All Posts from February 16, 2018

Industry Gathers for TFI Annual Meeting

More than 600 fertilizer industry participants gathered in San Diego on Feb. 11-14 for The Fertilizer Institute’s (TFI) 2018 Annual Meeting. Chuck Magro, president and CEO of Nutrien, talked of “more optimism” in the fertilizer sector as the 2018 spring season approaches, an attitude that was echoed by other attendees.

“We’ll see how spring unfolds, but so far so good,” Magro told conference-goers at the event’s opening day breakfast session.

Several industry contacts said urea supply dominated discussions at the event. While the phosphate market was generally described as balanced-to-tight at the outset of the spring season, sources described the domestic urea market as short by some 1.2 to 1.5 million tons due to multiple plant outages and reduced import volumes. One attendee said this deficit would ordinarily create a “panic” just weeks before the start of the application season, but that was not the mood in San Diego, due primarily to lingering uncertainties about spring demand.

There were reports from some in attendance that corn acreage in the U.S. could drop to as low as 82 million acres this year, significantly impacting fertilizer volumes. Others said worsening drought in the Southern Plains will slash wheat topdress volumes, and could result in a missed wheat season entirely if rain doesn’t come to the Wheat Belt in the near-term.

“Farmers and retailers don’t believe there’s a shortage of nitrogen,” said one industry contact at the conference. “But there’s no question that drought is impacting demand.”

At the conference podium, the event featured a panel discussion that addressed the views of retailers and growers on a range of issues impacting the industry. Brent McGowan, vice president of operations for Wilbur-Ellis Co., said the industry is seeing greater use of 4R nutrient management strategies in the field, but low crop prices and thin margins are creating headwinds for further adoption.

Grant Strom, an Illinois farmer and 2017 4R Advocate, said it’s easy to see the benefits of split applications and variable rate technology in some years, but not in others. He said 4R technology requires some capital costs up front, but there is a clear economic return over time, noting that his business has lowered its fertilizer costs as a result of grid sampling, seed technology, and more efficient fertilizer use.

“I don’t think the goal of the 4Rs is to create an economic benefit on a year-to-year basis,” added McGowan. “It’s about awareness, and doing the right thing for the right reasons. It’s about the sustainability of the crop cycle and farmland over the course of time.” McGowan said the goal for retailers will be to better define their role as these new technologies emerge.

McGowan and Strom also discussed the Farmers Business Network (FBN) e-commerce platform. Strom said he likes the transparency that FBN provides, and thinks the sales model will “really shake things up” in seed and crop protection sales, but less so in fertilizer. He also called out the ag retail industry, saying farmers who are buying a lot through FBN “need to find a better retailer.”

McGowan said FBN is disrupting the retail industry, but that isn’t necessarily a bad thing. The goal for retailers, he said, is to find a way to “create simple and intuitive tools to deal with complex agronomy issues.”

The conference also featured Andrew Winston, author of Green to Gold and The Big Pivot, who discussed the mega-trends driving agriculture and industry. These include demographic and social change; a shift in global economic power from the West to the East; rapid urbanization; climate change and resource scarcity; rapidly advancing technology; and a global focus on health and well-being. He said managing these mega-trends is critical for business success.

Winston said agriculture is at the center of the renewable energy and sustainability debates, noting that farming is responsible for 24 percent of greenhouse gas emissions (GHG) and is the single largest user of water. He said climate change is creating the most extreme storms in modern history, and is a systemic risk to the global economy.

The rise of the “clean label” movement is nothing more than “de-facto regulation,” he said, stressing that “corporate social responsibility makes good business sense.” He urged attendees to develop and tell their own sustainability stories, and to help customers with theirs.

“It’s no longer simply about building shareholder value,” he said. “Companies now serve a social purpose, and having a purpose sells really well. This is not Greenpeace, it’s just green, and it saves money.”

TFI President Chris Jahn also highlighted some of the fertilizer industry’s recent successes in these areas, noting advances in water recycling, GHG capture, and industry safety.

The Andersons Benefits from Tax Cut; Reports Writedown in Fertilizer, Sale of Three Elevators

The Andersons Inc. benefited from a one-time $74.2 million tax gain under the new tax laws in the fourth quarter. Net income attributable to The Andersons was $68.4 million ($2.42 per diluted share) on sales of $1 billion, up from the year-ago $10.1 million ($0.36 per share) and $1.1 billion, respectively. EBITDA was $25 million, down from $40.7 million. Adjusted EBITDA was $53 million, up from $40.7 million.

Full-year income was $41.2 million ($1.46 per share) on sales of $3.7 billion, up from $11.6 million ($0.41 per share) and $3.9 billion, respectively. EBITDA was $87.4 million, down from $123.9 million. Adjusted EBITDA was $157.4 million, up from $123.9 million.

“Our fourth-quarter performance was solid considering that we continue to face some challenging market conditions in several of our businesses, and we incurred some impairment expenses,” said President and CEO Pat Bowe. “Notwithstanding expenses associated with our decision to sell the three Tennessee elevators, the Grain Group recorded better year-over-year results highlighted by significant improvement by Lansing Trade Group. For the full year, our adjusted Grain earnings improved by almost $40 million.”

