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Koch to buy Simplot Canada Ltd.

Featured, News

Koch Nitrogen Fertilizer Holding Inc., a unit of Koch Nitrogen Co., announced Aug. 14 that it will acquire the nitrogen fertilizer business of Simplot Canada Ltd., including a fertilizer complex in Brandon, Manitoba, along with associated product distribution terminals in Watson and Tuxford, Sask., and Oak Bluff, Manitoba.

The sale is expected to close in September. No financial details were disclosed.

“This acquisition fits our vision of identifying growth opportunities where we can apply our capabilities to enhance the business,” said Steve Packebush, Koch Nitrogen president. “This production complex and associated terminals are ideally placed for meeting the needs of customers in Western Canada, as well as the important wheat-growing regions of the northern United States.”

“Simplot Canada has been an important part of our fertilizer business for 40 years, but the global market is no longer favorable to a single-plant nitrogen operation,” said Bill Whitacre, president of Simplot AgriBusiness. “We are confident that an international, multi-plant operator such as Koch Nitrogen will better serve our Canadian customers in the long term.”

The Simplot Canada complex produces ammonia, nitric acid, urea, UAN solutions, ammonium nitrate solution, ammonium polyphosphate, and ammonium thiosulfate. The complex and associated terminals employ about 200 full-time workers, as well as other seasonal contractors. According to the International Fertilizer Development Center, Brandon production capacities in metric tons include: anhydrous ammonia 430,000; nitric acid 200,000; urea 280,000; ammonium nitrate 250,000; and UAN 340,000.

Constructed in the mid-1960s, the Brandon facility is the only major fertilizer manufacturer in Manitoba. It has undergone several upgrades over the years.

While the sale marks Simplot’s exit from the Canadian production and retail fertilizer business in Canada, the company will continue to sell its phosphate products into Western Canada on a wholesale basis. Simplot sold its 11 retail outlets in Canada to Cargill Inc. in 2000 (GM Feb. 28, 2000, p. 1).

The sale leaves Simplot with major phosphate plants in Pocatello, Idaho, and Rock Springs, Wyoming; phosphate rock mines in Smoky Canyon, on the Wyoming and Idaho border, and in Vernal, Utah; nitrogen plants in Lathrop and Helm, Calif.; and Simplot Grower Solutions, which includes some 70 retail outlets in the West and Midwest. The company is also involved in the turf industry with its Best Brand. In addition, it has major positions at three ports – Rivergate Terminal in Portland, Ore., and terminals in Stockton, Calif., and Point Comfort, Texas. Simplot is also a major stakeholder in Calamco, the California-based cooperative.

This acquisition will be Koch Nitrogen’s first in Canada. However, other Koch Industries Inc.-owned companies have had interests in Canada dating back to the 1960s. Other Koch companies with interests in Canada include Flint Hills Resources LP, Georgia-Pacific Corp., INVISTA B.V., and Koch Chemical Technology Group LLC.

The news left some speculating that Koch may have synergies that could come into play with the Brandon plant. For example, Koch owns a refinery in Pine Bend, Minn. Coffeyville Resources uses petroleum coke from its Coffeyville, Kan., refinery to produce nitrogen products. Koch had not responded to inquiries at press time.

Koch Nitrogen and its affiliates manufacture, market, and distribute more than 6 million mt of fertilizer annually. Combined, these companies operate four fertilizer plants producing anhydrous ammonia, urea, and UAN, and 18 terminals in the U.S., and have interests and off-take responsibilities for nitrogen plants in Venezuela and Trinidad and Tobago.

Simplot expansion has road block; eminent domain is possible option

Featured, News

A haul road is developing as an issue in J.R. Simplot Co.’s expansion of its Smokey Canyon Mine in Caribou County near the Wyoming border. Simplot wants the road though a 467-acre privately-owned property and has offered $2.1 million for the entire acreage. The owners, Peter and Judy Riede, retired engineers from Michigan, are holding out for $6 million, according to Simplot. Simplot says the property is appraised at $1.7 million.

So far, the Riedes have refused to sell rights-of-way to any part of their land to Simplot. They say a haul road for ore from the mine would damage their land, which has two creeks featuring 20-inch Yellowstone cutthroat trout. After the Riedes declined the $2.1 million offer, the company suggested in public documents filed with the U.S. Forest Service that it could simply use 110-year-old provisions in the Idaho Constitution that give mining companies the right to cross private lands to reach their properties.

