Q3 2019 Earnings Call
I was a 19 earnings conference call at this time, all participants had been placed in listen only email.
After the company completes their prepared remarks.
The wise will be open to take your questions.
Your host for todays call explore again.
Vice President Investor Relations I must say company.
Me Scott.
You may begin.
Thank you and welcome to our third quarter 2019 earnings call presenting today will be Joc O'rourke, President and Chief Executive Officer, and Clint Freeland Senior Vice President and Chief Financial Officer. We also have other members of the senior leadership team available to answer your questions. After our prepared remarks.
The presentation slides, we are using during the call are available on our website at mosaic cope dotcom.
We will be making forward looking statements. During this conference call. The statements include but are not limited to statements about future financial and operating result, there based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties.
Actual results may differ materially from projected results.
Factors that could cause actual results could differ materially from those in the forward looking statements are included in our press release issued yesterday and in our reports filed with the Securities and Exchange Commission.
We will also be presenting certain non-GAAP financial measures, our third quarter press release and performance data attached as exhibits to yesterday's form 8-K filing also contain important information on these non-GAAP measures.
Now I'd like to turn the call over to Joc.
Good morning, everyone. Thank you for joining our third quarter earnings discussion yesterday. After the market closed we were leased third quarter results, which continued to reflect known challenges with fertilizer prices impacted by high channel inventories in North America.
In potash shipments into Asia.
With that said, we're beginning to suit developments in the market, but are constructive on both these points first fertilizer is now being applied in North America, we expect a shortened but aggressive application season, which is needed to reduce channel inventories and set the stage for strong spring season second India recently said.
<unk> potash agreements.
Which sets a benchmark price and opens the door for product shipments to start moving.
In the U.S. delayed harvest and below trend crop yields.
Push corn and soybean prices higher improving farmer economics through next year, and making fertilizer application more attractive. In addition soils are depleted as weather has prevented farmers from applying the appropriate amounts of fertilizer.
This is a combination of factors the bodes very well for fertilizer demand heading into 2020.
Quinn will provide details on our third quarter earnings along with an explanation of some abnormal expenses running through the period, including a tax accrual, which by itself impacted adjusted earnings by 10 cents a share all I will focus on our outlook as well as the actions, we're taking to maximize our free cash flow.
One key trend to note as we look forward to prices recovering is phosphate and potash prices behave very differently with potash moving more slowly in phosphates correcting sharply.
Price increases lag volume movement, especially when we were starting from high inventory positions in phosphates, we expect prices to rise a strong demand reduces north American inventories.
And we have position product strategically to capture time place premiums and keep mid west growing regions. We also expect phosphate demand to remain strong in other regions, including Brazil, where our production assets give us a meaningful advantage on the supply side Chinese phosphate exports are slowing.
I was environmental regulations and economic pressures take effect.
At the same time, we've curtailed production and the ramp up of new supply from Saudi Arabia in Morocco is largely complete.
Potash demand was similarly impacted by high North American inventories.
Away in calling truck settlements pressuring potash prices.
Large potash producers have curtailed production to match supply to demand.
Through 2019 mosaic has continued to focus on strengthening the business, creating additional leveraged to market improvement and financial returns.
We manage cash and capital prudently and have maintained our strong financial position, we have lowered sustaining capex for the year and have reaffirmed our commitment to shareholder returns by repurchasing $150 million in mosaic shares year to date.
We have demonstrated our long held commitment to market discipline curtailing, both phosphate and potash production during periods of market weakness.
We have retained our ability to resume production quickly as markets strengthen.
In Brazil are mosaic furloughs onto business has completed all the actions required to reaches 275 million dollar synergy target in 2019, a year ahead of schedule and we believe we can achieve up to $50 million more in excess of what the target was this year.
We have also kicked off a new program to generate an additional $200 million of EBITDA contribution after 2019 through a mixture of operational improvements further cost reductions and additional revenue finally, our esterhazy Kthree project is ramping up well at our analyst day. This past March.
We announced that we were accelerating development of the project by a full year and momentum towards that goal has been better than anticipated as a result, we see an opportunity to pull the project forward by an additional year, allowing us to end all brine management spending and realize the full benefit some significantly lower production costs.
