With an Introduction to Commodities

Chase Mathew, Kar Seng YeeAlexander Hu, Christopher Chung

The Agriculture BoomThe Agriculture BoomGrain futures trading at record highsGrain futures trading at record highs

–– WheatWheat–– CornCorn–– SoybeansSoybeans

The Agriculture BoomThe Agriculture Boom•• PowerSharesPowerShares Agriculture ETF (DBA)Agriculture ETF (DBA)

–– 60% increase from Jan 60% increase from Jan ‘‘0707

Increasing DemandIncreasing Demand•• Increasing world populationIncreasing world population

–– More than doubled since 50 years agoMore than doubled since 50 years ago–– Increasing demand in quantity/quality of foodIncreasing demand in quantity/quality of food

• Increased grain consumption:– 48% direct consumption– 35% livestock feed

•Livestock population more than doubled since 1950

– 17% ethanol/other fuels (rapidly growing share)

Increasing DemandIncreasing DemandIncreasing demand for Increasing demand for biofuelsbiofuels

Decreasing SupplyDecreasing Supply•• Bad weather, especially in China and AustraliaBad weather, especially in China and Australia

•• Farmlands converted into factoriesFarmlands converted into factories

•• Farmers have to choose what to dedicate their land Farmers have to choose what to dedicate their land acreage to growacreage to grow–– Growing more of one grain results in less of anotherGrowing more of one grain results in less of another

•• Global warming could cut farm output by 1/6Global warming could cut farm output by 1/6thth

by the year 2020by the year 2020

Decreasing SupplyDecreasing SupplyLowest Global Grain Stock Levels in Modern HistoryLowest Global Grain Stock Levels in Modern History

The Fertilizer MarketThe Fertilizer Market

NutrientsNutrients•• NitrogenNitrogen

–– UreaUrea–– AmmoniaAmmonia

•• PotashPotash

•• PhosphatePhosphate

NitrogenNitrogenRising Nitrogen PricesRising Nitrogen Prices

Nitrogen (Urea)Nitrogen (Urea)•• Black Sea UreaBlack Sea Urea

–– $335/ton$335/ton–– Recent fall on price, but rebounding due to Recent fall on price, but rebounding due to

increasing demand in L.A. ,Africa, and Turkeyincreasing demand in L.A. ,Africa, and Turkey

•• Chinese UreaChinese Urea–– $350/ton$350/ton–– Supply mainly to Indian marketSupply mainly to Indian market

•• NOLA (New Orleans, NOLA (New Orleans, LousianaLousiana))

Nitrogen (Ammonia)Nitrogen (Ammonia)•• Unprecedented high priceUnprecedented high price

–– Tight supply and demand from all around Tight supply and demand from all around ((agriagri/tech)/tech)

•• Black Sea ammoniaBlack Sea ammonia–– $550/ton spot$550/ton spot–– $565/ton forward market$565/ton forward market

•• Northwest Europe Northwest Europe –– $600/ton$600/ton

PotashPotashRising Potash PricesRising Potash Prices

PotashPotash•• Produced in Eastern Europe and Saskatchewan Produced in Eastern Europe and Saskatchewan

•• Negotiation with Chinese importersNegotiation with Chinese importers

•• Major producer BPC is seeking $100 raise from Major producer BPC is seeking $100 raise from Chinese importersChinese importers

•• Until the negotiation is over, expected to remain calmUntil the negotiation is over, expected to remain calm

PhosphatePhosphateRising Phosphate PricesRising Phosphate Prices

PhosphatePhosphate•• Produced in Central Florida and Pacific Produced in Central Florida and Pacific

Northwest of USNorthwest of US

•• Demand increases during the summer periodDemand increases during the summer period

•• Currently $680/ton and risingCurrently $680/ton and rising

•• International market experiencing short International market experiencing short supply and strong demandsupply and strong demand

Industry TrendsIndustry Trends•• High grain and oilseed pricesHigh grain and oilseed prices

–– Leads to increased production and thus increased Leads to increased production and thus increased fertilizer demandfertilizer demand

