world. Brazil, Argentina, and Central America were cited most frequently.

The export DAP price range last week was $281-$285/mt FOB, which was unchanged from the previous week. Expect prices to rise slowly in the coming weeks.

Pakistan: Fauji Fertilizer issued an inquiry to their prequalified bidders for the import of 30-40,000 mt of DAP for shipment by the first week of September. Offers are to be submitted by July 7, with validity up to July 17. The country expects it will need 544,000 mt of DAP during the kharif season.

POTASH

Eastern Cornbelt: Potash remained at $590-$650/st FOB warehouses from brokers or resellers, depending on grade and location, with no new sales reported to test the market.

Western Cornbelt: The dealer market for potash was reported at $585-$635/st FOB regional warehouses for brokered tons, depending on grade and location.

Northern Plains: Producer reference levels for potash FOB Saskatchewan mines remained at $767-$780/st, depending on grade. Delivered potash in North Dakota was pegged at the $755/st level from secondary suppliers, but sources reported no new sales to test the market.

Northeast: Delivered potash was pegged at $655-$725/st in the region from secondary suppliers, depending on grade and location. Out of warehouse locations in western Pennsylvania, sources tagged the market at the $635/st FOB level from brokers or resellers.

SULFUR

Tampa: New prices for third quarter sulfur for Tampa were due this week, July 1, but no negotiations had begun. The second quarter turned out to be pretty ho-hum, because there was no significant change in either supply or demand.

The threatened phosphate curtailments never materialized, and supply and demand settled into a routine during the past three months, which was welcome after the dramatic and expensive run-up in prices and the nosedive that followed. Still, with a delivered price of zero, there was little going on in the industry to push prices either up or down. If a change does result from upcoming talks, it will be small and most likely a bit up.

Shipments of prill from the Gulf Coast were the bright spot in June, but little was going on in the way of new spot deals for molten sulfur.

Otherwise, refineries were running about normal and no transportation issues surfaced.

Vancouver: A source mentioned that Canada would probably send an increased quantity of sulfur by railcar into the U. S. this year compared to last year. However, that will only take the deliveries up to around a normal year.

MARKET NOTES

Poland: The government has signed a decree for the construction of a liquid gas terminal at Swinoujscie on the Baltic Sea, just a few miles from the German frontier. Construction is to begin next year and will be financed by the government and the European Union. The new port will benefit the nearby Police fertilizer plant. The government plans to sign a 20-year agreement with Qatar to supply the new terminal.

To shave debt, the government is once again looking at selling two of its fertilizer plants to foreign firms, most likely German chemical concerns.

The Week in Fertilizer Stocks

Fertilizer Stocks
Producer Symbol Price Week Ago Year Ago
Agrium AGU 41.39 41.29 107.06
CF Industries CF 76.00 74.33 158.52
Intrepid Potash IPI 27.32 26.81 67.63
Mosaic MOS 43.79 45.78 145.56
PotashCorp POT 93.52 95.02 221.58
Terra Industries TRA 25.98 25.87 48.87
Terra Nitrogen TNH 105.66 99.20 123.77
Distribution/Retail
Andersons Inc. ANDE 29.95 28.18 33.18
Deere & Co. DE 42.11 40.48 73.56
Scotts SMG 35.27 35.93 19.78

CF and Agrium squabble over advisory report, antitrust concerns, as tender deadline looms

Featured, News

Agrium Inc. and CF Industries Holdings Inc. intensified their rhetoric again last week as Agrium’s June 22 deadline for CF shareholders to tender their shares neared. Agrium also ran an ad in The Wall Street Journal June 18, addressing CF stockholders and telling them in bold type that time is running out, that it was their last chance to send a message to the CF board, and that RiskMetrics recommends CF stockholders tender their shares, and tender today – the offer expires June 22. Agrium has said it will walk away from the deal if a significant majority of stockholders do not tender.

As for RiskMetrics Group, an independent proxy voting and corporate governance advisory firm, the squabbling over this issue began June 16, with Agrium saying that RiskMetrics recommended that CF stockholders tender their shares into Agrium’s exchange offer of $40.00 in cash plus one Agrium share per CF share. Based on Agrium’s closing stock price on June 15, 2009, the offer has a current value of $88.20 per CF share and represents a premium of 59 percent to CF’s closing price on Feb. 24, 2009, the day before Agrium announced its initial proposal, and 74 percent to the 30-day volume weighted average price through that date.

