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Market Watch

Ammonia, Ammonium Nitrate, Ammonium Sulfate, Asia, Bangladesh, Black Sea, Central Florida, Chile, China, Correction, Eastern Cornbelt, India, Market Watch, Middle East, Nitrogen Solutions, Pakistan, Phosphate, Potash, South Central, Southeast, Southern Plains, Sri Lanka, Sulfur, Tampa, U.S. Exports, U.S. Gulf, Urea, West Coast, Western, Western Cornbelt

AMMONIA

U.S. Gulf/Tampa: Yara has concluded new business for May delivery to Tampa at $267/mt DEL, off $51/mt from April. The drop was in line with most industry price ideas, as DAP producers are expected to cut production in the near term if phosphate sales do not take off in the domestic market or internationally. As a result, DAP producers have been aggressively seeking lower ammonia prices, and are trying to hold the line on sulfur prices as well.

Yara noted in its recent earnings release that the industrial and DAP markets take approximately two-thirds of global ammonia, and that both of those segments are weak right now.

Eastern Cornbelt: The anhydrous ammonia market was pegged at $400-$440/st FOB regional terminals to the dealer, with the low in Illinois on a spot basis. Sources reported little movement due to extremely wet conditions in the region.

Western Cornbelt: Ammonia pricing continued to see some spot pressure in the region. Nebraska dealers pegged the cash market as low as $335-$355/st FOB, with the upper end of that range also reported on a delivered basis. Missouri sources quoted delivered ammonia tons from southern production points in the $390-$400/st range. In Iowa, sources pegged the terminal market in the $375-$400/st FOB range, depending on location.

Southern Plains: Anhydrous ammonia was reported at $300-$335/st FOB in the region, with the low out of production points and the upper end reported to the dealer FOB Kansas pipeline terminals.

Conditions remained wet, or “extremely sloppy” as one source put it, in much of Kansas last week. “We’re way delayed,” said one contact in eastern Kansas, who likened this year’s conditions to spring 2008. “We should be done with corn and we’re not even very far into the process. Of what has been planted, a lot will have to be replanted.”

South Central: Cash market pricing for anhydrous ammonia was tagged at $400-$420/st FOB regional terminals to the dealer, with the low reported at Memphis, Tenn., and the upper end in Kentucky. Rain continued to slow field activities in parts of the Mid-South region, including Arkansas, Kentucky, and Tennessee.

Black Sea: With word that Yara settled in Tampa at $267/mt CFR and OCP/Morocco at $247/mt CFR, Asian sources were ready to agree with European observers that the Black Sea price has slipped to $210/mt FOB.

Sources took the Morocco business and backed off freight of $35-$40/mt to get the Yuzhnyy equivalent.

The big issue, say Asian sources, is scarcity of tons in Yuzhnyy. Most producers are closed because the selling rate price has not gotten near the production cost. Sources say the break-even price is about $320/mt FOB. The price for the past few weeks had been hovering in the mid-$200s/mt FOB. The latest agreements in Tampa and Morocco have pushed the price lower.

For now, say sources, the only way to figure a price from Yuzhnyy is to look at deals elsewhere and do the math to get an effective netback. Under those conditions, sources say the price in the Black Sea has now dropped to $210-$220/mt FOB.

With prices at this level, sources say some tons might begin shipping to Asia. Depending on the size of the cargo, freight could be around $90/mt. At $210/mt FOB, whatever Yuzhnyy tons are available could be sold to some buyers in Asia, who are now looking at prices of $300/mt CFR and up.

Middle East: Unlike the Black Sea, the ammonia market in this area is moving up. Demand from India for the DAP producers, coupled with continued strong demand in Asia, has moved the price beyond $300/mt FOB.

Mitsui did a deal with PIC for a cargo that settled in just above $300/mt FOB. At the same time, sources say other cargoes for India closed near $310/mt CFR.

With deals done at $310/mt CFR and higher, and freight pegged at $20/mt, sources say $300/mt FOB is widely accepted.

One Asian trader said the end of April showed a trend that will keep prices moving up in the area. As the week closed, sources say a range of $295-$305/mt FOB was seen.

India: The DAP producers continue to need ammonia, and their need is driving up the price with each new contract deal from the Middle East. The demand is expected to continue through June and into July, say Asian sources.

The last bit of business into India was pegged above $300/mt CFR. One source said one deal represented a netback into the Arab Gulf of $300/mt FOB.

The big threat to a steady increase in prices to buyers is the reduction of the export duty on Chinese DAP. Sources report that Indian agents have been spending the last two weeks looking to nail down cargoes as soon as the duty drops from 110 percent to 10 percent June 1.

Asian sources are unsure how many tons the Indians will buy, and whether those cargoes will replace or supplement domestic production.

Asia: Mitsui supplied Transammonia tons for PhilPhos/Philippines at $335/mt CFR from Indonesia. The price represents another example of the steady and strong Asian market.

Sources say buyers from Japan to India are looking for tons into July.

Most of the Asian buyers are industrial users, with the occasional agricultural buyer, such as PhilPhos, entering the market.

The major buyers in Taiwan and South Korea are the real backbone of the Asian market, said one trader. Steady demand for industrial users is keeping the order books in Indonesia and Malaysia full.

UREA

U.S.Gulf: Granular barge price ideas were all over the board last week, with some players saying new trades had occurred as low as $245/st FOB. Others cited the weak paper market for even lower numbers. Despite the bearish tone, several bulls remained in the market, with a good number of sources calling the market no lower than $250-$255/st FOB.

