| Producer | Symbol | Price | Week Ago | Year Ago |
| Agrium | AGU | 36.38 | 38.78 | 64.17 |
| CF Industries | CF | 55.22 | 60.13 | 93.18 |
| Intrepid Potash | IPI | 19.46 | 21.02 | N/A |
| Mosaic | MOS | 33.88 | 37.81 | 70.00 |
| PotashCorp | POT | 78.99 | 84.71 | 121.80 |
| Terra Industries | TRA | 18.72 | 21.82 | 39.31 |
| Terra Nitrogen | TNH | 99.36 | 75.52 | 102.27 |
| Distribution/Retail | ||||
| Andersons Inc. | ANDE | 22.74 | 25.02 | 42.99 |
| Deere & Co. | DE | 35.81 | 38.44 | 79.00 |
| Scotts | SMG | 24.98 | 25.24 | 40.12 |
All posts by traceybg@gmail.com
SPOT BARGE PRICES
CF income off due to gas losses; company takes coal gas project off table
CF Industries Holdings Inc. saw a drop in net income for the third quarter ending Sept. 30, 2008, to $47.1 million ($.82 per diluted share) versus the year-ago $86.5 million ($1.52 per share). CF cited $251 million in non-cash, pre-tax unrealized losses, or $2.88 per share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives. During the year-ago quarter, the company reported $1.9 million ($.02 per share) in gains from gas derivatives.
Third-quarter net sales were up 75 percent, to $1.02 billion from the year-ago $582.9 million, due to substantial price increases for all products.
“CF Industries’ third quarter sales clearly reflect the strong pricing trends we’ve seen in global fertilizer markets for much of this year, with significantly higher prices for all our products,” said Steve Wilson, CF chairman and CEO. “This is typically a slow quarter for the North American fertilizer industry, as producers build inventory for the fall season. Despite that, our sales exceeded the billion-dollar mark for only the second time in the company’s history.”
Third-quarter gross margin was $120.9 million, versus the year-ago $151.3 million.
The nitrogen segment had a third-quarter gross margin in the loss column at $70.5 million on sales of $599.1 million, versus the year-ago positive margin of $80.2 million and $388.8 million, respectively.
CF estimates that it had about $11 million in pretax costs due to Hurricane Gustav, with $4 million of those being actual minor damage. The Donaldsonville complex, which went down Aug. 30 in preparation for the storm, had all units back in operation by Sept. 24. Electricity did not return to the area until Sept. 8. CF noted that logistics were also challenged by July flooding on the upper Mississippi River, followed by low water levels and the Gulf hurricanes. CF said its flexible distribution system was effective in restoring normal operations and product flow. Overall, nitrogen complexes operated at 84 percent of capacity during the quarter, with the higher postings at Medicine Hat, Alberta, offsetting Gustav-impacted Donaldsonville.
Nitrogen sales under the Forward Pricing Program totaled 960,200 st during the quarter, some 75 percent of segment sales volume. This compares to 53 percent for the year-ago quarter.
Third-quarter phosphate margins were $191.4 million on sales of $421.7 million, compared to the year-ago $71.1 million and $194.1 million. CF’s Plant City, Fla., phosphate complex operated at 99 percent of capacity during the third quarter.
Third-quarter phosphate sales under the FPP totaled 236,700 st, or 52 percent of segment sales volumes, down from the year-ago 45 percent and 72 percent in the second quarter 2008.
When announcing earnings Oct. 27, CF also said it has suspended activity with respect to the proposed gasification installation at Donaldsonville. It cited the high degree of uncertainty regarding several aspects of the project, including capital costs and future government policies on carbon dioxide emissions. As a result, CF said the project cannot be justified economically at this time.
CF said it continues discussions on the natural gas contract for its proposed nitrogen complex in Peru. CF said it and Technip, a leading engineering and project management firm, have made substantial progress on the project’s front-end engineering and design study, which they anticipate will be complete by year’s end.
CF also announced that during the third quarter it purchased a third dragline for use at its Hardee County, Fla., phosphate mine. When operational in 18 months, the line will significantly increase mine efficiency. In addition, it said the proposed uranium extraction project from its phosphate business is very much alive in concept.
As for the industry outlook, CF expects U.S. corn acreage will total more than 90 million acres next spring. The company also noted lower natural gas prices in its nitrogen business and lower ammonia and sulfur prices for phosphates.
