The Week in Fertilizer Stocks
| Producer | Symbol | Price | Week Ago | Year Ago |
| Agrium | AGU | 71.75 | 66.50 | 40.70 |
| CF Industries | CF | 137.10 | 114.55 | 40.67 |
| Mosaic | MOS | 122.65 | 104.52 | 27.51 |
| PotashCorp | POT | 178.10 | 167.67 | 56.47 |
| Terra Industries | TRA | 42.30 | 37.28 | 18.20 |
| Terra Nitrogen | TNH | 126.97 | 115.43 | 59.00 |
| Distribution/Retail | ||||
| Andersons Inc. | ANDE | 42.64 | 43.53 | 43.26 |
| Deere & Co. | DE | 86.91 | 83.00 | 53.75 |
| Scotts | SMG | 35.11 | 35.31 | 45.14 |
| UAP | UAPH | 38.65 | 38.49 | 25.41 |
SPOT BARGE PRICES
Mosaic reports stellar earnings; plans further expansion of potash mines
The Mosaic Co. reported net earnings of $520.8 million ($1.17 per diluted share) on net sales of $2.15 billion for the third quarter ending Feb. 29, 2008, compared to the year-ago $42.2 million ($.10 per share) and $1.28 billion. Nine-month net earnings were $1.22 billion ($2.74 per share) on sales of $6.34 billion, versus the year-ago $217.1 million ($.49 per share) and $4.09 billion, respectively.
“We are delivering record results by effectively executing against the backdrop of an exceptional agricultural environment,” said Jim Prokopanko, Mosaic president and CEO. “We are bullish on the fundamental drivers of our sector and see this momentum continuing. With our phosphates and potash businesses and international footprint, we are well positioned to serve our customers and meet the growing demand for crop nutrients globally.”
Third-quarter phosphate gross margins were $478.4 million on sales of $1.26 billion, versus the year-ago $19.7 million and $690.7 million. Operating earnings were $442.7 million versus a year-ago loss of $11.1 million. Nine-month gross margins were $1.23 billion on sales of $3.67 billion, versus the year-ago $164.8 million and $2.24 billion, respectively. Operating earnings were $1.1 billion versus the year-ago $76.9 million.
The phosphate business put in a phenomenal performance, even with significantly higher ammonia and sulfur feedstock costs. The average DAP price during the quarter was up 98 percent, to $487/mt compared to the year-ago $246/mt. Ammonia was up at $399/mt from $345/mt, while sulfur was $174/lt from $62/lt.
Third-quarter potash gross margins were up 157 percent to $209.1 million on sales of $547.3 million, versus the year-ago $81.3 million and $342.7 million, respectively. Operating earnings were up 192 percent, to $195.9 million from the year-ago $67.0 million. Nine-month margins were $510.9 million on sales of $1.39 billion, versus the year-ago $239.1 million and $984.9 million, respectively. Operating earnings were up 127 percent to $467.3 million from the year-ago $206.0 million.
The average MOP price was up 53 percent, to $221/mt during the third quarter from the year-ago $144/mt.
Mosaic on April 4 announced a major long-term mine expansion in Saskatchewan in response to the continuing robust global demand for potash. The total expansions announced, together with those announced in May 2007, are expected to increase Mosaic’s annual capacity by approximately 5.1 million mt at an estimated average capital cost that is significantly lower than greenfield projects. Upon completion of these expansions, Mosaic’s total annual capacity will approximate 15.5 million mt, maintaining Mosaic as one of the premier potash companies in the world. The expansions are projected to occur over the next twelve years, with the first expansion production coming online in 2009. Some of the expansions are already underway, while others are in the planning and approval stages.
In addition to these expansions, approximately 1.3 million mt of annual capacity will revert to Mosaic within the next few years upon the expiration of a Potash Corp. of Saskatchewan Inc. tolling agreement at Esterhazy.
“We believe the global demand and supply fundamentals support this growth in our capacity and will allow us to fulfill our growing customer needs,” said Prokopanko. “We are positioned to bring on what we believe is the lowest cost incremental capacity in the industry while maintaining the flexibility to moderate the timing of these expansions as demand materializes,” Prokopanko added.
Prospective Plantings report sees more soybeans, less corn in 2008
Citing in part the impact of high input costs, USDA’s 2008 Prospective Plantings report projects the U.S. corn crop at 86 million acres, down 8 percent from last year’s 93.7 million acres. While most analysts expect the 2008 crop to trail last year in planted area, many were surprised by USDA’s low estimate. As recently as late February, a USDA economist told Green Markets audio conference listeners that the agency was expecting a 90 million acre corn crop in 2008, down just 4 percent from 2007.