By mid 2022.
All this work clearly has strengthened our foundation and position mosaic for success in a cyclical seasonal business.
Initially harvested yields in North America were coming in line with modest expectations as more acres are harvested, we're seeing yields come in lower.
There are a lot of acres yet to harvest, but our expectation is that yields will continue to slip more and commodity prices will continue to rise.
In the U.S. for 2020, we're forecasting 93 million acres of corn planting and 85 million acres of soybeans. The combination of nutrient depleted soils more planted acres and excellent affordability of crop nutrients bodes well for fertilizer demand into 2020 the.
Risk and 29 team continues to be the length of the application window. It's possible like in 2017 that fall application extends past year round. We believe farmers will make every effort to apply fertilizer in the fall with memories of spring 2019 challenges so fresh.
What farmers can't apply this fall will be applied in the spring.
Our outlook remains bullish as we expect strong demand to pull down excess inventories and prices to improve as we move into 2020.
Now I will ask Clint to provide more insight into our third quarter results and our outlook for fourth quarter and next year.
Thank you Jack good morning, everyone and thank you for joining our call.
Adjusted EBITDA for the quarter was $366 million, an adjusted earnings per share or eight cents.
The company generated close to $500 million in cash from operations, what happens that cash being reinvested in our business and the majority of the balance being returned to shareholders through dividends and share repurchases.
Cash balances ended the quarter at $641 million.
On a segment basis solid performance in potash in mosaic fertilization Chase was offset by continued weakness in phosphates, primarily due to downward pressure on market prices.
The potash business unit performed well.
Volume's, what the midpoint of the range and adjusted gross margin per ton came in strong as both prices and costs were better than expected.
While we were pleased with third quarter results in potash, we do see challenges in the fourth quarter, specifically around volumes as we await completion of the China contract.
In phosphates, while volumes were on the low end of our range adjusted gross margin per tonne remained at negative $6 as a $13 per ton benefit from lower raw material costs was offset by declines in average sales prices.
Most April is on Chase continued its strong performance with adjusted gross margin per ton of $39, reflecting strong distribution margins and favorable product mix.
Global phosphate price pressures did not impact mosaic for lunch is as much as our phosphate segment as the Brazilian product mix is more diversified and its distribution business generates more consistent margins.
Sales volume during the quarter were initially delayed due to dry weather, but are now progressing well and we expect to finished the year strong we continue to expect Brazil to set another record for total fertilizer shipments this year.
And finally.
There were few items worth, noting that impacted results beyond segment performance, starting with our effective tax rate.
As we've discussed in the past earnings mix plays a large role in our tax rate and as phosphate results have continued to weaken our expected tax rate for the year has risen as a higher proportion of earnings are expected to come from Canada, and Brazil, both of which are higher tax jurisdictions in the U.S.
As a result, we now expect our effective tax rate for the year to be in the mid 30% range compared to the mid to high 20% range, we discussed last quarter.
Given this we booked a catch up accrual during the third quarter as well as a required interim period accrual that will reverse when we close the books at year end.
These two third quarter accruals totaled $39 million impacting third quarter EPS by 10 cents per share.
In addition, we recorded $62 million of other operating expense 48 million after notables, which is approximately twice what we would expect in the normal quarter.
$23 million of the total adjusted expense is due to increases in legal reserves in Brazil, and nonrecurring reclass of prior operating costs.
The higher than normal legal reserves negatively impacted our adjusted EPS by two cents per share at our estimated full year effective tax rate.
These were not treated as notables to be consistent with past practice.
Excluding these tax and other expense items mosaics adjusted EPS for the quarter would have been 20 cents.
The mosaic furloughs onto segment has realized $230 million of net synergies and its PML through the third quarter of this year and we expect to finished the year strong.
As many of the synergies flow through our cost of goods sold ultimate realization depends on sales volumes.
Based on current sales forecast for the fourth quarter, we expect to exceed our 275 million dollar target for this year by up to $50 million demonstrating the continued acceleration of synergy recognition on a per ton basis quarter over quarter.
