All Posts from April 8, 2022

E.U. Approves New Sanctions on Russia; Includes Shipping Ban to E.U. Ports

Europe, Featured, Natural Gas, News, Potash, Russia

The European Union (E.U.) Council on April 8 agreed to adopt a fifth package of sanctions against Russia in response to the recent reports of atrocities committed by Russian troops in Bucha and other areas of Ukraine.

The new sanctions include an entry ban on Russian flagged vessels and Russian-operated vessels from accessing E.U. ports, as well as “an anti-circumvention” measure against potash imports from Belarus. The exact nature of this measure is yet unclear, but it would seem to imply the banning of imports of potassium chloride into the E.U. from Belarus through Russia.

The new sanctions package has six elements, including an import ban on all forms of coal from Russia. According to a European Commission (E.C.) press statement on April 8, this affects one fourth of all Russian coal exports, amounting to a roughly €8 billion (approximately $8.7 billion at current exchange rates) loss of revenue per year for Russia.

The E.C. also indicated it and the European External Action Service (EEAS) are working on additional proposals for possible sanctions, including on oil imports from Russia. According to the statement, the E.C. is assessing some of the ideas presented by Member States in this regard, including taxes or specific payment channels such as an escrow account.

“Beyond sanctions, the E.U. has made it clear that reducing our dependence on energy imports from Russia is an urgent imperative,” the E.C. said in its statement. The E.C. said work has started to implement a strategy announced in its “REPower Communication” on March to reduce the E.C.’s dependence on Russian fossil fuels.

E.U. Member States are divided on whether to impose a ban on Russian oil and gas imports. The E.U. currently relies on Russian gas for around 40 percent of its needs. Some Member States, including Germany, Hungary, Austria, and Bulgaria, are more dependent on Russian gas than others.

Magnus Brunner, Austria’s Federal Minister for Finance, was cited by CNBC this week as saying Austria is against sanctions on oil and gas because the country “is very much dependent” on the Russian gas and “all sanctions which hit us more than the Russian’s wouldn’t be good for us.” Hungary is also reported to oppose sanctions against Russian fuel.

According to the European statistics office, Eurostat, Austria is estimated to have imported almost 59 percent of its natural gas from Russia in 2020, while Hungary, Bulgaria, the Czech Republic, and Latvia imported an even higher share of natural gas from Russia that year.

Lithuania has fully abandoned imports of Russian natural gas starting from April 1, according to a report by Russia’s Prime Business news agency, citing Lithuanian President Gitanas Nausėda on his Twitter page on April 2.

In a separate move, the European Parliament on April 7 passed a nonbinding motion demanding a total ban on all Russian energy imports into the E.U., according to an Agence France Presse report. MEPs voted 513 in favor, with 22 against and 19 abstentions, on an “immediate” ban on Russian coal, gas, and oil, as well as nuclear fuel, according to the report. Parliament Speaker Roberta Metsola called it a “very important moment” that sent the “strongest messages” to Ukraine on the degree of E.U. support.

The fifth round of sanctions against Russia has also extended import bans worth €5.5 billion on Russian products, including cement, rubber products, wood, spirits (including vodka), liquor, and high-end seafood (including caviar).

The E.C. statement announcing the new sanctions makes no mention of a reported proposal to place a cap on imports of Russian potash into the E.U., which was reported by Dow Jones earlier this week.

Last year, the E.U. imported 5.4 million mt of potash, of which 14.5 percent – or some 783,243 mt – was sourced from Russia, according to Trade Data Monitor. In March, the E.C. widened its sanctions on Belarusian potash, effectively banning imports into the E.U. of all grades of Belarusian potash. The move, part of wider new sanctions package against Belarus, was in response to the country’s role in supporting Russia’s invasion of Ukraine (GM March 4, p. 30).

The new sanctions include an entry ban on Russian-flagged vessels and Russian-operated vessels to E.U. ports. A full ban will also apply on Russian and Belarusian road transport operators working in the E.U. However, there is no mention of any ban on rail freight from Russia into the E.U.

“This ban will drastically limit the options for the Russian industry to obtain key goods,” the E.C. said. However, according to the statement, “certain exemptions will cover essentials, such as agricultural and food products, humanitarian aid, as well as energy, among others.” It is unclear if the “agricultural products” exemptions will include any Russian fertilizers.

