LSB Industries Inc. is looking for a potential partner that will commit to take all of the 325,000 st/y of UAN from its Pryor, Okla., nitrogen facility. LSB is seeking permits to bring the long-idled plant back up (GM April 7, p. 11). However, it has yet to make a final decision as to whether to proceed with the Pryor startup. It recently told analysts that it would prefer to find one major buyer with a good distribution network that would commit to take all the product on a year-round basis, rather than having to go out in the market to try to solicit small sales.

“We want to make sure we can sell out the plant,” Tony Shelby, LSB CFO and executive vice president, finance, told analysts.

In preparation for the potential startup, LSB says it will likely hold off on any near-term repurchases of its own stock. LSB expects the startup to cost $15-$20 million and take about a year. About half of the cost will be capitalized, while the other half would be expensed as incurred. LSB said it is also looking at other chemical expansion opportunities besides Pryor.

In the meantime, LSB said its chemical business – which includes fertilizer, industrial, and mining related nitrogen products – was the standout performer for the company in the first quarter ending March 31, 2008, with a 57 percent increase in operating profits. Chemical operating income was $12.1 million on sales of $91.3 million for the quarter, up from the year-ago $7.7 million and $73.7 million, respectively.

The company said that the improved chemical results were driven by substantially higher sales prices for fertilizer products, increased UAN tons shipped, and slightly better pricing for mining products and industrial acids. During the first quarter UAN tonnage shipped was 22 percent higher than the year-ago period, while revenues from these sales increased 109 percent. LSB gave the average published sales price per ton for the quarter as $361/st, up 58 percent from the year-ago $228/st. In the meantime, the cost of natural gas, the primary feedstock for the Cherokee, Ala., nitrogen plant, was $7.04-$9.80/mmBtu, versus the year-ago $5.30-$10.59/mmBtu.

LSB said there was depressed early demand for fertilizer in the first quarter, primarily for ammonium nitrate from the El Dorado, Ark., facility. As a result, the company sold 35 percent fewer tons of the product than the year-ago quarter. However, revenues for the product were only down 21 percent, reflecting higher prices per ton. Ammonia, the primary feedstock for El Dorado, went from the mid-$400s/mt in January to a current price of about $550/mt. However, the company noted that the majority of El Dorado’s sales are to customers who accept the cost of ammonia as a pass through. LSB hopes to grow its non-seasonal industrial business with an emphasis on customers who accept the risk inherent with raw material cost fluctuations. This is currently 60-65 percent of chemical sales.

LSB says it maintains a strong presence in the seasonal agriculture sector, which is 35-40 percent of its sales. The real growth in the chemical business is the ag side – everything else is steady.

LSB said the distribution system to the north of its facility was full, waiting to be taken down. He said LSB does not have much UAN inventory, but it will produce pretty much full out in the second quarter. At El Dorado, the movement of ammonium nitrate is a little bit slower and the company has a lot of inventory, but it expected demand to pick up in May.

LSB-wide, net income was $10.9 million ($.46 per diluted share) on sales of $160.4 million, versus the year-ago $10.8 million ($.28 per share) and $147.4 million, respectively. Net income was nearly level due to a $6.7 million provision for income taxes taken in the current quarter. LSB operating income was $19.3 million versus the year-ago $13.5 million.

LSB’s climate control business also saw increased operating profits to $9.3 million, up from $8.5 million, though sales were off. Despite national concerns over the current housing crisis, the company said its own market share in this segment continues to lead the industry. The first quarter was its highest on record for bookings. However, another concern is higher prices for copper, steel, and aluminum, which are up 25 percent since the beginning of the year.

More than 1,600 leaders of the fertilizer industry met in Vienna, Austria, last week to discuss the impact of record prices on the industry and end users. Increased demand for fertilizer has caused the price increase because new production is not yet online.

IFA reports showed that capacity across the board remained relatively stable during the past 10-15 years, while recent demand skyrocketed in the past two years. The higher prices the industry currently enjoys are allowing companies to afford new investments in production facilities.

The problem for buyers is that the timeframe from initiation of building a new plant or opening a new mine will still be at least three years. Large fertilizer importers such as India and Pakistan will continue to face a problem of balancing their fertilizer needs and their national treasuries.

J.S. Sarna, secretary to the Indian Department of Fertilizers, told IFA delegates that the subsidies planned for the 2007-2008 fiscal year are budgeted for US$9.2 billion. Next year the amount is estimated to be US$22.5 billion. He said increases in the price paid for fertilizer cannot keep rising at current levels without a major economic and social disruption.

The rising prices and the trend for continued high prices brought out what one delegate called the largest number of financial institutions he has ever seen attending the annual event.

One Asian trader said he was dumbstruck by how many investment bankers were at the conference. He said he took as many meetings with potential financiers as he did with his regular customers.