“Expected acreage is down from last year in most states as favorable prices for other crops, high input costs for corn, and crop rotation considerations are motivating some farmers to plant fewer acres to corn,” USDA’s National Agricultural Statistics Service said in the report, which was released March 31. “Despite the decrease, corn acreage is expected to remain at historically high levels as the corn price outlook remains strong due in part to the continued expansion in ethanol production.”
The biggest losses in corn production are in the Western Cornbelt, with Iowa acreage dropping 9 percent, Nebraska 12 percent, and South Dakota a full 19 percent from 2007. According to AgWeb, a division of Farm Journal Media Inc., these three states account for fully half of the ethanol production in the U.S.
USDA said it expects to see a sizable chunk of that corn acreage switched to soybeans in 2008. The agency projected the U.S. soybean crop at 74.8 million acres, up a whopping 18 percent from last year, but 1 percent below the record high set in 2006. USDA said it expects soybean acreage increases in all states except West Virginia, with the largest increases projected in Iowa and Nebraska, up 1.25 million acres and 1.20 million acres from 2007, respectively.
Some remained skeptical of USDA’s projected acreage shift from corn to soybeans. “As we look at those corn numbers that is just not going to be enough corn to even begin to meet the needs for our livestock industry, for the ethanol producers, and the export sector,” said Purdue Agricultural Extension Economist Chris Hurt after Monday’s release of the USDA report. “Consequently we have seen corn prices stay fairly steady, or even increase a little bit after this report, and soybean prices based on the report have dropped very sharply.”
Hurt noted on the Hoosier Ag Today website that as of the close of markets on March 31, “our estimates were showing, for average quality Midwestern land, $135 an acre higher return to plant corn vs. soybeans. We have to get more acres of corn vs. what those intentions were on March 1st.”
Dr. Gerald Bange, chairman of the World Outlook Board for USDA, told a Green Markets audio conference audience on Feb. 27 that although USDA is “cognizant of the sharp increase in fertilizer prices,” the “net return on corn is still profitable” even with the drastically higher input costs (GM March 3, p. 1).
Some industry sources speculated that the lower corn acreage estimate was due to the wet weather that has saddled much of the Midwest during late March and continues to delay the start of planting. The only problem with that theory is that the USDA survey upon which the projections are based was conducted during the first two weeks of March, before the rain delays were a factor.
USDA estimated all wheat planted area for 2008 at 63.8 million acres, up 6 percent from 2007. The 2008 winter wheat planted area, at 46.8 million acres, is 4 percent above last year and up slightly from the previous estimate, USDA said. Area planted to spring wheat for 2008 is expected to total 14.3 million acres, up 8 percent from 2007. The intended Durum planted area for 2008 is 2.63 million acres, up 22 percent from the previous year.
True to analysts’ predictions, USDA said it expects a significant downturn in cotton planted area in 2008. Total cotton acreage is projected at 9.39 million acres, down 13 percent from 2007. USDA said growers intend to decrease planted cotton area in all states except Georgia and Oklahoma, with the largest acreage declines in Arkansas, Mississippi, Tennessee, and Texas.
Area planted to rice for 2008 is expected to total 2.77 million acres, up 9,000 acres from 2007, but 2 percent less than was planted in 2006. “Despite rising prices, increases in input costs and high prices for competing commodities have growers weighing the benefits of increasing acreage,” USDA said. Arkansas growers intend to plant 1.37 million rice acres this year, up 3 percent from last year. Planted acreage in California and Texas is also expected to increase, while acreage in Louisiana, Mississippi, and Missouri is expected to decrease from 2007.
The USDA Planting Projections are not an absolute. Last year, the Prospective Plantings Report issued March 30, 2007, for 2007 was for 90.45 million acres of corn to be planted (GM April 2, 2007, p. 10). This was actually some 3.35 million acres, or 3.8 percent below the 93.7 million that was actually planted.
Railroad administration announces proposed safety standards for NH3 tank cars
The Federal Railroad Administration (FRA) on March 31 released a series of proposed standards and safety regulations for tank cars carrying toxic-by-inhalation chemicals such as anhydrous ammonia and chlorine. The safety regulations are the “most sweeping and revolutionary proposal in decades,” according to U.S. Secretary of Transportation Mary E. Peters.
“This proposal is designed to significantly reduce the hazard of hauling hazardous materials by rail,” Peters said, noting that the performance-based standard will increase by 500 percent on average the amount of energy the tank car must absorb during a train accident before a catastrophic failure may occur.
The proposal requires tank cars carrying TIH commodities to be equipped with puncture-resistance protection strong enough to prevent penetration at speeds of 25 mph for side impacts and 30 mph for head-on collisions, which the FRA says is more than double the speed for existing tank cars. The proposal allows flexibility in reaching that goal, but it is expected the outer tank car shell and both head ends will be strengthened, the inner tank holding the hazmat cargo will be better shielded, and the space between the two will be designed with more energy absorption and protection capabilities.