An E.C. spokesperson contacted by Green Markets earlier this week said as per previous sanctions packages, he could not provide further details until this latest sanctions package is adopted by E.U. Member States and published in the E.U.’s Official Journal.

New financial measures in the sanctions package include a full transaction ban and asset freeze on four key Russian banks, among them VTB, the second largest Russian bank. “These four banks, which we now cut totally off from the markets, represent 23 percent of market share in the Russian banking sector,” the E.C said, adding that this will further weaken Russia’s financial system.

In addition, providing high-value crypto-asset services to Russia is now prohibited, as is providing advice on trusts to wealthy Russians, which the E.C. said would make it more difficult for Russians to store their wealth in the E.U.

Further targeted export bans are also being imposed against Russia, worth €10 billion, “in areas in which the country is vulnerable.” They include, for example, quantum computers and advanced semiconductors, and also sensitive machinery, transportation equipment, and chemicals. The export ban also includes specialist catalysts for use in the refining industry.

The E.C. said these measures will continue to degrade Russia’s technological base and industrial capacity. It also added jet fuel and fuel additives to the existing export ban list, noting that these products may be used by the Russian army.

A full prohibition is now imposed on the participation of Russian nationals and entities in procurement contracts in the E.U., although it said limited exceptions may be granted by competent authorities where there is no viable alternative.

The E.C. has also added an additional 217 individuals and 18 entities to its sanctions list. These include all 179 members of the so-called “governments” and “parliaments” of Ukraine’s Donetsk and Luhansk regions. In total, the E.U. has sanctioned 1,091 individuals and 80 entities as part of its Russian sanction measures since 2014.

“Russia is waging a cruel and ruthless war, not only against Ukraine’s brave troops, but also against its civilian population. It is important to sustain utmost pressure on Putin and the Russian government at this critical point,” said E.C. President Ursula von der Leyen in a statement

“The four packages of sanctions have hit hard and limited the Kremlin’s political and economic options,” she added. “We are seeing tangible results. But clearly, in view of events, we need to increase our pressure further. Today, we are proposing to take our sanctions a step further. We will make them broader and sharper, so that they cut even deeper in the Russian economy.”

U.S. Ramps Up Sanctions Against Russia; OFAC Carves Out Exemption for Fertilizer

Featured, News, Russia, U.S.

As efforts ramp up to apply more economic pressure on Russia in the wake of recent reports of atrocities committed in Ukraine, a March 24 directive from the Office of Foreign Assets Control (OFAC) of the U.S. Treasury appears to effectively remove Russian fertilizer from possible sanctions.

The new general license from the OFAC outlines a list of vital products that are exempt from Russian Harmful Foreign Activities Sanctions Regulations, including agricultural products, medicines, and medical products. The list of agricultural products includes fertilizers and organic fertilizers; seeds for food crops; reproductive materials for the production of food animals; and food products, including raw, processed, and packaged foods, live animals, vitamins and minerals, and food additives or supplements.

The license notes that existing sanctions on certain individuals, companies, and Russian financial institutions remain in effect, however, and the license does not authorize “the opening or maintaining of a correspondent account or payable-through account for or on behalf” of any sanctioned entities.

According to the Economic Times, the reason for the new license is the “shortage in the world market against the backdrop of a disruption in the logistics of supplies from Russia.” Most Black Sea exporting ports appear to be closed as the war continues, however, and the Russian Industry and Trade Ministry in early March announced that Russia was temporarily suspending fertilizer exports to “unfriendly” countries (GM March 11, p. 1).

The Fertilizer Institute (TFI) sent an alert to members regarding the license, but recommended that companies “consult with qualified legal counsel” before engaging with any matters covered in the guidance “to ensure compliance with all applicable laws and regulations.”

On April 7, the U.S. Congress gave final approval to legislation revoking normal trade relation status from Russia and Belarus, Bloomberg reported. The House passed the bill 420-3, just hours after the Senate cleared it on a rare 100-0 vote. The bill is now awaiting President Joe Biden’s signature.

