CHS plans $3B fertilizer plant in North Dakota

CHS Inc. said Friday that it will build a $3 billion fertilizer plant in North Dakota, the single largest investment in the Inver Grove Heights-based company's history.

CHS, the nation's largest farmer-owned cooperative, has been considering the plant in Spiritwood, N.D., since September 2012. Since then, the projected cost of the plant about 85 miles west of Fargo has more than doubled, but CHS says it has the financial firepower to swing the deal.

The fertilizer factory, said to be the largest single private investment ever in North Dakota, is slated to open in 2018's first half. Construction site work could start this fall, or by next spring at the latest.

The plant is expected to require about 1,500 construction workers, and will have 160 to 180 permanent employees.

"This is the biggest deal the company has ever done," CHS CEO Carl Casale said in an interview with the Star Tribune. "It's transformational. It will be a really big thing for a long time."

The CHS project is one of about two dozen proposed U.S. fertilizer plants. Some will likely never get off the ground, but the CHS plant has two key factors in its favor. It's close to abundant natural gas supplies, a key feedstock; and it's close to its farmer customers.

CHS, which stands for Cenex and Harvest States, had $44.5 billion in revenue last year, and is known best for its grain and petroleum-based businesses.

CHS is also one of the nation's largest fertilizer wholesalers, but the Spiritwood nitrogen plant would be its first production facility.

The plant will make nitrogen fertilizer, primarily for CHS' farmer members in Minnesota, the Dakotas, Montana and Canada. Natural gas accounts for more than half of nitrogen fertilizer's production costs. Gas prices are low and are expected to stay that way as U.S. shale oil and gas production has boomed.

That bodes well for the Spiritwood plant, as do long-term shifts in U.S. agriculture, said William Wilson, an agribusiness and applied economics professor at North Dakota State University. "Number one, gas is cheap, and number two, we have a change in crops in the Upper Midwest."

Corn is increasingly being grown on land that was home to wheat and other crops, or even pasture. And corn sucks up a lot of nitrogen-based fertilizer.

North Dakota, of course, has become an energy dynamo, courtesy of the Bakken shale oil and gas fields. "A decade ago this project would have been unfathomable," Casale said of the CHS fertilizer plant. "But a decade ago, nobody knew about the Bakken."

The Bakken boom, though, has created tight construction labor markets in parts of the Upper Midwest, particularly for trades people with experience working on chemical plants. Labor costs to build the CHS plant came in considerably higher than expected, driving the project's big cost increases, Casale said.

"There is just not enough resident capability and talent. We will have to bring in a lot of outside contractors." The U.S. Gulf Coast, particularly around Houston, is ground zero for the type of trades workers CHS will need to import to North Dakota, Casale said. "You have to relocate an entire labor force to construct the plant."

Despite the large and rising price tag — the plant was originally expected to cost up to $1.4 billion — CHS has ample financing capabilities to make the project work, Casale said.

It has raised $1 billion in new capital over the past year through preferred stock offerings. Also, it recently filed a "shelf offering" with federal securities regulators, saying it might issue up to another $2 billion in preferred stock.

And CHS has room on its balance sheet for bank loans, often a cheaper form of financing. "We have significant debt capacity that is unused at this time and cash on the balance sheet," Casale said. "Pardon the pun, but we are not betting the farm."

CHS is also seeking public financing from county, state and federal sources. Casale said he couldn't put a number on the total public tab. "It is incremental to the project, not pivotal."

A key to CHS' strategy is based on the plant's geography. Most U.S. nitrogen fertilizer production is in the south, notably Louisiana and Oklahoma. Alberta, in Canada, is a also a producer. All of those sources require shipment by train or barge.

Yet each of those transport systems face critical issues, Casale said. The railroad system is clogged with traffic from the Bakken oil fields, a problem that's not likely to go away soon. The nation's barge system and its key conduit, the Mississippi River, is suffering from years of infrastructure neglect.

But since the CHS plant is serving farmers who are relatively close by, the Spiritwood plant could economically rely on truck transportation. "One hundred percent of this product can be moved by truck and never put on a train or barge," Casale said.

Mike Hughlett • 612-673-7003