CF Industries Holdings Inc. and CHS Inc. announced today that they have agreed to enter into a strategic venture. CHS, the nation’s leading farmer-owned cooperative, will make an equity investment in a wholly-owned CF subsidiary and also enter into a supply agreement. Under the supply agreement, CHS will be entitled to purchase annually up to a total of 1.7 million tons of UAN and urea at market prices. CHS will purchase a minority equity interest in CF Industries Nitrogen LLC for $2.8 billion and be entitled to semi-annual profit distributions from CF Nitrogen.
"Entering nitrogen fertilizer manufacturing through the purchase of a minority ownership in CF Nitrogen is the single largest investment in CHS history," said Carl Casale, CHS president and CEO. "This positions CHS and our owners for long-term dependable fertilizer supply, supply chain efficiency and economic value. In addition, the ability to source product from CF Nitrogen production facilities under our supply agreement benefits our owners and customers through strategically positioned access to essential fertilizer products."
Once the capacity expansion projects are completed at Donaldsonville and Port Neal, CF will have total production of 18.9 million product tons, not including the new capacity from the business combination with OCI NV. Of that total 18.9 million tons, CHS will have the right to purchase up to 1.7 million tons, or about 8.9 percent of CF Industries’ total production capacity. CHS, a major CF customer and industry leader, is making a $2.8 billion investment for approximately 8.9 percent of CF’s total system capacity.
CF Nitrogen will sell annually to CHS up to 1.1 million tons of granular urea and 580,000 tons of UAN, at market prices. The 1.7 million tons available under the supply agreement have an average gross margin that reflects the average gross margin across the entire CF system.
CHS’s semi-annual profit distributions from CF Nitrogen will be based generally on the volume of granular urea and UAN purchased by CHS pursuant to the supply agreement.
The transaction is expected to close Feb. 1, 2016, or earlier by mutual consent, subject to satisfaction of certain conditions.
Casale also announced today that the company has made a separate decision against moving forward with construction of a proposed fertilizer plant at Spiritwood, N.D.
"Our long-term goal has always been to add value for CHS owners through investment in the nitrogen fertilizer manufacturing space. To that end, we’ve continued to look at a variety of options, including the Spiritwood project," he said. "Ultimately, we determined that the construction cost, water supply challenges, overall risk profile and time required for the Spiritwood project had changed significantly since it was first considered. As a result, we concluded we couldn’t achieve the level of returns needed to justify the increased costs and risks.
"We deeply appreciate the tremendous support and assistance from the Jamestown and Spiritwood communities, North Dakota’s governor, elected officials and state agencies and organizations like the North Dakota Farmers Union; and other government leaders who have supported us through our due diligence process."
Casale noted that CHS has been a committed North Dakota business and neighbor since its 1931 founding and looks forward to a bright future that includes other investments in the state.