Earlier this year, we announced the next phase of business improvement in Brazil, with a target of achieving an additional $200 million in adjusted EBITDA by 2020 to.
This program is not simply an extension of our synergy program, but new initiatives that will build on our accomplishments to date.
In addition to strong execution in Brazil. The company is executing very well on the case redevelopment in Canada, which we believe is one of the best performing potash projects in the world.
We announced a one year acceleration of the project at our analyst day earlier this year and now believe we can accelerate the project by an additional 12 to 18 months as minor Assembly times have been reduced to three months compared to four months under the first acceleration and six months in the original plan.
While this acceleration will pull capex forward, we expect to remain below budget for the total project.
Faster project execution will allow us to increase total brine management costs savings to $225 million and accelerate $75 million in operating cost reductions by more quickly migrating production from K, one and K to Teekay three.
This $300 million of cost savings is significant.
It's roughly equivalent to 10% of gross capital spending on the K three project and a third of net capital spending and helps generate an unlevered. After tax IR are in excess of 25% on all accelerated capital spend.
As we look to the balance of the year, we've adjusted our full year guidance to reflect results through the third quarter as well as sales expectations and more recent pricing levels for both potash and phosphates.
Based on these factors, we now see adjusted EBITDA at $1.4 billion to $1.5 billion and adjusted EPS at 50 to 60 cents.
Some of the key assumptions in our forecast include the following.
First over 50% of our phosphate and potash sales are priced reducing our exposure to changes in market prices.
Second we expect potash sales volumes for the fourth quarter of 1.7 to 1.9 million tons and gross margin per ton of 60 to $70.
Our previously announced 600000 ton curtailment was in response to changing near term demand expectations and is now reflected in the sales volumes, we expect for the quarter.
This assumes no China and minimal India tons and market prices as of October 24th.
For the phosphate business unit, we expect sales volumes of two to 2.3 million tons and adjusted gross margin per ton from negative 10 to zero, which assumes market prices as of October 24th approximately $15 lower than third quarter averages.
Mosaic for lunch is expected to sell a total of 2.2 to 2.4 million tons of finished product most of which has already committed.
Gross margin per tonne is expected to be in the range of 40 to $50 as we recognize the last of the higher costs related to the tailings dam regulatory changes.
Lastly, we expect corporate and other to deliver $10 million to $20 million of gross margin and our equity loss from the modern joint venture to be approximately $20 million.
As is our custom we intend to initiate 2020 financial guidance on our yearend earnings call in February .
As we prepare for that we're mindful of the fact that over the past couple of years, we've adjusted guidance multiple times, each year, primarily due to either strengthening or weakening market prices.
With that in mind, we're evaluating alternative approaches that focus more on cost operating targets Insensitivities said that investors can more easily forecast results as market prices change you'll hear more about this on our yearend earnings call.
But as you start to think about 2020, and what should be different compared to 2019.
I would call your attention to four things, which are expected to total $225 million in incremental earnings compared to 2019 before any changes in market prices.
First mosaiq will incur approximately $80 million in costs. This year to manage the fertilization chase business during damn remediation efforts, we would obviously not expect that to reoccur next year.
Second $20 million, an idle cost for plant city in the first half of the year will not reoccur or is that facility has now been closed an asset retirement work has begun.
Third our Esterhazy Kthree facility is expected to produce 1 million tons of potash in 2020.
600000 tons higher than in 2019, leading to an additional $70 million to $80 million in adjusted EBITDA.
And finally, realizing a full year of run rate synergies in Brazil, together with new initiatives being executed is expected to improve results by at least $50 million. So in total we see a clear path to an additional 225 million in adjusted EBITDA next year before any changes in market prices.
That I will turn the call back over to John .
Thank you Clint clearly 2019 has been a challenging year for fertilizer markets, which once again demonstrates that mosaic is in a business that is both cyclical and subject weather related and other short term disruptions to succeed in this business for the long term we.
We know that we need to be efficient we need to adjust quickly.
And we need to preserve our ability to benefit from periods of strong demand and prices.