Another negative factor for prompt markets, along with wet weather, were reports that CF had dropped forward urea and UAN pricing under its forward pricing program. In a call with analysts, CF gleefully chatted up how wonderful natural gas prices are right now. And they are low, with the May NYMEX Henry Hub price going off the board at $3.321/mmBtu.

Those low prices allow CF to offer very competitive forward nitrogen prices and aggressively compete with imports. In fact, some sources were predicting last week that come summer, U.S. producers might actually start exporting UAN.

Eastern Cornbelt: Granular urea was quoted at $315-$330/st FOB in the region, down slightly from last report.

Western Cornbelt: The granular urea market remained soft at $310-$330/st FOB in the region. One Missouri source tagged the market at $320/st FOB to the dealer in his area, but said it might be lower when movement picks up again.

Southern Plains: Sources pegged the granular urea market at $290-$295/st FOB Enid and Inola, Okla., to the dealer, and trending downward.

Dealers reported minimal movement. “We’re in the pattern we were in a year ago,” said one. “I can’t tell you if it’s the weather, the lack of demand from growers, or the prices. There’s just not much movement, and it’s been really tough, very slow on the retail side.” Added another contact, “Last year was a weird business, and it’s a weird business this year. When you’re in a business driven by weather, you get weird stuff.”

South Central: The granular urea market was tagged at $305-$315/st FOB to the dealer out of regional terminals, also down from last report.

Southeast: Granular urea pricing was down from last report at $310-$320/st mark FOB port terminals to the dealer, with most sources touting the lower end of the price range.

Black Sea: Sources report some minor strengthening in the market as the industry gets ready for the TCP/Pakistan tender May 9 and as rumors of Indian buyers circulate.

Earlier deals at $235-$240/mt FOB are now reported unavailable. Best guesses for the current market place the price at $240-$245/mt FOB.

Traders are now saying quotes of $245/mt FOB are getting a serious look from buyers. At the same time, producers seem to be less anxious to settle at that level.

Reports continue to circulate that the warehouses are either empty or close to it. Still, said one trader, depending on the size of the cargo, a person might be able to seal a deal with a bid of $235/mt FOB or $245/mt FOB. Another trader said producers are looking for just about any deal that will guarantee a home for the urea, but not at any price. It looks as if the producers have now dug in their heels at $240/mt FOB, with the prospect of an improved buying season in the next four to six weeks.

Sources tend to think that Black Sea tons will play a prominent role in the TCP tender that closes May 9. Likewise, they say that when India comes back into the market, Yuzhnyy cargoes will be needed to fill the demand.

Middle East: Reports of softer prices from Egypt are pushing down Arab Gulf pricing ideas as well. Sources report Egyptian sellers are now settling at $250/mt FOB. That would push the Arab Gulf into the $240s/mt FOB. While the math is easy to figure, trying to nail down actual deals is more difficult.

The dearth of public business in the area and any offers in public tenders makes it difficult to nail down an actual price. Producers continue to claim they are sold out. What they do not make clear, said one trader, is if they are sold out because all their tons are committed, or if they are sold out of product at a particular price.

For now, sources say the market is easily in the $250s/mt FOB for prills and granular.

The Middle East producers are expected to be aggressive in the May 9 TCP/Pakistan tender. One idea is that the producers will try to dominate the 260,000 mt tender with a very low price. If they can take a large portion of the tender, said one source, the producers will then be able to claim honestly they are sold out and ask higher prices for subsequent tons.

Unfortunately for the producers, sources also say Chinese urea will most likely be widely offered in the TCP tender.

For now, sources report a number of plants remain on extended turnarounds. The reduced output is helping keep the growth of stockpiles to a minimum.

Sri Lanka: Sri Lanka closed a tender last week for two lots of 12,000 mt each. The lowest offer came from a Dubai trading company at $309/mt CFR. Sources say the tons will probably come from Kazakhstan through Iran. If this is the deal, the freight could be as much as $50/mt. Plus another $15/mt for bags, sources push the netback to $245/mt FOB. This matches up with the pricing ideas out of the Black Sea.

India: The industry was abuzz with rumors that Indian buyers were trying to nail down tonnage in advance of a tender. Included in these rumors is word that a tender will be called in early May.

Sources in Asia doubt any of the Indian buyers are seriously prowling for tons at this time. Any tender called that focuses on June shipments would move up the price, observers say. The conventional wisdom has India waiting until July shipments can be included in the tender offers.

India wants to wait until after July 1, because that is when the export duty on Chinese urea drops from 110 percent to 10 percent. A July shipment date will give the buyers more flexibility to choose from three major sources of urea: the Black Sea, the Middle East, and China.

One trader also noted that Indian buyers, especially IPL, burned a lot of bridges when IPL walked away from a tender last year. The action left a number of traders holding tons that were contracted for delivery.

The rumors of Indian buyers may also have been pushed because of reports in Indian media that some areas of the country may be short of urea in the upcoming season. Industry observers speculate that some buying houses could have gone out to begin urea talks to ease the pressure on the houses from their political masters.

India is still in the midst of national elections. Opposition party politicians have latched on to complaints from some area farmers that there has not been enough urea in certain areas in the past. Sources say the government is doing all it can to ensure peace on the urea front.

Pakistan: The TCP tender for 260,000 mt closes May 9. Sources expect to see tons offered from the Middle East, the CIS, and China. The Chinese tons will be offered for July shipment. All the other sources can offer prompt loadings, say sources.

Sources report TCP is expecting to see lower prices than what came out of its most recent tender for 25,000 mt last month. The Middle East producers are expected to be especially aggressive in their offers.

