Saskatoon-Athabasca Potash Inc. said Jan. 22 that it has identified the preferred shaft and mill site location for the Burr Project. The site is located in the east central part of the Burr Project area. Approximately 3,600 acres of the 5,420 acres of surface lands Athabasca has acquired over the previous two years during an extensive land acquisition program is in the immediate area of the preferred shaft and mill site. The company also reports that it has engaged SNC-Lavalin Inc. to provide pre-feasibility study services on the project, which is adjacent to the PCS Lanigan Mine located 107 kilometers east of Saskatoon. SNC-Lavalin will address the surface processing plant and infrastructure. Other consultants and Athabasca are responsible for the environmental and other aspects of the study to include geology, process technology, underground mine development, resource assessment, shaft, tailings management facilities, and transportation. Based on this work SNC-Lavalin will develop capital and operating cost estimates and a preliminary project execution schedule. The study is scheduled for completion in the third quarter of 2009. On Sept. 29, 2008, the company announced an updated potash resource estimate for the Burr Project prepared by AMEC Americas Ltd. The Lower Patience Lake Sub-Member contains Indicated Mineral Resources of 241,200,000 mt with a grade of 23.3 percent K2O, and an Inferred Mineral Resource of 183,100,000 mt with a grade of 23.2 percent K2O. There is an additional Inferred Mineral Resource of 39,300,000 mt, with a grade of 13.2 percent K2O, in the Upper Patience Lake Sub-Member.
All posts by traceybg@gmail.com
Deere adjusts layoff total
Moline, Ill.-Deere & Co. on Feb. 2 announced an adjustment to the number of employees who will go on indefinite layoff later this month at the John Deere Davenport Works. Deere said it was adjusting the total employees impacted by this layoff to 200. Last month, Deere said 190 employees would be affected. The employees were informed Feb. 2 that all 200 would be placed on indefinite layoff effective Feb. 16 rather than any of them receiving an immediate temporary reassignment to another factory. Deere earlier had said temporary reassignments were a possibility, but the company has determined those temporary transfers will not take place at this time. Meanwhile, Deere wage employees who are on layoff in the Quad Cities remain eligible for temporary reassignments when additional employees are needed at other locations. Deere said the layoffs at Davenport Works are consistent with Deere & Company’s most recent outlook in November, when the company stated that its construction and forestry sales would decrease 12 percent in fiscal year 2009.
Management Briefs
The Fertilizer Institute’s membership elected a new slate of board members during the official general business session of TFI’s 2009 Fertilizer Marketing Business Meeting, which took place Feb. 2-5 in San Diego. The following individuals have been elected to serve one year terms: Farouk Chaouni, Agrifos Fertilizer, LP; Michael Wilson, Agrium, Inc.; Nicholas Adamchak, Ameropa North America, Inc.; Vladimir Nikolaenko, Belarusian Potash Company; Stephen Wilson, CF Industries; Cheryl Schmura, CHS, Inc.; Brian Harlander, Gavilon Fertilizer; Stanley Riemann, CVR Energy, Inc.; James Spradlin, GROWMARK; Qamar Bhatia, Honeywell Resins and Chemicals; Stephen Stallons, ICEC; Robert Jornayvaz, Intrepid Potash; William Whitacre, J.R. Simplot Company; Melih Keyman, Keytrade AG; Steve Packebush, Koch Fertilizer; Robert Jones, Mississippi Phosphates; William Doyle, PotashCorp; John Ambrose, Rentech Energy Midwest; Michael Bennett, Terra Industries Inc.; Denny Addis, The Andersons, Inc.; James Prokopanko, The Mosaic Company; Ronald Stanton, Transammonia, Inc.; Gene Gauss, Wilbur-Ellis; and Pete Valesares, Yara North America, Inc.
Additionally, TFI’s membership elected Robert Brown, CALAMCO; Ronald Bryan, Great Salt Lake Minerals; Donald Ford, American Plant Food Corp.; and George Porvaznik, Jeffersonville River Terminal, to serve three-year terms. Two honorary directors, Gary Black, Georgia Agribusiness Council, Inc., and Jean Payne, Illinois Fertilizer and Chemical Association, were also welcomed by the board of directors.
TFI is governed by a 39-member board of directors representing the importing, manufacturing, wholesale, and retail sectors of the fertilizer industry.
Athabasca Potash Inc. has appointed Leo Bingleman as a director. Bingleman, who will also chair the audit committee, is a chartered accountant with 25 years experience as a financial executive in the mining industry.
Market Watch
AMMONIA
U.S. Gulf/Tampa: No changes were reported to the Tampa import and NOLA barge markets last week.
Correction: The correct U.S. Gulf NOLA price for the issue dated Dec. 1, 2008, was $250/st FOB. While the pdf file for the issue correctly labeled the price, a separate pdf file that contained only the price scan contained an older price.