We are aggressively managing costs across the enterprise, we're managing capital effectively.
We are maintaining our market discipline.
And we have taken necessary actions this year to adapt to the temporary challenges in the market environment.
Volume leads price and volume has started moving product is moving to the ground in North America. In fact, it's moving to the ground globally, we expect supply and demand will move into better balance as we move into 2020.
And we expect strong fertilizer markets next year and beyond given appealing market fundamentals.
Mosaic is poised to take advantage of these improving opportunities.
Before I open it up for questions I would like to note that Rick Mclellan, who has led mosaic fertile is on todays since we began integration efforts will return to the U.S. to lead the commercial organization leadership of mosaic for as long as Andres has been transferred to the very capable hands with Korean Rijkaard I would like.
Thank Rick for the remarkable work that he has led.
To remake the Brazil business and reach our synergy targets current has more to do and I have every confidence that she and our Brazilian team will have similar success.
Now we will take your questions operator.
We will take one question for analysts.
Maybe can you again any additional questions you might.
Your first question comes from the line of Christopher Parkinson.
From credit Suisse. Your line is open.
Good morning, guys. This is look as far as shown on for Chris could you. Please walk us through your strip margin outlook for 20, and 21 all of the moving parts and what's the best way to think about your margin outlook heading into next year, especially given the low sulfur pricing.
Sorry, good morning Lucas.
Early Mike problem.
Welcome I'm going to hand, this over to current to give you some information on that but our expectations is as the price as the market starts moving that indeed prices will follow the volume and you know as we move into the year, we're going to see the lag on ours.
Sulfur and ammonia plant.
Prices catch up and so we expect an inflection in our pricing, which really will move over better margins for next year. It let me give us to current answer.
Sure. Thanks, Chuck I.
I think it's important to note, while we have a and.
The decrease in margins today. These are largely on published prices are based on extremely low volumes.
Literally one barge is affecting price traits that don't really reflect the market that being said I think it's probably most productive for us to talk about what are the things that indicate an inflection in pricing that will cause a movement in the other direction and get prices moving again historically those inflection points have come when you see market price.
Is that reached at March on cost for producers are cash costs. That's currently happening today and you see idling as a result, we've certainly seen closure is such as most next plant city, but also you know nutrient.
Sonic implants, lean and others are taking at curtailment.
You see a second caused major inflection is a demand resurgence and given the weather results from last year and what we believe will be a high corn crop. This next year, we expect to see strong demand, we're seeing that in other markets as well now.
India, China, China has stabilized in Brazil, and then third you'll often see a market consolidation or discipline in the industry and we're seeing that with some curtailed production.
Well as some consolidations that are happening in rationalization in China. So overall you know the three things that primarily driving these inflection points are happening today and so we really do believe bottom is in and we should see a resurgence too.
The normal seasonal pattern now the upstreaming in margins as we get into spring season, and see volume moving.
Your next question comes from your line of Adam Samuelson from Goldman Sachs.
Yes.
Yes. Thank you good morning, everyone.
So it's a question on the phosphate market and maybe it's King office something can you just said in your response there.
About market structure and you've seen this this big import flow.
Into NOLA and then you seeing these indexing.
Oh CP in Saudi tonnage to.
To barge prices, which can be influenced by traders and just from a market structure perspective, I mean, just can you talk about what was a can do to combat this.
And then on the marginal cost I mean, I can I just want to be clear I mean are you actually seeing capacity closures in China, just from a marginal cost perspective, it doesn't seem like there is actual.
Supply rationalization happening amongst major Xplore is this a little bit more color that'd be helpful. Thank you.
On this to correct, but I will make a couple of comments first of all you know, let me say, what's going on in the normal market is quite disconnected from either what's going on up country or what we're selling four so.
No. It is a market manipulation play and you know I guess it takes two to tangoe, but the importers are allowing it. So that's that is that piece, but in terms of the up country market. It really isn't though what we're playing with its a very low volume market.
That's being a single barge or a couple of barges being traded it traded to set an index price once real volume starts moving that goes away very quickly as it has in the past CRE and you want to talk a little more on that.