Bangladesh: The country may likely face a shortage of urea following the government’s decision to temporarily close urea production units to save gas for power plants. As such, 561,000 mt of the urea capacity of the state-owned BCIC Chittagong Urea Fertilizer Factory Ltd. was shut down April 26 to divert its gas to power plants in the region to tackle the present electricity shortage. CUFL Managing Director M. Abdus Salam told reporters that operation and production at the country’s major fertilizer factory was closed following a directive from the Industries Ministry. Earlier, the Polash Urea Fertilizer Factory (95,000 mt/y urea) and the Ghorashal Urea Fertilizer Factory (470,000 mt/y) were brought to a halt under the same contingency measure. The gas of these two factories, located in Narsingdi, was redirected to adjacent power plants. Meanwhile, according to the Economic Survey of Bangladesh, the country consumed 2.763 million mt of urea during 2007-08, compared to 2.51 million mt in the previous year.

NITROGEN SOLUTIONS

U.S.Gulf: New UAN barge trades are hard to find, according to most sources; however, they report that railcars are going in the $160s/st FOB, with some seeking the $150s/st FOB. Like urea, lower forward prices are having their impact on this market.

Eastern Cornbelt: UAN-32 was tagged in a broad range at $225-$255/st ($7.03-$7.97/unit) FOB in the region.

Western Cornbelt: UAN pricing was all over the board. Sources quoted pricing from wholesalers as low as $220-$225/st ($6.88-$7.03/unit) FOB, while Missouri sources reported dealer prices as high as $260/st ($8.13/unit) FOB in late April. One dealer tagged the market in his trade area at $240-$250/st ($7.50-$7.81/unit) FOB last week.

Southern Plains: The UAN-32 market was quoted at $200-$210/st ($6.25-$6.56/unit) FOB regional production points, with dealer pricing out of some Kansas terminals reported at the $227/st ($7.09/unit) FOB level last week on the upper end of the range.

South Central: UAN-32 was down from last report, with sources quoting the dealer market at $205-$225/st ($6.41-$7.03) FOB regional terminals for prompt tons.

Southeast: Sources continued to report pressure on spot fertilizer prices. The UAN-30 market was tagged at $200-$205/st ($6.67-$6.83/unit) Norfolk, Va., and Wilmington, N.C., for truck tons. Some sources reported railed UAN-32 available at lower numbers, with one claiming tons could be had at $203/st ($6.34/unit) rail-DEL last week. Others speculated that this lower-priced tonnage was coming from domestic producers, and not from deep water terminals on the East Coast.

AMMONIUM NITRATE

U.S. Gulf: Players were calling the market $220-$225/st FOB last week; however, very little material was reported to be available.

Western Cornbelt: Ammonium nitrate was steady at $270-$275/st FOB, with delivered nitrate quoted at the $280/st mark in eastern Nebraska.

Southern Plains: Ammonium nitrate remained at $250/st FOB the port of Catoosa, Okla.

South Central: The ammonium nitrate market remained at $250-$270/st FOB regional terminals to the dealer, also down slightly from last report. Sources said the low end of the range was present in areas where CAN-27 was available. One Arkansas source pegged the CAN-27 market last week at $205/st FOB.

Southeast: The Tampa market for ammonium nitrate was steady at $305-$315/st FOB. A Carolina source pegged rail-delivered nitrate at the $305/st level as well.

AMMONIUM SULFATE

Eastern Cornbelt: Granular ammonium sulfate remained at $235-$245/st FOB to the dealer.

Western Cornbelt: Granular ammonium sulfate was steady at $225-$245/st FOB in the region, with the low confirmed in southern Missouri and the upper end reported in Iowa to the dealer.

Southern Plains: Granular ammonium sulfate was steady at $225-$265/st FOB in Texas, with the low FOB Freeport and the upper end FOB Plainview and Littlefield. Coarse grade was $10/st less than granular and standard $20/st less, where available.

South Central: Granular ammonium sulfate pricing was actually up from last report, and in tight supply at some locations. Sources tagged the market at $230-$240/st FOB, with most touting the upper end as the more common dealer price.

Southeast: Granular ammonium sulfate pricing was steady at $200-$210/st FOB, with the low FOB Hopewell, Va., and the upper end FOB Augusta, Ga. Delivered granular ammonium sulfate was pegged in the $220-$249/st range in the region, depending on location, with the upper end reflecting DSM’s reference price for railed tons into Florida.

PHOSPHATES

Central Florida: The never-happened spring season in the Central Florida DAP market was coming to a less than dramatic conclusion as the month ended, and what little prompt business there had been was dwindling. A few trucks were moving into Georgia. With farmers getting started in the fields in some areas, like the Northeast, product must be in place to be sold, because delivery of new orders in time was not possible.

Dealers still want to empty their bins of DAP before the end of the season, but some may not be able to achieve that. That means producers have to face reality and plan for additional cutbacks. A source said Mosaic’s production level last week was not as high as the 70 percent at which it was running about a month ago, and more curtailment may be in the works. The company was attempting to settle its second quarter sulfur contracts late last week at only $5/lt to Tampa, because it will
not need as much sulfur during the quarter. Meanwhile, sulfur producers were running at high levels for the summer driving season, so more sulfur was being produced.

The Central Florida DAP price range was unchanged last week at $300-$315/st FOB. PCS Sales had no published price. Mosaic’s price was $315/st FOB for DAP and $325/st FOB for MAP. CF was at $300/st FOB for DAP, and cut its $20/st FOB higher for MAP to $10/st FOB more. The price from Agrifos remained at $350/st FOB for trucks and $340/st FOB for rail shipments.

U.S. Gulf: Last week the NOLA DAP barge market continued to have an unusually wide range, as a result of the soon to be end of the nonexistent summer season. Barges in New Orleans were bringing the lowest price, while a barge in place was bringing a premium. The difference was a lack of time to make deliveries. It made little difference how much might be saved buying at NOLA, when the product could not possibly arrive in time to be of any use.

