CF Industries Holdings

Public Company
Incorporated: 1946 as Central Farmers Fertilizer Co.
Employees: 1,400
Sales: $2.76 billion (2007)
Stock Exchanges: New York
Ticker Symbol: CF
NAICS: 325311 Nitrogenous Fertilizer Manufacturing; 325312 Phosphatic Fertilizer Manufacturing

CF Industries Holdings, Inc., is one of the world’s top fertilizer producers. The Illinois-based firm supplies North America with a quarter of its nitrogen and a fifth of its phosphate fertilizer, although its customers are largely located in the midwestern United States. CF operates nitrogen plants in southern Louisiana and Alberta, Canada (the latter through a joint venture); a phosphate mining and processing operation in Florida; and related distribution facilities. The company has boosted its exports through Swiss fertilizer trading company Keytrade AG, in which it bought a 50 percent stake in during 2007.

BEGINNINGS

CF Industries was founded in 1946 as a fertilizer brokerage operation called Central Farmers Fertilizer Co. (CFFC) by a group of regional agricultural cooperatives. Initially distributing fertilizer sourced from outside producers, the Chicago-based firm soon bought a minority stake in a nitrogen plant in Lawrence, Kansas. Nitrogen, applied as liquid ammonia or in solid granular forms such as urea, was generally made from natural gas. One of the three most-used fertilizers, it was essential for growing a variety of plants including corn and grains, which were among the top crops its cooperative owners produced. Other key fertilizers included potassium and phosphorus, which were largely mined from the earth as potash and phosphate, respectively.

In the 1950s CFFC attempted to develop a phosphate mine and processing plant in Idaho, but it was hampered by cost overruns and the cooperatives became unwilling to fund it any longer. The debacle led to a change of leadership, with Ken Lundberg appointed manager and E. V. Stevenson named board chair. The Idaho Phosphate Works project was subsequently shut down, and a financial reorganization implemented in which the value of CFFC ownership shares was written down by two-thirds.

In 1962 CFFC and three other farm cooperatives formed Central Nitrogen, Inc., to build a $20 million fertilizer plant in Terre Haute, Indiana. When operational in 1963, it would make 350 tons of ammonia per day. The firm also took stakes in National Potash Co., which owned a mine in New Mexico, and St. Paul Ammonia Products, which operated a plant in Minnesota.

Seeking greater supplies of nitrogen fertilizer, in the mid-1960s CFFC announced plans to build a 1,000-ton-a-day ammonia plant in Donaldsonville, Louisiana, which would be completed in 1969. It was built by a company called First Nitrogen Corp., which would be co-owned by two member cooperatives before being acquired in full by the firm.

In early 1969 CFFC bought Central Phosphates, Inc., of Bartow, Florida, from International Minerals and Chemical Corp. The mine and processing facility, the largest of its kind, could produce 1.2 million tons of phosphate fertilizer per year. The move was considered a gamble because phosphate prices were then below the cost of production, but it soon paid off when they increased to a profitable level.

NAME CHANGE TO CF INDUSTRIES IN 1971

In 1970 CFFC bought a 49 percent stake in a Saskatchewan, Canada, potash plant owned by Noranda Mines, Ltd., which would run it. In 1971 CEO Ken Lundberg left the company and Donaldsonville Facility Manager R. R. “Barney” Baxter was named to head the firm. Soon afterward, its name was changed to CF Industries, Inc.

In 1972 CF started a multi-year, $65 million expansion program that would include a new 1,000-ton-a-day urea plant in Donaldsonville and a 250,000-ton-ayear phosphate plant in Plant City, Florida, as well as distribution warehouses, terminals, and a refrigerated storage tank. Owned by one Canadian and 17 U.S. cooperatives, CF was now the largest fertilizer producer in the United States.

Despite a sometimes difficult economic climate in the early 1970s, expansion was ongoing and in 1976 the firm joined with three Canadian cooperatives to build a nitrogen complex in Medicine Hat, Alberta, for $230.2 million. CF would take a 66 percent stake in the joint venture, which was operated under the name Canadian Fertilizers, Ltd. During the year the firm’s headquarters were also moved to a new building in Long Grove, Illinois.

Other investments made by CF in the 1970s included ammonia storage facilities on rivers at St. Paul, Minnesota, and Kingston Mines, Illinois, and an inland site in eastern Illinois that was served by a pipeline. The company also bought a stake in barge transportation firm AgriTrans Corp., which would carry fertilizer north from Donaldsonville and grain south to the Gulf Coast.

In 1978 CF and Farmers Chemical Association were awarded $23.8 million by a judge to settle a lawsuit against oil company Transco, which they claimed had not honored a supply contract. A year later the firm sold its 49 percent stake in the Saskatchewan potash operation to Noranda Mines Ltd., after which it would continue to purchase potash from the Canadian firm.

