North America Giant Fertilizer Merger

Fertilizer prices have been falling in the recent years causing an erosion in the fundamentals of the industry, to which is has responded consolidating.

PotashCorp (POT) and Agrium (AGU) announced a merger of equals expected to be completed by the middle of 2017 that would create the world’s largest crop-nutrient supplier with a market value of about $26 billion. For an understanding of the significance of this new enterprise compare with the market capitalization of Mosaic (MOS) of $8.9 billion or CF Industries (CF) of $5.6 billion.

 

pcs

PotashCorp Allan Potash Operations

 

This is a deal of giants. PotashCorp is the largest world fertilizer company by nutrient capacity (14.2 million tonnes p.a.) and they are a low-cost potash producer (in the recent quarter they outflanked competition with the lowest cost per ton at $127 of potash produced). Agrium is a leading global producer and marketer of agricultural nutrients with a 4% of the global production capacity of potash, a 2% of ammonia, a 1% of urea, and 1% of phosphate. Agrium’s retail unit buys 10 million tons of fertilizer annually. The combined company would control the majority of North America’s potash production and more than 30 percent of North American nitrogen and phosphate production.

 

agrium

Agrium Vanscoy Potash Operations

 

The new company will be a leader in the fertilizer industry with close to 20,000 employees and operations and investments in 18 countries. PotashCorp shareholders will own 52% of new company.

The merger will result in low regional market overlap as the majority of PotashCorp fertilizer assets are in the eastern half of the U.S., Agrium’s nitrogen and phosphate assets are concentrated in western North America.  It is expected to generate up to US$500 million of annual operating synergies mainly from distribution and retail integration, production and SG&A optimization, and procurement.

The merger of the world’s largest fertilizer producer with the world’s largest ag-retailer is drawing the attention of the regulators and farmer groups.

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Barley Snapshot

Barley serves as a major animal fodder, as a base malt for beer and certain distilled beverages, and as a component of various health foods. It is used in soups and stews, and in barley bread of various cultures.

The barley fertilizer usage is in the approximate order of  5-2-1 N-P2O5-K2O, and is less than five percent of the global fertilizer consumption.

Soybeans Snapshot

Soybeans provide oil and protein, and appear in a large variety of processed foods. Soybeans were a crucial crop in eastern Asia long before written records, and were first introduced to Europe in the early 18th century, but they did not became an important crop outside of Asia until about 1910.

Soybeans use some 3-7% of the nutrients applied to agriculture. Very roughly, in the latest years, rice received about 1% of the nitrogen fertilizer applied to crops, 2-8% of the phosphate fertilizer, and a similar percentage of potassium fertilizer.

Soybeans are one of the “biotech food” crops that have been genetically modified, and genetically modified soybeans are being used in an increasing number of products. The number of genetically modified soybeans cultivated for the commercial market in the United States grow from some 8% of all soybeans in 1997 to 93% last year.

Soybeans are a 40-50 billion US$ market, ranking in 2008 in the eight place among the agricultural commodities by value. About a third of its production is traded to others countries, being the main producer and exporter the USA, followed both in production and exports by Brazil and Argentina.

Rice Snapshot

As a cereal grain, rice is the most important staple food for a large part of the world’s population, especially in East and South Asia, the Middle East, Latin America, and the West Indies. It is the grain with the second-highest global production, after maize. Rice uses about 15% of the nutrients applied to agriculture. Very roughly, in the latest years, rice received some 15-16% of the nitrogen fertilizer applied to crops, 12-13% of the phosphate fertilizer, and 13-14% of potassium fertilizer.

In the last forty years rice production has more than doubled. In addition, a 2010 study found that, as a result of rising temperatures and decreasing solar radiation during the later years of the 20th century, the rice yield growth rate has decreased in many parts of Asia, compared to what would have been observed had the temperature and solar radiation trends not occurred. The yield growth rate had fallen 10-20% at some locations. The study was based on records from 227 farms in Thailand, Vietnam, India, China, Bangladesh and Pakistan.