Sure we have seen a lot imports come and there's no doubt about that and the index pricing that joc and all other publications have talked a lot about our a clear indication that there are a lot of games being played on pricing I think it's important to note. The only one is selling a lot of times at these kind of prices our international competitors are domestic customers. It.
This point have their inventories fall.
They have got a regular supply and product.
And our sales largely are happening out of places like our Pine Bend warehouse rail delivered into other markets and so while these index prices do have an impact on sentiment overall and general market trend. They don't really reflect what we're selling at but more what others are selling at.
In terms of your China question, I would say that we are seeing our closures in China, we have talked before about the depressed economic environment that they're facing as well as the environmental and regulatory decisions that are having an impact on those Chinese producers, we see rock production year to date is down 9.2% in China there.
Costs are up on gypsum disposal their ammonia costs are up because an environmental air quality requirements and with the currency corrections that you're seeing there their cost thresholds on average today are about three tend to 315 on an fob basis for exports. So yeah, we're trading today below those cost levels and <unk>.
I think that yes, it's absolutely going to have an impact.
We are seeing producers facing decisions about whether or not they will close in Reno locate those plants more than a couple kilometers off the river.
And at these economic films are tough choices to make we just thought announcement by Sinochem about the closure of the fooling plan, which is about a million at half time to capacity.
And while they may decide to relocate or reconfigure that plant you know those plans are more than three years away and right now what's happening is a closure that plant. So yes. We are believing we do believe that economic factors as well as these environmental pressures are pushing for rationalization in the phosphate industry in China.
Your next question comes from the line of China Scarred from Bernstein.
Your line is.
Hi, good morning.
Good morning Jonas.
Can you talk a little bit more about the expectation of volumes next year on how much pent up demand that we we actually haven't deployed at this point what can we expect out of North America angina, particularly.
Well I think in simple terms for North America, we're looking at a corn planting of 93 million acres next year, we're looking at soybean planting of 85 million acres, which should bode well to taking north American demand up to at least where it was in.
Previous years, and then beyond that to make up what might have been missed and I think in both nutrients are has been up to a million tons of missed.
Product going on the grounds, so I think in both those cases.
We should see very good demand in North America in terms of China, we're seeing good internal demand, starting and we see that sort of balancing off it.
15 million tons of of demand in phosphates internally in the domestic market and the other one we expect as we expect good potash.
Imports next year into China, So overall, we're expecting a.
A big jump or a good jump in overall potash around the world up to let's say, an average of 67 million tons and probably around 69 million tons for phosphates around the world. So both of those are big jump up and really should drive the inventory out of the system as it exists today I'm going to handed over to current for few extra do.
They'll Commons sure Thanks, Chuck and Yeah, I would see that we have eight.
Real step up we expect in global shipments demand is solid in most all regions within a good recovery in Malaysia, Indonesia with pump prices and expect to see good potash demand. There are single point estimate you can you can see in the presentations on potash I think when estimate is more like 68 million times for global shipments, but that could be as high.
69 million times, and then that is up about.
3 million tons on on potash shipments for the year and then on phosphates. We have a single point estimate of about 70 million times could be as high 71 million times up a couple million tons on phosphates as well so good demand expectations on us.
Your next question comes from the line until the whole Jackson from BMO capital markets.
Your line is.
Hi, good morning, everyone.
Your phosphate margins have obviously been negative for the last few quarters.
How long are you willing to let the business run kind about level.
Before you want to take different actions here it doesn't seem like a lot of your offshore competitors are taking the theme town of kind of downtime and pain that you'd be willing to do to try to balance inventory. Thanks.
Good morning, John Thank you look the way we're looking at this today is.
We have capacity for what we believe is the demand coming up in the next year and so we expect that capacity to be fairly well utilized so no. We believe our Louisiana operations are basically essential to meet that new demand in 2020 and also.
Worth, noting that while our Louisiana operations, our highest cost its location on the Mississippi River is integrated ammonia operations and access to low cost high quality sulphur from a golf.