Wilson told analysts that there was a lot of fear and loathing in the fertilizer markets right now. “We don’t think it is justified. For example, we don’t think farmers make their planting decisions for 2009 based on the October 2008 cash price for corn. This is typically the low point in the year for crop pricing. The December ’09 futures prices are a far better indicator, and that price provides the clear incentive to plant corn next spring. Yes, we are seeing price weakness for some fertilizer products, especially urea, and to a lesser extent UAN. It’s the off-season and even modest changes in supply can significantly affect prices at this time of year. After all, fertilizer is still a commodity.”
Wilson said even figuring corn at $4.43 per bushel and 153 bushels per acre, a farmer could still get a return after costs of $350 per acre.
Wilson said that once demand kicks in, prices here will need to reach levels that attract millions of tons of urea away from other markets. He also noted that Cornbelt prices of ammonia remain strong even though the fall application season is just beginning. He said there appears to be a lot of demand out there for ammonia if farmers can get it to the field.
As to whether the urea market has hit bottom, Wilson cited capacity shutdowns in Europe and Ukraine. “I don’t know whether this is the bottom. It’s beginning to feel like it is.”
Wilson said that CF has good forward order book for the fourth quarter, with about 1.5 million tons of nitrogen and phosphate contracted through year-end at attractive margins.
Wilson also noted that it has been moving potash through its distribution system with the help of its partner, Keytrade. Wilson said CF’s warehouse system has excess capacity, and it is looking to see if it can make a significant margin by moving product though the system this fall and next spring.
Nine-month results still remain ahead of last year. Nine-month net income was $494.5 million ($8.60 per share) on sales of $2.85 billion, up from the year-ago $237.3 million ($4.19 per share) and $1.9 billion. Nine-month gross margin was $862 million, up from the year-ago $434 million. Nine-month nitrogen gross margin was $489 million on sales of $1.89 billion, up from the year-ago $293.7 million and $1.4 billion, respectively. Nine-month phosphate gross margin was $373 million on sales of $963.6 million, versus the year-ago $140.3 million and $493 million, respectively.
| 3Q-08 | 3Q-07 | YTD-08 | YTD-07 | |
| Nitrogen | ||||
| Tons sold (000) | 1,282 | 1,346 | 4,666 | 5,012 |
| Ammonia | 111 | 116 | 717 | 916 |
| Urea | 547 | 618 | 2,001 | 2,003 |
| UAN | 615 | 605 | 1,912 | 2,049 |
| Other nitrogen | 9 | 7 | 36 | 44 |
| Avg Selling Price $/st | ||||
| Ammonia | 571 | 370 | 513 | 375 |
| Urea | 596 | 334 | 456 | 319 |
| UAN | 339 | 230 | 314 | 207 |
| Gas Cost | ||||
| Donaldsonville | 10.48 | 7.89 | 9.18 | 7.68 |
| Medicine Hat | 7.72 | 5.42 | 8.07 | 6.17 |
| 3Q-08 | 3Q-07 | YTD-08 | YTD-07 | |
| Phosphates | ||||
| Tons sold (000) | 457 | 497 | 1,383 | 1,468 |
| DAP | 404 | 394 | 1,167 | 1,188 |
| MAP | 53 | 103 | 216 | 280 |
| Domestic | 277 | 368 | 1,037 | 1,136 |
| Export | 180 | 129 | 346 | 332 |
| Avg Selling Price $/st | ||||
| DAP | 943 | 388 | 715 | 334 |
| MAP | 771 | 403 | 600 | 345 |
Risk management webinar draws big audience
A record audience tuned in Oct. 29 for Managing Risk in a Volatile Fertilizer Market, a 90-minute interactive audio conference sponsored by Green Markets. The event allowed registrants to listen via telephone as three risk management experts discussed a range of techniques to mitigate pricing, supply, and demand risk, and also ask questions in a live format at the conclusion of the panel discussion.
The speakers assembled by Green Markets included Keith Swanson, manager of dealer risk management services for CHS Inc.; Darrel Ingram, president of Direct Hedge S.A.; and Ryan Sherwood, price risk management consultant for FCStone. All three speakers noted the opportune timing of the event, with fertilizer prices for nitrogen and phosphate products plummeting in recent weeks after reaching historic highs through much of 2008.
Topics included in-depth looks at hedging strategies, cash settled swaps, and futures contracts. “Price risk is as great as it’s ever been,” said Swanson at the start of his presentation, predicting continued market swings throughout 2009 and 2010. “This volatility will stay with us. It’s not going away any time soon.”
An audio recording of this event and past Green Markets audio conferences is available on CD-Rom for $199, and can be ordered by visiting http://greenmarkets.pf.com/webinar.
