“U. S. Biofuels driven Fertilizer

Market; Boom or Bubble?8 November 07

Our Iceberg

1973 Oil Crisis

The Politicians React

The Western Energy CrisisMay 2000- September 2001

More Guidance From OurPoliticians…

“California Governor Gray Davis called on

the Federal Government to keep California

gasoline clean and the prices low.”August 12, 2003

8

What's the Plan?

State of the Union2007

• “Twenty in Ten”

• 15 % with Biofuels

• 35 Billion Bio Gallons

The New New Thing…

Now A Vegetarian!

Significant Increase inEthanol Production

13 113.6

14.014

16Billion Gallons

8.9

9.910.7

11.211.9

12.613.1

45

56

77 8

4

6

8

10

12

14

0

2

4

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Actual Projection RFS mandate

RFA, EPACT 2005, USDA Baseline February 2007, LECG LLC

Ethanol Will Use ~30%of Total Corn by 2010

Billion Gallons

35% 35%36%

40%6000

2150

33003700 3900

40734327

45824764

49455091 5091

10%11%

14%17%

26%

29%30% 30%

32%33%

35%

10%

15%

20%

25%

30%

35%

2000

3000

4000

5000

RFA, EPACT 2005, USDA Baseline February 2007, LECG LLC

593 644 7751018

1236

16036% 7% 8%

0%

5%

10%

0

1000

CY 00CY 01CY 02CY 03CY 04CY 05CY 06CY 07CY 08CY 09CY 10CY 11CY 12CY 13CY 14CY 15CY 16

Corn Fuel Use % of total use

Nitrogen Consumption Increases

13,69814,329 14,357 14,326 14,289

14000

16000

Nitrogen Agricultural Use for 8 Major Crops

Thousand nutrient tons

CAGR: 0.2%CAGR: 1.8%

11,71912,352 12,452

11,53511,991

12,33612,044

4000

6000

8000

10000

12000

14000

0

2000

4000

Note: Consumption is estimated based on the planted acreage forecast and historical nitrogen use of each crop

USDA 2007 Baseline, National Agricultural Statistics Services, IFA

Exponential Growth inBiodiesel Production

800

900Million Gallons (B100 volume)

CAGR 2005 ~ 2015: 26.5%785

250

370

554

646677

677 677 677 677 677

300

400

500

600

700

800740 762 785

718697

RFA, USDA, EPACT 2005, Annual Energy Outlook 2006

0.5 2 515 20 25

75

250

0

100

200

300

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Biodiesel Will Use ~20% ofTotal Soybeans by 2015

Billion Gallons40%700

192.5

284.9

421.0

491.0514.5

529.7545.7

562.4579.1

596.6 596.6

15%

17% 18% 18% 18% 19% 19% 20% 19%

15%

20%

25%

30%

35%

200

300

400

500

600

RFA, EPACT 2005, USDA Baseline February 2007, LECG LLC

1.5 3.9 11.6 15.4 19.3

57.8

2%

6%

11%

0%

5%

10%

0

100

CY 00CY 01CY 02CY 03CY 04CY 05CY 06CY 07CY 08CY 09CY 10CY 11CY 12CY 13CY 14CY 15CY 16

Soybean Fuel Use % of total use

Phosphate ConsumptionIncreases

5 0365,250 5,262 5,253 5,241

6000

Phosphate Agricultural Use for 8 Major Crops

Thousand nutrient tons

CAGR: 0.5%CAGR: 1.3%

4,4254,612

4,254 4,257 4,271

4,638

5,036

2000

3000

4000

5000

0

1000

Note: Consumption is estimated based on the planted acreage forecast and historical phosphate use of each crop

USDA 2007 Baseline, National Agricultural Statistics Services, IFA

Potash Consumption Increases

5 526 5 541 5 5235600

5800

Potash Agricultural Use for 8 Major Crops

Thousand nutrient tons

5,128

5,425

4,954 4,926

5,010

5,498

5,173

4,723

5,287

5,526 5,541 5,523 5,509

4600

4800

5000

5200

5400

5600

4200

4400

4600

Note: Consumption is estimated based on the planted acreage forecast and historical potash use of each crop