Eastern Cornbelt: Anhydrous ammonia pricing remained in the $450-$575/st FOB range, with the low for cash tons in Illinois and the upper end on a spot basis in Ohio. Sources continued to report prepay ammonia offers in Illinois at the $550/st FOB mark.
Western Cornbelt: Anhydrous ammonia continued to be quoted in a broad range at $400-$550/st FOB, with the low for prompt tons and the upper end for limited prepay offers in the region.
Southern Plains: The anhydrous ammonia market was tagged at $315-$360/st FOB regional terminals to the dealer for prompt tons, with the low out of production points and the upper end FOB pipeline terminals. There were reports of spring prepay still on the table in the $350-$450/st FOB range in the region last week. There were also reports of preplant ammonia going down on corn ground in some sections of the region.
South Central: Anhydrous ammonia was tagged at $475-$500/st FOB regional terminals to the dealer, with the low reported at Memphis for either prompt or prepay tons.
Black Sea: Sources in Asia report there is not a lot of ammonia available from Yuzhnyy, and what is available is being diverted to the domestic market. Sources peg the market at $200/mt FOB, with producers saying any serious bid needs to be at $220/mt FOB.
Unfortunately for the producers, no one can even point to new business at $200/mt FOB. Asian sources say a deal can be done at $200/mt FOB, but finding a buyer would be very difficult.
Sources say with all the plants back up and running, a drop in prices is a real possibility. For now, the plants are reportedly operating at a reduced capacity. One Asian source said the production is enough to satisfy domestic needs and international contracts. He added there is little need to produce more than that minimal amount because the global market is so soft.
Middle East: Koch secured a cargo of 25,000 mt from Qafco at $200/mt FOB. Sources think the tons will be headed to Europe. Mideast sources say that deal set a new floor for spot deals in the area, and Asian sources back up this view. One trader noted that the producers are producing enough to cover their contracts to the Americas and Asia and not much more.
By running at a reduced level, sources say the producers can keep supplies low so that when a spot deal comes along, such as the Koch-Qafco deal, the producers can ask a higher price.
The tactic, however, does not seem to deter buyers from positioning themselves to snap up a deal when one occurs.
One producer noted that at least three vessels under charter to some Asian trading houses are hovering in the Gulf waiting for a buyer and seller to appear. Once a producer’s storage capacity is topped off, said the source, the traders will step in with a low bid to “help” the producer ease its storage pressures.
Producers may be feeling more pressure, said one trader.
Indian buyers had been picking up a steady supply of ammonia for DAP production. The purchases are less than last year, but still steady enough to keep producers from falling into depression. Now, say sources, some of that may ease off. Reports are circulating that India is increasing its DAP imports. The increase could cut into ammonia demand.
The Koch deal pretty much ensures bids below $200/mt FOB will be rebuffed at least for the next week or so. A lot will depend on a global recovery.
For now, the price is just a plain flat $200/mt FOB. Buyers are hesitant to offer more, and producers are unwilling to accept less.
Asia: Sources report that TFC in Taiwan is taking ammonia at a rate of about 80-90 percent of last year’s purchases. While that might sound like good news, industrial buyers CPDC and Formosa Plastic are buying at rates closer to half of last year.
For TFC, the reduction in CPDC buying means less concern about when the shipments arrive.
TFC shares a storage facility in southern Taiwan with CPDC. During normal years, the two companies have to carefully schedule their deliveries because of the limited storage capacity. With CPDC taking so few tons, TFC can buy when it wants to without fear of having a vessel sit at anchorage until a storage tank becomes available.
Mitsui is said to be considering taking its Indonesian plant down. The jv unit came back up last month after routine maintenance. The company had hoped prices would rebound sufficiently by February to warrant the restart of the plant, said one source. Prices, however, have not cooperated with the Mitsui planners.
Mitsubishi now looks as if it will keep its Indonesian plant down longer.
The facility went down for routine maintenance last month, and will remain shut down into February. Conventional wisdom said the plant would most likely open the second week of February. Now, however, it looks as if the plant will stay down for the rest of this month.
South Korean purchases are taking place, but at a drastically reduced rate. Sources say the main buyer has been Namhae, which is looking for tons for its fertilizer operations. The other major buyer, SFC, supplies ammonia to industrial users.
Sources report the Burrup facility in Australia is back up and running, purportedly at 70 percent of capacity. The material flowing from the plant is being used in the domestic market.
One trader said this would be a very bad time for the company to try to re-enter the international market.
UREA
U.S. Gulf: Granular barges have dipped but have started back up, according to major players last week. Sources said prompt barges dropped as low as $294-$296/st FOB, but had climbed back up to $298-$300/st FOB later in the week. Sellers moved their expectations up to the low $300s/st FOB, with one predicting it would be achieved by the end of the week.
Sources say the recent spate of buying has begun depleting NOLA inventories, citing the outage at Koch’s Enid plant as one factor. The outage has put pressure on supplies at Inola and Catoosa. There has been no official word from Koch on the status of the plant, which has been in the midst of an upgrade. Sellers also continue to predict that U.S. imports this season will be down.