USDA lowers corn projections, crop price rebounds
USDA’s newest crop production report, released Oct. 28, projected U.S. corn production in 2008 at 12.0 billion bushels, down slightly from the September forecast and 8 percent below 2007. Based on conditions as of Oct. 1, yields are expected to average 153.9 bushels/acre, up 1.6 bushels from September and 2.8 bushels above last year. If these results are realized, USDA said this will be the second highest yield on record, trailing only 2004, and production will be the second largest, behind last year.
Yield forecasts were lower than last month across the Ohio and Tennessee Valleys and the Eastern Cornbelt, which USDA attributed to dry conditions that lingered through August and September and continued to adversely affect the late developing corn crop. Forecasted yields also decreased in parts of the Delta and in Missouri, where excessive moisture and high winds from Hurricanes Gustav and Ike stressed the crop.
USDA said corn yield prospects improved in the central Cornbelt, central Great Plains, and upper Mississippi Valley, however, as September rains brought much-needed moisture to those locations. USDA said U.S. farmers are now expected to harvest 78.2 million acres for grain, down 1 percent from the September forecast and 10 percent below 2007.
The revised corn projections buoyed crop prices, and also the spirits of growers and fertilizer dealers on Tuesday. Following the release of the report, corn futures for December delivery rose 12.5 cents, or 3.4 percent, to $3.8525 a bushel on the Chicago Board of Trade, the biggest gain since Oct. 20. Earlier, the price touched $3.64, the lowest since Oct. 25, 2007, and down dramatically from the $7.9925 achieved on June 27. The surge continued on Oct. 29, closing at $4.2075 for December 2008. The corn market closed lower Thursday after its sharp three-day rally, however, with December corn ending at $4.0950 per bushel.
USDA put this year’s soybean forecast at 2.94 billion bushels, up slightly from the September forecast and up 10 percent from last year. If realized, this would be the fourth largest production on record. Based on Oct. 1 conditions, USDA said soybean yields are expected to average 39.5 bu/a, down 0.5 bushel from Sept. 1 and down 2.2 bushels from 2007.
Compared with Sept. 1, USDA projected lower or unchanged soybean yields across the Cornbelt and Southern Plains, with the exception of Illinois and Kansas. Yields increased or were unchanged from the Sept. 1 forecast across the Southeast, the lower Mississippi Valley, and the mid-Atlantic states. USDA estimated total planted soybean area in the U.S. at 75.9 million acres, while area for harvest in the U.S. was forecast at 74.4 million acres, up 1 percent from Sept. 1 and up 16 percent from 2007.
All U.S. cotton production was forecast at 13.7 million 480-pound bales, down 1 percent from last month and down 29 percent from last year. Cotton yields are expected to average 849 pounds per harvested acre, unchanged from last month, but down 30 pounds from the record yield in 2007. Upland cotton production is forecast at 13.3 million 480-pound bales, down 1 percent from last month and 28 percent below 2007.
Cotton producers in the Southeast and Texas are expecting increased yields from last month, while producers in Louisiana and Mississippi expect lower yields due to the effects of Hurricane Gustav. Upland growers in Arkansas and New Mexico are expecting record high cotton yields, USDA said.
DHS seeks comments on Secure Handling of AN Program
The U.S. Department of Homeland Security (DHS) issued an Advanced Notice of Proposed Rulemaking (ANPR) for the Secure Handling of Ammonium Nitrate Program in the Federal Register on Oct. 30. The ANPR seeks industry comments on the new regulations, which will require DHS to regulate the sale and transfer of AN to enhance security and keep the product out of the hands of terrorists or those with criminal intent.
Both The Fertilizer Institute and the Agricultural Retailers Association supported the Secure Handling of Ammonium Nitrate Act and lobbied for its passage. Both organizations told Green Markets last week that they will be drafting and submitting comments in response to the ANPR, and ARA sent a notice to members soliciting their input.
Congress enacted the Secure Handling of Ammonium Nitrate Act on Dec. 26, 2007. The legislation amends the Homeland Security Act of 2002 by requiring DHS to ”regulate the sale and transfer of ammonium nitrate by an ammonium nitrate facility…to prevent the misappropriation or use of ammonium nitrate in an act of terrorism.” DHS also derives its authority for administering the rules under the Chemical Facility Anti-Terrorism standards (CFATs), which were approved as part of the Homeland Security Appropriations Act of 2007.
