All Posts from December 4, 2006

Agricore reports record results; SaskPool offer significantly undervalues Agricore, says CEO

Featured, News

Agricore United, Winnipeg, reported record net earnings of $21 million ($.43 per basis and diluted share) on sales of $3 billion for the year ending Oct. 31, 2006. This compares to 2005’s $12.5 million ($.25 per share) and $2.8 billion, respectively. Agricore attributed the 64 percent increase in earnings to a 12 percent improvement in grain handling shipments, as well as improved results in the livestock segment.

“In 2006, Agricore United continued its momentum of the past four years and recorded its highest EBITDA, cash flow and earnings since the merger of United Grain Growers Ltd. and Agricore Cooperative Ltd. in 2001,” said Brian Hayward, Agricore United CEO. “We have demonstrated the capacity to generate significant cash flow and bottom line results and I’m particularly encouraged by our performance as we move into a process of evaluating and responding to the hostile takeover offer we recently received from Saskatchewan Wheat Pool. While our board will formally respond to the offer shortly, my view is that their offer significantly undervalues Agricore United and its prospects.”

Agricore reiterated last week that shareholders and debenture holders should not respond to the SaskPool offer (GM Nov. 27, p. 1, Nov. 13, p. 1) until after the board has assessed the offer. The company noted that the offer does not expire until Jan. 24, 2007, and the Agricore board expects to have a recommendation and circular complete by mid-December. In the meantime, SaskPool announced Nov. 28 that it has commenced mailing its official offer and circular to Agricore owners.

Agricore results improved in the fourth quarter, though it remained in the loss column at $6.8 million ($.16 per share) on sales of $706.8 million, versus the year-ago loss of $13 million ($.29 per share) on sales of $566 million.

Agricore said a drop in crop nutrient sales of $28 million in 2006 was the main reason for a $44 million decline in crop input sales for the year. This was attributed to higher fertilizer prices in the spring, which limited fertilizer applications, as well as the absence of fertilizer sales in the first quarter of 2006, as most sales were completed prior to November 2005. Crop protection sales declined by $17 million, mainly due to reduced sales prices on products coming off patent protection and regional weather conditions that impacted weed emergence in June, a key sales month.

Overall, results were off in Agricore’s Crop Production Services segment, which includes crop nutrients, crop protection, and seeds. 2006 EBITDA from the segment was down $23 million, to $50.3 million on sales of $788.6 million from the year-ago $72.9 million and $835.8 million, respectively. Gross profit and net revenue from the segment decreased by $28 million for the year, with Agricore noting industry-wide pressures on fertilizer margins due to volatile natural gas prices. These were partially offset by higher margins on crop protection products and $5 million in cost containment. Results for the fourth quarter remained in the EBITDA loss column at $10.2 million on sales of $69.8 million, versus the year-ago loss of $10.6 million and sales of $67.6 million.

For 2007, Agricore is very upbeat regarding the grain markets, saying that the drought in Australia and more corn in the U.S. will likely mean more wheat production in Canada. Likewise, Hayward noted the ethanol/biodiesel boom, saying that estimates are that 25 percent of the U.S. corn crop may go to ethanol production by 2010-11.

In other news, Agricore expects to save $8 million in 2007 due to plans to redeem 9 percent convertible unsecured subordinated debentures on Jan. 10, 2007. The principal amount withstanding of $105 million will be settled by issuing limited voting common shares, and the outstanding accrued interest will be settled with cash.

CHS marks 75th anniversary with record results; Agriliance earnings off $25 M for the year

Featured, News

CHS Inc. marked its 75th anniversary at its shareholders meeting Nov. 30 in Portland, Ore., with the company noting that it posted both record earnings and sales for the year ending Aug. 31, 2006. Net earnings were $490.3 million on sales of $14.4 billion, up from 2005’s $250 million and $11.9 billion, respectively. It was the company’s third consecutive year of record earnings. Record revenues were attributed to increased market prices for refined fuels and increased values and volume of grain.

Fourth-quarter earnings were $159.3 million on sales of $4 billion, up from the year-ago $116.4 million and $3.4 billion, respectively.

During fiscal 2006, CHS was able to return a record $153 million (based on 2005 performance) in cash patronage, equity redemptions, preferred stock, and dividends to its owners. It expects to distribute $248 million in cash and equity redemption to owners in 2007.

CHS reported that net income from Agriliance LLC, in which it owns a 50 percent stake, was off by $25 million for the year ending Aug. 31, to $52.3 million on sales of $3.74 billion versus the year-ago $77.1 million and $3.73 billion, respectively. CHS did not report fourth-quarter results for Agriliance. Agriliance reports its results in the same fiscal year as CHS. Its other owner, Land O’Lakes Inc., goes by a calendar year ending in December. LOL recently reported Agriliance as having an $8.1 million loss for the quarter ending Sept. 30, 2006, and earnings of $56.6 million, down $30 million, for the nine months ending Sept. 30 (GM Nov. 20, p. 1).