Eastern Cornbelt: Granular urea was pegged at $355-$365/st FOB in the region.
Western Cornbelt: The granular urea market was generally quoted in the $350-$375/st FOB range in the region, although sources said no sales were taking place at the higher numbers.
Southern Plains: Sources tagged the Catoosa/Inola urea market at $350-$360/st FOB. Koch’s Enid, Okla., urea plant remained down last week, with industry sources talking of a possible startup sometime in March. Several sources said demand has eased since winter weather moved into the region in late January.
Fertilizer activity was described as pretty quiet, with movement limited by icy weather that moved into the region in mid- to late-January. Sources said movement for wheat topdressing has slowed as early applications tapered off and some growers wait for moisture and/or March before resuming fieldwork.
South Central: Sources tagged the granular urea market at $340-$350/st FOB regional terminals to the dealer for prompt tons.
Southeast: The granular urea market was pegged at $345-$350/st FOB port terminals for prompt tons, with sources describing market activity as quiet.
Pakistan: The head of TCP spent last week telling Pakistan media that TCP was buying 150,000 mt of urea based on the previously scrapped tender. The only problem, say Asian traders, is that TCP has only closed a deal for 30-35,000 mt with Transammonia.
One trader said at least the TCP brass was closer on the price. The announced amount was $285/mt CFR. The actual price is said to be $284.90/mt CFR.
According to the media reports, TCP is buying its urea from Singapore. Traders in Asia were surprised to learn of the newly discovered urea production capacity in Singapore. One trader noted that even the confirmed deal with Trammo does not involve Singapore. Transammonia has its regional office in Hong Kong.
With most in the industry dismissing the comments of the TCP leadership, many say another tender should be called by TCP shortly.
If and when the tender is called, sources say, TCP is not under pressure to buy based on the current needs and stockpiles in the country. Political pressure, they say, may lead TCP to buy more tons to soothe farmers’ concerns of a urea shortage.
Anything TCP buys now, say sources, will be used to build up reserves for the next season. Because of this, sources add that TCP could walk away from any first quarter tender unless the price is closer to their liking.
India: Rumors continue to circulate that the Department of Fertilizer is ready to authorize another tender. Just as in Pakistan, sources say India is at the stage where it does not need to buy urea immediately. Reportedly, stockpiles are sufficiently full to get farmers through the current application season.
Political pressure to prevent temporary spot shortages, however, may push the central government to authorize another tender.
Sources say the tendering company might be able to scrap the tender if the price is not to the liking of the treasury and buyer. The protection of the national treasury and attempts to provide urea to the farmers at the lowest possible price would give any of the importing companies – and the government – sufficient political cover against local politicians who want more urea sent into local warehouses at any cost.
Middle East: Producers continue to have enough vessels lined up to take away contracted tons to make them happy for another week. Contracted tons to Europe, the United States, and Asia allow producers to openly declare they are sold out for February.
Sources are not sure what will happen if a person shows up with a firm bid. Producers and traders agree that the right amount at the right time might be enough to persuade a producer to delay a contracted cargo in favor of a spot deal.
But the price really has to be the right one.
Sources say $300/mt FOB is needed to get into the door. To get a place at the table, $310/mt FOB is necessary.
The problem is that producers are not willing to talk to anyone about prices unless that person is showing up with a firm bid. Traders are reluctant to show up with firm bids at this point because they are afraid of getting trapped into a purchase of high-priced material in an unstable market.
There is some support to the idea of higher prices in the area. Sources report that Thai buyers are willing to entertain offers of $320-$340/mt CFR. With freight at almost giveaway prices, those Thai prices represent $300/mt FOB in the Middle East.
Egypt continues to increase its pricing ideas as well.
The double shot of the Arab Gulf and Egypt holding firm on higher prices means, to some traders, that higher-priced deals are a sure bet.
Black Sea: Prices are tightening and softening at the same time. The range of prices is down to $5/mt between the high and low – but the high has slipped to $280/mt FOB. And even at that, sources say it is unlikely anything was done at $280/mt FOB.
One Asian source noted that rumors are circulating that $275/mt FOB was done.
Some small ton business was done to buyers in Turkey. Traders say the price was in the upper $270s/mt FOB, but not representative of the typical larger deals that tend to move the market.
The softness of the global market has producers cutting back to either one line or shutting down altogether.
NITROGEN SOLUTIONS
U.S. Gulf: Barge prices continue to be reported in the $215-$225/st FOB ($6.72-$7.03/unit) range.
Eastern Cornbelt: UAN-32 pricing to the dealer was steady at $275-$285/st ($8.58-$8.91/unit) FOB regional terminals for cash or prepay offers.
Western Cornbelt: The UAN-32 market was quoted at $275-$290/st ($8.59-$9.06/unit) FOB regional terminals to the dealer. Sources reported no prompt business due to full inventories, so most of the pricing quotes were reported for spring prepay tons.