As reported previously by Green Markets, the Secure Handling of Ammonium Nitrate Act requires AN facilities and prospective AN purchasers to apply for registration numbers from DHS in order to sell, transfer, and /or purchase AN, and authorizes DHS to conduct checks of identifying information to all prospective registrants against identifying information that appears in the Terrorist Screening Database. DHS would issue or deny registration numbers within 72 hours of receipt of a completed registration application from an AN facility or purchaser. The rule also provides for an expedited appeals process with a turnaround of 72 hours for applicants denied a registration number.
Under the rule, AN facilities would have to verify that potential AN purchasers are registered with DHS by checking the purchaser’s AN identification and registration number. All AN facilities would be required to keep records of sales or transfers of AN for at least two years after each transaction, with penalties for failing to maintain records. AN facilities and AN purchasers would also be required to report the theft or loss of AN to Federal law enforcement officials within one calendar day of discovery of theft or loss.
DHS also has authority under the rule to conduct or oversee regulatory compliance inspections and audits of AN facilities’ records to ensure that regulated facilities are properly maintaining records and following requirements of the AN registration program. DHS plans to develop guidance materials and posters detailing the registration program requirements and penalties for violations. DHS has the authority to assess civil penalties of up to $50,000 per violation of the regulations.
DHS also noted in the Federal Register that it will determine a threshold percentage of AN in a substance as a prerequisite for that substance to be considered AN fertilizer for the purposes of the AN registration program.
Specifically, DHS said it seeks comments on how registration applications should be submitted and how registration letters or certificates should be distributed; the best methods for verifying the identity of any AN purchaser, as well as the identity of designated agents purchasing AN on behalf of registered AN purchasers; the detonability of AN at certain concentrations; the viability of AN fertilizer alternatives such as Sulf-N 26, the patented product recently unveiled by Honeywell (GM Sept. 29, p. 1); how best to conduct or oversee regulatory compliance inspections and audits of AN facilities’ records; the likely economic impact of the regulations on state and local governments, agribusinesses, AN manufacturers, importers, packagers, distributors, retailers and farmers; ideas for a fee structure to address some or all of the costs of the program; benefits of the program, and alternative methods of complying with the legislation; and additional ideas for enhancing AN security through interaction with state and local governments.
Written comments must be submitted to DHS on or before Dec. 29, 2008. Comments can be submitted through http://www.regulations.gov, Docket # 2008-0076, or by mail at the following address: U.S. Department of Homeland Security, National Protection and Programs Directorate, Office of Infrastructure Protection, Infrastructure Security Compliance Division, Mail Stop 8100, Washington, D.C. 20528.
New Idaho roadless rule designates areas for phosphate development
Phosphate producers in Idaho are welcoming the state-specific roadless rule adopted earlier this month for the Caribou National Forest as good for the industry. “We’re fine with it,” declared Alan Prouty, director of environmental and regulatory affairs for J.R. Simplot Co. “We see it as further increasing the longevity of the industry.”
The U.S. Forest Service earlier this month completed the rule for managing 9.3 million acres of roadless national forest. The action makes Idaho the first state in the country with such protection, and provides access to nearly 20,000 acres considered eligible for phosphate leasing in roadless areas. Colorado is believed very close to adopting its own roadless rule.
The Wilderness Society and the Greater Yellowstone Coalition opposed the plan because it opens 405,000 acres of roadless lands to full forest uses, including logging, road construction, and phosphate mining. But the Idaho Conservation League and Trout Unlimited hailed the plan because it will allow temporary roads only in the acres of roadless area where limited logging can take place to reduce fire hazard.
The plan designates 250 roadless areas and establishes five management themes that guide road construction, timber cutting, and mineral development. It was published Oct. 16 in the Federal Register and now supersedes the roadless rule put in place before President Clinton left office. The Clinton Rule has since been challenged by 10 lawsuits and ruled invalid in federal court.
Simplot’s Prouty figured the fact that phosphate is considered a national strategic mineral prevailed for the mining industry. “That’s why the Caribou Forest plan allowed for the exploration and development of phosphate in roadless areas through the NEPA process,” he pointed out. “In addition, the Idaho Roadless Area Management Plan was built using the pre-existing management plans for all the national forests in Idaho. For the Caribou, that included the provision for phosphate mining, which makes exploration and development in southeastern Idaho consistent with the longstanding forest management plan. Even the Clinton Roadless Rule allowed for this development.”
In giving the plan a thumbs-up, Jonathan Oppenheimer of the Idaho Conservation League remarked, “Appreciation for the land and for Idaho traditions of hunting, camping, hiking and fishing led to a plan that will ensure that our kids and grandkids have the opportunity to experience Idaho at its best.”
But critics said the new rule would result in 15,000 acres of logging and 50 miles of road construction in Idaho roadless areas during the next 15 years in order to haul out 75 million board feet of logs, or 15,000 truck loads, according to Forest Service estimates.
