Several mergers and hostile takeover attempts headlined fertilizer industry news in 2010, and more are likely to come.
“At this point it’s too early to say they’ll be good or bad for us at the dealer and grower levels, but more consolidation seems certain in the fertilizer industry,” says Doug Wright, purchasing manager for Mid Kansas Cooperative. “We’ve been through it all before in the country, and in agriculture. From our viewpoint, it looks like there will be fewer companies to buy from, which to me always raises concerns about pricing.”
Those concerns are shared by others in the industry who have watched recent global acquisitions and buyout attempts. For example, in November, after several months of hot pursuit, BHP Billiton withdrew its offer to acquire Potash Corporation of Saskatchewan (PCS). As the world’s largest mining company based in Australia, BHP had launched a $40-billion takeover offer of PCS, the world’s largest potash producer. BHP reportedly withdrew its offer due to demands made by the Canadian government.
That doesn’t mean the company will give up and go back to mining. It has already bought the smaller Canadian potash firms Anglo Potash and Athabasca, which has one of the largest exploration permit areas in the Saskatchewan basin, where most of the country’s potash resources lie.
Earlier in 2010, Brazilian mining giant Vale, the world’s largest iron ore producer, agreed to pay $3.8 billion for Bunge’s fertilizer assets in Brazil. That transaction also included a 43.3% stake in Fosfertil, the country’s main provider of raw materials for fertilizer products. The company, which already mines potassium, announced in mid 2010 plans to boost production at its phosphate mine in Peru nearly 50% by the end of 2011. In early 2009 it bought potash projects in Canada and Argentina from Rio Tinto. All of these acquisitions appear to put the company on its way to reaching its goal of becoming one of the world’s largest fertilizer producers by 2017.
But it doesn’t end there. Russian potash companies Silvinit and Uralkali — two of the country’s largest potash makers — are reportedly negotiating a merger as well. Russia ranks second in world potash production behind Canada.
Yara International, the world’s largest nitrogen producer, has also been making acquisitions and forming several joint ventures all around the globe over the past few years. It bought partial ownership of Russian fertilizer producer OAO Minudobreniya, an ammonia plant in Burrup, Australia, a Finish fertilizer company, and a Libyan oil company. The Norway-based chemical firm also has purchased a Brazilian fertilizer distribution and marketing company, Canadian nitrogen producer Saskferco, and the Swiss company Balderton Fertilisers SA. Last year it also tried to buy Terra Industries in the United States.
New leader in U.S. nitrogen
Although potash has been the main focus of recent global consolidation, control of nitrogen production has been what North American-based companies have sought. In early 2009, CF Industries made its first of many offers to buy Terra Industries. Weeks later, Calgary-based Agrium made a play for CF. After months of offers and rejections, Agrium gave up, and finally in early 2010 CF succeeded.
After its acquisition of Terra last April, CF Industries became the largest nitrogen producer in North America and the second largest globally. According to Tony Will, CF’s vice president of manufacturing and distribution, the merger was an ideal fit, combining CF’s extensive distribution system and ample storage facilities with Terra’s production capacity. “In the second quarter of 2010 alone, CF was able to double our nitrogen production, thanks to the Terra acquisition,” Will says. “And we now have the largest distribution system in North America.”
Handful of owners
If the consolidation trend continues, it’s likely there will be just a handful of owners, globally, in another 10 years, Wright predicts. “And only a few will be U.S.-based,” he says. “With growth in demand coming from both India and China in recent years, those countries now have a huge impact on world markets. China, in particular, is working toward self-sufficiency, in terms of fertilizer production, and building lots of new plants.”
As for U.S. self-sufficiency, the only nutrient that the U.S. doesn’t usually need to import is phosphates, Wright notes, and even that changed this past year. “U.S. producers were exporting more product last summer because they could make more money selling it elsewhere,” he says. “That’s an outcome of global fertilizer markets. Just because it’s made here doesn’t mean it will stay here.”
He notes that U.S. fertilizer producers also face more environmental constraints than producers in other countries and, in some cases, have much older production facilities. “It’s very likely we’ll lose some of the smaller producers in the coming years,” he says, “and with a huge new phosphate plant scheduled to open later this year in Saudi Arabia, North American producers may not continue to dominate that market as much as they have in the past.”
For U.S. distributors and dealers, having enough storage could be the key to being able to provide enough product to customers, Wright says. “We’ve seen very tight supplies of many fertilizer products this past year and I don’t think that’s going to change in the next year or two.”
Dealers and growers need to look at buying product farther out, when they can lock in the best prices, Wright says, adding, “That’s why our company is looking at adding fertilizer storage as the best way to ensure we have product when our customers need it.”
How much fertilizer does the U.S. import?
The United States produced 41% of the fertilizer domestically used between July 2009 and June 2010 and imported the remaining 59%, according to data from USDA’s Economic Research Service. This country traditionally imports the most potash — nearly all of it from Canada — and requires the least foreign phosphates. U.S. manufacturers still supply the majority of the nitrogen used domestically.