Southern Plains: The UAN-32 market remained at $240-$260/st ($7.50-$8.13/unit) FOB regional terminals, with several sources touting the upper end of that range as the more common pricing quote for prompt tons from both manufacturers and resellers.
South Central: UAN-32 was quoted at $260-$270/st ($8.13-$8.44) FOB regional terminals from prompt tons to the dealer, reflecting a slight drop from last report, although there was little new business to test the market. UAN prepay was quoted at $285-$290/st ($8.91-$9.06/unit) for spring.
Southeast: The UAN-30 market remained at $255-$260/st ($8.50-$8.67/unit) FOB most terminals on the East Coast, although there were reports of spot solutions tons out of Wilmington, N.C., being delivered for as low as $235/st ($7.83/unit), which sources said netted back to roughly $220/st ($7.33/unit) FOB. Actual sales at those lower numbers were not confirmed last week, however.
AMMONIUM NITRATE
U.S. Gulf: Barges continue to be reported in the $230-$250/st FOB range.
Western Cornbelt: The ammonium nitrate market was pegged at $250-$300/st FOB in the region.
Southern Plains: Ammonium nitrate was pegged at $265-$270/st FOB Catoosa, down slightly from last report.
South Central: Ammonium nitrate market was pegged at $275-$280/st FOB terminals in the region.
Southeast: Ammonium nitrate pricing remained as low as $340/st rail-DEL in the Carolinas, while Tampa nitrate pricing continued to be quoted in the mid- to upper-$400s/st FOB.
AMMONIUM SULFATE
Eastern Cornbelt: Granular ammonium sulfate was tagged at $165-$175/st FOB in the region, up slightly from last report following a $15/st price increase from Honeywell on Feb. 2.
Western Cornbelt: Granular ammonium sulfate pricing was reported at $165-$175/st FOB to the dealer last week.
Southern Plains: The granular ammonium sulfate market was steady at $200-$250/st FOB Texas shipping points, with the low FOB Freeport and the upper end FOB Plainview.
South Central: The ammonium sulfate market was steady at $200-$225/st FOB in the region.
Southeast: Granular ammonium sulfate was reported at $155-$165/st FOB, up slightly from last report. Honeywell reportedly raised its postings $15/st on Feb. 2, while DSM was slated to do the same on Feb. 9. As a result, DSM’s new ammonium sulfate postings will include granular at $155/st FOB Augusta, Ga., and $194/st DEL in Florida, with standard grade sulfate moving to $135/st FOB Augusta and $173/st DEL in Florida.
PHOSPHATES
Central Florida: A topic of discussion at the TFI conference last week in San Diego was the standoff between dealers and farmers on the amount of fertilizers they will use for the spring. Growers have not told dealers how much of what products they will want, so dealers have not been telling their suppliers what they will need. Some were estimating applications of phosphate could drop to rates of between 15-20 percent, which would not be good news for the industry. Fall fell by the wayside in terms of sales last year, and a dismal spring could be in store. It does not necessarily hold true that a decline in volume in one season will be made up in the next season or the next year. Farmers can mine the fertilizers they already have in their soil, because most have been using more than adequate amounts for about five years. Potash, which has remained unrealistically high, may be the most affected. Of course, the other side of the argument is that farmers may not want to take the chance that this will impact their harvest.
Phosphate processing plants in Florida continued to be either curtailed or shut down, and it would make little sense to get back into full production when there was little prospect of higher sales.
Sales were slower last week, primarily due to the unusually cold weather in the eastern U.S. Freezing temperatures reached deep into Florida last week and threatened some crops. Mid-week temperatures in Florida were colder than in many parts of the Midwest.
The Central Florida DAP price range remained at $305-$315/st FOB, based on recent sales. CF was said to be asking $310/st FOB for DAP and $330/st FOB for MAP. PCS Sales, which had been holding at $1,070/st FOB, withdrew its published price because its plants were no longer in operation. Mosaic had no posted price for Central Florida, but was said to be selling for as low as $305-$310/st FOB. The lowest prices were for big buyers, while dealers could expect to pay as much as $50-$60/st FOB more. The price from Agrifos was $350/st FOB for trucks $340/st FOB for rail shipments.
U.S. Gulf: Early last week, ice, followed by a snowstorm, ploughed through the U.S. – and that did not help phosphate sales, which have been slow to take off this year. By late in the week temperatures warmed in the Midwest, but serious cold clung to the eastern part of the country.
Rain was possible in Texas and Oklahoma on the weekend, and that would be welcome news to the drought-stricken area. However, Oklahoma, which tends to start earlier than the rest of the country, was humming along in terms of phosphate and urea business. Still, predictions were that sales would be down for the spring season.
A trader said that he was told by a grower in Indiana that he planned to reduce phosphate application somewhat and sharply cut back on use of potash for the spring season. The reasoning was that a reserve had been built up through heavy applications during the previous several years, and the grower believed yields would not be seriously affected. If yields do go down, crop prices may rise and farmers would be in a better position to buy fertilizer next year.
