Fertilizer Margins, Supply and Trends

Doug Goff

MABA Convention

January 2016

Overview

• Margins

• Supply

• Trends

New Large Merger

US Farm Income

Market Fundamentals

Fertilizer Supply

• New Production

– UAN

– Urea

– P and K

• Imports

• PCS/Agrium Merger

Fertilizer

• Factors Influencing Fertilizer Industry

– Strength of Dollar

– Supply vs Demand

– Commodity Prices

– Gas Prices

– Freight/transportation

– Regulatory

Confidential 9

Supply Side

Source: GTIS Source: TFI & Koch

SUPPLY / DEMAND

• Nitrogen

• Suppliers

– CF Industries

– PCS/ Agrium

– Koch

– Coffeeville

– Russia

– China

– Traders

SUPPLY / DEMAND

• Potash

• Suppliers

– PCS / Agrium

– Mosaic

– Russians

– K+S

– Traders

SUPPLY / DEMAND

• Phosphate

• Suppliers

– Mosaic

– PCS/ Agrium

– OCP

– Traders

Confidential 13

Demand Side

Source: USDA, Informa, Koch

Source: Koch, AAPFCO Source: Koch, AAPFCO

Outlook 2017

• Product Outlook

– Nitrogen-strengthening-layers sold-re-priced by side-dress? Low YE inventories good

– Phosphate-flat

– Potash-increases post fall (will they stick?)

– 10-34-0-some increase with acid increase expected

PCS and Agrium • $36B Enterprise w/ .5B Synergies

• Reduces Competition and Raises Prices/Returns

• Potash Corp shareholders will own about 52 percent of the new company, with Agrium shareholders owning the rest after the deal closes, which is in mid-2017

Margins 101 • Focus on GP/Ton vs. % GP

– $300/ton product 20% GP=$60/ton

– $200/ton product 20% GP=$40/ton

– Set margin per ton at $60/ton

• Blends vs. Straight Goods – Add value with AMS, Pel Lime, KTS, KMAG,

10-34-0 with Sulphur etc.

• Variable Rate – Adds technology income-rec’s and application $’s

Blend Example

• PK Standard: 300#/acre (60% K/40% P) @ Dealer Profit $60/ton – Grower Cost: $ 50.25 / acre

– Dealer Profit: $ 9.00 / acre

• PK plus AMS: 300#/acre (60% K/40% P) – Grower Cost: $ 50.73 / acre

– Dealer Profit: $ 10.89 / acre

• PK plus AMS, Mn, Zn, B: 300#/acre (60% K/40% P) – Grower Cost: $ 56.92 / acre

– Dealer Profit: $ 14.20 / acre

• Helena Proprietary ASK Blend: 300#/acre (60% K/40% P) – Grower Cost: $ 68.34 / acre

– Dealer Profit: $ 22.60 / acre

Margins 101

• Layering – Growers should layer like us

– Take a position, offer one

• Direct tons vs applied tons – Early fill, cash and contract

– Spring delivered and stored-add storage fees/month

• “Sun down” pricing-”good till sundown”

• Ask a lot of questions

Other Ideas • Set up N programs to include foliar CRN-carry the

fungicide

• Replace soil applied N with CRN

• Foliar nutrition role in plant health and reproductive development-tissue sample

• 4R’s more foliar, less soil

• Soil scan VRN

• VRT-Grid or Zone

• No service NH3

% of Yield Cost

US Yield History

Trends

• Sustainability-4R

• Grower storage and application

– Strategy for servicing-differentiate pricing

• Nutrient management plans-manure

• VRT from yield and soil tests

Analyze Profit

• Annual sales trends /customer

– tons and dollars

– GP $ and GP/ton

• 3 Year trends for business

– tons and dollars

– GP $ and GP/ton

– Operating Expense of operations

Training

• Sales Training

• Segmentation

• Precision Ag

• 4R

• CCA

• TSP

Thank You Questions?