“We are pleased that RiskMetrics has recommended that CF stockholders tender their shares into Agrium’s compelling offer,” said Agrium President and CEO Mike Wilson. “RiskMetrics clearly concurs that Agrium’s offer provides a significant premium to CF’s standalone stock price, is in-line with precedent deal valuations and provides CF stockholders with the attractive opportunity to ‘participate in any cycle upside from the higher base provided by the offer premium.'”

Wilson concluded, “Our offer is far superior to any alternative articulated by CF, including remaining independent or paying a premium for Terra. We are prepared to execute immediately a fully financed, binding merger agreement – but CF stockholders must send an unambiguous message to CF’s board by tendering their shares into our offer. We have made our best and final offer – unless CF demonstrates new value. We will continue to press CF if we receive a compelling majority of shares tendered, but we will walk from the transaction if we do not.”

CF quickly responded saying that it remains committed to pursuing its long-term strategy, including its proposed strategic business combination with Terra Industries Inc.

“We are committed to continuing to pursue a business combination with Terra Industries, which we believe will create superior value for CF Industries stockholders and provide a significantly better growth platform than a combination with Agrium,” said Stephen Wilson, chairman, president, and CEO. “We are in the process of complying with a request for additional information from the Federal Trade Commission and are confident that we will receive regulatory clearance in the near-term.”

CF said it has heard a consistent message from its stockholders that Agrium’s offer substantially undervalues CF and that the company’s shares would be trading at least in the mid- to upper-$70’s per share absent an offer from Agrium. In a report released earlier on June 16, CF said RiskMetrics supported this view, with analyses showing unaffected trading prices of $77.49 and $73.56 per share. RiskMetrics went on to say that Agrium “should not interpret a high tender as shareholder support for its current offer.”

“In addition to the clear inadequacy of Agrium’s offer, our board continues to be concerned with a number of risks associated with a potential combination with Agrium, including those related to value and timing of any transaction as a result of the ongoing regulatory review and potential remedies that may be required,” Wilson concluded.

The RiskMetrics report offered a nod to both companies, saying that Agrium, after earlier doubts, has now won the right to “engage” or negotiate with CF. However, it said that most CF shareholders expect a $90-$100 per share price. RiskMetrics is essentially telling the CF board of directors they should now talk to Agrium but they can still “just say no,” if they do not like what they hear. RiskMetrics noted that CF’s defensive rhetoric has gone from calling Agrium’s offer “grossly inadequate” in the earlier offers to the more recent “substantially undervalues.”

“On balance, we conclude that Agrium’s current bid is compelling enough to shift the burden to the CF board to justify its ‘just say no’ defense,” said the report. “While we now believe Agrium has now earned a seat at the negotiating table and that CF should now engage Agrium, we also noted that nearly all CF shareholders to whom we spoke expressed a belief that Agrium, upon engaging CF and conducting due diligence, should sweeten the offer. Based on our conversations with these CF shareholders, it appears that a market clearing offer may lie between $90 and $100 per share.”

RiskMetrics said its survey of CF shareholders revealed a near unanimous decision that Agrium’s current bid is insufficient, with a fair number believing it is in the “ballpark,” while others seek an increase of $5-$12 per share.

RiskMetrics noted that in a Feb. 26 report, JPMorgan estimated the replacement value of CF’s fertilizer assets at $10 billion. At the time, Agrium’s offer of $3.1 billion would have only equated to 31 percent of that.

Since April, RiskMetrics believes CF shareholder sentiment has shifted in favor of engagement. It also believes Agrium has greatly expanded upon its communications with CF shareholders, providing a detailed breakdown of the basis for its bid.

RiskMetrics believes engagement is the more likely scenario, saying Agrium could sweeten the deal and there is little downside to CF as it can continue to “just say no.” Given CF’s defensive arsenal, which RiskMetrics has praised to date, it said this will be the last chance for CF shareholders to weigh in on these issues and help to ensure that CF does not turn down a fair offer from Agrium in order to enter into a less attractive transaction with Terra. RiskMetrics said there is little danger that a high tender result will encourage the CF board to roll over for Agrium, as given its defensive arsenal, Agrium must ultimately win over the CF board.

“Absent new developments, RiskMetrics also said that it is unlikely CF’s current bid for Terra will succeed, given Terra’s vociferous rejection of the offer and its strong defensive profile.”