The proposed rule also sets a maximum speed limit of 50 mph for any train carrying TIH tank cars. In addition, a temporary speed restriction of 30 mph is being proposed for all TIH tank cars that do not meet the puncture-resistance standard and are traveling in non-signaled or “dark” territories, until the rule is fully implemented or other safety measures are installed. These dark areas currently make up about half of the nation’s rail lines.
The proposed rule also requires that some of the oldest TIH tank cars in use today be phased out on an accelerated schedule. The rule specifically targets TIH tank cars manufactured prior to 1989 with non-normalized steel, which the FRA believes “may not adequately resist the development of fractures that can lead to a catastrophic failure.” Under the proposal, all pre-1989 tank cars that carry TIH chemicals would be removed from service within five years. Such a standard would force the industry to replace an estimated 15,300 tank cars in the next eight years; the FRA estimates the cost at $350 million, spread over 30 years.
The proposal was developed by the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration in close consultation with the Federal Railroad Administration. “When the opportunity to make major advances in safety is within our reach, we should not settle for incremental measures,” Federal Railroad Administrator Joseph H. Boardman said.
Chemical industry participants also weighed in on the tank car proposals, including The Fertilizer Institute. “We have been working with FRA and with Association of American Railroads (AAR) for over a year,” said Pam Guffain, TFI’s vice president of member services. “We’re pleased that we finally got the proposed rule out.”
Although the proposed regulations held few surprises for TFI, Guffain said the industry was expecting a longer period to replace the older tank cars, and would likely raise that point with the FRA during a 60-day public comment period. “Our fleet is relatively young, averaging 10-15 years,” she said, noting that efforts were made to remove non-normalized tank cars from service after the 2002 derailment in Minot, N.D., which caused an ammonia release that claimed the life of one local resident. “The industry has made a good effort over the last several years to get those out of service, and those that are still being used are on a time schedule to be retired.”
Guffain said the proposed speed limits for TIH tank cars “could be a factor in delivery times,” but she praised the DOT for looking at the safety issue “in a holistic way, and not just at tank car design.”
The debate over tank car design and the safe transportation of TIH chemicals has been a contentious one at times between TFI and the AAR. As recently as March 12 (GM March 17, p. 1), TFI issued a pointed response to recent statements made by AAR President and CEO Edward Hamberger calling on chemical companies to stop manufacturing dangerous products that it claimed could be “replaced by safer substitutes or new technologies.” TFI President Ford West said in a statement that TFI took “vigorous exception” to Hamberger’s remarks, and that public safety would be better served if AAR refocused its efforts on “doing whatever is necessary to continue the safe and secure delivery of these critical materials.”
AAR officials announced last week that they would postpone their own new voluntary tank car safety standard, scheduled to go into effect April 1, while they review the 186-page federal plan.
After the public comment period, the FRA may revise the proposal before issuing final rules. Boardman said he wants to have the new rules in place before the Bush administration leaves office in January 2009, and expects them to be implemented by the end of 2008.
The Agricultural Retailers Association said it shares TFI’s concern about the time frame for tank car replacement. ARA also fears the newer cars would be heavier and could carry less product, driving up transportation costs. “We are concerned about less service from the railroads,” said ARA’s Richard Gupton. “Many ag retail locations could not handle heavier railcars.”
ICL fertilizer income up 94.5 percent in 2007; plans phosphate and potash expansions
Israel Chemicals Ltd. reported March 30 that its fertilizer business, ICL Fertilizers, saw a 94.5 percent increase in operating income for the year ending Dec. 31, 2007. This represents $518.9 million on a 45.1 percent increase in sales, which were $2.15 billion. This compares to 2006’s $266.8 million and $1.48 billion, respectively.
ICL cited significant price increases in phosphate and potash, together with a sharp rise in quantities of potash sold. This contrasts with 2006, when sales were lower due to a stalemate in negotiations with the Chinese. In 2007, ICL said sales rose in all target markets, particularly to South America, Asia, and Western Europe.
Fertilizer income and sales represented some 24.7 and 52.4 percent of ICL total sales in 2007, up from 2006’s 18.0 and 45.4 percent, respectively.
Fourth-quarter fertilizer operating income was $187.8 million on sales of $675.0 million, versus the year-ago $102.7 million and $440.0 million, respectively.
ICL-wide net income was reported at $535.6 million on sales of $4.1 billion for 2007, up from 2006’s $373.9 million and $3.26 billion, respectively. Fourth-quarter net income was $164.7 million on sales of $1.21 billion, up from the year-ago $90.2 million and $839.6 million, respectively.