Simplot has also broached eminent domain in a June 9 letter to the couple. It asked them to reconsider the offer, and said if they didn’t the company would “move forward with pursuing alternatives that allow Simplot to appropriately develop our phosphate mineral leases.”

Simplot spokesman Fred Zerza told Green Markets the talk about eminent domain is premature, as the USFS will not make a decision about which route is best until December. The USFS is reportedly considering at least four options for the route, and will likely pick the one that is most cost-effective and least destructive. Zerza said the Riede route is the least-destructive to the environment, though another may be just as competitive cost-wise.

The road would run from the mine to an existing milling site, where Simplot mixes phosphate ore with water and pipes it as slurry to a fertilizer plant in Pocatello. The route at issue would cut through about 11 acres of the Riede property. The Riedes said the impact will be significant.

Zerza said Simplot currently has three years worth of reserves to serve the Pocatello plant, and that work needs to begin in early 2007 to get the expansion underway so that the new production will be available when existing reserves wear out. The mine and Pocatello plant employ 520.

Conservation groups say Simplot would be subverting the law if it applied eminent domain in this case. Marv Hoyt, Idaho director of the Greater Yellowstone Coalition, said the provision was added to the state constitution in the 1890s to protect small miners from larger operations that staked claims to block access. Zerza noted that Hoyt’s group has been opposed to the expansion and has now aligned with the Riedes to further try and thwart the project. Zerza added that eminent domain is commonly used in the state, particularly by utilities to run power lines.

USDA forecasts lower production following hot July

News

Coming on the heels of near-record heat in July, the USDA is predicting lower production than last year for corn, soybeans, cotton, and wheat in the U.S., according to the Aug. 11 Crop Production report.

Corn production for 2006 is forecast at 11 billion bushels, down 1 percent from last year and 7 percent below 2004. Based on conditions as of Aug. 1, corn yields are expected to average 152.2 bushels/acre, up 4.3 bushels from last year. If realized, corn yields would be the second largest and production would be the third largest on record.

USDA said corn conditions declined in July across the Great Plains and Western Cornbelt due to above-normal temperatures that depleted soil moisture levels, while expected yields are generally higher than last year in the Eastern Cornbelt and Ohio Valley due to frequent rainfall and adequate soil moisture. The largest corn yield increase from last year is projected in Illinois, USDA said, where farmers expect a 172 bu/a crop on average, compared with last year’s drought-related 143 bu/a yield average. The largest corn yield decreases, however, are expected in Alabama, Mississippi, Georgia, and North Dakota.

U.S. soybean production in 2006 is forecast at 2.93 billion bushels, down 5 percent from 2005 and down 6 percent from 2004. Based on Aug. 1 conditions, yields are expected to average 39.6 bu/a, down 3.7 bushels from the record high U.S. yield set last year. Soybean area for harvest was estimated at 73.9 million acres, unchanged from June but up 4 percent from 2005.

Soybean yields are lower than 2005 throughout the Great Plains, the Western Cornbelt, and the Gulf Coast states, USDA said, while yields are expected to remain unchanged or increase in the Ohio Valley, Arkansas, Missouri, and the Atlantic Coast states.

All cotton production in the U.S. for 2006 is forecast at 20.4 million 480-pound bales, down 14 percent from last year’s record high 23.9 million bales. Yield is expected to average 765 pounds per harvested acre, USDA said, down 66 pounds from 2005. The best cotton crops appear to be taking shape in Missouri and Tennessee, where growers are expecting record high production at 1.03 million and 1.25 million bales, respectively. U.S. producers expect to harvest 12.8 million acres of all cotton in 2006, down 7 percent from last year.

As for the U.S. wheat crop, all production for 2006 was estimated at 1.8 billion bushels, down slightly from the July forecast and down 14 percent from 2005. Based on Aug. 1 conditions, the U.S. yield is forecast at 38.3 bu/a, unchanged from last month but 3.7 bushels below last year.

Winter wheat production in the U.S. is forecast at 1.28 billion bushels, up slightly from last month but 14 percent below 2005, while area harvested for grain totals 31.1 million acres, unchanged from last month but down 8 percent from last year. The U.S. winter wheat yield is forecast at 41.2 bu/a, up 0.1 bushel from July 1.

U.S. rice production is forecast at 197 million cwt, down 12 percent from last year and down 15 percent from 2004. Area for harvest, at 2.9 million acres, is unchanged from June but down 14 percent from last year. Rice plantings, at 2.91 million acres, are also unchanged from the June estimate. USDA attributed the decline in acreage from last year to higher fuel, fertilizer, and irrigation costs. The U.S. rice yield is forecast at 6,813 pounds/a, up 177 pounds from last year, with a record high of 6,900 pounds/a expected in Missouri.