Warehouse prices were holding up in the river system, and barge prices allowed for reasonable profit margins. On the Arkansas River, warehouse prices for DAP were running $360-$365/st FOB and $10/st-$25/st FOB higher in upper areas of the Mississippi River.
Prompt NOLA DAP barge prices were running from a low of $310/st FOB to $315/st FOB last week, which set the NOLA DAP barge price range down at the high end from $320/st FOB the previous week. MAP barges were done at $330/st FOB and triple sold at $295/st FOB.
Eastern Cornbelt: DAP pricing to the dealer was reported at $360-$425/st FOB, with the low out of river terminals and the upper end out of inland warehouses to the dealer. MAP was $10/st higher than DAP out of most locations. 10-34-0 remained in a broad range at $650-$900/st FOB.
Western Cornbelt: Out of regional warehouses, the DAP market was quoted at $355-$400/st FOB to the dealer, with MAP $10/st higher. There were reports of some suppliers referencing DAP as high as $440/st FOB for spot tons to the dealer, but no sales were confirmed at those higher numbers.
The 10-34-0 market was pegged at $600-$675/st FOB in the region, with the low in Nebraska and the upper end in Iowa. One source said there will not be enough 10-34-0 supply to meet demand this spring due to phosphate production curtailments, so spot outages are likely.
Southern Plains: Sources continued to report relatively low interest from growers in prepaying phosphate products for spring, and even less enthusiasm for potash. The DAP market remained at $350-$365/st FOB Catoosa to the dealer, with MAP quoted in the $375-$400/st FOB range. 10-34-0 in the region was pegged in a very broad range at $590-$750/st FOB last week.
South Central: The DAP market was quoted at $350-$370/st FOB regional warehouses to the dealer, with MAP at a $10/st premium. TSP was pegged at $325-$345/st FOB the warehouse.
U.S. Export: In India, IFFCO and IPL announced a deal with Agro/Ameropa for the initial purchase of 1.2 million mt of DAP at prices published two months earlier than delivery. The contract covers a one-year period, at which time it will be reviewed. That was the same deal rumored in late January and could not be confirmed.
In addition, PhosChem made a sale of 6,000 mt into South America at $360/mt FOB.
Based on the recent sales, the export DAP price range increased from a flat $358/mt FOB previously to another flat $360/mt FOB last week. Exports should increase during the next few months.
POTASH
Eastern Cornbelt: Potash was quoted at $720-$800/st FOB regional warehouses, depending on grade and location. One Illinois source pegged the common dealer range in the $740-$780/st FOB range last week, but said there was no business to test the market.
Western Cornbelt: Sources continued to quote potash out of regional warehouses in the $700-$750/st FOB range to the dealer, depending on grade and location. Producer postings were quoted at the $815/st FOB mark or higher, but interest remained very low.
Southern Plains: The potash market was pegged at $715-$740/st FOB regional warehouses. Reference prices FOB Carlsbad, N.M., remained at $794-$800/st, depending on grade.
South Central: Potash was pegged at $750-$775/st FOB regional warehouses to the dealer. Sources said producers are sticking firm to $800/st FOB or more. “All of us are sitting there waiting to see if we can push our inventory,” said one source, who speculated the spring usage in his trade area will be down by at least 50 percent.
Southeast: Sources pegged the potash market at $810-$850/st DEL in the region, with the upper end quoted by a Carolina source for delivered granular tons.
SULFUR
Tampa: The mood of the sulfur industry at TFI’s conference at San Diego was a bit on the gloomy side last week, as the Tampa molten price settled at $0.00/lt for the first quarter. The optimists thought the down time would continue for only another couple of months, but there was little positive on the horizon to base that upon. The phosphate industry, which consumes about 75 percent of domestic sulfur production, has remained in a basic stalemate in terms of sales, and the outlook for the spring season was far from bright. Sulfur continued to back-up, and the industry was struggling for creative ways to get rid of it.
Where possible, sulfur was being dumped into landfills. That practice was increasing in Canada, where rules governing disposal into Class 2 landfills were changed to allow dumping of liquid as well as dry sulfur.
Otherwise, excess sulfur was going to Galveston for blocking and Beaumont for prilling at Martin’s plants, or to vessels used only for storage. One source said a landfill in Georgia had been opened for sulfur disposal.
Another possibility was for oil companies to begin refining more sweet crude than heavy, which would reduce the amount of sulfur extracted.