According to Bloomberg, the bill would put Russia and Belarus in the same category as pariah states such as North Korea and Cuba, adding to the growing list of economic barriers erected by the U.S. and its allies to punish Russian President Vladimir Putin’s government over the invasion of Ukraine.

“This is another tightening of the noose around Vladimir Putin, and we will make him pay,” Rep. Earl Blumenauer (D-Ore.), who co-authored the bill, said on the House floor. Rep. Kevin Brady (R-Texas) said the legislation “will stop American dollars from funding Putin’s bloodletting.”

The bill allows the U.S. to impose large tariff increases on goods from Russia and Belarus. Under the legislation, the tariffs on iron and some steel products could be raised to 20 percent from 0 percent. Plywood could face a 50 percent levy, and some reaction engines could have import taxes of 35 percent, Bloomberg reported.

Biden last month banned imports of signature Russian products, including oil, gas, vodka, seafood, and industrial diamonds. The Senate also passed a bill on April 7 to bar U.S. imports of Russian oil, gas, and coal, which the House was expected to take up the same day.

The U.S. on April 6 also announced a new sanctions package that will ban all new investment in Russia, increase sanctions on financial institutions and state-owned enterprises in Russia, and sanction Russian government officials and their family members.

In addition, the U.S. Treasury on April 5 stated that it will no longer allow Russia to pay down its debt using dollars stockpiled at American banks. While Washington had imposed sanctions on the Russian Central Bank freezing their foreign currency at U.S. banks, the Treasury Department had previously allowed Russia to use those reserves to repay its debt.

Ontario Cooperatives Approve Merger of Equals

Canada, Featured, News

Members of North Wellington Co-operative Services Inc. in Harriston, Ont., and Huron Bay Co-operative Inc. in Teeswater, Ont., on April 7 voted unanimously in favor of a merger of equals that will combine the two businesses under the name of Midwest Co-operative Services Inc.

The merger will become effective Sept. 1, 2022, with the main office located in Teeswater and the Harriston office providing administrative support. The vote required a two-thirds majority for the merger to proceed. The merger was unanimously recommended by the boards of both co-ops, and an information meeting for members was held on March 22 in advance of the in-person vote.

In an FAQ to members, the two co-ops said the combined business would create a “more competitive and profitable co-operative” while building on many existing efficiencies. The two co-ops are both shareholder-owners of Growmark Inc., and they market products and services under the FS retail brand.

“We currently occupy a lot of common trade territory and have limited space to grow geographically,” the FAQ said. “This step will allow us to work within a larger geography in a coordinated and efficient way. We also want to create an organization that can attract talent, as it will be able to offer specialized roles for administrative and management purposes, as well as expertise at the farm gate, like precision agriculture.”

The two co-ops already share a general manager, energy manager, communications and marketing specialist, and human resources/payroll specialist, as well as policies, procedures, and documentation for HR and Health and Safety. Custom application services are also contracted between the two companies, and propane and petroleum deliveries are shared, as is some application and delivery equipment. The list of shared vendors includes Growmark, Masterfeeds, Peavey Industries, Klondike, Lubricants, and many major seed and chemical companies.

The combined membership will total more than 9,000 growers and rural residents in Grey, Bruce, Wellington, Huron, Perth, and Dufferin Counties. The projected combined sales will be more than C$86 million, with service revenues of C$3 million and combined assets estimated at C$55 million at book value.

The co-ops said the combined business will operate from the current 16 locations in Huron, Grey, Bruce, and Wellington Counties, with no plans to close any location or lose jobs. All current members will continue as members of the amalgamated co-op, with no additional investment required. Patronage entitlements will be consolidated into the new structure.

Kelly Boyle, current general manager for both co-ops, will serve as general manager of the combined business. The board will consist of 10 directors, initially composed of five directors from each co-op. Going forward, members will elect directors on a rotating basis at the regular annual meeting.

Huron Bay Co-op currently provides agronomy, animal nutrition, energy, and retail products and services from ten locations in Ontario’s Bruce, west Grey, and north Huron Counties. The company has 2,500 members. North Wellington Co-operative Services provides agronomy, feed, energy, and retail products and services to more than 6,000 members in north Wellington, south Grey, and Bruce Counties from locations in Harriston, Mount Forest, Durham, and Hanover.

