Agrium Inc. does not foresee anything getting in the way of its purchase of Viterra’s retail network.
“(It’s) our latest attempt at growing and we will succeed in this one,” Agrium president Mike Wilson told investors attending BMO Capital Markets’ 2012 Farm to Market Conference.
One investor asked Wilson about the Informa Economics report commissioned by the Saskatchewan government that raised concerns about Agrium’s deal with Glencore International.
The proposed deal would see Agrium acquire 232 of Viterra’s 258 crop input stores and its 34 percent stake in an Alberta nitrogen manufacturing facility.
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“We’ve looked at (the report). We don’t feel it’s going to cause us any concern,” said Wilson.
“They seem to be more focused on investment and jobs staying in the province.”
Wilson said the final decision on the deal’s foreign investment and competition aspects rests with the federal government rather than the provinces.
He expects Glencore to close its deal to buy Viterra in June or July. It will take a little longer for Agrium’s purchase to achieve regulatory approval.
“We’ll likely be towards the late third quarter or fourth quarter before we close,” said Wilson.
The Viterra purchase would add to Agrium’s already impressive global collection of crop input stores. The company is about four times larger than its biggest retail competitor. It has 25 percent of the Australian market, 20 percent of Argentina and less than 20 percent of the North American market.
Agrium’s retail sales in 2011 eclipsed its entire revenue stream in 2006. It’s seed sales topped $1 billion for the first time and the company sold $700 million of its Loveland brand of chemicals, which represented 20 percent of chemical sales. The Loveland line accounted for 40 percent of the margins in the chemical segment.
Agrium acquired 17 companies with 35 retail outlets in 2011 and added another seven companies with 14 farm centres in the first quarter of 2012.
If the purchase of the Viterra assets are approved, Agrium would own 53 percent of Canada’s ammonia production capacity and 49 percent of its urea production capacity.
Wilson said its nitrogen fertilizer facilities give the company a significant competitive advantage because of cheap natural gas prices in North America and the proximity to the U.S. corn crop.
“To get into these markets, our competitors have huge freight penalties and we capitalize on that and we set our pricing based on that,” he said.
Wilson expects natural gas prices to remain low for “quite a long time” in North America.
One investor asked him how long it will be before Agrium faces increased competition from new nitrogen fertilizer projects.
Most of the world’s new manufacturing plants were built in the Middle East and North Africa over the last 10 years, but capital is definitely shifting to North America.
A number of fertilizer companies are expanding or building new plants, including Agrium. Wilson thinks it will likely be five to seven years before those new facilities are built, but he said world nitrogen demand is expanding by two to three million tonnes per year.
He expects demand to remain strong as long as corn remains higher than $3.50 per bushel, which provide growers with their historic average margins using today’s seed, fertilizer and chemical prices.
Agrium is in the process of expanding its annual potash production to three million tonnes from two million tonnes. Wilson knows of 45 to 50 companies wanting to get into the potash business, but the barriers to entry are huge.
He anticipates that the brownfield, or expansion, projects will happen, but they shouldn’t have too big an impact on potash supply and demand dynamics.
Most of the greenfield, or new construction, projects will never occur, he added, because companies are “choking” on the massive capital costs and the length of time required to build new plants.
Another investor asked Wilson about the recent trend for fertilizer dealers to completely deplete their stocks before buying new supplies.
“It’s amazing how skittish everybody is in the world,” said Wilson.
He expects that trend to continue, which will create more volatility in the fertilizer market. Farmers and retailers are scared to take a position on fertilizer in case they are stung like many were in 2008, he added.