The Week in Fertilizer Stocks
| Producer | Symbol | Price | Week Ago | Year Ago |
| Agrium | AGU | 36.12 | 35.49 | 61.12 |
| CF Industries | CF | 52.44 | 49.14 | 103.72 |
| Intrepid Potash | IPI | 22.45 | 21.90 | N/A |
| Mosaic | MOS | 41.35 | 37.77 | 92.69 |
| PotashCorp | POT | 85.92 | 78.70 | 139.86 |
| Terra Industries | TRA | 23.22 | 20.69 | 42.08 |
| Terra Nitrogen | TNH | 122.50 | 118.13 | 119.27 |
| Distribution/Retail | ||||
| Andersons Inc. | ANDE | 17.09 | 17.40 | 45.87 |
| Deere & Co. | DE | 39.64 | 37.85 | 81.90 |
| Scotts | SMG | 34.13 | 34.20 | 38.00 |
SPOT BARGE PRICES
Terra rejects CF offer; CF still interested
Terra Industries Inc. said early Jan. 28 that its board of directors has unanimously concluded that the Jan. 15, 2009, unsolicited proposal from CF Industries Holdings Inc. (GM Jan. 19, p. 1) is not in the best interests of Terra and Terra’s shareholders.
In a letter to CF chairman, president, and CEO Stephen Wilson, the Terra board said that while it was perplexed by CF’s decision to make a public approach that is conditioned on and subject to due diligence, it has nonetheless examined thoroughly the full range of strategic, industrial, financial, and legal aspects of the combination proposed.
“We concluded that your proposal does not present a compelling case to create additional value for the shareholders of either company, and that it substantially undervalues Terra on an absolute basis and relative to your company,” said the Terra board. “Accordingly, our board has unanimously concluded that your proposal is not in the best interests of Terra and our shareholders and we decline to accept it.”
Under CF’s proposal, each common share of Terra would be entitled to receive 0.4235 shares of CF. CF noted that this was a 23 percent premium over the closing price of Terra shares on Jan. 15, 2009. The transaction valued Terra at $2.1 billion, or $20 per share. Under the deal, CF shareholders would have owned 53 percent of the company and Terra 47 percent.
Around noon on Thursday, CF responded to Terra’s rejection, saying it remains committed to its proposal to create a leader in the global fertilizer industry through an acquisition of all outstanding common shares of Terra Industries Inc. “We are confident that our proposal is a full and fair offer and continue to believe that a combination of the two companies would provide significant benefits to both CF Industries and Terra shareholders, employees and customers,” said Stephen Wilson, CF chairman, president, and CEO. “With annual cost synergies expected to exceed $100 million and the combined talent and scale to compete better globally, we believe the combination is in the best interests of all CF Industries and Terra constituents. Our offer, which is not subject to any financing condition, has been very positively received by the market.”
CF said while it remains its strong preference to enter into a negotiated transaction with Terra, the company is committed to a combination and will consider its options.
Industry speculation as to what will happen regarding the deal spanned the gamut. Some agreed that CF gave a good offer, while others felt Terra was undervalued. Still others speculated that CF may increase its bid and Terra will eventually accept. However, the entire economy is in a period of uncertainty. Terra owners may want to roll the dice and see if the economy improves. After all, aren’t most fertilizer companies predicting long-term growth? If true, shouldn’t things improve? CF values Terra shares at $20. Terra has a 52-week high-low of $11.21-$57.64. Then again, Terra shareholders may want to eventually reduce their risk and become part of a much larger nitrogen company that also has investments in phosphate.
Others wondered if there might be antitrust concerns, though CF has dismissed these, citing nitrogen as a global market, with the U.S. importing some 50 percent of its nitrogen needs.
Others suggested the CF offer may elicit other bidders and start a bidding war. However, will other potential bidders be stymied by the global financial crisis?
If there are other bidders – who? Yara International ASA, the major global nitrogen player, dove into the North American production business by acquiring Saskferco Inc. in 2008. Would it be interested in expanding its North American production? It is already a joint venture partner with Terra in the United Kingdom. Like Terra in the U.S., Yara in Europe is involved in the sale of nitrogen to clean up vehicle emissions.
And what about Agrium Inc.? It is a big player always looking for an opportunity. It lost some U.S. production with the idling of its Kenai, Alaska, plant. Agrium lacks a major nitrogen plant in the U.S. heartland and bowed out of attempts years ago to build a huge plant in the Midwest. It is a retail giant that must source a lot of nitrogen.
What about Bunge Ltd., a major fertilizer player in South America? It has recently beefed up its marketing in North America.
And could Koch Nitrogen Co. digest another round of nitrogen plants?
The question for all of these or other players, however, gets back to whether they have the wherewithal in today’s financial climate to move forward with such a large acquisition.
The one major player not on the list may be PotashCorp, which in the past has stressed its acquisition preference for potash assets. More nitrogen has not been a priority.
Florida micronutrient business shuts down; financial improprieties alleged in labor case
Traylor Chemical & Supply Company, an Orlando-based manufacturer and distributor of micronutrients and chelates for the fertilizer industry, has closed its doors and ceased operations after 56 years in business. Although company representatives could not be reached by Green Markets, industry contacts said the closure was the result of financial difficulties that included legal actions taken against Traylor in 2007 by the U.S. Department of Labor.