RiskMetrics noted that there is a great deal of cross-shareholding between Agrium, CF, and Terra. Citing Thomson One data as of March 31, some 70 percent of CF and Terra shareholders overlap, 60 percent of Agrium and CF overlap, and 53 percent of Agrium and Terra overlap.

Contacted again by Green Markets on June 17, CF was sticking by its guns not to engage with Agrium. “To date, the board of directors has determined that the proposed CF Industries/Terra combination represents the best strategy to create value for holders of the combined company and that, absent a compelling offer from Agrium, our priority should be CF/TRA,” said CF Director of Public and Investor Relations Charles Nekvasil. “The board is very engaged and, as Steve Wilson has noted on numerous occasions, ‘fiercely independent.’”

Another contentious round of words developed between Agrium and CF June 18, after CF made new filings with the Securities and Exchange Commission alleging possible antitrust problems with an Agrium-CF deal. CF said that based on its ongoing discussions with U.S. and Canadian regulatory authorities and the advice of antitrust counsel, it believes there are serious antitrust issues with such a deal that could substantially delay or prevent Agrium from consummating the offer. For example, CF noted that Agrium and CF are the only two significant nitrogen manufacturers in Alberta, Canada. It said Agrium is by far the largest producer and distributor of anhydrous ammonia and urea in Alberta, with CF as its only significant rival.

CF also believes that it and Agrium are two of very few producers and distributors of ammonia and urea in Saskatchewan and Manitoba.

And unlike Terra, which only has one ammonia distribution terminal in the Corn Belt, CF said Agrium is a significant competitor with CF in the sale and distribution of direct application ammonia in the Corn Belt and Northern Plains. CF estimates that Agrium has the third largest distribution network in the Corn Belt, with many terminals located in proximity to CF terminals. In addition, CF said Agrium and CF are the only two operators of ammonia terminals in North Dakota and an isolated area of the Pacific Northwest.

As a result, CF said the Agrium transaction is likely to continue to be subject to intensive scrutiny from government antitrust authorities in both countries, and in the absence of divestitures of significant manufacturing and distribution assets, could result in antitrust litigation to block the offer. CF also noted that on May 27 Agrium withdrew its HSR Form originally filed with the Department of Justice and the FTC on March 27, and re-filed with the FTC on April 29. CF said according to publically available information, Agrium has not yet filed the new necessary HSR Act notification.

By contrast, CF said that the FTC second request for information from CF about the Terra deal (GM June 8, p. 1) was narrowly focused on the distribution of ammonia for nonagricultural use in certain limited circumstances, a business that represented less than 1 percent of CF’s 2008 total revenues. CF said it expects to promptly respond to the request and continue to work cooperatively with the FTC to resolve the remaining issues expeditiously.

Agrium said on June 18 that CF has seriously misrepresented the status and character of the antitrust review of Agrium’s proposed acquisition of CF, further supporting its concerns that CF is not acting in the best interests of its stockholders.

Agrium and its counsel have been in close communication with the relevant antitrust authorities in Canada and the U.S. and are confident that there are no material impediments to closing an Agrium/CF transaction, nor are there expected to be any material delays in closing as a result of regulatory review.

Agrium said the waiting period under relevant Canadian law expired on March 23, 2009. While Agrium and its antitrust counsel continue discussions with the Canadian Competition Bureau, Agrium’s antitrust counsel is of the view that no further Canadian competition approvals under Canadian law are required to legally close the transaction today.

Agrium said it will re-file its HSR Form with the FTC once it completes its ongoing discussions with the FTC, which the company believes can be satisfactorily concluded in short order.

PotashCorp cuts potash production by another 800,000 mt; K+S cuts production and prices

Featured, News, Potash

Two major potash producers last week announced further curtailments ?Çô Canada’s PotashCorp and Germany’s K+S Group, with K+S also announcing a cut in domestic prices.

PotashCorp on June 16 indicated a further reduction in 2009 potash production of 800,000 mt, bringing PotashCorp curtailments this calendar year to 4.7 million mt and total curtailments to 5.5 million mt since August 2008.

Lagging demand due to an extremely slow U.S. spring season and extended negotiations with offshore buyers are the reasons behind the shutdowns. However, with the world’s soils and supply chain nearing depletion after almost a year of deferral, it said it expects demand to return in second-half 2009 as Brazil approaches its major application season and India and China inevitably return to the market.

