All Posts from January 12, 2018

CHS 1Q Crop Nutrient Volumes Up; Cooperative Net Income Off 14 Percent

CHS Inc., St. Paul, Minn., reported that its Wholesale Crop Nutrient volumes were up 4 percent for the first quarter ending Nov. 30, 2017. Despite the uptick, CHS said revenues were off $3.9 million, reflecting $21.2 million in overall lower fertilizer selling prices, partially offset by higher volumes, bringing in $17.3 million. The average sales price for all fertilizers sold was down $12.72/st, or 5 percent. CHS said the unit reported increased income before income taxes (IBIT), citing higher associated margins.

Crop nutrient inventories were valued at $222.05 million as of Nov. 30, 2017, down from the Aug. 31, 2017, value of $248.7 million. Total commodity inventories, including energy, grain, and other products, were $3.05 billion at the end of November, up from August’s $2.58 billion.

Country Operations IBIT was also up. CHS said this was due to improved margins, along with a gain of approximately $7.1 million due to the sale of a non-strategic North American location, a gain on the sale of a domestic investment of $2.2 million, and recognition of approximately $5.3 million associated with the recovery of a loan that was written off in the prior fiscal year.

Cooperative-wide, CHS reported a 14 percent drop in first-quarter net income attributable to CHS to $180.1 million on revenues of $8.05 billion, down from the year-ago $209.2 million and $8.05 billion, respectively. IBIT was $199.6 million, down from the year-ago $225.6 million.

“Despite challenging market conditions, CHS experienced a solid first quarter thanks to our continued focus on three key priorities: strengthening relationships, sharpening operational excellence, and restoring financial flexibility,” said CHS President and CEO Jay Debertin. “In the first quarter, we recorded solid earnings from our businesses and reduced long-term debt. These actions are helping to strengthen and grow CHS.”

CHS said the Ag and Energy industries are currently in a challenging environment characterized by reduced commodity prices, lower margins, reduced liquidity, and increased leverage. Although it said it is unable to predict how long this current environment will last or how severe it will ultimately be, the cooperative does not foresee significant changes to the core economic environment during the remainder of fiscal 2018. However, during this period, it expects revenues, margins, and cash flows from core operations to continue to be under pressure.

For the fiscal year ending Aug. 31, 2017, CHS reported net income was down 70 percent from the prior year, to $127.9 million on sales of $31.9 billion (GM Nov. 17, 2017). A huge tax benefit of $182.1 million put CHS in the plus column for net income, helping to counter-balance some $456.7 million in reserve and impairment charges. CHS did not pay cash patronage for the year. As with the first quarter, for the year, Wholesale Crop Nutrients was a positive, reporting a 14 percent uptick in volumes on lower prices and an increase in IBIT.

For the first quarter, the Ag segment, which includes domestic and global grain marketing and crop nutrients businesses, renewable fuels, local retail operations, and processing and food ingredients, generated IBIT of $74.5 million on revenues of $6.09 billion, compared to the year-ago $109.2 million and $6.43 billion, respectively.

The Nitrogen Production segment, which is comprised of the company’s investment in CF Industries Nitrogen LLC, generated IBIT of $5.7 million, down from the year-ago $27 million. The decrease in earnings was primarily due to a gain of $29.1 million from an embedded derivative associated with CF Nitrogen that was recognized in fiscal 2017. There was no comparable gain in the current fiscal year. This decrease was partially offset by higher urea and UAN prices.

First-quarter Energy IBIT was $113.08 million on revenues of $2.09 billion, up from the year-ago $70 million and $1.7 billion, respectively. Food IBIT was down at $973,000 from $10.6 million, and Corporate/Other IBIT was $5.3 million, down from $8.7 million.

CPS Buys Green Valley Ag in Michigan

Green Valley Agriculture Inc., a full-service ag retail business with four locations in Michigan, was acquired by Crop Production Services (CPS) on Jan. 2. Green Valley has more than 60 employees, all of whom will be staying in their present positions under CPS ownership.

CPS is based in Loveland, Colo., and was formerly the retail business unit of Agrium Inc. Following the recent completion of Agrium’s merger with PotashCorp of Saskatchewan Inc. (GM Jan. 5, p. 1) to form Nutrien Ltd., CPS is now a unit of Nutrien and is operated by Nutrien Retail.

“Crop Production Services is pleased to welcome the Green Valley Agriculture staff and outlets to the CPS team,” said Richard Downey, vice president, Investor and Corporate Relations, for Nutrien. “The former owners will remain heavily involved in the business.”