Really make a pretty competitive on a delivered cost basis and make an integral part of our potash or phosphate fall portfolio. So you know the other thing is Louisiana makes a lot of our microessentials. So as we look at this going forward. We think this is a.
Temporary seasonal thing and we expect we're going to need that production in the in the near term in terms of how our competitors are responding.
I'm not going to comment on their actions I will say mosaic vote takes approach that we always follow value rather than volume and we're matching what we think as our customers demand.
We don't intend to go below that but we do intend to make sure that we don't oversupply a market that doesn't need it.
Your next question comes from your line of Mark Connelly from Stephens incorporated.
Yes. Thank you.
Okay.
In the Cage free project mosaic said that under certain conditions. It would continue to operate the old.
Mine at reduced rates are you going to be keeping any of K one into on on a maintenance schedule for potential use or is that going to be shut for good.
Yeah. Thanks for that Mark Let me, let me start off by saying the K three project has been a real execution when for mosaic.
Our Canadian team is just found incredible new ways to Modularize the assembly of underground miners and other equipment and this is really what's allowed us to accelerate this project as such what we're looking out today is you know very successful project that will reach its total capacity.
A couple of years ahead of our original schedule as such.
We don't see a need for the the K one in K two mines. After 2022 and the reason for that is we have capacity for milling, but we will be constrained by that milling capacity with the capacity of K three so.
It really the acceleration has changed the need for any.
Increase are lengthening of the K, one and K two mines.
Yes.
Your next question comes from the line of John Roberts from yes.
Ladies.
Thank you on slide 20, where you gave selected items to 2020 do you have any early thoughts on model for 2020.
Yep Yep, so yeah. Thanks John .
Yeah, Martin is a little more difficult to predict for 20 Twond either capacity will go up in 2020 driving their their overall costs down, but really it depends on on the phosphate market on how much the contributions going to be on.
On model, we really don't expect a lot of equity earnings and 2020, if any and and that's because if you look at this at a run rate. This year there loss will be probably in the 200 million dollar range. So if even if you take thought to a new capacity.
They've got to improve their efficiencies before we're going to see any real equity earnings.
Your next question comes from the line of Andrew Wong from RBC capital markets.
Ladies.
Hi, good morning, so I'm, just going back to phosphate.
This I'm just trying to understand how that phosphate cost curve looks today versus pricing and maybe just focusing on DAP.
We've heard about phosphate rock price cuts in China, obviously salt for ammonia prices are lower I know, there's a pass through but that that affects that pricing.
Maybe could you just help quantify where you see the marginal cost curve today, because it obviously moves a lot.
Okay. Thanks, Andrew let let me go back to Korean I mean, I think current said the the.
Average cash cost in China today is about $315 a ton and that's taking into account the RMB moves the ammonia moves sulfur and rock costs, what that means those that's an average that means 50% of all Chinese production has basically underwater.
At these prices I, just mentioned modern and Wal Mart and will be cash positive with their high level of debt repayments that project is not making money, which would mean there.
The overall breakeven is more in the range of 350, plus so if you look out at Where's that where is the marginal cost producer I'm, saying the marginal cost producer is probably.
Certainly above that 315, 320 range and likely while up into the 400 range for non integrated Indian producer.
Maybe the Mexican producers and some of the Chinese producers.
The next question comes from P.J. Juvekar from Citi. Your.
He said.
Yes, hi, good morning.
Yeah, John Miscued. My view is you wonder if you high cost mines to some extent.
Phosphate sales have slowed down is that a mind that you could potentially slow down I know you have some contractual terms there what can you do there and what's the opportunity and lower costs.
BJ, let me say miscue mile.
Is probably disadvantaged on a delivered basis because of the transport, obviously to Louisiana, but again, you know it tends to give us a good opportunity to keep Louisiana going preserve rock in Florida, and if you worked adult owed overall, it's a pretty good a pretty good house.
That force now what I will say there, though is there making since we have taken over that joint venture we've made great progress on reducing costs and <unk> I intend on the in the future to set some real targets there for reduce costs. So we'd like to make miscue Mio a real integral part of our overall production.
On plans and to do that though we agree we need to really work hard on reducing the costs about operation.