Most NOLA DAP barges that sold last week were purchased for export by at least two different traders, although the export customers were not known.

The wheat crop in Oklahoma was not looking good last week. Farmers planted early, and then were hit by a couple of hard frosts in April, and heavy rain. Last week, the area got even more serious rain. Although wheat did well there last year, the previous two years were near disasters.

In addition to extremely wet weather this year, a lack of credit may also be helping to suppress fertilizer sales this season. A source said farmers in his area were getting only about half as much credit from banks as they had previously, and were being forced to cut back on application.

CF’s NOLA DAP barge price for June was $280/st FOB, $290/st FOB for July, and $300/st FOB for August.

Although DAP inventories along the Arkansas River were extremely low – and with no possibility of a barge arriving in time for the season – warehouse prices there were down slightly last week, to the $335-$337/st FOB range.

The NOLA DAP barge price range last week dipped slightly, to $268-$300/st FOB from the previous week’s $270-$300/st FOB. Mosaic has a $10/st FOB additional charge for MAP, while CF’s MAP was also $10/st FOB higher than its DAP price.

Correction: The DAP barge price for the Green Markets dated April 27 was $270-$300/st FOB. This change was too late for early editions, but did go out as a Green Markets Alert.

Eastern Cornbelt: DAP was steady at $345-$360/st FOB regional warehouses to the dealer, with MAP $10/st higher. One supplier was referencing forward DAP for June at $335/st FOB in Illinois, $325/st for July, and $345/st FOB for August.

10-34-0 was steady at $625-$725/st FOB in the region, with the low in Illinois and the upper end in Ohio.

Western Cornbelt: The DAP market remained at $340-$360/st FOB regional warehouses to the dealer, with MAP roughly $10/st higher. One Nebraska source quoted delivered MAP at the $375/st level last week. 10-34-0 was steady at $575-$675/st FOB in the region.

Agrium’s May 1 postings for phosphoric acid included $1,050/st rail-DEL for both super phosphoric acid (SPA) and merchant grade acid (MGA) in Iowa, Nebraska, Minnesota, the Dakotas, and Wyoming.

Southern Plains: DAP pricing to the dealer was tagged at $330-$335/st FOB Catoosa, down slightly from last report, with MAP pegged at $340-$350/st FOB the port and still in fairly tight supply. 10-34-0 pricing continued to slip; sources quoted the regional market at $475-$550/st FOB, with the low in Texas and the upper end of the range in Kansas to the dealer.

Agrium’s May 1 postings for phosphoric acid included $1,050/st rail-DEL for both SPA and MGA in Colorado, Kansas, Oklahoma, New Mexico, and Texas.

South Central: The DAP market was steady at $330-$340/st FOB regional warehouses to the dealer, with MAP $10/st higher. TSP was pegged at $310-$320/st FOB in the region.

Western U.S.: Agrium’s May 1 phosphoric acid postings included $1,100/st rail-DEL for both SPA and MGA in Arizona, California, Idaho, Montana, Nevada, Oregon, Utah, and Washington.

U.S. Export: Pakistan made DAP buys from Turkey and Morocco last week, and India was believed to have also made DAP buys. None of the deals included DAP from North America.

During the past month, Agrifos sold cargos of phosphate into Latin America, although details were not available.

With no new sales last week, the export DAP price range last week remained $337-$339/mt FOB, although offers to buy were below that range.

India: Sources report Indian buying agents are talking to Chinese DAP producers to nail down cargoes beginning June 1 – as soon as the export duty drops from 110 percent to 10 percent. Reportedly, the buyers are not making any secret of their desire to import as many tons as possible at rates reasonable to the buyer.

Industry sources were not sure how many tons Indian buyers will want. Likewise, they were not sure if the imports were designed to supplement domestic DAP production or replace it. One trader said the period for importing more DAP comes just as the phos acid agreement expires. If a new contract for acid is not negotiated, said one source, the imported DAP may be used to replace domestic material. If, however, a new lower acid price is achieved, the imports will be to supplement the production.

China: DAP producers are talking to Indian and Pakistani companies about June shipments. The export duty on phosphates drops from 110 percent to 10 percent beginning June 1. India and Pakistan will need more DAP beginning in June.

Reportedly, the DAP producers are more than happy to move their product offshore. Sources say the domestic phosphate market is soft. The producers are said to have older expensive phos rock and ammonia on hand. They are reportedly anxious to move out as many tons as possible to clear their input inventories so the rock, ammonia, and acid can be replaced with more current and cheaper product.

Correction: Last week the DAP change in the Chinese tariff to 10 percent was listed as July 1, rather than June 1.

POTASH

Eastern Cornbelt: Sources quoted potash at $630-$700/st FOB warehouses from brokers and resellers, with the low out of spot river locations and the upper numbers out of inland warehouses.

Western Cornbelt: The potash price continued to slip. One source tagged the market at $630-$640/st FOB in his area, while another said $680-$700/st FOB was the dealer level out of Missouri River terminals. Several acknowledged that spot tons could be had in the low-$600s/st FOB Mississippi River warehouses from brokers or resellers, but there were few new sales to test the market.

Southern Plains: Granular potash FOB Carlsbad, N.M., remained in the $760s/st FOB, while potash out of regional warehouse locations had reportedly dropped to $620-$640/st FOB from brokers or resellers.

South Central: Potash out of regional warehouses was pegged at $610-$625/st FOB last week. “Potash is dropping daily as people try to liquidate their positions,” said one source, who also commented on usage cutbacks. “We’ll be fortunate if we do 40 percent of what we normally do in the spring, and we did nothing last fall,” he said.