•• Increasing demand for urea in Argentina, India, and BrazilIncreasing demand for urea in Argentina, India, and Brazil

•• Increasing demand for potash from ChinaIncreasing demand for potash from China

•• Increasing demand for phosphates from Brazil and EuropeIncreasing demand for phosphates from Brazil and Europe

•• Demand for fertilizer is resilient against Demand for fertilizer is resilient against economic downturneconomic downturn

Agrium IsAgrium Is•• Largest agricultural retailer in the U.S.Largest agricultural retailer in the U.S.•• Leading global wholesale producer and marketer of Leading global wholesale producer and marketer of

agricultural nutrientsagricultural nutrients•• Premier supplier of specialty fertilizersPremier supplier of specialty fertilizers•• Provider of highProvider of high--tech consulting for farm centerstech consulting for farm centers•• 3 Business segments:3 Business segments:

–– RetailRetail–– WholesaleWholesale–– Advanced TechnologiesAdvanced Technologies

Business BreakdownBusiness Breakdown

15%51%

10%

3%

21%

Retail

Potash

Phosphate

Nitrogen

AdvancedTechnologies

2007 EBITDA2007 EBITDAW

holesale

Retail SegmentRetail Segment•• Largest agricultural retailer in the U.S.Largest agricultural retailer in the U.S.

•• More than 400 retail outlets worldwideMore than 400 retail outlets worldwide

•• Largest distributor of seeds, crop protection Largest distributor of seeds, crop protection chemicals and fertilizers direct to growerschemicals and fertilizers direct to growers

•• Premier provider of products and services to over Premier provider of products and services to over 50,000 growers across N. and S. America50,000 growers across N. and S. America

Retail SegmentRetail Segment2007 Retail Sales by Product2007 Retail Sales by Product

Retail SegmentRetail Segment

Western Farm Service

• 82 Stores

• Revenue $690 million

• Key Crops: fruit, vegetables, wheat

Crop Production Services

• 324 Stores

• Revenue $1.12 billion

• Key Crops: corn, soybeans, wheat

Agroservicios Pampeanos S.A.

• 30 Stores

• Revenue $165 million

• Key Crops: wheat,

soybeans, corn, fruit

Wholesale SegmentWholesale Segment•• Manufactures, markets, and distributes:Manufactures, markets, and distributes:

•• NitrogenNitrogen•• PotashPotash•• PhosphatePhosphate

•• Produces 8 million tons of nutrients annuallyProduces 8 million tons of nutrients annually-- 22--3% of global capacity3% of global capacity

•• Extensive distribution systemExtensive distribution system-- 12 production facilities12 production facilities

-- 100 distribution warehouses100 distribution warehouses

Business BreakdownBusiness BreakdownProduct Sales by Market/RegionProduct Sales by Market/Region

Nitrogen Potash Phosphate

Canada 19% 7% 46%

U.S. 41% 47% 53%Industrial 24% 3% 1%International 16% 43%

Wholesale SegmentWholesale SegmentIncreasing Nitrogen MarginsIncreasing Nitrogen Margins

Wholesale SegmentWholesale SegmentIncreasing Potash MarginsIncreasing Potash Margins

Wholesale SegmentWholesale SegmentIncreasing Phosphate MarginsIncreasing Phosphate Margins

Wholesale SegmentWholesale Segment

NitrogenPhosphatePotash

DistributionEngro DistributionAmmonia Pipeline

Advanced Technologies SegmentAdvanced Technologies Segment•• Products:Products:

–– Environmentally Safe Nitrogen (ESN)Environmentally Safe Nitrogen (ESN)–– Specialty fertilizer products w/ slow release Specialty fertilizer products w/ slow release

technologiestechnologies–– Branded professional productsBranded professional products

•• Used by:Used by:–– Crop growersCrop growers–– Professional turf ownersProfessional turf owners–– Professional horticulturistsProfessional horticulturists–– Broad acre marketsBroad acre markets

Advanced Technologies SegmentAdvanced Technologies SegmentAdvanced Fertilizer Brands