USDA 2007 Baseline, National Agricultural Statistics Services, IFA

Potential Ethanol Market

20 921.6

25Billion Gallons

10% of Motor Gasoline Consumption + Oxygenate Demand

Ethanol production is catching up to demand quickly

11 9 12 613.1 13.6 14.0

14.39.7 10.2 10.5 10.9 11.2 11.4 11.7 12.1 12.5 12.9 13.3

15.816.5 17.0

17.718.2 18.5

19.119.7

20.320.9

10

15

20

5% of Motor Gasoline Consumption + Oxygenate Demand

1.1 1.3 1.4 1.5 1.6 1.8 2.1 2.8 3.4 3.9 4.9

8.9 9.9 10.7 11.211.9 12.6

3

0

5

Ethanol Production

EIA, US Department of Energy, USDA Baseline February 2007

Potential Biodiesel Market

3 830 74000

4500Million Gallons

Biodiesel has enough room to grow

5% of No 2 Distillate Demand

1,179.4 1,204.0 1,262.6 1,304.3 1,357.9 1,413.7 1,471.8 1,532.3

2,948.6 3,010.13,156.5

3,260.73,394.7

3,534.23,679.5

3,830.7

1500

2000

2500

3000

3500

4000 5% of No.2 Distillate Demand

2% of No.2 Distillate Demand

More SignificantMore SignificantGrowth Coming?Growth Coming?

0

500

1000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Biodiesel Production 5% of No.2 Consumption

EIA, US Department of Energy, USDA Baseline February 2007

Ethanol Wholesale ProductionCost at $3.20 Bu Corn Price

3.00 $/gallon

Cost of an energy equivalent gallon of ethanol(1)

1.22

0.28

0.210.14

0.16

0.28 0.30

1.98 0.52

1.46

1.00

1.50

2.00

2.50

0

0.50

Corn Energy Cost Freight ChemicalCosts

SGA Capitalcosts

By-pro-ducts

Minsaleprice

Subsidy Subsi-dized price

(1)Energy equivalence adjusts for fact that ethanol has ~30% less energy content than unleaded gasoline

(2) Note: Assumes 30/70 debt/equity financing on ethanol production; 16% cost of equity; 10% cost of debt

University of Minnesota, Morgan Stanley Equity Research

World Crude Oil Price andUS Retail Gasoline Price

3.5

Crude Oil Price vs. Gasoline Price

US Dollars per Gallons

C d P iRetail

y = 0.032x + 0.648R² = 0.965

1.0

1.5

2.0

2.5

3.0

GasolinePrice

Crude PriceRetail

Gasoline

20 1.288

30 1.608

40 1.928

50 2.248

60 2.568

70 2.888

80 3 208Retail Gasoline Price

Current ethanol wholesale price: $1.7~$1.8/gal.

0.0

0.5

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00

U.S. All Grades Conventional Retail Gasoline Prices (Cents per Gallon)

World Spot FOB Crude Price

80 3.208

90 3.528

100 3.848

level under thecurrent Crude Price

Energy Information Administration

Ethanol Price is HighlyCompetitive

1 8 1 8 1 8 1 8 1 8 1 8 1 8 1 8 1 8 1 8 1 8 1 8 1 8

1.8

Ethanol Futures Price – CBOT (25 October 2007)

US Dollar per gallon

1.8

1.7 1.71.7

1.7 1.7 1.7 1.7 1.71.7

1.7 1.7 1.71.7

1.81.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8

1.6

1.7

1.7

1.8

Ethanol futures prices project that ethanol will be highlycompetitive against gasoline in the current crude oil

market

1.5

1.6

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Energy Information Administration, CBOT

High Feedstock Prices PenalizeBiodiesel

0.30 3.71 1.004.00

$/gallonU.S. Producers’ Economics U.S. Distributors’ Economics U.S. Retailers’ Economics

Natural

gas, electricity

and labor

2.92

0.24 0.070.14 0.13 0.17

0.10 0.05 2.860.12

0.45 3.43

1.50

2.00

2.50

3.00

3.50

Methanol,

Catalysts,

etc.

and labor

Depreciation,

maintenance,

admin and

overhead

0

0.50

1.00

Energy Information Administration, National Renewable Energy Laboratory, University of Idaho

OtherDirectMtrl.

OtherVar.

FixedCost

By-productCredit

Freight/Storage

ProducerProfit

Distr.PurchasePrice

ExciseTaxCredit

Freight Distr.Profit

RetailerPurchase Price

RetailerMarkup

State/FederalTax

Vegetable OilPrice: $0.40 perpoundassumed

World Crude Oil Price andUS Retail No.2 Diesel Price

4.0

Crude Oil Price vs. No.2 Diesel Price

US Dollars per Gallons

C d P iRetail

y = 0.034x + 0.576R² = 0.973

1.0

1.5

2.0

2.5

3.0

3.5

DieselPrice

Crude PriceRetail

No.2

20 1.256

30 1.596

40 1.936

50 2.276

60 2.616

70 2.956

80 3 296

Current biodiesel price level: Del to Chicago and Houston

0.0

0.5

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00

U.S. No 2 Diesel Retail Sales by All Sellers (Cents per Gallon)

World Spot FOB Crude Price

80 3.296

90 3.636

100 3.976

Energy Information Administration, Platts

Soybean Oil vs. Crude

3 84.164.50

Biodiesel Retail PriceUS Dollars per Gallon

Current crude price puts biodiesel with ~$0.45 soy oil toparity with No.2 diesel

1.972.335

2.73.07

3.433.8

0 00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

0.00

0.20 0.25 0.30 0.35 0.40 0.45 0.50

$41 $52 $62 $73 $84 $95 $105

Crude price ($/bbl) making No.2 price similar to biodiesel price at each soybean oil price

Energy Information Administration, National Renewable Energy Laboratory

Soybean Oil Price per Pound

Current Biofuel Fundamentals

• Rapid growth of production has depressed ethanol prices.