SCOTUS Reinstates Trump-Era Clean Water Rule

Featured, News, U.S.

The U.S. Supreme Court on April 6 temporarily reinstated the Trump-era Navigable Waters Protection Rule (NWPR) in an emergency docket ruling. The ruling resulted in a 5-4 split on the bench, with Chief Justice John Roberts joining the three liberal justices in dissent, Bloomberg reported.

The ruling overturns an earlier decision by U.S. District Court Judge William Alsup to throw out the NWPR while the U.S. Environmental Protection Agency (EPA) under President Joe Biden works on a replacement Clean Water Act (CWA) rule, which is not expected until spring 2023. EPA and the U.S. Army Corps of Engineers in January announced that they had halted implementation nationwide of the NWPR (GM Jan. 28, p. 1).

The court gave no explanation for its decision. This is often the case with emergency docket orders, which some critics have referred to as the “shadow docket.” But the dissenting justices, in an opinion penned by Justice Elena Kagan, said the states and industry groups backing the NWPR had failed to show that its reinstatement would have any practical impact, or that the absence of the rule had resulted in “irreparable harm” to warrant an emergency ruling.

The majority’s decision “renders the court’s emergency docket not for emergencies at all,” Kagan wrote. “The docket becomes only another place for merits determinations – except made without full briefing and argument.”

The Biden administration had reportedly urged the court not to reinstate the rule, saying that in the months since Judge Alsup’s ruling, officials had adapted to the change and reverted to regulations that were in place for decades, before both the NWPR and the 2015 Obama-era Waters of the United States (WOTUS) rule. Another change, the administration warned, would “cause substantial disruption and disserve the public interest.”

At issue in the case is Section 401 of the CWA, which restricts the authority of states to reject federal permits for projects that affect waters within their borders. The Trump administration’s NWPR significantly curtailed this process in an effort to fast-track energy projects and scale back the types of waters falling under CWA jurisdiction.

Under the Biden administration, EPA and the Corps announced last June (GM June 11, 2021) that they intended to draft yet another WOTUS definition that builds upon the pre-2015 rule, the Obama-era rule, and the Trump-era NWPR.

On Nov. 18, 2021, the agencies announced the signing of a proposed rule to do just that, putting back in place the pre-2015 WOTUS definition, but updated to reflect consideration of Supreme Court decisions, along with input from states, tribes, local governments, and a broad array of stakeholders.

As a result of the new Supreme Court decision, the Trump-era rule will now go back into effect while the Biden administration works on a replacement. Both The Fertilizer Institute (TFI) and the Agricultural Retailers Association (ARA) have voiced support for the NWPR in the past.

TFI told Green Markets that it will be filing an amicus brief with the court on behalf of the agriculture sector, along with several other ag trade associations, including the American Farm Bureau Federation, National Pork Producers Council, and others.  

Improved Ag Earnings Drive CHS’s 2Q

Earnings, News, U.S.

CHS Inc. on April 6 reported second-quarter net income of $219.0 million and revenues of $10.3 billion, compared to a net loss of $38.2 million and $8.3 billion in revenues for the first quarter of fiscal year 2021. The company cited higher margins in its Energy segment and higher commodity prices and improved earnings in its Ag segment.

CHS’s Ag segment posted pretax earnings of $55.2 million for the quarter, up $41.1 million from last year’s second quarter. Strong global demand and market conditions resulted in increased earnings across most of its Ag segment businesses, CHS said, including oilseed processing, renewable fuels, and wholesale agronomy. The business also experienced lower volumes of feed and farm supplies due to supply chain constraints.

CHS said its strategic investment in CF Nitrogen contributed a significant portion of the second-quarter earnings, with market conditions driven by strong global demand for urea and UAN. The company’s Nitrogen Production business posted pretax earnings of $154.3 million for the second quarter, up $143.1 million from the same period a year ago.

“The U.S. agricultural industry continues to experience strong demand for grain and oilseed commodities,” said Jay Debertin, CHS President and CEO. “This strong demand, combined with global market volatility, contributed to higher earnings in the quarter.”