Spanning the Value Chain Spanning the Value Chain

AgriumAgrium’’s Strategys Strategy

1.1.Grow value chain through acquisitionsGrow value chain through acquisitions

2. Pursue International opportunities2. Pursue International opportunities

AgriumAgrium’’s Strategys Strategy1.1. Grow value chain through acquisitionGrow value chain through acquisition

Hanfeng - Acquired 19.6% stake April ‘07• Specialty fertilizer sales in China

Nu-Gro - Acquired Jan ‘06• Advanced fertilizer technology• Professional turf products• Expanded product line and

customer base

Royster-Clark -Acquired Feb ‘06• Doubled retail operations to over 400 retail centers in the U.S. and S. America• Increased warehouse capacity by 440,000 tons

Pursell Technologies – Acquired Aug ‘06• Patented ESN technology• Added R&D expertise

20062006 20072007

2. Pursue International opportunities2. Pursue International opportunities•• Argentina nitrogen facilityArgentina nitrogen facility

–– Nearly $100 million in EBITDA over past four yearsNearly $100 million in EBITDA over past four years•• Building nitrogen factory in Egypt Building nitrogen factory in Egypt –– to be completed in 2010to be completed in 2010•• Supplying potash to Asia, Latin America, and Oceania Supplying potash to Asia, Latin America, and Oceania

through Canpotex Limitedthrough Canpotex Limited–– 40% of potash produced sold outside N. America40% of potash produced sold outside N. America

•• Providing specialty fertilizersProviding specialty fertilizers–– Hanfeng (China) provides geographic diversification Hanfeng (China) provides geographic diversification

and option to participate in future joint venturesand option to participate in future joint ventures

AgriumAgrium’’s Strategys Strategy

•• Pursue lower cost productionPursue lower cost production•• Recycle, redeploy and resell unused/obsolete assetsRecycle, redeploy and resell unused/obsolete assets

–– CostCost--cuttingcutting–– Gasifying asphaltenes (byGasifying asphaltenes (by--product of burning bitumen) as product of burning bitumen) as

a feedstock for nitrogen plantsa feedstock for nitrogen plants–– Gasifying coal to replace usage of natural gas in Gasifying coal to replace usage of natural gas in

production processesproduction processes•• Increase leverage to raise pricesIncrease leverage to raise prices

AgriumAgrium’’s Outlooks Outlook

AgriumAgrium’’s Outlooks Outlook•• Strengthening wholesale arm mainly by Strengthening wholesale arm mainly by

increasing potash productionincreasing potash production–– 4 new facilities to be completed in 20084 new facilities to be completed in 2008

•• Coming acquisition of UAPComing acquisition of UAP–– Combined retail operation will have annual sales Combined retail operation will have annual sales

of more than $5.2 billionof more than $5.2 billion–– Management anticipates synergies of $115 Management anticipates synergies of $115

million by 2010, mostly captured in 2009million by 2010, mostly captured in 2009

UAP Holdings, Inc.UAP Holdings, Inc.•• Major Distributor of crop inputs in the United States Major Distributor of crop inputs in the United States

& Canada& Canada–– $3.2 billion Revenue$3.2 billion Revenue–– $469 million in Gross Profit$469 million in Gross Profit–– $226 million EBITDA$226 million EBITDA

•• Approximately 370 facilities across North AmericaApproximately 370 facilities across North America–– Will double AgriumWill double Agrium’’s retail businesss retail business–– Increases AgriumIncreases Agrium’’s presence in the USA, especially s presence in the USA, especially

Texas and FloridaTexas and Florida

•• MidMid--tier service modeltier service model–– Geared towards price sensitive customersGeared towards price sensitive customers

UAP AcquisitionUAP AcquisitionSynergies will allow Agrium to:Synergies will allow Agrium to:

•• Benefit from UAP expertise in crop protectionBenefit from UAP expertise in crop protection•• Combine seed businessCombine seed business•• Expand customer baseExpand customer base•• Expand private label crop protection product linesExpand private label crop protection product lines•• Reduce SG&A expensesReduce SG&A expenses•• Decrease exposure to regional weather patternsDecrease exposure to regional weather patterns•• Increase geographic, crop and product diversityIncrease geographic, crop and product diversity