PotashCorp said this unprecedented period of draw-down throughout the supply chain, coupled with the expectation of lower global crop production and higher crop prices, is expected to lead to an even stronger rebound in 2010.

The PotashCorp announcement is just the latest supply news as producers negotiate with buyers in China and India. PotashCorp announced a 400,000 mt curtailment on May 20 (GM May 25) as the industry headed into the IFA Conference in Shanghai, where negotiations with the Chinese and Indians were to get underway. Just last week, PotashCorp said that this fall Canpotex, the Saskatchewan producer export organization, would discuss switching sales to China to spot from contract (GM June 15, p. 1). Initial hopes had been that negotiations might be completed by the end of June; however, those have now been pushed back into July and could lag into August (GM June 15, p. 14).

Despite the curtailments, PotashCorp President and CEO Bill Doyle has remained upbeat that exports and North American consumption will pick up in the second half (GM June 15, p. 1).

K+S on June 17 said it plans to reduce potash production in the second half of 2009 by up to 2 million mt, following a reduction of 2 million mt in the first half. Moreover, K+S said it has noted on major overseas markets that a price of US$735-$750/mt is currently unsustainable for large quantities. Instead, K+S said indications are for lower price levels. As a result, in Europe the company has implemented a price cut from E555 (US$770.69/mt) to E435 ($604.06/mt). K+S said it has already forecast a tangible fall in revenues and a significant fall in earnings for 2009, with further significant reductions expected in the current financial year. These will appear with the release of earnings Aug. 13.

K+S said European agriculture exercised great restraint in the use of potash fertilizers in the spring, and despite the stabilization of agricultural prices, the demand for fertilizers is expected to remain low in the second half. It said there is still no sign of any significant upturn in demand in Europe. Until now, K+S expected that the demand for potash and magnesium fertilizers would normalize in the second half of the year and that total sales would be just under 6 million mt of goods. However, in view of the extraordinarily weak sales, K+S has reduced its sales expectations for 2009 to 4.0 to 4.5 million mt.

Agrium reiterates stance on retail

News

On June 15 Agrium Inc. President and CEO Mike Wilson reasserted the company’s commitment to its retail business and emphasized its importance to Agrium’s vision for continued growth at Agrium’s recent investor day session in Baltimore, Maryland.

The investor day included a tour of a nearby Agrium retail farm center. In discussing Agrium’s strategy and outlook for the company, Wilson spoke repeatedly of retail’s importance within the company’s core strategy – “to invest across the value chain and continue to add to our stable earnings base.”

In speaking of Agrium’s ongoing efforts to acquire CF Industries, Wilson remarked that when the CF news was released, many people were concerned Agrium would abandon retail. Wilson replied “No. Understand our strategy: it’s across the value chain.” Agrium said Wilson was very clear that when Agrium seeks to grow its wholesale business, it doesn’t mean the company is abandoning its retail business. “And when we invest in retail,” he added, “it doesn’t mean we’re abandoning wholesale.”

Wilson went on to explain that Agrium will grow its retail business through acquisitions, continued enhancement of the base business, including growth in its seed business, and broader offerings of Agrium’s private label products. “We will double our retail business in the next five years,” he told the audience.

Following his presentation, Wilson fielded a question from the audience about whether it makes sense for Agrium “to give the public markets a chance to invest in a ‘pure play retail asset.'” While Wilson acknowledged that spinning off its retail business “is always an option,” Agrium said he was unequivocal that the company has no plans to divest its retail business. A Bloomberg article was published based on this response, claiming that Agrium was considering spinning off its retail business. Wilson reiterated his position, noting that the remark about looking at all options was taken out of context. “We continually evaluate all options as we strive to provide our investors with superior returns. That includes the possibility of divesting or spinning-off various segments of our business. But simply considering a possibility doesn’t mean it is likely to occur … especially when such a move would be out of line with the company’s strategy, clearly retail will continue to play a crucial role in Agrium’s vision for growth for the foreseeable future.”

As Green Markets previously reported, Agrium earlier asserted retail’s importance to Agrium, and that Wilson did not mean to indicate it was to be spun off (GM June 15, p. 14).

Industry supports existing chem security regs as Congress considers alternatives

News

The fertilizer, agribusiness, and chemical industries are ramping up efforts to make sure Chemical Facility Anti-Terrorism Standards (CFATS) are not expanded as Congress prepares to reauthorize the rules, which are set to expire on Sept. 30, 2009.