CHS also noted that it reduced its stake in CF Industries Inc. during the recent fiscal year, selling 540,000 shares to go from a 3.9 percent stake to 2.9 percent. As a result, it said it now considers CF as a supplier rather than a strategic joint venture. Agriliance has a multi-year supply contract with CF and purchased approximately 28 percent of its fertilizer from CF in fiscal 2006, with other fertilizer suppliers including Mosaic Co., Potash Corp. of Saskatchewan Inc., PIC, and Koch Nitrogen. Most of Agriliance’s crop protection products are purchased from Monsanto, Syngenta, Dow, Bayer, DuPont, and BASF.

Of Agriliance’s $3.7 billion in 2006 revenues, $1.8 billion was crop nutrient products, and $1.9 billion crop protection and other products.

Temporary cold spell increases gas prices; nitrogen demand to boost gas use, says BOA

News, Nitrogen

A spate of cold weather that crossed the U.S. last week was blamed for an uptick in natural gas prices on NYMEX, with the December front month closing up at $8.318/mmBtu Nov. 28. The January contract settled at $8.844/mmBtu on Nov. 30. While this was the highest front month close since Feb. 3, when March went off the board at $8.613/mmBtu, it was still much lower than the year-ago December close of $11.18/mmBtu.

Most analysts, citing significant amounts of gas in storage and expectations of a relatively warm winter, are expecting gas prices to remain relatively sedate compared to recent years.

In the meantime, a Nov. 30 report by Bank of America Securities LLC (BOA) expects fertilizer demand to spur a 5-10 percent increase in ammonia production, which in turn would mean a 0.1-0.2 Bcf/d of incremental gas demand. BOA estimates that the ammonia industry accounts for 2.5 percent of U.S. gas consumption. BOA expects ammonia production to increase to 90 percent in 2007, from an estimated 85 percent in 2006. While BOA says domestic ammonia margins have recently become negative due to increasing gas prices, it expects margins should turn positive in the next few months due to increased seasonal demand.

Citing the burgeoning ethanol market, BOA said acreage dedicated to corn is expected to increase roughly 6 percent to 84 million acres in 2007, versus a 3 percent drop in 2006, translating into a 4-8 percent increase in demand for nitrogen-based fertilizers, and a 9-12 percent increase in phosphate/potash-based fertilizers.

BOA expects 2007 ammonia imports to be flat, based on higher relative ammonia prices in Europe. BOA also expects urea imports to remain flat – despite increased world capacity – due to higher prices elsewhere and capacity delays.

BOA put ethanol production at 4 billion gallons in 2005, 5.2 billion in 2006, and 6.5 billion in 2007, or 30 percent per year. After 2007, it expects it to grow 1 billion gallons per year through 2015.

In the meantime, The Fertilizer Institute continues to work to assure that plenty of gas remains available. In a Nov. 28 letter, TFI urged the House and Senate leadership to schedule a House floor vote and support passage of the “Gulf of Mexico Energy Security Act” (S. 3711) in the waning days of the 109th Congress. S. 3711 expands natural gas exploration and drilling in the Gulf of Mexico by offering leases in currently restricted areas. TFI said more than 150 member company employees have also sent letters to their elected representatives asking for their support of S. 3711.

Agrium coal gas unit could be online in 2011-12

News Briefs

Calgary-A coal gasification project to help Agrium Inc. keep its Kenai, Alaska, nitrogen complex afloat could be online in late 2010/early 2012, Lisa Parker, Agrium spokesperson told Green Markets last week. “We will finish Phase 2 in the summer of 2008,” said Parker. “If the decision is made to proceed to Phase 3 then we would commence with detailed design and engineering as well as complete project permitting. Phase 4 would be procurement and construction. Our target to complete is late 2011-2012.” Agrium recently marked the end of Phase 1 of the project, with plans to move into Phase 2 (GM Nov. 13, p. 9). Until any coal gas project is complete, Agrium will have to rely on natural gas. Currently, its Kenai plants are down as gas suppliers assure supplies to residential users during the winter months.

PotashCorp announces $500 M notes offering

News Briefs

Saskatoon-Potash Corp. of Saskatchewan Inc. said Nov. 29 that it has filed with the U.S. Securities Exchange Commission a preliminary prospectus supplement in connection with an offering in the U.S. of 30-year notes in the principal amount of US$500 million. The offering is pursuant to a shelf registration statement filed in the U.S. covering $1 billion of debt securities. PotashCorp intends to use a portion of the proceeds to repay its $400 million 7.125 percent notes when they mature June 15, 2007, and in the interim, to reduce outstanding short-term debt. It will use the balance for general corporate purposes.