Potash barges were quoted by several sources at the $560-$570/st DEL level, give or take, on the lower Mississippi River south of St. Louis for import tons.

Southeast: Sources tagged the potash market at $700-$725/st FOB in the region, reflecting another drop from last report. The Wilmington market was reported at the $725/st FOB level. Delivered potash postings remained north of the $800/st level from producers.

Chile: Sociedad Química y Minera de Chile SA said April 30 that on April 28, 2009, its board members authorized a supply contract with PotashCorp. The agreement establishes that SQM Salar SA, affiliate of SQM, will sell to PCS Sales (USA) Inc., affiliate of PotashCorp, between 150,000-250,000 mt/y of potassium chloride to be sold by PCS in Japan, India, and China. The negotiated period of the contract will be from May 1, 2009, to May 1, 2012. In addition, the contract established that the terms and conditions of these sales be similar to the market conditions that exist during the course of the contract. PotashCorp is a large investor in SQM.

SULFUR

Tampa: After Mosaic reached a settlement for second quarter sulfur contract prices with one of its major suppliers at $5/lt higher than the previous quarter, the expectation was that other suppliers would soon fall in line. On Thursday, only three large suppliers had agreed to the new price. The company has indicated it will curtail production more than it already has and will not need the amount it did in the first quarter. Mosaic must also use some of the blocked sulfur at Galveston to free some space for new liquid sulfur it must take under contract.

Just before press time, GM learned that Mosaic had settled all of its contracts at $5/lt.

Late in the week, PotashCorp also began concluding new business at $5/lt. PotashCorp’s position was somewhat different. While Mosaic buys mostly – but not entirely – sulfur from the U.S. Gulf Coast, PotashCorp takes much more of its from Canada by rail and Venezuela by vessel. While the U.S. sulfur market has been depressed, the world’s was doing somewhat better. Both Canada and Venezuela have other options for their sulfur and appeared to be less willing to settle for a lower price. That makes for a much more difficult negotiating situation.

Nevertheless, neither of the two large phosphate producers had settled all of their contracts by the end of last week, which meant Green Markets did not adjust the price in its index.

Meanwhile, refineries were running at a high rate to meet expected summer driving demand for fuel, which meant they were continuing to produce a lot of sulfur. So, disposal remained a problem. Prillers were running hard to keep up with the supply, and export shipments out of the Gulf to China were at a higher rate than Vancouver, about 440,000 mt.

West Coast: Negotiations for second quarter contract prices for the West Coast were scheduled to begin this week.

The Week in Fertilizer Stocks

Fertilizer Stocks
Producer Symbol Price Week Ago Year Ago
Agrium AGU 43.02 38.60 79.00
CF Industries CF 72.05 66.91 133.70
Intrepid Potash IPI 24.69 19.49 47.49
Mosaic MOS 40.45 38.21 122.51
PotashCorp POT 86.49 79.62 183.95
Terra Industries TRA 26.50 27.91 37.86
Terra Nitrogen TNH 133.96 124.17 129.16
Distribution/Retail
Andersons Inc. ANDE 16.07 15.78 45.45
Deere & Co. DE 41.26 38.83 84.07
Scotts SMG 33.77 37.74 33.14

CF still in hunt for Terra; shareholders file three suits against CF

Featured, News

CF Industries Holdings Inc. said April 24 that it has extended the expiration date of its exchange offer for all of the outstanding shares of Terra Industries Inc. common stock to Friday, June 12, 2009.

CF says this is shortly after the date by which Terra is required to hold its 2009 annual meeting of stockholders based on the record date of March 9, 2009, previously set by Terra. However, Terra’s board of directors has changed the company by-laws so that it can set the annual meeting whenever it wants (GM April 20, p. 1). To date, Terra has not set the date for its shareholder meeting, nor has it indicated the timeframe for such a meeting. CF hopes to elect three of its own supporters to the Terra board whenever the meeting is held.

The CF offer, which was scheduled to expire at 5:00 p.m., New York City time, on Friday, May 15, 2009, has been extended until 5:00 p.m., New York City time, Friday, June 12, 2009, unless further extended. All other terms and conditions of the exchange offer remain unchanged.

CF said as of the close of business on April 23, 2009, a total of 19,370 shares of Terra common stock had been tendered into the exchange offer. As of March 31, 2009, there were approximately 100 million Terra shares outstanding.

Apparently not all shareholders are happy with CF’s dealings with Agrium Inc. and Terra, according to CF’s April 30 10-Q filing with the Securities and Exchange Commission. CF said that in February and March 2009, three purported CF shareholders filed putative class action lawsuits against it and members of the board of directors alleging, among other things, that the board members breached their fiduciary duties by their actions in connection with the proposed acquisition by Agrium Inc. of CF. Two of these actions – one captioned Plumbers & Steamfitters Local 373 Pension Fund v. CF Industries Holdings, Inc., which was filed on Feb. 26, 2009, and the other, captioned Operating Engineers Local 825 Pension Fund v. CF Industries Holdings, Inc., which was filed March 12, 2009 – were initiated in the Delaware Court of Chancery. On March 17, 2009, the court consolidated these lawsuits into a single action captioned In re CF Industries Shareholder Litigation. The consolidated Delaware action remains pending, and the parties presently are engaged in the discovery process.

A third action, captioned Gallagher v. CF Industries Holdings, Inc., was filed in the Circuit Court of Lake County, Ill., Feb. 27, 2009. CF moved to dismiss the Illinois complaint on the basis that the Delaware consolidated action concerns identical issues. This motion to dismiss is pending.

