Industry rumors have been circulating in recent weeks that the fertilizer assets of Agriliance LLC are on the market. While neither Agriliance nor its 50/50 joint venture owners, CHS Inc. and Land O’Lakes Inc., had any official comment last week, the rumors appear to be pervasive and persistent, with reports that some interested parties have already toured Agriliance terminals.

Agriliance, based in Inver Grove Heights, Minn., was formed on Feb. 3, 2000. It represents itself as the largest crop inputs company in the U.S., serving some 2,200 farm supply dealers. Agriliance’s website says it provides “a broad spectrum of crop nutrients (more than 600 different products), including primary, secondary and micronutrients for agriculture and related markets.” The company also has Agriliance Exchange, an online trading site for fertilizer products designed to help dealers manage risks associated with fluctuating crop nutrient costs.

Opinions varied among industry sources last week as to the veracity of the rumors of an impending sale. While noting that nothing has been confirmed or denied by the companies involved, one source commented that “there is a lot of smoke, so there’s usually fire behind that.” This sentiment was shared by many, but another industry insider late in the week said he believed CHS and LOL would ultimately decide to keep Agriliance.

Pressed for a response, Agriliance Communications Director Annette Degnan told Green Markets, “It is company policy to decline comment on ongoing business discussions or rumors. Agriliance is committed to communication and full disclosure at the time formal business agreements are reached.”

As for interested parties, the rumor mill ran the gamut last week, with Agrium, ConAgra, Yara, and United Agri-Products all mentioned as possible candidates. One source said big producers and large bulk material handlers would be the most likely buyers, noting that “it will take somebody pretty stout. Those aren’t cheap facilities.”

UAP President and CEO L. Kenny Cordell has talked of his company’s focus on “strategic acquisitions in key geographic areas,” but a UAP source last week described UAP’s interest in Agriliance as “strictly rumor.” Yara is not interested, according to a company source.

There was also speculation that one of Agriliance’s jv owners might be willing to buy out the other. One industry source talked of CHS’s alleged interest in divesting its share in Agriliance while focusing more on its other agronomy enterprises, which include a newly announced 24,000-ton agronomy facility in Warren, Minn. (GM June 4, p. 15). Others mentioned the synergies that might be gained by LOL if it could combine Agriliance with its successful seed business, Croplan Genetics®.

Another uncertainty was which part of Agriliance was theoretically for sale. In addition to its wholesale crop nutrient assets, Agriliance is a distributor and marketer of a full line of crop protection products and seed, operating 149 company-owned retail locations, primarily located in the southern U.S. The company employs approximately 2,200 and has total annual sales of $3.7 billion, including $1.1 billion of wholesale crop protection products, $1.6 billion of wholesale crop nutrients, $1.0 billion in retail sales, and $52 million in agronomy equipment sales.

Agriliance’s website lists some 130 agronomy locations in the U.S., but not all are 100 percent owned by Agriliance ?Çô many are “shuttle houses” that are owned with other companies. Still, sources talked of numerous Agriliance-owned terminals with river and/or rail access that would represent hub plants of particular interest to would-be buyers.

These include the company’s deep-water port at Galveston, Texas, which Agriliance acquired from River Materials LLC in 2004 (GM Aug. 9, 2004) and subsequently billed as an “integral part” of its import strategy. Some industry sources last week referred to Galveston as the “crown jewel,” noting its new 90,000-square-foot warehouse, with on-site storage capacity of 70,000 tons and annual processing capacity of 750,000 tons (GM March 13, 2006). The Galveston facility also has rail access to both the BNSF and Union Pacific rail lines. Agriliance’s lease at the port of Galveston runs for 15 years, with seven extensions of three years each.

Other key locations include terminals at Memphis, Tenn., Muscatine, Iowa, St. Paul, Minn., Little Rock, Ark., and Caledonia, N.Y., representing what one source described as a “pretty good distribution system for a manufacturer.”

Beefing up prospects that Agriliance may simply stay in the CHS/LOL fold were its most recent earnings for the first quarter ending March 31, 2007. They were much improved. After an off year in 2006, first quarter net earnings were up $21.2 million, to $10.4 million versus the year-ago loss of $10.8 million. Net sales were up over $100 million, to $729.1 million versus the year-ago $625.8 million.

Retail sales were up 33 percent due to an earlier start to the planting season, in part due to the conversion of cotton to corn acres, which requires earlier planting. Retail earnings increased $9 million compared with the same period a year ago, primarily due to higher crop nutrient prices and the overall earlier season. Crop nutrients earnings were up $13.2 million, due primarily to recognition of price appreciation on inventory positions. Crop protection products sales were up 19 percent, driven by an increased sales volume of pre-grass herbicide; however, earnings in this segment were down $2.7 million due to the timing of vendor rebates.

LOL said that it received a $19.6 million dividend during the quarter from Agriliance, versus a zero dividend for the year-ago quarter. However, the dividend was officially for the Agriliance year ending Aug. 31, 2006. While LOL received nothing from Agriliance during calendar year 2006, it expects another $19.6 million later in 2007. LOL valued current Agriliance assets at $1.8 billion.

ConAgra International Fertilizer Co. purchased Interstate Marine Terminals Inc. (IMT), Boonville, Mo., at auction on June 6. The terminal is located at Mile 196.5 on the Missouri River and includes 41 acres of land, 12,000 st of dry storage, 5 million gallons of UAN storage, and a liquid animal feed plant.

ConAgra picked up the terminal and 33 acres for $675,000 and added another adjoining nine acres for $27,500, for a total of $702,500. Sources say this is far below replacement costs.

ConAgra has been leasing the facility for the past year. It had previously been leased by Royster-Clark Inc. prior to its purchase by Agrium Inc. ConAgra has stocked the facility with UAN, potash, DAP, and ammonium nitrate. The facility is reportedly the only such facility with a Coast Guard-approved plan for unloading ammonium nitrate barges on the Missouri River.

Ammonium nitrate is a big deal in Missouri. It leads the 50 states in AN consumption at 172,662 st for the fertilizer year ending June 30, 2006, though this is off significantly from the prior year’s 245,459 st according to Commercial Fertilizer 2006, a publication of The Fertilizer Institute and the Association of American Plant Food Control Officials. U.S.-wide, AN consumption was 963,710 st in FY06, versus 1.42 million st/y in FY05.

The IMT facility has a strategic proximity to the 9 foot deep river channel, Interstate Highway 70, and the Union Pacific Railway. At its peak, IMT reportedly moved up to 100,000 st/y of products, including non-fertilizer products, through the terminal.

IMT did not flood in the 1995 flood, the second largest in history. More of a problem is the long-standing clash between upriver reservoir interests, environmentalists, and barge transportation over water levels on the river. A short barging season and the failure of the Corps of Engineers to commit to an 8 foot draft have caused some barge companies to leave the river (GM June 6, 2005).