The original CFATS rules took effect in 2007 and establish security standards and requirements for “high risk” chemical facilities, which include many fertilizer manufacturers, agricultural retailers, and distributors. Green Markets sponsored an audio conference in October 2007 to familiarize industry participants with the new requirements (GM Oct. 29, 2007).

Now Congress is considering alternatives, including HR 2868, the Chemical Facility Anti-Terrorism Act of 2009, which would renew the CFATS requirements but also permit civil suits against chemical facilities not in compliance with the regulations, and would require companies to use inherently safer technologies (IST) if alternatives to dangerous chemicals are available.

The House Homeland Security Committee held a hearing on HR 2868 on June 16 after it was introduced by Rep. Bennie Thompson (D-Miss.), committee chairman. The committee’s mark-up on HR 2868 was originally scheduled for June 18, but was delayed due to other House votes. Mark-up on the bill was slated to resume Friday morning, June 19.

The Agricultural Retailers Association is pressing members to contact Congress to oppose HR 2868 and urge support for HR 2477, the Chemical Facility Security Authorization Act, which was introduced by Rep. Charlie Dent (R-Penn.) and simply extends authorization of the current program through Oct. 1, 2012.

“Currently, many well-funded anti-chemical activist groups are pressuring Congress to expand these rules, which would result in additional regulations and significant compliance expenses for many ARA members,” ARA warned in emails to members on June 12 and 16. “A simple reauthorization of existing regulations will prevent enactment of counter-productive provisions that will have an adverse economic impact on American agriculture and disrupt the cooperative working relationship between industry and DHS.”

ARA warned that HR 2868 would change CFATS rules to include provisions that “mandate industry to utilize ISTs, allow for citizen suits, weaken protection of sensitive security information, impose stiff monetary penalties for administrative errors, and create conflicts with other existing federal security standards.”

Martin Jeppeson, director of regulatory affairs for the California Ammonia Company (Calamco), testified for The Fertilizer Institute last week at the hearing before the House Homeland Security Committee. In his remarks, Jeppeson pressed for the maintenance of existing CFATS regulations to allow DHS to complete the first phase of implementation before altering the existing program.

Jeppeson noted that much of the fertilizer supply chain was regulated in 2002 with the passage of the Maritime Transportation Security Act, and highlighted the industry’s support of the Secure Handling of Ammonium Nitrate Act in 2008. “Our facilities can be protected without implicitly or explicitly discouraging the use of our products in legislative text,” he said.

Jeppeson told the committee that the requirement to assess the use of ISTs for all regulated facilities, including manufacturers, wholesale distributors, and retailers, as proposed in the draft legislation, could have a crippling impact on American agriculture. He said such a mandate could jeopardize the availability of lower-cost and more efficient sources of fertilizer such as anhydrous ammonia and ammonium nitrate. “The options for an agricultural retail operation under IST provisions are to switch to a ‘safer’ product or reduce the quantity on-site – both options potentially remove several regulated products from the farmer’s agronomic tool box,” he said.

Jeppeson said Calamco is one of only two ammonia terminals in the state of California and handles approximately 80 percent of all of the ammonia used in the state. Under the proposed legislation, he said, if urea is encouraged as a safer alternative to anhydrous ammonia, the cost could be devastating to the nation’s food supply.

“The additional cost for a typical 1,000 acre corn farm of utilizing urea instead of anhydrous ammonia, given the current cost and nitrogen content of each product, would exceed $15,000,” he said. “However, this does not provide an accurate and fully comprehensive picture as this cost increase would only hold true if there was ample additional urea available at today’s prices. The United States, however, is already the world’s largest importer of nitrogen fertilizer and the second largest importer of urea, accounting for a full 17 percent of urea traded in the world. If the United States had to turn to the world market to import an additional 7,576,066 tons of urea to replace the nitrogen in anhydrous ammonia – a 116 percent increase from our level of imports in the latest fiscal year 07/08 – it would drive the world price of urea sky high.”

Jeppeson stressed that TFI and its member companies support DHS in its efforts to implement the existing CFATS regulations. “What is important to recognize and analyze, however, is the impact of changes to the CFATS regulation on not just fertilizer manufacturers, but all aspects of the fertilizer supply chain and still, potentially, our farmer customers,” he concluded.