Each of the suits seeks, among other things, to enjoin the company’s proposed business combination with Terra unless and until it considers other strategic alternatives to maximize the company’s value. CF said it and the board believe these suits are without merit and intend to vigorously defend their positions. Currently it said it cannot determine if the ultimate outcome of these lawsuits will have a material impact on the company’s financial position, results of operations, or cash flow.

Wisconsin ag department cautions growers seeking cheaper fertilizer

Great Lakes, News

Prompted by reports that farmers are buying fertilizer directly from wholesale suppliers or producers instead of through traditional dealers, the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP) last week reminded growers that they must store bulk fertilizer properly and may be required to pay tonnage fees used to support the state’s agricultural chemical cleanup program and fertilizer research.

Facing high retail prices this spring from fertilizer dealers with costly inventory they ordered back in 2008 when the markets were reaching historic highs, growers in the state have reportedly been searching out cheaper alternatives from other suppliers as wholesale replacement costs fall.

“We’ve heard of farmers driving to the Mississippi River to buy direct from the terminals where fertilizer prices are lower,” said Lori Bowman, agrichemical management bureau director with the DATCP. “We’ve also had instances where farmers have come into our office requesting a fertilizer dealer license based on a wholesaler’s recommendation.”

The department said it is also aware that groups of farmers are forming “buying clubs” where one member takes delivery of a large quantity of fertilizer, which is then distributed to other growers within the group. “Our two main concerns with having bulk fertilizer delivered directly to farms are fertilizer storage and tonnage credits,” Bowman said.

Wisconsin farmers, whether acting individually or in a so-called buying group, do not need a fertilizer license to receive bulk quantities of fertilizer, DATCP noted, nor is a license needed to distribute fertilizer that has been packaged or labeled by another licensed fertilizer dealer. DATCP cautioned, however, that a license is required if the fertilizer is blended or repackaged under a different name or label.

DATCP also stressed that the state’s fertilizer and pesticide bulk storage rules come into play for quantities of more than 55 gallons of liquid fertilizer or 100 pounds of dry fertilizer. These include the construction of a proper containment dike to hold any spills or leaks.

“If there is a fertilizer spill, be it a valve failure or a tank splitting open, the farmer will be responsible for reporting the spill and the clean up,” Bowman said. “Proper containment can prevent damage to the environment, but if you’re just dropping mini-bulks on your property or placing large quantities of urea in your shed on a dirt floor, you’re placing yourself at risk.”

Bowman also cautioned that the state is monitoring bulk transactions and following up with license holders to make sure that fertilizer tonnage fees are collected. The fees are paid to the state by one of the licensees within the chain of distribution, sometimes by the wholesaler and sometimes by the buyer, depending on the terms of the transaction.

“If a wholesaler is requiring a farmer to obtain a fertilizer license, the wholesaler may expect the farmer to pay the tonnage on the fertilizer, yet the farmer may not be aware of this requirement that comes with being a license holder,” Bowman said.

The state fertilizer tonnage fee is currently set at $1.06 per ton. Of that, 30 cents is applied as a basic fee, 20 cents goes to research, 10 cents to a groundwater fee, 2 cents to a weights and measures fee, and 44 cents to the Wisconsin Agriculture Cleanup Fund, according to Charlene Khazae, DATCP’s fertilizer program manager.

New owner takes over at Olsen’s Mill

News

The management transition has begun at Olsen’s Mill, which ended up in receivership after playing a major role in the state’s agribusiness for decades, according to information provided Green Markets. Neither the Olsen brothers or the new owners, headed by Phillip Martini, president and CEO of C.R. Meyer and Sons, Oshkosh, Wisc., were available to talk about the details. But GM has learned that Martini, who was supposed to sign the final documents April 24, has moved to assume control of Olsen’s Mill, which has 10 locations scattered in the central and southern part of Wisconsin and has both grain and agronomy as its core businesses. None of that is expected to change, sources reported.

Martini has named himself president and has elevated the organization’s division heads for grain, agronomy, accounting, and other units to vice presidents reporting to him, according to sources. The name Olsen’s Crop Service is now the name on the website, and Martini has registered Olsen’s Crop Service LLC with the state. Olsen brothers Paul and David will be largely out of the business, although according to a knowledgeable source David may continue in a limited role. Brother Luther is a state senator and has not been directly associated with the business.

“Things at Olsen’s might be back to relatively smooth waters now, but we (the Olsens and others relying on the business) have been through a bit of turmoil…call it a great bit of angst,” John Petty, executive director of the Wisconsin Agri-Service Association, offered. He said the court awarded the sale to Martini et al., which had the Olsens’ backing as the second highest bidder. The other bidder, French bank BNP Paribas, which lent some $58 million to Olsen’s, could still appeal. The good news, according to Petty, is that Martini, whom he described as “apparently having very deep pockets,” has promised he would honor pre-paid agronomy and the to-arrive or contract grain – after the bank, which forced the receivership issue, clearly stated it would not. “People are feeling a whole lot better than they did two or three weeks ago,” he suggested, “but there are still some who are saying they don’t know if they want to deal with that company.”

Petty termed C.R. Meyer as an “absolutely rock-solid impeccable company.”

David Olsen, Olsen’s Mill president, told GM in a brief conversation that “the outcome was definitely one that we look favorably on.”

Petty didn’t have a clear picture of what caused the Olsens’ financial failures, but did agree that their becoming principals in two ethanol operations had something to do with it. One of them, Renew Energy, filed for Chapter 11 in late January and let go of about a fifth of its workforce in February. The factory has been operating since 2007 and is currently the state’s largest ethanol facility, with an annual production capacity of 130 million gallons. The bankruptcy filings do not affect Renew’s sister plant, Utica Energy. “They were interconnected (with Olsen’s Mill) because of a supply agreement, and when one got into trouble it was a matter of it bleeding into the other business,” Petty surmised.