The company sold three Tennessee grain elevators in Humboldt, Kenton, and Dyer to Tyson Foods. The sale is expected to close in March. The company is exploring its options for three remaining elevators in Tennessee. The company took a $10.9 million ($0.24 per share) pretax impairment charge associated with its Tennessee grain assets. The company told Green Markets that the elevators do not sell crop inputs.

“As we anticipated three months ago, ethanol margins in the quarter were lower again year over year in spite of continued strong U.S. exports,” he added. “Margins continue to be lower than last year at this time.”

He noted that the Rail Group’s utilization improved for the third consecutive quarter, and the group purchased more than 1,200 cars.

“The Plant Nutrient Group’s (PNG) margins continued to be challenged by an oversupply of nutrients and low farm income, even as year-over-year volumes rose considerably,” said Bowe. “We also wrote down the remainder of our wholesale fertilizer goodwill balance due to the persistently soft fertilizer market.”

The fertilizer unit, PNG, had a fourth-quarter $17.1 million ($0.59 per share) writedown. PNG reported a fourth-quarter pretax loss of $18 million on sales of $136.9 million, compared to the year-ago loss of $3.8 million on sales of $136.4 million, respectively. EBITDA was a negative $10.2 million, compared to the year ago positive $4.5 million. Adjusted EBITDA was a positive $6.9 million, up from $4.5 million.

As in the last several quarters, the business was impacted by low nutrient prices and an oversupply of product during the period. The group’s performance in the quarter was also hampered by continuing pressure on margins, even though the group achieved a healthy increase in volume. Base nutrient (NPK) volumes were up almost 10 percent year-over-year, while higher-margin, value-added nutrient tons (low salt starter fertilizers and micro nutrients) were up nearly 18 percent. Volumes for products in the group’s other businesses (farm centers, lawn, and cob) were down 27 percent; all but 10 percent of the decrease resulted from selling the group’s Florida farm centers in the first quarter.

Margins per ton were considerably lower in both base nutrients and value-added products, finishing down 25 percent and 11 percent year-over-year, respectively. Margins per ton improved considerably for the farm centers and the cob business, but were flat in the lawn fertilizer business. Those volume and margin changes combined to reduce gross profit by about $4.8 million, or more than 18 percent.

The company expects PNG’s wholesale fertilizer business to continue to be challenged in the near term until some supply/demand equilibrium is achieved.

PNG reported a full-year loss of $45.1 million on sales of $651.8 million, down from the prior year income of $14.2 million on sales of $725.2 million, respectively. EBITDA was a negative $12.1 million, down from the year-ago $49.3 million. Adjusted EBITDA was a positive $47 million, compared to the year-ago $49.3 million. The 2017 results include a $4.7 million gain on the sale of the Florida farm centers. Wholesale fertilizer volumes were slightly higher and margins were down about 5 percent, including more than 8 percent for the value-added product line.

CF Boosted by $491 M Tax Cut; 2018 Turnarounds Expected to Reduce Production, Sales

A $491 million tax benefit from new legislation boosted CF Industries Holdings Inc.’s fourth-quarter net income attributable to common shareholders to $465 million ($1.98 per diluted share) on net sales of $1.1 billion, compared to the year-ago loss of $320 million ($1.38 per share) and $867 million, respectively. CF, Deerfield, Ill., reported an adjusted net loss of $3 million ($0.02 per share), compared to a year-ago loss of $90 million ($0.39 per share). EBIDTA was $244 million, versus a year-ago loss of $135 million.

“Outstanding execution by the team in 2017 produced records for safe operations, production, and sales volumes,” said Tony Will, CF president and CEO. “In addition, we paid down $1.1 billion in debt during the quarter and recently exercised our right to purchase all of the publicly traded common units of Terra Nitrogen Co. LP (GM Feb. 9, p. 1). We estimate that full ownership of TNCLP would have added approximately $45 million to EBITDA, including anticipated cost reductions and network optimization benefits. Additionally, we estimate that full ownership of TNCLP and the debt reduction would have resulted in $110 million of additional free cash flow.”

CF noted that it achieved its highest quarterly sales volume in company history, and that for the year, it had record sales of approximately 20 million product tons and produced some 10.3 million st of gross ammonia.

CF is planning a higher number of turnarounds in 2018, reducing 2018 production volumes compared to 2017, with a likely commensurate impact on sales volumes.

CF said the U.S. still needs nitrogen imports, citing projections for 91 million acres each of corn and soybeans, and that nitrogen prices must go up to attract them. Despite a good fall ammonia season, CF believes there will be plenty of nitrogen demand this spring.

CF noted that July-December urea and UAN imports have been down. It said the NOLA urea price of $270/st FOB or above would be needed to attract imports. Although the coming up of even more domestic production in the past six months has been another reason for importers to be cautious about bringing in imports, CF told analysts that it believes some of the other domestic plants have not operated optimally, and that product is probably not in position. Ironically, in 2017 CF felt there were too many imports, particularly urea, and accused importers of dumping product on the U.S. market.