CHS’s Energy segment recorded pretax second-quarter earnings of $10.8 million, up $65.5 million from last year’s second quarter. The results were driven by higher refining margins and more favorable pricing of heavy Canadian crude oil processed by the company’s two refineries, which were partially offset by higher costs of renewable energy credits. CHS said lower propane margins were also reflected in the quarter due to warmer winter weather conditions.

“The Russian invasion of Ukraine in February has caused significant uncertainty and instability in global commodities markets, including agricultural commodities and crude oil,” Debertin added. “Despite these factors and inflationary pressures, CHS remains well positioned to continue to maximize value for our local cooperative and farmer-owners through our integrated global supply chain network.”

Net income for the first six months was reported at $671.0 million on revenues of $21.2 billion, versus $31.4 million and $17.0 billion, respectively, in the first half of fiscal year 2021.

More Lawmakers Urge Action on Fertilizer Prices; TFI Meets with House Ag Committee

Featured, News, U.S.

Another group of lawmakers has sent a letter to President Joe Biden urging action on rising fertilizer prices. The April 5 letter, led by Reps. Tom Emmer (R-Minn.), Pete Stauber (R-Minn.), Michelle Fischbach (R-Minn.), Greg Murphy (R-N.C.), and Jodey Arrington (R-Texas), was co-signed by an additional 92 Republican members of the House.

Using USDA data, the letter states that fertilizer prices since January 2021 have risen by 203 percent for anhydrous ammonia, 141 percent for urea, 162 percent for liquid nitrogen, 74 percent for MAP, and 125 percent for potash.

“We are therefore urging your administration to review all available options to lower the cost of fertilizer, including, but not limited to: eliminating the cross-border vaccine mandate for transporters of essential commerce; urging the USDA to use its existing authorities under the food supply chain and pandemic response resources to provide support for farmers facing financial difficulties; ensuring agricultural minerals like phosphate and potash are part of the Department of Interior’s crucial mission; increasing U.S. gas production; and approving pending export permits at the Department of Energy for liquefied natural gas,” the letter said.

“Last month, fertilizer reached the highest price ever recorded, and with the Russian invasion of Ukraine, these prices are only going to get worse,” said Rep. Fischbach. “I hear from farmers across my district all the time they cannot afford today’s prices. Our farmers need President Biden to review all available options to lower the cost of fertilizer, and I am proud to be a co-author of this letter urging exactly that.”

The letter mirrors an earlier plea from Sens. John Hoeven (R-N.D.) and Bill Hagerty (R-Tenn.) in March urging the Biden administration to take immediate action to lower the cost of fertilizer for American farmers (GM March 18, p. 1). That letter had 17 Senate Republican co-signers, and listed the same recommended actions.

The Fertilizer Institute (TFI) on April 6 issued a statement after participating in a roundtable discussion regarding fertilizer markets with House Republican Members and staff of the Committee on Agriculture.

“Fertilizer is an essential tool for farmers to achieve desired yields, and we appreciate the opportunity to offer solutions to the current market pressures with members of the Agriculture Committee,” said TFI President and CEO Corey Rosenbush. “During this busy spring planting season – and throughout the year – the fertilizer industry is committed to ensuring adequate supply to meet farmer demand for the nutrients that are so essential to growing healthy and abundant crops.”

Rosenbush said the effects of COVID-19, extreme weather disruptions, rising energy prices, facility maintenance, geopolitical events, and export bans have “dramatically” affected the fertilizer market.

“As a globally traded commodity, supply and demand economics drive the fertilizer markets, and 90 percent of the world’s fertilizer is consumed outside the U.S.,” he said. “Fertilizer feeds the food that feeds the world, so the issues our industry faces significantly impact global food security. Tackling the challenges to the world’s food supply truly requires collaboration, innovation, and partnerships, and we welcome this and future opportunities to discuss these solutions.”

CF Industries Holdings Inc. – Management Brief

Eastern Cornbelt, Management Briefs

CF Industries Holdings Inc., Deerfield, Ill., announced on April 7 that Martin A. Jarosick has been named Vice President, Treasury and Investor Relations, effective immediately. In his new role, Jarosick will oversee the company’s treasury organization, which includes capital markets and banking activities, risk management, and credit. He will also continue to lead the investor relations function.