Olsen’s Mill, Berlin, Wisc., actually filed for Chapter 11 bankruptcy April 8; however, it was rejected by the U.S. Bankruptcy Court for the Eastern District of Wisconsin. In the filing, Olsen’s said it had estimated liabilities of between $1-$10 million, and between 200-999 creditors. The top 20 unsecured creditors were owed a combined $5.3 million. No major fertilizer suppliers appeared on this list, though it did contain large farms, elevators, railroads, and other input suppliers – Monsanto AG Products LLC, Syngenta Seed Inc., and Garst Seed Co.

The Olsen’s website cites ten locations, at least three of which deal with fertilizer and other inputs, including Auroraville, Stevens Point, and Westfield. Olsen’s also owns Precision Crop Service, which provides GPS grid services, conventional soil sampling, variable rate fertilizer application, and other services.

PHI said 4Q was “absolutely horrible”

News

Phosphate Holdings Inc. CEO Robert Jones told analysts April 27 that the company’s fourth quarter ending Dec. 31, 2008, was “absolutely horrible,” and that he had seen nothing like it in his 35 years in the industry. Results for PHI, which owns Mississippi Phosphates, appeared in the Green Markets dated April 27 (GM April 27, p. 10). PHI lost $58.1 million for the quarter and $3.5 million for the year.

Jones said that by mid-October 2008, demand absolutely vanished. October sales were $14 million, compared to $70 million in September. He said the fourth quarter was 80 percent down from the third.

The company immediately took action to preserve liquidity, halting phosphate rock purchases from October until March. Sulfuric acid production was cut; DAP production was reduced in November to 50 percent of capacity, and did not return to full production until April. By March 31, Jones said DAP inventories were zero. Capital expenditures were kept at a bare minimum, and projects were deferred.

In November, Jones said the company was running out of cash and signed two provisional sales contracts (price based on resale price) that brought in $45-$50 million. The company was also aided by over $21 million in tax refunds, which included both state and federal.

Jones said by November there was hope of some semblance of a fall season, but that the company’s fall season consisted of ten barges and two trucks.

Going into 2009, Jones said the market was dormant until mid-February – and then India bought over 3 million mt. Prices moved up, but have since deteriorated. He said the domestic market has been weather delayed, and he expects rapid movement over the next two months. Currently, PHI said the international market is slow, with interest for small lots in Mexico and South America. PHI said the only major market is India and “they know it,” and as the only region buying they are highly competitive.

PHI has yet to renegotiate a new DAP contract with OCP and hopes to do so for a multi-year period. Other phosphate input prices are weaker now, including sulfur, and Jones predicted weaker ammonia prices for May and June.

The good news, says Jones, is that demand will resurface. He said that for six months the world has basically stopped using phosphate, and this will impact yields. This lack of use is not sustainable. He said PHI’s goal is to survive until the market conditions improve, and that he believes the company will do that, adding that PHI has the operating leverage to recover quickly.

ARA defends hours of service exemption

News

The Agricultural Retailers Association is defending the U.S. Department of Transportation’s regulatory Hours of Service agricultural exemption against claims by the Commercial Vehicle Safety Alliance (CVSA) that the HOS exemption has resulted in higher crash rates and is unsafe.

Current law exempts agricultural carriers from the hours-of-service regulations if they operate only within a 100-mile radius from their central base of operation. It also exempts utility service vehicle drivers from all hours-of-service regulations.

CVSA, an international not-for-profit organization comprised of local, state, provincial, territorial, and federal motor carrier safety officials and industry representatives from the U.S., Canada, and Mexico, issued a press release on April 22 saying the hours of service agricultural and utility exemptions should be repealed. CVSA cited a recently released study by the U.S. DOT’s Volpe National Transportation Systems Center that found that agricultural carriers operating exclusively within a 100-mile radius had a 19 percent higher crash rate than agricultural carriers operating outside a 100-mile radius during the period of 2005-2007. CVSA said the study also saw utility service motor carrier crash rates jump by 40 percent during this same period.

CVSA said the study further showed that in 2007, agricultural carriers as a whole had 32 percent higher violation and out-of-service rates than the rest of the trucking industry in the categories of unsafe driver, driver fitness, vehicle maintenance, and improper loading. CVSA said agricultural carriers operating solely within a 100-mile radius had 24 percent higher violations and out-of-service rates than those operating outside of a 100-mile radius in the categories of unsafe driving, driver fitness, vehicle maintenance and improper loading.

“Since driver related factors are such a large contributor to crashes, it stands to reason that the hours-of-service exemptions provided in the last Highway Act are largely responsible for the increased rates,” said CVSA Executive Director Stephen F. Campbell. “Safety is clearly compromised by these exemptions and they should be repealed in the upcoming Transportation Reauthorization Act.”

CVSA is also proposing that all motor carrier safety exemptions, whether provided in statue or by regulation, should be sunsetted “on a date certain in the future.” Any group reapplying for an exemption would have to demonstrate to the DOT that “such exemption would likely achieve a level of safety that is equivalent to, or greater than, the level that would be achieved absent such exemption,” CVSA said.

ARA said it questions CVSA’s attempt to link the HOS exemption to the agricultural industry’s slightly different safety record. “If this ag exemption is repealed by Congress, it will make it more costly and difficult for the agricultural industry,” ARA’s Richard Gupton told Green Markets. “This would adversely impact the timely delivery of crop input supplies and delay getting crops in the ground which would impact crop yields and our nation’s food, feed, fiber and biofuel production. ARA will strongly oppose any effort to repeal the HOS ag exemption. We have been visiting with members of Congress and their staff to educate them on the importance of this exemption.”