Fresh off the positive fertilizer news, ICL announced on March 31 a spate of phosphate and potash expansions. It plans to increase production of phosphate rock by 500,000 mt during 2008 through utilization of current excess capacity. It will consider potential additional increases in phos rock production to reach full capacity utilization of 4.5 million mt, depending upon conditions in the market. It is also considering a plan to increase phos rock capacity by an additional 600,000 mt by 2010.
In addition, ICL is eyeing a plan to increase capacity of fertilizer grade phosphoric acid P205 by approximately 40,000 mt/y. It may also gradually increase capacity of phosphate fertilizers by 250,000 mt during the next four years.
On the potash side, it plans to increase production by 250,000 mt/y by increasing the carnallite production capacity of Evaporation Pond 3 at the Dead Sea. A portion of one area of the pond will be converted from salt precipitation to carnallite production. It believes that it will complete the conversion by the end of 2008, with the first carnallite harvest expected at the beginning of 2009.
ICL will also increase production capacity at the Dead Sea by an additional 250,000 mt by implementing technological improvements and opening bottlenecks in existing plants. This additional capacity will be created gradually through 2011.
ICL will also increase production at its potash mines in Spain and the United Kingdom by approximately 300,000 mt/y as a result of a program, commenced in 2007, to upgrade equipment at these mines.
Also under consideration is a plan to increase production capacity of potash at the Dead Sea by an additional 1 million mt over a period of five-to-eight years.
LSB mulls restart of Pryor nitrogen complex
Oklahoma City-LSB Industries Inc. recently told analysts that it has applied for permits to restart its long-idled Pryor, Okla., nitrogen plant. However, the company cautioned that it has not made a final decision to actually restart the plant. It hopes to make a decision in the not-too-distant future. LSB estimates that it would cost some $15-$20 million to bring the plant back up. Once up, it is expected to add some $100 million to the revenue stream. LSB said it would likely not bring up the entire facility, but was particularly interested in bringing up 325,000 st of UAN capacity, as well as ammonia and some industrial products. The Pryor facility was previously owned by Wil-Gro Fertilizer which liquidated its assets in 2000 (GM Feb. 7, 2000, p. 1). The company upgraded its plant in 1996 just before the industry went into a down cycle. Other LSB-owned nitrogen plants within its El Dorado Chemical unit are at Cherokee, Ala., El Dorado, Ark., and Baytown, Texas.
LSB expects “Wells Notice” from SEC
Oklahoma City-LSB Industries Inc. said April 2 that it has been notified by the staff of the Securities and Exchange Commission that LSB will receive a formal “Wells Notice” relating to a previously disclosed informal inquiry by the SEC staff of one of its subsidiary’s changes in inventory accounting from LIFO to FIFO prior to 2005. The accounting change involved approximately $500,000 and resulted in the restatement of certain of LSB’s annual and quarterly financial statements. LSB first disclosed an informal inquiry from the SEC relating to this matter during August 2006. LSB said the SEC staff indicated that the Wells Notice will state that the SEC staff preliminarily decided to recommend that the SEC institute a civil enforcement action relating to the change in inventory accounting method against LSB and its principal accounting officer. Under the process established by the SEC, LSB will have the opportunity to respond in writing to the notice before the staff makes its formal recommendation to the SEC. LSB said it intends to respond to the Wells Notice once it is received and to vigorously defend any action brought by the SEC. It said it cannot predict the outcome or timing of this matter.
Mississippi lock repair completed early
St. Louis, Mo.-Barges began moving again on the Mississippi River north of St. Louis on April 1, just five days after river traffic was shut down while repairs were made to Lock No. 25 at Winfield, Mo., about 45 miles north of St. Louis. According to wire reports, about 200 barges had been waiting to clear the lock, which opened to traffic at 12:45 a.m. on Tuesday. The unscheduled maintenance at the lock involved repairs to deteriorated pins holding the lower gate to the wall. An initial estimate put the lock closure at eight days from the time of the announcement on March 26 (GM March 31, p. 1). Some fertilizer industry sources had expressed concerns that the closure could hamper movement of replacement tons to upriver locations, but the continuing wet weather in the Midwest kept fertilizer movement and fieldwork to a minimum in early April. The Associated Press reported that Lock No. 25 began operations in 1939, with some 30 million tons of commodity cargo passing through its gates in 2007 alone. Lock No. 25 is reportedly one of seven locks on the Mississippi and Illinois rivers authorized by the 2007 Water Resources Development Act for expansion with a 1,200-foot-long chamber. The expansion projects at all of the locks are expected to cost $2 billion, according to the U.S. Army Corps of Engineers.