By the start of the 1980s CF Industries had become the largest fertilizer supplier in the world, with over $1 billion in annual sales. It sold about ten million tons per year, 80 percent of which it produced. The company’s cooperative owners distributed it to about one million farmers in 44 U.S. states and two Canadian provinces. The work was highly seasonal, with spring the critical time for distribution because farmers applied fertilizer at the start of the growing season.

In January 1985 40-year-old Executive Vice-President and COO Robert G. Liuzzi, who had joined the company as a lawyer ten years earlier, took over as president and CEO from R. R. Baxter. Two years later CF sold its Louisiana oil and gas properties to Kelly Oil Corp. for $5.5 million.

In 1991 CF proposed a land swap with officials in Florida, seeking a site where it planned a slightly radioactive gypsum waste storage area. The land the county was to receive would be used for a waterway linking a well field, and the proposal generated significant public comment. After several years of debate the exchange and gypsum deposit were approved, with CF agreeing to create a 1,900-acre wildlife preserve on the land. In 1992 the firm also offered to buy out homeowners in a Donaldsonville subdivision whose residents had complained their homes were devalued by proximity to CF facilities.

MORE DONALDSONVILLE IMPROVEMENTS COMPLETED IN 1993

In 1993 an $85 million upgrade was completed in Donaldsonville that included new urea and nitric acid plants, and in 1994 the company doubled Florida phosphate production through the acquisition of a new mine five miles away, to which it relocated and expanded a processing facility. The firm’s ownership consisted of 11 cooperatives which represented more than one million farmers and ranchers in 46 U.S. states and two Canadian provinces.

In April 1994 about two dozen members of the Oil, Chemical, and Atomic Workers’ union in Rosemount, Minnesota, went on strike against CF. The Mississippi River terminal facility workers were the company’s only remaining unionized employees out of 1,500. They had picketed over the firm’s efforts to create an open shop, and in June 1995 an administrative law judge ordered that they be rehired because the company had not bargained in good faith.

In 1995 CF began another $305 million round of improvements and additions in Donaldsonville that would boost production of liquid and solid urea by more than 50 percent, and early the next year the firm’s new phosphate mine was opened in Florida. CF had a 25-year permit to operate the facility, which was expected to cover the lifetime of the mine’s ore, and it agreed to observe strict environmental standards that included returning the site to its original state when mining was over. The firm was praised by the state Department of Environmental Protection, and CF subsequently created a national watershed award that was presented each year to one corporation and six communities.

In the summer of 1997 the company traded 7.2 million tons of developed and permitted phosphate it owned in Florida for 20 million unpermitted and undeveloped reserves near its existing mine. In December 1999 CF announced plans for a joint venture with Cargill Fertilizer and IMC Global to build a $40 million facility in Tampa to melt sulfur, which was needed for the production of phosphate fertilizer. The necessary permits were received two years later, and it was built. For 1999 the firm had sales of $1.1 billion on sales of 9.2 million tons of fertilizer.

In May 2000 an explosion at an ammonia processing facility in the firm’s Donaldsonville, Louisiana, complex killed three workers and injured eight others. CF was later fined $150,000 for 14 safety and health violations related to the blast, which was traced to a defective storage vessel.

FORWARD PRICING PROGRAM CREATED IN 2003

Faced with growing competition from inexpensive imported Russian fertilizer, in 2002 CF joined with other industry leaders to lobby Washington for higher import duties. The company also changed its corporate priorities to emphasize strong financial performance rather than simply meeting the fertilizer needs of its members. In 2003 the firm instituted the Forward Pricing Program, in which buyers locked in prices for new fertilizer orders based on the price of natural gas, which enabled the company to buy a corresponding amount of gas at a fixed price on the futures market.

During the year CF idled its Donaldsonville nitrogen operation for a time to await lower rates, as natural gas prices quadrupled due to a cold winter in the north. Natural gas comprised nearly 80 percent of the cost of ammonia and urea production. The company also received a revolving line of credit worth $140 million from Harris Savings Bank and other lenders in 2003, and bought an ammonia terminal in North Dakota from bankrupt Farmland Industries for $200,000.

With gas prices remaining high, in August 2004, 23 of the Donaldsonville plant’s 447 employees were laid off, the first to be let go since the 1980s. Despite the rise in gas prices, 2004 was the firm’s first profitable year since the late 1990s, with net earnings of $68 million on sales of $1.65 billion. The company’s bottom line was improving due to the successful Forward Pricing Program, as well as from increased sales outside the cooperatives. Sales to its cooperative owners had declined from 75 percent of output in 2002, to just 53 percent of the approximately 8.75 million tons it produced in 2004. With a spate of bankruptcies and plant closings rocking the industry, the firm was also finding more demand in the marketplace. CF now provided 22 percent of the nitrogen fertilizer and 14 percent of the phosphate fertilizer sold in the United States.