IFA also noted that plants were operating at levels higher than anticipated, according to sources. On the average, global ammonia plants ran at 88 percent of capacity for 2007, compared to 86 percent in 2006. Urea plants ran at just above 90 percent capacity last year, a level previous estimates considered unlikely.

An IFA assessment concluded that the slight surpluses that currently exist could be cut into as capacity grows in the next five years.

One observer noted that until the new capacity is online, prices would most likely remain high. He added that high natural gas and petroleum costs would also keep adding to the final price of fertilizers.

Both the House and Senate voted on May 22 to override a presidential veto of the 2008 Farm Bill, putting the full $307 billion legislation on track to become law. The legislative process was not without some hiccups, however, as a portion of the bill was mistakenly left out of the package sent to and vetoed by President Bush on May 21.

According to the Agricultural Retailers Association, which supported the bill and praised Congress for overriding the president’s veto, the Trade title of the 2008 Farm Bill Conference Report was inadvertently left out of the version sent to the President. As a result, this title will not yet become law even with the veto override, since it was not part of the version vetoed by President Bush. ARA reported that the House on May 22 approved the farm bill agreement with the trade title as a precautionary step in case of any constitutional challenges to the legislation.

The bill, criticized by President Bush as being too expensive and bloated with earmarks at a time when U.S. farmers are enjoying higher crop prices and improved farm income, was approved in the House by a vote of 306 to 110, and in the Senate shortly thereafter by a vote of 82 to 13. The margins of support in both chambers were more than enough to defeat the veto that President Bush cast on Wednesday. Senate Agriculture Committee Chairman Tom Harkin (D-Iowa ) said on the Senate floor Thursday that all of the farm bill titles except for the trade title are now law with the Senate’s farm bill override vote.

The bill includes the Agricultural Chemicals Security Credit provision, which will provide a tax credit to agricultural retailers, distributors, and other eligible agricultural businesses that improve security at their fertilizer and pesticide storage facilities. The measure was supported by ARA and The Fertilizer Institute. The final bill also includes additional funding for tank locks and additives to reduce the production of methamphetamine from anhydrous ammonia, and measures to increase federal oversight authority to detect and prevent manipulation and limit speculation in U.S. electronic energy markets by increasing reporting requirements.

“We are pleased that the Agricultural Chemicals Security Credit provision and other key policy priorities such as reforms to the Technical Service Providers (TSP) program, anhydrous ammonia nurse tank grant program, and increased transparency and oversight of energy trades were maintained in the 2008 Farm Bill,” said ARA President and CEO Jack Eberspacher. “We applaud Senator Pat Roberts (R-Kan.) for spearheading efforts on the inclusion of the Agricultural Chemicals Security Credit provision. ARA also thanks all members of the conference committee and other Senate and House members that assisted on this proposal.”

Among the many provisions in the five-year legislation, the 2008 Farm Bill will boost nutrition programs, including food stamps and emergency domestic food aid, by some $10 billion; increase subsidies for certain crops, including fruits and vegetables excluded from previous farm bills; extend dairy programs; increase loan rates for sugar producers, and urge the government to buy surplus sugar and sell it to ethanol producers for use in a mixture with corn; cut a per-gallon ethanol tax credit for refiners from 51 cents to 45 cents, and push more money to cellulosic ethanol; stop allowing farmers to collect subsidies for multiple farm businesses; and pay farmers for weather-related farm losses from a new $3.8 billion disaster relief fund.

In his May 21 letter to the House vetoing the bill, President Bush criticized the legislation on several grounds. “At a time of high food prices and record farm income, this bill lacks program reform and fiscal discipline,” he said. “It continues subsidies for the wealthy and increases farm bill spending by more than $20 billion, while using budget gimmicks to hide much of the increase.” Bush also said the bill was inconsistent with his administration’s objectives in international trade negotiations, and needlessly expands the size of government.

“At a time when net farm income is projected to increase by more than $28 billion in 1 year, the American taxpayer should not be forced to subsidize that group of farmers who have adjusted gross incomes of up to $1.5 million,” Bush said. “When commodity prices are at record highs, it is irresponsible to increase government subsidy rates for 15 crops, subsidize additional crops, and provide payments that further distort markets.”

ARA, TFI, and CropLife America, along with some 1,050 other associations and trade groups, sent letters on May 21 to both the House and Senate urging them to override Bush’s veto.

“Communities across the nation, from urban to rural, have waited too long for this legislation,” the letter stated. “The Conference Report makes significant farm policy reforms, protects the safety net for all of America’s food producers, addresses important infrastructure needs for specialty crops, increases funding to feed our nation’s poor, and enhances support for important conservation initiatives. This is by no means a perfect piece of legislation, and none of our organizations achieved everything we had individually requested. However, it is a carefully balanced compromise of policy priorities that has broad support among organizations representing the nation’s agriculture, conservation, and nutrition interests.”