Congress expected to lift liability on manure

News Briefs

Oklahoma City, Okla.-Supporters see a good chance for passage by Congress, in what’s remaining of the current session or by early next year, of legislation to clarify that the intent of CERCLA legislation was never to classify agriculture manure as a hazardous waste. Ericka McPherson, director of national affairs for the Oklahoma Farm Bureau and a key booster of the exemption, told Green Markets that bills in both the House and the Senate have broad bipartisan support. HR4341, introduced in the House by Rep. Ralph Hall, D-Tex., has 180 co-sponsors, while 36 others in the Senate have signed on to S3681, introduced by Sen. Pete Domenici, R-N.M. McPherson explained that as the law was originally written, it could have serious consequences for farmers who use manure as a fertilizer or those who sell or trade litter. The two bills seek to clarify that Congress never intended to jeopardize American agriculture by imposing such liability on farmers for carrying out what are only traditional practices, McPherson insisted.

New AMP plant will produce fertilizer co-product

News Briefs

Columbus, Ohio-American Municipal Power-Ohio, Inc. is planning to use electro-catalytic oxidation emissions control technology, which produces a fertilizer byproduct and an ammonia-based solution, to capture CO2 in the flue gas at a new 1,000 megawatt generation station now undergoing the permitting process, according to AMP-Ohio officials. They said ECO, developed and patented by Powerspan Corp., Portsmouth, N.H., was chosen because it achieves outlet emissions levels at or below those of current technologies and produces an ammonium sulfate co-product instead of synthetic gypsum left over from traditional limestone scrubbing, which requires landfill disposal. Location for what is called the American Municipal Power Generating Station will be near the Ohio River in southern Meigs County, Ohio. AMP-Ohio Communications Director Kent Carson told Green Markets that urea will be used in the scrubbing process, but no decision has been made on acquiring the ammonia, which is recycled, and, according to Dept. of Energy estimates, is the basis for producing significant savings compared to conventional amine-based CO2 capture technologies. Carson said Powerspan, which has an agreement with The Andersons, would be responsible for marketing the fertilizer. AMP-Ohio, headquartered in Columbus, is a non-profit wholesale power supplier and services provider for 81 member municipal electric systems in Ohio, 25 in Pennsylvania, seven in Michigan, four in Virginia, and two in West Virginia.

N.M. treatment plant to build $39 M pelletizer

News Briefs

Carlsbad, N.M.-The local wastewater treatment plant has the official go-ahead for constructing a $39.5 million heat-drying system that will turn 32,000 wet tons of sewage sludge generated each year into 7,000 pounds of fertilizer pellets. Officials with the Encina Wastewater Authority, which serves 300,000 residents in Carlsbad, Encinitas, Vista, and San Marcos, reported receiving permit approval from the Carlsbad planning commission and hiring Black & Veatch of Kansas City as engineering consultants. Debbie Biggs, director of environmental compliance, said the installation will also include a new cogeneration facility to produce electrical power using methane from decomposing waste and air quality control equipment upgrading. Biggs said the new system, which is patterned after the facility in Sacramento, will end the costly trucking of biosolids 300 miles for land application in Yuma, Ariz. Completion is planned by the end of 2008.

Milorganite fertilizer as a deer repellent?

News Briefs

Milwaukee, Wisc.-The deer are avoiding areas fertilized by Milorganite, and company officials now think their product can be used as one of the solutions to a problem that causes millions of dollars in damage every year to trees, shrubs, and other vegetation across the country. Mike Archer, market development and distribution manager, said Milorganite, which has been produced for 80 years by the Milwaukee Metropolitan Sewerage District, has an earthy and musky odor that may be the reason deer won’t come near it. He said an EPA application has been filed for registration as a pesticide, but wouldn’t provide any more details because of FIFRA regulations.

Organic Growing eyes market growth

News Briefs

Monticello, Miss.-Organic Growing Systems Inc. has its eye on expanding the market for its organic fertilizer lines. Parent company Advanced Growing Systems Inc. reported that OGS has increased production capacity with a new bag sealer and expanded assembly line, and introduced a redesigned plastic packaging to boost consumer awareness. Advanced Growing CEO Chris Nichols said recently that the latest bagging equipment has been delivered to the factory here, where a separate production line was redesigned to produce fertilizer quicker in retail friendly packaging. Nichols said the next step will be to set up the hammer mill to begin production of a new line of fine granular product for golf course and sports field operators.

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