The report’s weather summary for July contained some startling statistics, reinforcing the scope and severity of the heat wave that blanketed much of the nation during the second half of the month. With an average temperature of 77.2 degrees, the nation experienced its second-hottest July on record, trailing only the 77.5 degree average observed during the Dust Bowl July of 1936. The period from May to July was the third hottest on record for the contiguous U.S., behind 1934 and 1936, and it was the driest May-July period since the record-setting drought year of 1988.

Monthly temperatures averaged as much as 8 degrees above normal in California and the Northern Plains, USDA said, with more than 800 daily-record high temperatures and at least 20 all-time records set or tied from July 12-31. Hotter-than-normal weather also prevailed across the remainder of the Plains and the West, while near-normal temperatures in July were confined to the southern Atlantic region and an area stretching from the western Gulf Coast region northeastward to the lower Ohio Valley

Jury awards plaintiffs $9.6 M in NH3 tank case

News Briefs

Clinton, Iowa-A Clinton County jury awarded the two victims of an April 2003 explosion $9.6 million on Aug. 10, after a trial that lasted over two weeks, according to the West Cedar Falls Courier. Bob Ryan, 68, and Nathan Nissen, 27, were injured when an ammonia tank exploded at River Valley Cooperative in Calamus. Ryan eventually died from his injuries, while Nissen recovered after a long stint in the hospital and returned to work. The jury allotted $3.8 million to Ryan’s estate and $5.8 million to Nissen. Most of the money is expected to come from Trinity Industries Inc., which manufactured the tank in 1976. Trinity had no comment last week. Three defendants ?Çô Agriliance LLC, CF Industries Inc., and CHS Inc. ?Çô had already settled their portion of the case for a combined $2.25 million (GM July 31, p. 9), and sought reimbursement from Trinity. According to the Courier, the jury verdict would give CF and Agriliance an 80 percent reimbursement, and CHS 90 percent. “I think the jury has clearly sent a message to the anhydrous ammonia industry that they better get these tanks off the road and make sure they’re safe,” said plaintiff’s attorney Don Beattie, as quoted in the Courier. “Safety won out.” Ryan posthumously received the Lifesaving Award of Valor from Iowa Gov. Tom Vilsack in 2003. After the explosion, Ryan picked up Nissen and submerged him in a nearby decontamination tank. He shut off the main switch to prevent further loss of anhydrous and then entered the water tank to hold Nissen until help arrived minutes later. He insisted that responders take care of Nissen first.

Scotts Miracle-Gro reports 3Q improvements

News Briefs

Marysville, Ohio-The Scotts Miracle-Gro Company saw record sales for the third quarter ended July 1, 2006, leading to a 14 percent improvement in adjusted net income during the period. Company-wide sales for the quarter were $1.05 billion, up 16 percent from last year’s $901.2 million, while third-quarter net income came in at $133.3 million ($1.92 per diluted share), compared with $88.5 million ($1.29 per share) for the same period last year. Nine-month net sales were $2.21 billion, up 12 percent from $1.96 billion a year earlier, while net income increased 61 percent to $175.4 million ($2.52 per share), compared with $109.0 million ($1.59 per share) last year. Scotts reiterated its full-year guidance of 20-22 percent adjusted net income growth. However, results from the company’s Smith & Hawken and International segments will be lower than expected, as will company-wide gross margins, due mostly to fuel and commodity prices, as well as an unfavorable product mix. As a result, full-year earnings are most likely to be on the low end of the range, the company said.

Sherritt fertilizer results off

News Briefs

Toronto-Led by higher revenues in its major business units, Sherritt International Corp. reported net earnings of C$57.2 million ($0.38 basic earnings per share) for the second quarter ended June 30, 2006, up from the prior year’s $53.7 million ($0.35 per share). Sherritt’s fertilizer business saw operating earnings of $2.9 million and revenue of $29 million for the second quarter, down from the prior year’s $4.5 million and $33.7 million, respectively, due to reduced production and sales volumes reflecting the impact of lower fertilizer demand in western Canada. Fertilizer sales volumes for the quarter totaled 91,386 mt, compared with 108,630 mt for the 2005 quarter. Six-month fertilizer revenue was $32.7 million with earnings at $3 million, also down from 2005’s $38.2 million and $4.7 million, respectively. Six-month fertilizer sales volumes were 100,216 mt, down from last year’s 122,183 mt. Second-quarter amortization expense for fertilizer was $0.8 million for the second quarter and $1.6 million for the first six months, which was comparable to the 2005 periods.