The American Chemical Council also added its voice to the debate last week. “While we share the goal of establishing permanent chemical security regulations, we are concerned several provisions in the legislation as introduced could undermine the important work that is already underway,” said Marty Durbin, ACC’s vice president of federal affairs, in a June 16 statement. “While we have strong views on these issues, we appreciate the willingness of both the House Homeland Security and the Energy & Commerce Committee to seek our input and consider our viewpoint. We have had constructive discussions, and remain hopeful that our concerns can be addressed as the legislative process progresses.”

Other industry advocates were taking a more confrontational approach, however, and were using Tea Party tactics to attack HR 2868. The Agribusiness Freedom Foundation, a website billing itself as the “freedom watchdog for American agriculture,” charges that the bill “proposes to mandate the government to take a large measure of control over products and processes in the chemical industry, much like it has taken over leadership, compensation and control functions at some banks, insurance and auto companies.”

EPA will not veto PCS phosphate mine permit

Aurora, NC, News Briefs, Phosphate

Aurora, N.C.-The U.S. Environmental Protection Agency has declared that it will not seek further review of an Army Corps permit allowing expansion of PCS Phosphate’s mining operations in Beaufort County, N.C. “After more than eight years in this permitting process, we are obviously pleased to have the 404 wetlands permit in-hand,” said Steve Beckel, general manager of the PCS Phosphate Aurora facility. “Yesterday’s decision by the EPA demonstrates the company’s commitment to protecting the environment for current and future generations.” The final step in this 8+ year permitting process will be receiving the necessary state mining permits and certifications from the N.C. Department of Environment and Natural Resources. Once those permits are received, the company will have the necessary authorizations to extend its mining operations in Aurora until 2045. “We would like to thank our employees, elected officials at all levels, as well as the community at-large, for their support throughout this permitting process,” added Beckel. Not everyone was happy with the decision. “After elevating the permit to the national level in a rare move, EPA could have vetoed the destruction of 1,200 acres of the most critical wetlands and nurseries while still allowing continued mining by the company for 29 years,” said the Southern Environmental Law Center. SELC and other groups are likely to file a lawsuit over the permit.

Chinese company eyes big stake in Congo project

Canada, News Briefs

Toronto-MagIndustries Corp. reports that a large, unnamed Chinese-based multi-national company intends to subscribe for 400 million MagIndustries shares at a price of C$.70. Mag says it has agreed to negotiate exclusively with the company until the earlier of July 31, 2009, or the date definitive documentation is entered into. In addition, Mag says the memorandum of understanding includes that the definitive documentation will contain a right for the subscriber to participate pro rata in any future financings completed by the company, and to appoint a majority of directors to the company’s board. The share subscription is also conditional on the subscriber arranging substantially all of the debt financing required for the completion of Phase I of the company’s Kouilou potash project in the Republic of Congo as an alternative to debt financing that might be available to the company from other sources. Mag said the company would be in a fully-funded position with respect to the Project if the transaction contemplated by the MOU is completed. Upon conclusion of the investment, the Chinese company would hold approximately 52.7 percent of the company’s common shares outstanding. The latest technical report for the project indicates proven and probable reserves of 33.2 million mt of potash, which can support a reserve life of more than 54 years at a projected production rate of 600,000 mt/y. Phase 1 capital expenses are estimated at US$835 million. Estimated operating expenses are now $124 per mt of K60 resulting from increased expectations for higher natural gas costs. Potash price assumptions for 2012 are $649/mt, up from $464/mt net realized price KCl (based on current third-party potash price forecasts). Mag said the report authors project an internal rate of return of 23 percent, with the net present value estimated at US$914 million using a discount rate of 12 percent. Assuming total project costs of US$1.2 billion, pay back is achieved in approximately five years, assuming cumulative cash flows from operations for the period 2012 to 2016.

Natural gas leak blamed for ConAgra blast

Aurora, NC, News

Garner, N.C.-ATF investigators have concluded that a natural gas leak that was accidentally ignited was the cause of the explosion that rocked the ConAgra Slim Jim plant here (GM June 15, p. 10). “It has been ruled a natural gas explosion with ignition from an unknown source, although there were several possible identified sources in the room,” Garner Police Dept. spokesman Chris Clayton told Green Markets. Clayton said he didn’t think anhydrous ammonia, used in the plant for refrigeration, was ever seriously considered as a source of the explosion. “I think in the beginning everything was considered and investigators went to work with all possibilities on the table, but soon narrowed it down to the natural gas. The ammonia release was a result of the explosion.” The explosion killed three employees and injured more than 40 others.