CF believes that once the spring season is over, the 2018 “reset” price will be higher than that of 2017. It noted that already in the fourth quarter, the average selling prices for all of its major product categories were up over year-ago pricing, largely due to a tighter global nitrogen supply and demand balance. CF also noted that its own ammonia sales benefit from the implementation of its long-term supply agreement with The Mosaic Co., which will be based on gas and production costs and not the volatile world market.

The company continued to tout its low cost production versus other areas of the world, particularly China and Eastern Europe, and noted that Chinese urea exports have declined 65 percent in the past two years, from 13 million mt in 2015 to 4.7 million mt in 2017. It also noted increased freight rates as well as good demand from India, Brazil, Australia, Mexico, and Turkey for urea, and that the U.S. dollar is currently weaker against key global currencies such as the ruble and RMB.

While there was an overhang in new nitrogen production coming online in 2017, CF believes that demand will soon catch up to supply in coming years, as much less new capacity is expected to come online.

Asked about the Caribbean Nitrogen Co.-Natural Gas Co. dispute in Trinidad, CF noted that via arbitration it was able to extend its own gas contract through 2023. CF owns 50 percent of the Point Lisas Nitrogen Ltd. ammonia plant. Going forward, it said Trinidad does face some pretty sizeable challenges around being competitive compared to North American gas. However, the company said it would rather give up the economics on one half of one plant and see all the rest of the production challenged on a global basis than have that be a low-cost production source.

Full-year net income was $358 million ($1.53 per share) on sales of $4.1 billion, up from the prior year loss of $277 million ($1.19 per share) on sales of $3.7 billion. However, the company had an adjusted full-year loss of $59 million ($0.25 per share), versus 2016 adjusted income of $109 million ($0.47 per share). EBITDA was $856 million, up from $395 million.

*Dollars in millions except per st amounts

Compass Posts 4Q Loss on One-Time Items

Compass Minerals, Overland Park, Kan., reported a fourth-quarter loss of $4.4 million ($0.13 per diluted share) on sales of $457.9 million, down from the year-ago positive $97.6 million ($2.87 per share) and $443.2 million, respectively. Net earnings excluding special items were $56.2 million ($1.66 per share), up from the year-ago $46.1 million ($1.35 per share). EBITDA was $109.8 million, down from the year-ago $153 million.

The new tax law resulted in a one-time tax on un-remitted foreign earnings. Based on current company estimates, this one-time tax totals about $55.2 million. Compass also recorded a net tax expense of $13.8 million in the quarter related to the company’s Canadian tax positions for the years 2007 through 2016 as a result of a settlement with Canadian and U.S. tax authorities.

The company said that improved Plant Nutrient South America results were more than offset by weather-driven weakness in the company’s Salt unit.

“While this has been a challenging year for Compass Minerals, our results are demonstrating the value of our strategy to balance our winter weather exposure by growing our plant nutrition business with a strong focus on innovative specialty products,” said Fran Malecha, Compass president and CEO. “Further, we have completed key capital investments critical to increasing our production capabilities and efficiency, while still returning almost $100 million directly to shareholders through our dividend. I believe our actions have positioned the company for significant top and bottom line growth and improved free cash flow over the next several years.”

The company announced that its board has approved a dividend for the first quarter of 2018 of $0.72 per share.

Fourth-quarter Plant Nutrient North America operating earnings were up 28 percent, to $10.2 million on sales of $70 million from the year-ago $8 million and $62.6 million, respectively. The average sales price was $666/st on volumes of 105,000 st, up from the year-ago $657/st and 95,000 st, respectively. Compass said the SOP-only price remains stable versus the prior year at about $560/st. It said micronutrient sales were stronger than during the prior year.

Compass said all-new equipment is now in service at the Ogden, Utah, SOP plant.

Company-wide full-year results were down at $42.7 million ($1.25 per share) on sales of $1.36 billion, from $162.7 million ($4.79 per share) and $1.14 billion, respectively. Net earnings excluding special items were $93.3 million ($2.75 per share), versus the year-ago $111.2 million ($3.27 per share). EBITDA was $277.8 million down from $321.7 million.

Full-year 2018 EPS guidance is $2.75-$3.25.

Going forward, for its Plant Nutrition North America business, the company expects steady volume growth at stable prices, with SOP demand to grow 3-5 percent. Overall, 2018 fertilizer volumes are expected to be up from 2017. Compass expects a modest year-over-year increase in first-half revenue. The segment’s operating margin is expected to decline during the half as a result of increased logistics costs and depreciation expense. Full-year volumes are put at 320,000-350,000 st, while first-half revenues are seen as $90-$110 million.

Compass expects momentum in its Plant Nutrition South America business will push 2018 volumes and first-half revenues ahead of those for 2017. Full-year volumes of 700,000-900,000 st are expected, with first-half revenues of $125-$150 million.

First-half Salt margins are expected to be pressured due to high-cost carryover and increased shipping and handling costs. However, for the full-year, the company expects volumes to be up at 11.8-12.6 million st, exceeding 2017 and the company’s 10-year average. First-half revenues are seen as $400-$440 million.

 *Price $/st; volumes 000 st; others $ million