UAP AcquisitionUAP Acquisitionwheat and potatoes

fruits and vegetables

wheat

corn soybeans

cotton

AGU Retail Locations

States w/ significant expansion to Agrium’s retail footprint

UAP Retail Locations

UAP AcquisitionUAP AcquisitionRetail EBITDA and Acquisition Synergies Retail EBITDA and Acquisition Synergies

Why Agrium?Why Agrium?•• Strong agriculture industry trendsStrong agriculture industry trends•• Diversified products and sources of revenueDiversified products and sources of revenue

–– Offers products through entire value chainOffers products through entire value chain•• Strong retail and wholesale armStrong retail and wholesale arm•• New Advanced Technologies SegmentNew Advanced Technologies Segment

–– Differentiates AGU from competitionDifferentiates AGU from competition–– High growth potential (149% yoy Revenue growth)High growth potential (149% yoy Revenue growth)

•• Expanding InternationallyExpanding Internationally–– Wholesale in China/IndiaWholesale in China/India–– 31 retail outlets in Argentina, 4 in Chile31 retail outlets in Argentina, 4 in Chile

Why Agrium?Why Agrium?•• Record high net earnings of $441 million in 2007Record high net earnings of $441 million in 2007

–– Broke previous record of $283 million in 2005 Broke previous record of $283 million in 2005

•• Record High 4Q ResultsRecord High 4Q Results–– 4Q 2007 vs 4Q 2006:4Q 2007 vs 4Q 2006:

–– Net Earnings: $172m vs. Net Earnings: $172m vs. --$62m $62m –– record highrecord high–– Earnings per Share: $1.24/sh vs. Earnings per Share: $1.24/sh vs. --$0.47/sh$0.47/sh–– EBIT: $250m vs. EBIT: $250m vs. --$87m$87m–– Wholesale EBITDA: $307m vs. $99m Wholesale EBITDA: $307m vs. $99m –– record highrecord high–– Retail EBITDA: $47m vs. $28m Retail EBITDA: $47m vs. $28m –– record highrecord high–– Advanced Technologies Sales: $70m vs. $36mAdvanced Technologies Sales: $70m vs. $36m

Agrium vs. IndustryAgrium vs. Industry

Agrium, Inc. Peer GroupS&P/TSX

CompositePrice/Earnings 21.7 42 17Price/Book 3.4 7.7 2.5Price/Sales 1.7 6.4 1.9Price/Cash flow 17.9 27 8.7Price/Free CF 37.5 38 25EV/EBITDA 14.8 24 29.6EV/Sales 2.1 6.6 7.8

Agrium vs. PeersAgrium vs. PeersAGU MON POT MOS TNH

Price/Earnings 21.73 51.56 44.28 52.5 11.68

Price/Book 3.39 7.88 7.81 8.83 13.87

Price/Sales 1.7 6.92 8.96 6.36 3.75

Price/Cash flow 17.89 28.09 27.78 32.65 12.66

Price/Free CF 37.47 37.81 43.55 43.33 14.1

EV/EBITDA 14.81 26.05 26.21 26.84 13.55

EV/Sales 2.12 6.95 9.14 6.55 3.56

AgriumAgrium’’s Riskss Risks•• Phenomenal harvestsPhenomenal harvests

–– Supply outstripping demand for 2Supply outstripping demand for 2--3 years in a row 3 years in a row will slow agriculture momentumwill slow agriculture momentum

•• Weather conditionsWeather conditions–– CustomersCustomers’’ activities curtailed during normal activities curtailed during normal

seasons will decrease demand for fertilizersseasons will decrease demand for fertilizers•• Exchange rates, especially USD vs CADExchange rates, especially USD vs CAD•• Natural gas pricesNatural gas prices•• Failure to obtain forecasted synergiesFailure to obtain forecasted synergies•• China/Iran building new plants to undercut AGUChina/Iran building new plants to undercut AGU•• Political/civil unrest in EgyptPolitical/civil unrest in Egypt