Traylor’s website was no longer active, and telephone numbers to the Orlando headquarters and to wholesale outlets in Georgia, Indiana, and Texas were disconnected. A former Traylor employee said the company closed its doors in late September 2008, notifying employees only the day before that it was ceasing operations. “They called people on Thursday and told them Friday was their last day,” he told Green Markets.
The shuttered business represents a stark change of fortune for William “Bill” Traylor Jr., president of the company and son of its founder, W. Leroy Traylor. Just last summer, Bill Traylor, 71, was honored by the Florida Fertilizer & Agrichemical Association with a Lifetime Achievement Award for his contributions to the Florida fertilizer and crop protection industry (GM Aug. 18, 2008, p. 10).
“They simply ran out of money,” the former employee said, adding that Traylor owed “multiple people” at the time of the closure. He said Traylor had not filed for bankruptcy protection, and some of the company’s creditors have been weighing legal options to limit their losses. Green Markets’s own survey of bankruptcy proceedings for Orlando and Atlanta showed no listings for Traylor Chemical & Supply dating back to the time of the closure.
According to filings with the Florida Uniform Commercial Code (UCC) and the Secretary of State office, Traylor Chemical’s major secured creditors include LSQ Funding Group LC, Orlando; Direct Capital Corp., Portsmouth, N.H.; U.S. Bancorp, Marshall, Minn.; and Sun Trust Bank South Florida NA, Lake Park, Fla.
Judgment liens against Traylor Chemical were also filed with the Florida Secretary of State in late 2008 by two businesses in Mexico who sued and won judgments against the company. The first, filed Nov. 21, is for $85,914 by Erachem Mexico S.A. DE C.V. Corp., Veracruz, Mexico, and the second was filed Dec. 31 for $55,903.41 by Fabrica de Sulfato el Aquila S.A. DE C.V., Jalisco, Mexico.
Traylor’s difficulties date back to at least 2007. In August 2007, the U.S. Department of Labor obtained a judgment and order requiring Traylor Chemical & Supply to restore $612,658 plus 6 percent annual interest to the company’s profit-sharing plan. The department’s lawsuit, filed simultaneously with the judgment in federal district court in Orlando, alleged that the company, William Traylor Jr., William E. Comer, and Frances Hale violated the Employee Retirement Income Security Act (ERISA) when they executed 32 prohibited loans between the plan and Traylor Chemical. At the time of the improper loans, the defendants served as trustees of the plan as well as officers of the company. Comer was listed as the company’s chief financial officer, and Hale as its treasurer.
According to the complaint filed in the case, the defendants “caused or allowed” 32 loans to be made from the plan to the company between July 17, 1998, and Sept. 17, 2004, totaling $2,532,000. The suit also alleged that the defendants failed to take action to restore the full amount of outstanding loans owed to the plan, causing losses to the plan of at least $2,532,000 plus lost earnings, and that each defendant “failed to monitor and correct the improper actions of the other plan trustees.”
The judgment also included a payment schedule that required the company to provide to the DOL proof of monthly payments, ranging from $15,320.47 to $49,340.19, that started on May 1, 2007, and were to extend through June 1, 2009. The total of the 26 monthly payments is listed in the document as $661,579.35.
According to Gloria Della, a spokesperson for the Department of Labor, the legal process against Traylor is still ongoing. “They are still collecting on the judgment,” she told Green Markets. “We try very hard to get all our money back.” The DOL also has authority to assess a civil monetary penalty in cases involving violations of ERISA, but Della said Traylor has not at this point been assessed a fine in the case.
According to the DOL judgment, money restored to the plan was to be allocated to the accounts of all plan participants except the defendant trustees. At the time of the judgment in August 2007, the DOL said the plan had 33 participants. The former Traylor employee said the staff members hardest hit by the company’s financial undoing were long-term employees in Florida and Indiana who had been with Traylor for 20 years or more.
Traylor Chemical & Supply was described by the FFAA last year as “one of the nation’s leading manufacturers and distributors of micronutrients and chelates used in the fertilizer industry,” with operations in Georgia, Indiana, and Texas, and with international exports to Central and South America and Canada. FFAA said Bill Traylor’s “expertise in chemistry and micronutrients made him a key figure in negotiating a heavy metals regulation for Florida fertilizers.” Traylor was also chairman of FFAA’s board from 1995 to 1996.
In a business profile published by the Orlando Business Journal on Sept. 28, 2008, Bill Traylor said a major obstacle for his company was “being competitive with the rising prices of raw materials.” Asked what his worst business decision was, Traylor said, “I waited too long to get rid of the delivery truck fleet when gas prices started to rise. We were not getting paid enough to cover the cost of the trucks.”
China to allow domestic fertilizers to move with market
At the same time the export duties are being increased from China, Beijing announced it would remove all controls from fertilizer prices.
Beginning Feb. 1 the price of all domestic and imported fertilizers will be decided by market forces, according to the National Development and Reform Commission.