Marv Hoyt, Idaho director for the Greater Yellowstone Coalition, warned that most of the more than 400,000 acres of roadless lands that will lose protection are located in eastern Idaho, within the Greater Yellowstone Ecosystem. “More specifically,” Hoyt added, “the Idaho Roadless Rule provides a special dispensation to the phosphate mining industry in southeastern Idaho. Thousands of acres in five roadless areas that would be protected under the Clinton Roadless Rule would be opened to phosphate mining, along with all of its ancillary activities.” Hoyt said it is likely that the Idaho Rule will be challenged in court, and “if so the coalition will certainly consider participating in such a legal challenge.”
Fertilizer consumption tops 57.5 M in 2006-07
Washington-U.S. fertilizer consumption was 57.58 million material short tons for the fertilizer year ending June 2007, according to Commercial Fertilizers 2007, a cooperative project of the Association of American Plant Food Control Officials (AAPFCO) and The Fertilizer Institute (TFI). This represents a 6.8 percent increase over the prior year’s 53.89 million st. On a nutrient ton basis, 2006-07 consumption was up 7.8 percent to 22.9 million st, up from 21.245 million st. Of the major nutrients, nitrogen led the way on a nutrient ton basis, up 9.6 percent to 13,194.4 million st, up from the year-ago 12,043.8 million st. Potash was up 8.7 million st, to 5,133.3 million st from 4,722.9 million st. Phosphates were up 2.1 percent, to 4,571.7 million st from 4,478.6 million st. Commercial Fertilizers 2007 is available for $30 for TFI and AAPFCO members and $100 for non-members. For further order inquiries call Valerie Sutton at TFI, 202-515-2709. All proceeds from the sales go directly to AAPFCO to support their data collection and compilation efforts, which make the report possible.
CF board okays $500 M stock repurchase, dividend
Deerfield, Ill.-CF Industries Holdings, Inc. said Oct. 27 that its board of directors has approved the repurchase of up to $500 million of the company’s common stock. “Our strong balance sheet is a result of our excellent financial performance over the last several years and our disciplined approach to deploying capital,” said Steve Wilson, CF chairman and CEO. “While we continue to make progress on a number of long-term growth initiatives, investing up to $500 million in CF Industries’ common stock reinforces our commitment to careful stewardship of our shareholders’ capital. The underlying fundamentals of our business today suggest that the company’s investment in its common stock should provide an attractive rate of return for our continuing shareholders, compared to some other near-term investing opportunities the company is considering.” In other news, CF’s board has declared a $.10 per share dividend on its common shares for the fourth quarter. The dividend will be payable on Dec. 1, 2008 to stockholders of record as of Nov. 14, 2008.
Compass 3Q fert earnings up 448 percent
Overland Park, Kan.-Compass Minerals reported that specialty fertilizer operating earnings were up 448 percent for the third quarter ending Sept. 30, 2008, to $42.3 million on sales of $73.4 million, up from the year-ago $7.7 million and $29.1 million, respectively. Sales volumes were 98,000 with an average sales price of $752/st, up from the year-ago 86,000 st and $341/st, respectively. Nine-month fertilizer operating earnings were $81.1 million on sales of $175.1 million, versus the year-ago $24.3 million and $96.7 million. Nine-month volumes were 332,000 st with an average sales price of $528/st, versus the year-ago 308,000 st and $314/st, respectively. Compass said it currently expects full-year sulfate of potash sales volumes to be approximately 425,000-430,000 st and fourth-quarter average prices to approach $1,000/st. “Continued strong demand for our products drove robust sales, earnings and cash flow in the third quarter, and we expect our business to remain strong,” said Angelo Brisimitzakis, Compass president and CEO. “Demand for highway deicing salt and sulfate of potash specialty fertilizer has continued to exceed supply. Our strategic investments in additional production capacity at our advantaged facilities will allow us to address supply imbalances while fueling long-term profitable growth. Compass Minerals is a predominately non-cyclical company selling generally non-discretionary products with substantial cash flow and a solid balance sheet, which has allowed us to continue to execute our long-term business strategies even in today’s difficult economic environment.” Company-wide, Compass reported third-quarter net income of $28.7 million ($.87 per diluted shares) on sales of $237.4 million, versus the year-ago $6.7 million ($.20 per share) and $139.5 million, respectively. Nine-month net income was $79.4 million ($2.39 per share) on sales of $779.4 million, compared to the year-ago $29.6 million ($.90 per share) and $531.2 million, respectively.