PUBLIC OFFERING IN 2005

In the spring of 2005 CF filed for an initial public offering (IPO) on the New York Stock Exchange. After completion in August the company became a subsidiary of CF Industries Holdings, Inc., and the $622 million proceeds were distributed to its eight cooperative owners, which included Land O’Lakes, Inc., CHS, Inc., Growmark, Inc., Southern States Cooperative, Intermountain Farmers Cooperative, MFA Inc., Tennessee Farmers Cooperative, and La Coop Federee. After the IPO, only CHS and Growmark would retain stakes in the company. Top stakeholder Land O’Lakes received just over half of the total.

During the summer CF also sold its stake in Florida-based CF Martin Sulphur to Martin Midstream Partners LP for $18.8 million, and boosted its revolving credit line to $250 million.

Although located just 40 miles from New Orleans, the firm’s Donaldsonville facility suffered only minor damage in Hurricane Katrina, having been shut down and evacuated in advance of the storm that devastated the Gulf Coast. The price of natural gas doubled shortly after the disaster, however, and the company was forced to idle parts of the facility in the fall. For 2005, CF had sales of $1.9 billion and a net loss of $39 million, due to more than $125 million in one-time costs associated with the IPO and conversion from a cooperative ownership structure.

Rising gas prices had wreaked havoc with the fertilizer industry, which saw an $82 million trade surplus in 2004 fall to a $793 million trade deficit in 2005, and CEO Stephen Wilson joined other industry leaders to call for an increase in offshore drilling. At year’s end President George W. Bush signed a law that would open new areas to exploration.

In May 2006 the firm reached an agreement to build a nitrogen fertilizer plant in Trinidad and Tobago through a joint venture with Terra Industries and ANSA McAL, but the deal fell through when a suitable site could not be found. In March 2007 CF moved its corporate headquarters to Deerfield, Illinois, slightly closer to downtown Chicago than Long Grove. The firm’s sales were now going up as demand for nitrogen fertilizer grew due to the booming market for corn-based ethanol.

In the summer the company announced it was exploring building a $200 million uranium recovery operation at its Plant City, Florida, phosphate facility in conjunction with uranium trader Nukem, Inc. Reasonable amounts of uranium could be extracted from phosphate rock, and its price had gone up tenfold in three years.

KEYTRADE STAKE ACQUIRED IN 2007

In September the firm paid $25.9 million for 50 percent of Keytrade AG, an international trading company based in Zurich, Switzerland, that bought three million tons of fertilizer per year in 35 countries, and marketed it in 65. It would enable CF to better import nitrogen and sell phosphate overseas. Keytrade, which had sales of $685 million in 2006, would become the exclusive marketer of CF’s exports.

In November the firm won a bid for a supply of natural gas in Peru, where it had plans to build plants that could produce 2,100 tons of ammonia and 3,300 tons of solid urea per day, at a cost of more than $1.2 billion. CF also began working with Uhde Corp. on plans to build a new gasification plant in Donaldsonville that could convert coal and petroleum coke into nitrogen fertilizer. Construction was expected to begin in 2009, with operations to start in 2012.

Fiscal 2007 was a record year for the company, with sales of $2.76 billion and net earnings of $372.7 million reported. Its nitrogen and phosphate plants operated at nearly full capacity as demand for fertilizer-consuming grain products remained high and prices rose as much as 40 percent. Although the firm’s stock price rose to $150 in the summer, it dropped in the fall when prices for nitrogen fertilizer fell off.

After more than 60 years, CF Industries Holdings, Inc., had grown to become one of the leading fertilizer producers in North America. The firm’s recent change in operating philosophy and switch to publicly owned status had helped bring it record sales and profits, although it continued to be vulnerable to shifting market prices and demand for the commodity items that it produced.

Company Perspectives

Corporate Vision: We will be recognized as a leading global marketer, producer and supplier of high-quality, low-cost fertilizer products and services, creating sustained value for shareholders, customers and employees.

Key Dates

1946:

Central Farmers Fertilizer Co. is founded by agricultural cooperatives.

1960s:

Company forms joint venture to build nitrogen facilities in Louisiana.

1969:

Phosphate mine is acquired in Florida.

1971:

Firm shortens name to CF Industries, Inc.

1970s:

Company expands Louisiana, Florida production facilities.

1976:

Joint venture in Alberta, Canada, is formed to build nitrogen plant.

1990s:

Company completes new round of expansion in Louisiana and Florida.

2002:

CF amends mission to emphasize financial stability over serving owners’ needs.

2003:

Forward Pricing Program is launched to reduce risks from gas price increases.

2005:

Initial public offering on NYSE nets $622 million for cooperative owners.

2007:

Company acquires stake in Swiss fertilizer trader Keytrade AG; wins Peruvian gas bid.