In the past the producers had to petition the government to increase prices. The government was always reluctant to approve the price hikes out of fear of antagonizing the country’s 900 million farmers.
The price of urea and DAP had to be raised to cover the costs of the inputs, which were slowly being deregulated. Eventually the cost of producing the fertilizers forced the government to either establish more subsidies for the producers or find other ways to help the farmers.
In recent years the central government has eschewed more subsidies to inefficient factories. In some cases local governments picked up the tab to keep the older urea plants operating rather than face massive unemployment if the plants closed.
Phosphate and urea producers were being hit hard by the increase in domestic supply – partly due to duties that discouraged exports – and increased input costs. The latest government action is seen by some Asian traders as a move to help the manufacturers without providing direct subsidies to maintain production.
Industry observers in China expect to see local prices rebound from their current slump.
Media reports also state that some of the inputs to the plants will be provided at “preferential rates.” In the past this has been a euphemism for subsidies.
One trader noted that if natural gas is being supplied from the national company at below market levels, by any other name that is a government subsidy.
The decision to allow fertilizers to move by market demand will affect farmers, who are already feeling the credit crunch faced by their counterparts around the globe. The saving move for the farmers is that the imposition of higher export duties will keep the producers from sending their products offshore once the international markets pick up.
FBI raid on Bakersfield organic fert producer raises questions about enforcement
California state and industry regulators were notified of the possibility of another organic fertilizer manufacturer “spiking” its product with unauthorized ingredients in 2007, about the same time California Liquid Fertilizer (GM Jan. 26, p. 1, Jan. 5, p. 10) was being investigated for the same reason, Green Markets has learned. At that time, Kern County inspectors found aqueous ammonia among other chemicals stored at Port Organics Products in Bakersfield and not reported as required by state law, Kern Environmental Health Director Matt Constantine told GM.
“One of the chemicals we identified was aqueous ammonia we suspected was used in the manufacturing of their product, but we were not certain,” Constantine reported. He said he was not an expert in organic practices, but agreed that it was safe to assume that the chemical was there for that purpose. He said he told the media at first that the department had not reported the discovery to other agencies, but that “subsequent review revealed that we had had contact with Organic Materials Research Institute, the California Certified Organic Farmers, and the California Dept. of Food and Agriculture.” He said he was unaware of that until recently finding out that a member of his staff made those contacts in 2007 following the county’s investigations. To his knowledge, he added, his department didn’t hear back from any of the three agencies.
Constantine also disclosed that his department participated with FBI agents in the raid late last month on Port Organics (GM Jan. 26, p. 11), but declined to provide any details. As is customary, FBI agents were not talking about the search of the properties, and Constantine said he was obligated to protect their confidence.
The raid does, however, raise questions about who’s in charge of enforcement in California. The California Dept. of Food and Agriculture, which is responsible for verifying – but not certifying – fertilizer content, declined to comment since the agency may be the focus of a U.S. Dept. of Agriculture investigation. CDFA spokesman Steve Lyle issued a one-sentence statement that said “we are cooperating with federal agencies but cannot disclose details because of an ongoing investigation nor comment directly on that report.” Lyle also said he could not confirm reports that state fertilizer inspectors may get additional auditing powers, and the state Senate Food and Agriculture Committee has scheduled a hearing on the issue Feb. 3.
At the same time, the Organic Materials Research Institute (OMRI), an industrial entity that certifies and decertifies, reported that Port Organics “was on its radar,” but was not aware, nor was it involved in, the FBI raid in Bakersfield. OMRI has announced new measures to strengthen the certification process, while California Certified Organic Farmers (CCOF), which also has certification responsibility, announced it was mandating inspections of fertilizer makers that sell to its clients.
The possibility of an investigation of CDFA’s handling of the California Liquid Fertilizer matter was raised by officials with USDA’s Agricultural Marketing Service, which reported that they are looking into why it took more than two years to force the removal from the market of illegal organic fertilizer that contained ammonium sulfate to boost nitrogen content. Spokeswoman John Shaffer also said that the National Organic Program, which is administered by AMS, is working with California to review and strengthen the state’s organic program. Shaffer told the press the failure of the state agency to act quickly against the supplier could lead to federal disciplinary action. She said a complaint was filed with the USDA over the state’s handling of the probe, and as a result AMS requested the state provide a history and timeline of the investigation.
OMRI Executive Director Dave DeCou said more certification verification control points had been installed, including the requirement for every client to sign a binding contract that forbids any company found guilty of product misrepresentation from reapplying for one year. In addition, onsite inspectors will determine whether facilities are capable of what they claim in their application. All clients also will be required to maintain and open their records to an OMRI auditor. The onsite records establish whether they have received and paid for sufficient quantities of compliant ingredients to make the amount of finished product sold and stored.
CCOF also said it is working directly with manufacturers and compliance and inspection bodies to ensure that the highest level of verification and implementation of the National Organic Program are met to protect its growers, consumers, and the organic community. Use of all Port Organic products also has been banned effective Jan. 23.