STB seeks comments on railroad fuel surcharge

News Briefs

Washington-The Surface Transportation Board announced on Aug. 3 that it is seeking public comment on several measures the agency has proposed to regulate how railroads compute and collect fuel surcharges. The proposals stem from the STB’s May 11, 2006, public hearing concerning the manner in which fuel surcharges are calculated, during which the STB heard extensive testimony from the rail industry, the public, and railroad customers regarding those practices. Specifically, the STB is proposing:

  • That a railroad wishing to assess a fuel surcharge would need to develop a computation more closely linked to its increased fuel costs attributable to that movement;
  • Railroads would be prohibited from “double dipping” by charging for the same fuel-cost increases for the same shipment, both through a fuel surcharge and through application of a rate escalator based on an index, such as the STB’s Railroad Cost Adjustment Factor (RCAF), without first subtracting any fuel-cost component from that index;
  • Railroads would be required to use a single, uniform index – the Energy Information Administration “U.S. No. 2 Diesel Retail Sales by All Sellers (Cents per Gallon)” – for measuring fuel-cost increases; and
  • Each Class I railroad would submit a monthly report to the agency showing the railroad’s actual total fuel costs, total fuel consumption, and total fuel surcharge revenues, as well as how much of its total fuel surcharge revenues were shared with its shoreline connections.

Comments are due on Sept. 25, 2006. The Agricultural Retailers Association said it plans to provide comments to the STB after reviewing the proposal, and encouraged its members to send their comments to Jim Thrift, ARA’s vice president of regulatory policy and corporate relations, at jthrift@aradc.org.

Farmland headquarters goes on the block

News Briefs

Kansas City, Mo.-The headquarters of the former Farmland Industries Inc. was slated to be auctioned Aug. 17. A minimum price of $13 million was set for the 260,000-square-foot building, which opened in 2001 at a cost of about $35 million. The sealed-bid auction is being conducted by Sheldon Good & Co. of Chicago. The building, at 12200 N. Ambassador Drive near Kansas City International Airport, is owned by Pritzker Realty Group of Chicago. The company had been marketing the building for $20 million before deciding to pursue the auction alternative.

Chemical income up 79 percent at LSB

News Briefs

Oklahoma City-LSB Industries Inc. reported that results from its chemical business improved during the second quarter ending June 30 due to favorable sales prices compared to the cost of raw materials, as well as optimum production rates. Second-quarter chemical operating income was $5.2 million on sales of $78.2 million, up from the year-ago $2.9 million and $67.6 million, respectively. Six-month operating income was $6.6 million on sales of $140.7 million, versus the year-ago $4.4 million and $117.5 million, respectively. LSB also reported positive results from its climate control business. LSB-wide, second-quarter net income was $6.6 million on sales of $132.3 million, up from the year-ago $2.1 million and $109.5 million, respectively. Six-month net income was $9.2 million on sales of $244 million, versus the year-ago $3.5 million and $196.2 million, respectively.

Wet weather reduces Compass SOP sales

News Briefs, Sulfate of Potash

Overland Park, Kan.-Compass Minerals reported that heavy rains in California reduced application of sulfate of potash during the second quarter ending June 30, contributing to lower specialty-fertilizer sales volumes compared to the year-ago quarter. Price improvements counterbalanced the volume shortfall and helped generate a modest year-over-year gain in specialty-fert revenues. Second-quarter volumes dropped to 95,000 st with an average price of $292.61, compared to the year-ago 104,000 st and $260.89, respectively. Six-month volumes are off at 192,000 st and $288.95, versus the year-ago 208,000 st and $250.13, respectively. Compass-wide, the company had a second-quarter loss of $2.1 million ($.07 per diluted share) on sales of $108.1 million, versus the year-ago $.2 million loss ($.16 per share) on sales of $97.7 million. Compass traditionally has a second-quarter loss as its salt business builds reserves for the winter. Six-month net earnings were up at $26.5 million ($.82 per share) on sales of $326 million, versus the year-ago $22.3 million (.68 per share) and $351.7 million. Compass said the bidding process for highway deicing contracts is 50 percent complete, and that it has achieved price improvements of approximately 10 percent.