• Ethanol is therefore highly competitive.

• Biodiesel is still in infancy; there is huge room for growth.

• Biodiesel is still expensive, but high crude prices have

pushed No 2 diesel to parity.

• Biofuel Will Continue To Grow With Government Support.

Biofuels’ Future

• Major Rural Entitlementj

• It’s the RFS Stupid…

• Food vs. Fuel

• Bio vs. Big OilBio vs. Big Oil

• Environmental Impact

• Unintended Consequences

So What Does This Mean ForOur Fertilizer Iceberg?

U.S. NitrogenImports vs. Consumption

12 3 12 4 12 3 12.5 12 313.1

12.5

14Million Short Tons of Nutrient

5.04.5

5.15.5 5.6

8.4

7.37.3

9.1

10.410.5

11.511.7

12.3 12.4 12.3 12.5 12.3

11.512.0 12.1

12.511.7

4

6

8

10

12

0

2

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Imports Consumption

TFI Import/Export Data – Fertilizer YearIFA Data Bank – Fertilizer Year

U.S. Nitrogen Imports

Million Short Tons

7.98.2

8.4

8

9

3.5 3.6

5.7

4.1

4.5

5.85.5

6.8

2.2 2.1

2.7 2.9

4.1 3.9

5.6 5.5

7.3

7.9

3

4

5

6

7

8

The Fertilizer Institute – Fertilizer Record

0.70.9

1.3 1.5

0

1

2

FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

Urea UAN Ammonia

High Freight MarketIncreases Prices

12,000

Baltic Panamax Index

4,000

6,000

8,000

10,000

0

2,000

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Fertecon Nitrogen Report

Urea and Natural GasPart Company

18 00

20.00450.00 Strong Correlation between Natural Gas and USStrong Correlation between Natural Gas and USNOLA Price: 0.8689NOLA Price: 0.8689

LittleLittleCorrelationCorrelation0 25330 2533

4 00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00 0.25330.2533

0.00

2.00

4.00

0.00

50.00

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

NYMEX Futures monthly average U.S. Gulf ($/MT)

147 3

160Fertilizer Producers Fertilizer Distributors

Domestic IndustryAppears Healthy

57.0

84.7

65.6

114.6

34 8

125.8

48.9

147.3

42.939.9 37.7

88.1

46.0

40

60

80

100

120

140

StockPrice(USD)

Green Markets – 26 October 2007

34.830.4

27.519.3

18.0

8.9

26.824.4

0

20

40

Week of 10/26 Year ago

Agrium CF Mosaic PCS TerraInd.

TerraNitrogen

AndersonInc.

Deer& Co.

Scotts UAP

The Cure For High FertilizerPrices Is… High Prices

• Price resistance

• New production capacity

• Innovation

S b tit ti• Substitution

• Environmental target

The whale only gets harpoonedwhen he comes up to spout.

Henry Lea Hillman

Renewed Environmental Attack

UK - Nature - Child in Rapeseed field

The crop is greedy for nutrients andJonah Mendel reacts to the

pungent smell of the rapeseed

flowers while playing in this bright

yellow field. Oilseed rape accounts

for 11% of the crops cultivated in

the UK. This has upset some lovers

of traditional country views who feel

that Britain is losing its green fields

The crop is greedy for nutrients and

dependent on nitrogen-rich fertilisers

making it among the worst crops for

leaching nitrates into waterways and

polluting aquifers. Oilseed rape is

also plagued by many pests and

diseases, which require chemicals to

keep them under control. But thethat Britain is losing its green fields

to this bright yellow tide, now the

third largest arable crop in the UK.

Flowering rape is also blamed for

inducing hay fever and asthma.

p

economics of rapeseed cultivation

are now better than ever because it

is used both in the traditional cooking

oil markets as well as now being a

major source of bio-fuel.

Gideon Mendel/Corbis

In Summary…

• Environmental FocusEnvironmental Focus

• Political Scrutiny

• Substitution

• Continued Price Volatilityy

• New Trading Patterns

• Inevitable Price Erosion

Questions…