ARA said Congress is working to pass a new surface transportation authorization bill before the current authorizations expire on Sept. 30, 2009.

Direct application ammonia, Keytrade pay off for CF; potash a costly lesson

Ammonia, Featured, News, Potash

In its recent shareholders meeting and teleconference with analysts, CF Industries Holdings Inc. touted high points, including higher ammonia prices due to its distribution system for direct application in the Corn Belt, its close relationship with big customers, and its recent investment in Keytrade AG. By comparison, it says its recent foray into the potash market has been an “expensive lesson.”

CF told analysts it would continue in the potash business at least until it sells the product it has, saying it bought some 164,000 st and still has most of that to sell. Prodded as for how much it is offering those tons, CF said its average price information will be included in its second-quarter financial information.

“It’s been an expensive lesson for us, frankly,” said Stephen Wilson, CF president, chairman, and CEO, referring to potash. “We think the concept is a solid concept and that being able to provide our domestic customers with all three nutrients through our dry product warehouses makes sense from a strategic standpoint, but we will be much more careful in the future on the execution side, should we choose to do so. The execution obviously depends on being able to sell the product for more than the price you acquired it at, and that will be our focus should we do this again.”

CF did a $24.3 million write-down on potash inventories during the first quarter ending March 31 (GM April 27, p. 13), and a $26.7 million write-down in the fourth quarter 2008 (GM Feb. 16, p. 1). This would equate to approximately $51 million in write-downs on potash inventories; assuming the company has 164,000 st, that would be about $311 per ton of write-downs.

Wilson said CF has obtained higher ammonia prices than competitors, such as Terra Industries Inc., for various reasons, including its commitment to selling to the direct application business due to CF’s broad distribution system. Sales from Medicine Hat, Alberta, also add to higher average ammonia prices. Wilson added that through March, CF began experiencing promising levels of ammonia movement, and through April 22, year-to-date ammonia shipments were almost 70 percent ahead of last year’s admittedly weak levels.

Wilson said the company’s close contact with domestic customers is one reason it is bullish about exceeding the USDA’s 85 million planted acres for corn. “We have long term relationships with several very large customers and so we know what their demand patterns are likely to be and we adjust our customer mix accordingly, and that’s all what drives our production planning. In other words, we are producing for expected demand. That’s what drives us.” Two of CF’s large customers, CHS Inc. and Growmark Inc., have seats on its board of directors.

Wilson expects nitrogen demand for the fertilizer year to be off in the middle single digits. He believes a strong spring season will hold the phosphate decline to 20 percent for the fertilizer year.

Wilson was able to tout the company’s relationship with Keytrade and the impact it had upon the company’s doubling of DAP exports during the first quarter. He said because of CF’s size and Keytrade’s extensive network of contacts it was able to identify pockets of demand and move quantities that for CF were significant and perhaps for PhosChem not so much, making CF a key player in some of those markets. “In terms of realizations that we get, we’re absolutely comfortable with the prices at which our products move, and I think they compare quite favorably to others in the industry.” He noted that in addition to making sales into Brazil, India, and Vietnam in the first quarter, a sale into Ivory Coast was made in April.

Wilson reiterated that CF’s export prices were quite good, and that the company did not “buy market share” with lower prices.

Earlier at the CF shareholders meeting, Wilson said the company sees exciting opportunities in its nitrogen business thanks to what appears to be a new global paradigm for natural gas. He said CF has authorized a $79 million project to reduce gas consumption at all four of the Donaldsonville, La., anhydrous ammonia plants by an additional .35-.4 mmBtu per ton of ammonia, and increase capacity by 50,000 st/y by 2010.

Wilson said CF completed a $25 million-plus project in 2008 to two of its four ammonia plants at Donaldsonville, La., reducing energy consumption by .5 mmBtu of natural gas per ton of ammonia and increasing annual capacity by 21,000 st. To put that in perspective, he said the two plants use nearly 40 million mmBtu of gas each year. He said CF also made incremental changes to reduce gas use at its urea plants and modestly increase UAN capacity.

Wilson said the company is also making investments in its Florida phosphate business. He noted that increasing sulfuric acid capacity has been approved for 2009. When completed later this year, he believes upgrades will have increased phosphate production capacity from 2 million st in 2007 to more than 2.15 million st. He also noted that in 2008, the company acquired a third mining dragline for its Hardee County rock mine.

Overall, to capitalize on its internal opportunities in nitrogen, phosphate, and distribution, CF said capital spending in 2009 will be between $200-$300 million, up from 2008’s $140 million.

Intrepid Potash stock activity spurs rumors

News Briefs, Northeast

New York-A 15 percent increase in Intrepid Potash Inc.’s stock price on the New York Stock Exchange raised eyebrows and caused the NYSE to seek comment from Intrepid. However, Intrepid reportedly told the NYSE that it did not respond to inquiries about unusual market changes or rumors. Speculation was that someone was trying to buy Intrepid. The shares moved up from the April 24 close of $21.06 to close on April 27 at $24.21. The shares have since stabilized. Earlier, on April 22 Intrepid received a downgrade from Goldman Sachs and the shares dropped 7.3 percent that day, from $21.20 to $19.65. Intrepid shares have a 52-week high-low of $76.24-$13.80. Goldman moved Intrepid from neutral to sell, and cited building inventories, high potash prices, and that most of the company’s product moves into the domestic market, with fewer international options than other potash producers. However, Barron’s recently did a positive piece on the company, citing no long-term debt and about $117 million in cash.