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Little Producer Impact Likely as Cargill Transfers Mosaic Shares

January 25, 2011
U.S. crop producers are not likely to see much impact on their business when Cargill distributes its 64 percent stake in fertilizer giant Mosaic to Cargill's shareholders and debt holders in coming months.
 
"There's absolutely no change in our operations or the way we do business," said Rob Litt, spokesman for The Mosaic Company.
 
Veteran fertilizer industry executive Douglas Stone, president of an eight-month-old company formed to buy fertilizer for three co-ops in Iowa, Nebraska, and South Dakota, agrees with Litt. "It's a behind-the-scenes shift," said Stone. "There's no change in their management or marketing strategies."
 
Long-term strategic and financial flexibility are two top benefits to Mosaic, the company said in its announcement of the deal.
 
"Cargill has been an outstanding majority shareholder," said Mosaic President and Chief Executive Officer James Prokopanko in a conference call with investors. Cargill, which has two active executives on the Mosaic board of directors, has supported Mosaic but let the fertilizer company's executives run their business. However, with Cargill gone as majority owner, he said, "It would give us more time to meet with investors and not dance around with, 'What are Cargill's plans with its Mosaic investment?'"
 
By transferring its stake in Mosaic, Cargill will keep its status as a private company while it meets the needs of charitable trusts formed through estate planning of Margaret A. Cargill, one of the company's largest shareholders, who died in 2006. Cargill's share of Mosaic is to be distributed in steps that can take more than two years.
 
Cargill also has been a good customer for Mosaic, said Prokopanko. "We have had a special committee that's reviewed the independence of those transactions, insuring that they were at arms-length, market rates," he told investors. "They'll continue as a customer and we'll sell them product, invoice them, and they will pay us as in the past at market pricing."
 
Mosaic touts its combination of North American and international production and distribution as a competitive advantage. The company is the world's largest producer of finished phosphate products and a major potash producer. It also owns port and warehouse distribution facilities in six domestic locations and leases or contracts with facilities cross the United States. Through those, Mosaic sells to customers who resell into distribution channels or directly to farmers.
 
Mosaic was formed in 2004 from the combination of IMC Global and Cargill's fertilizer businesses. That was part of the domestic and global fertilizer industry consolidation over recent decades, said Stone. As successful companies sought investments, they built their businesses through acquisitions.
 
"With consolidation, the number of potential suppliers has been whittled down," said Stone. "You have fewer manufacturers and they have become very selective in how they market," and the markets have become driven more by demand than by supply.
 
As suppliers consolidated, smaller retailers lost their ability to gain suppliers' attention. One result was retail consolidation.
 
Some retail dealers or cooperatives have responded by forming buying groups to aggregate their demand. Buying groups may be providing volume protection, said Stone, "but the price is fairly commoditized." In addition to securing supplies, higher-volume buyers also tend to gain broader market perspective. Risk management is still evolving, said Stone, and buying groups probably have not reached the point of providing much value in risk management.
 
Stone said Consolidated Sourcing Solutions, where he is president, is taking a different approach, buying specifically for three members. Consolidated was formed last year by Farmers Cooperative Company, Ames, Iowa; Central Valley Ag Cooperative, O'Neill, Neb., and South Dakota Wheat Growers, Aberdeen, S.D.
 

"They are involved in the buying decision and the pricing," said Stone. "We've been at it for eight months. So far, they feel it's brought competitive advantage to them."  

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