Jarosick has served as Vice President, Investor Relations, since joining CF in 2017. Prior to CF, he served as Treasurer and Vice President, Investor Relations, at Axiall Corp. He also held various positions in treasury, strategic planning, and investor relations with The Home Depot and Progress Energy.

Jarosick is replacing Daniel L. Swenson, who retired from CF on March 31, 2022, to pursue interests outside of a corporate environment. Swenson had been Treasurer of CF since 2015, having joined the company in 2012 as Senior Director, Investor Relations and Corporate Communications.

“Martin has been a strategic leader and valued voice within CF Industries as we have navigated the dynamic global nitrogen market and advanced our clean energy initiatives,” said Christopher D. Bohn, CF’s Senior Vice President and Chief Financial Officer. “I want to thank Dan for his commitment and dedication to CF Industries during his 10 years with the company. We wish him well in all his future endeavors.”

Itafos Inc. – Management Brief

Houston, TX, Management Briefs, Phosphate

Phosphate producer Itafos Inc., Houston, Texas, announced that Lee Reeves, a senior executive with more than 25 years of experience in corporate law, securities, governance, compliance, investor relations, and business strategy, has replaced Fernando Planchart as General Counsel. Planchart joined the company in 2016.

Prior to joining Itafos, Reeves formed MLR Consulting LLC, a business and legal consulting firm. He also served as Chief Legal Officer for LL Flooring Inc., where he oversaw its human resources department, rebuilt its legal and compliance functions, and negotiated settlements from government investigations and multiple consumer class actions.

Reeves was also a top legal officer with Lowe’s Companies Inc., and worked at international law firms in New York and Atlanta. He holds a juris doctorate from Southern Methodist University School of Law and a bachelor’s degree in business administration in finance from SMU. He also completed an advanced management program at Harvard.

Farmers Edge Inc. – Management Brief

Canada, Management Briefs

Farmers Edge Inc., a pure-play digital agriculture company based in Winnipeg, Man., announced on March 25 that Wade Barnes, who founded Farmers Edge in 2005, is stepping down as CEO. Barnes will continue to work with Farmers Edge while the company’s Board of Directors searches for his successor. He will also maintain his seat on the Board of Directors, where he will continue to be involved in helping steer the business.

“On behalf of the Board of Directors and management, I want to thank Wade for his dedication, vision, and significant contributions as the founder of Farmers Edge,” said Bill McFarland, Chair of the Board of Directors.

“It has been an honor and a privilege to lead this great company as CEO,” Barnes said. “My journey with Farmers Edge has been a truly rewarding one. I’m incredibly proud to have worked with such talented, creative, and innovative team members over the years who have helped build Farmers Edge into what it is today. I am confident that the company will continue to grow, achieve important new milestones in its development, and deliver on my vision.”

Farmers Edge launched an initial public offering in March 2021, and continues to add Digital Agronomy acre subscriptions, mostly through its Progressive Grower Program. In August last year, the company purchased online farm inputs retailer CommoditAg, Effingham, Ill. (GM Aug. 20, 2021) to diversify its revenue while expanding its roster of services to growers. CommoditAg continues to function as a wholly-owned subsidiary of Farmers Edge.

Fertoz Ltd. – Management Brief

Management Briefs, Phosphate, Specialty

James Chisholm, one of Fertoz Ltd.’s largest shareholders and a founding director, has resigned from the company’s Board of Directors, according to a company news release, which said Chisholm decided to step down due to his growing workload as a director of another company. His resignation follows Fertoz’s recent appointment of Greg West as another non-executive director.

Fertoz is a certified organic fertilizer manufacturer and supplier with phosphate mining operations in British Columbia and rock crushing/screening operations in Montana, Idaho, Alberta, Mexico, and B.C. Its corporate offices are in Denver, Colo., Melbourne, Australia, and Vancouver, B.C.

Chisholm served as Fertoz chairman through its initial public offering and Australian Stock Exchange listing in 2013, stepping down from that role in 2016 when Pat Avery was appointed executive chairman. “James has been integral in Fertoz’s development over the years, and we thank him for his efforts and dedication to the company,” Avery said.

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