April 2009 Archives

Last week CF shareholders ignored Agrium's plea to withhold votes; re-electing three nominated directors.  This was a painful setback for Agrium, their anxiety apparent in the subsequent spin.

Whining aside, 80% plus of CF's shareholders clearly indicated with their vote that they weren't even closely interested in Agrium's entreaties.   It is also important to note that ~88% of CF is owned by institutions; in other words presumably sophisticated investors.

In our view, this victory offers CF and Terra a brief window of opportunity to get about closing a deal.  Both sides have to get out of the trenches and engage.   Time is of the essence as other fundamental factors loom large on their horizon.

There is a level of anxiety in rural America about the continuing consolidation in agriculture and the fundamental impact that it is having on rural life.  Considerable and vocal grassroots resistance has especially been developing towards the ongoing consolidation in the fertilizer industry.   The proposed fertilizer mergers will be amongst the first confronted by the Obama administration.   At this point we think that CF - Terra will be approved, after some meaningful surgery.

The compelling argument that needs to be made to the administration is that American nitrogen production has been under attack for the last decade.  We have lost a large percentage of our production capacity, and more is at risk.  Over 50% of our consumption is now imported.  World market conditions will insure that the American farmer has competitive nitrogen.  What is of concern is the viability of our remaining production capacity.

The news for the foreseeable future is even more difficult.  Cap and Trade legislation, now inevitable, will be a triple whammy for North American nitrogen producers.  Not only will they have to pay a significant carbon "tax" estimated to be $30 per ton, but they will also have to compete with imported product which will, for the most part, not be carrying this burden.     Furthermore, they will have to compete even more aggressively for feedstock, as other industries switch to natural gas, to reduce their own carbon tax exposure.

Therefore for the shareholders (and stakeholders), CF and Terra need to make peace and circle the wagons.    The Trinidadians are coming...as well as the Venezuelans, Chinese, Indonesians, Russians, Ukrainians, Kuwaitis, Qataris, Egyptians, Saudis...

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Green Markets closed their poll on Wednesday last week in order to sort through and analyze the surge of votes that they were receiving.  At that point the existence of the poll was just starting to circulate beyond Green Markets' circulation.  Had the poll been left open there is no doubt in our mind that the results would have been even more lopsided than those reflected above.  When studying these results it is important to note that a significant percentage of those in the North American retail sector are already receiving an Agrium paycheck.   It is also interesting to see the noticeable anti merger vote amongst even those in the fertilizer producer category.

As they have been saying for centuries, "a picture is worth a thousand words."

Unfortunately missing from this picture is a direct sense of grower views on the subject.    But a separate poll is not needed to measure what farmers are thinking.   Instead we suggest waiting a few days for the announcements of Fertilizer Producers' FY Q3 earnings.  We expect that then there will be a little less bravado in the air.

It appears that the "Green Sheet" has finally discovered that one of the biggest stories on Wall Street is unfolding in their own back yard.  No doubt covering the Fertilizer Wars will be a challenge for the Green Markets team, as they too could become casualties.  Trade rag subscriptions are as difficult to find these days as cheap potash in our consolidating industry.

Gingerly trying to discern market sentiment they launched an abbreviated internet poll last Friday.  Given their focused subscription base, we would suspect that this exercise will produce results similar to polling a church choir about the merits of regular church attendance...but we will see.

As they say in Chicago "Make sure that you vote...and vote often."

 Click here for larger image.

The fertilizer business used to be a gentlemen's sport, with its own set of Queensberry rules. Competition was vigorous, but there was also a level of mutual respect.  The industry's culture was best reflected by the smooth polished style of the Greenbrier Resort in West Virginia where the industry used to assemble to overflow capacity every May for an annual conference.

Your word was your bond.  You worked hard, and played hard.  You wanted to "win" but certainly not at all costs.  You looked after your friends.   Everyone knew that what went around came around.

Now with consolidation, we are an industry more and more focusing it seems on short term gain at the expense of longer term visions such as "Nourish, Replenish, Grow."

There was a time in our industry when attack ads like the ones that Agrium ran against CF's management and board this week were inconceivable.  Possibly because then our values were Main Street... not Wall Street.

The Fertilizer Wars escalated on Friday.  Responding to growing member anxiety, the Agricultural Retailers Association Board of Directors adopted the following motion:  "A high percentage of the ARA board members expressed concern in a survey on crop nutrient producer consolidation and direct ARA to respond with educational efforts to ARA membership outlining the avenues for ARA members to express their opinions to the appropriate federal agencies and officials."

The ARA press release on this development included extensive information for their membership on how to confidentially contact the regulatory agencies involved and express their views.