Green Valley has Michigan retail locations at Moline/Wayland, Hamilton, Bangor, and West Olive, offering a full line of seed products, liquid and dry fertilizers, and custom application services to vegetable, fruit, and rowcrop growers in southwestern Michigan. The company was founded in 1989 by John Christian and a father-and-son farming operation known as Golden Grain Farms. Mark Edema became involved as a partner in 1995, with Christian and Edema buying out the other partners in 2001.

Green Valley ranked 85th on CropLife’s 2017 list of the 100 largest agronomy retailers in the U.S., with annual revenues broken down as 55 percent fertilizer, 20 percent crop protection, 19 percent seed, and 6 percent custom application. Green Valley was also a 2015 winner of the Environmental Respect Awards, which noted the environmental features of the company’s newest retail facility constructed in 2014 in Wayland.

CPS holds the top spot on the CropLife list, with approximately 19 percent of the U.S. crop input retail market and more than $1 billion in annual revenues. The company continues to quietly expand its retail presence with “tuck-ins” and greenfield expansions (GM Dec. 8, 2017). Agrium said it added approximately 250 independent retailers to CPS in the past five years, and reported in November (GM Nov. 22, 2017) that it has some $400-$500 million to spend on additional retail acquisitions.

Agrium also noted in November that it has new greenfield CPS locations in operation in Reading, Mich., and Milford, Ind., as well as a pipeline of some 12 greenfield retail projects in the works. The company reported in August that it hopes to grow its 19 percent retail market share to the mid-20s, and eventually past the 30 percent mark (GM Aug. 11, 2017).

Midwest Fertilizer Remains Committed to Indiana N Project Despite Proposed IRS Bond Decision

Junior nitrogen producer Midwest Fertilizer Co. LLC told Green Markets last week that it remains committed to its Posey County, Ind., nitrogen project (GM Sept. 8, 2017) despite a proposed determination by the U.S. IRS that $1.26 billion in bonds for the project are not tax-exempt Midwestern Disaster Area Bonds, and therefore the interest paid to the holders is not excludable from gross income. The IRS decision was disclosed on Jan. 5.

“Midwest Fertilizer is very disappointed in the IRS decision to issue a proposed adverse notice with respect to the municipal bonds issued to finance the $2.8 billion fertilizer manufacturing complex in Posey County, Ind.,” the company said in a statement to Green Markets. “Midwest Fertilizer remains fully committed to completion of the project, and it is currently reviewing its options for addressing the issues raised by the IRS, including an appeal. Midwest Fertilizer is grateful to the State of Indiana and the Posey County Commissioners for their continued support for the project. The company and its counsel remain confident that there should be no change to the tax-exempt status of the bonds, and we look forward to working with the IRS to resolve the matter.”

Midwest Fertilizer had no comment as to whether this development would impact its timeline. Back in September (GM Sept. 8, 2017), the company told Green Markets it was eyeing second-quarter 2018 for the firming up of the financing and construction considerations, with groundbreaking expected in 2018. In September, the company said it believed the plant would be up and running by the end of 2021, with operations expected to begin in 2022.

The complex is expected to produce 2 million mt/y of ammonia, UAN, and diesel exhaust fluid (DEF). The company updated its permits in early 2017 (GM Feb. 3, 2017), which at that time included plans for a 1,320 mt/d urea granulation plant, a 2,640 mt/d urea synthesis plant, a 5,160 mt/d UAN plant, a 2,400 mt/d ammonia plant, a 1,840 mt/d nitric acid plant, three UAN tanks up to 40,000 mt, two ammonia tanks up to 30,000 mt, one nitric acid tank up to 8,000 mt, one DEF tank up to 7,000 mt, and one OASE solution/methyl dietharolamine (MDEA) tank at 395,000 gallons.

The facility would be located on 220 acres in Posey County – where Mount Vernon is the county seat – to serve farmers throughout Indiana and the Midwest.

The project, planned since 2012, has encountered other obstacles and delays. In 2013, then-Gov. Mike Pence suspended state support for the project, citing concerns with Pakistan’s Fatima Group, the company’s lead investor (GM May 20, 2013). Pence later said he would not prevent Posey County from pursuing the project (GM June 24, 2013) and reopened talks with Midwest Fertilizer.

Iowa Fertilizer Co. (IFCO), which is owned by OCI NV, Amsterdam, also used some $1.26 billion in Midwest Disaster Area Bonds. IFCO’s Wever, Iowa, nitrogen complex was completed last year. There has been no word on whether the IRS is also reviewing those bonds. OCI did not respond to inquiries last week. The cases may be different, in that intermediaries were involved with the Midwest Fertilizer bonds– Posey County and the Indiana Finance Authority.