Your next question comes from Ben Isaacson from Scotiabank.
Good morning, Thank you.
I'm trying to understand the difference between expected shipments and underlying demand and I was hoping maybe Andy can talk a little bit about in key markets, where phosphate inventories or stocks are.
Versus kind of were comfortable levels should be or have been historically.
Hey, Ben also less all what current accounts for a bit about but I would say look we know that north American inventories are high.
We believe that in country inventories for both potash and phosphate are reasonable in India. We believe both in country inventories for phosphate and potash are below normal in China right now so while the port inventories for potash or high in China, We believe in.
Country inventories are actually quite low which means that you will see the port inventories move into countries quite quickly. So overall across the globe and I'm sorry in Brazil, we're seeing phosphate inventories are down a couple of percent by the yearend and potash inventories up a little bit so overall.
We don't think the inventories are that out of whack a mole. We will say here is as well is with low prices people tend to deplete their inventories and during rising prices. They tend to build up their inventories. So we believe the inventories are being depleted so what's going on the ground is probably exceeding.
What is actually being delivered in these markets right now when do you have anything to add to that.
Not too much to add Jack I think it it's a good point that there was a natural tendency to de stock when prices are falling nobody wants to try to figure out what that bottom price level is and we so we are seeing at some de stocking in some markets. Some got caught quite long with the weather changes and they're working off those inventories.
We've seen some channel stuffing by some of the our international competitors, putting it into traders in markets trying to position, but in country. You know places like China would be in country potash high inventory levels out at the end PK plants et cetera. We believe are pretty low end. So there is some real movement.
For tonnage to go when we see that demand volume kick back in <unk>.
Then just let me reiterate there as well we have people on the ground with our distribution businesses and.
You know clearly in North America, Brazil, India, and China, which are our major markets. So we have a pretty good handle on what's moving in country compared to maybe some of our competitors.
Your next question comes from Steve Byrne from Bank of America.
Yes.
Hi, So this is Matt de on for Steve <unk>, but.
You're a you talked a little bit about inventory is clearly north America their bloated, but if we're looking into 2020.
So the only forecasting a pretty modest increase for shipments into country. Despite what's been a pretty poor year for applications. So again. This is just elevated channel inventories are why don't you foresee a better rebound in North American applications next year.
I think we do expect a big sorry, Matthew welcome we do expect a big rebound in North American application, but I think you hit it on the head there there's a lot of channel inventory right now many of our customers are full.
And it's not unusual to before going into spring, but were full for a couple seasons now. So that's that is unusual so we expect that that inventory house to move out of the system first and then then the actual shipments from those producers can start.
Your next question comes from Michael Picken from Cleveland Research. Your line is open.
Hi, I was wondering if you could talk little bit about how we should be forecasting your ammonia costs for the coming quarters, given that philosophy, United currently shutdown and.
How we should be thinking about that going into 2020 as well.
Sure. Thanks, Michael.
Oh, all I'll touch this and maybe current might touch a little bit as well, but you know here here's how our normal ammonia supply works, we by about a third on the open market, we receive about a third with our CF contract and we make about a third with our own production.
Now clearly are in terms of cost right now the lowest cost producer is our own production.
And then our.
Market.
Cost is second and CF is in today's market significantly higher than that I think the CF market isn't the 350 range.
Today with with natural gas prices, where they are so what you will see with the.
Ammonia plant down is that we will have a higher weighting of the of the market price, which is in the mid two hundreds and a higher <unk> weighting of the CF price, which is in the 350 range and at lower weighting of our own production. So that will increase our costs above market at this.
Stage.
In in 2020 at the start of 2020, we will have unloading or loading facilities out our dog in Louisiana, which will allow us to take the.
Ammonia from Faustina and move it to our Florida operations, which will really give us a a big cost advantage and allow us to utilize that ammonia much more effectively.
Your next question Vincent Andrews from Morgan Stanley .
Yeah. Thanks.
Thanks, very much I think what I heard earlier was that you plan on starting the phosphate assets a pretty much for the beginning of the year given the demand that you're forecasting what do you think you'll bring the potash assets back on line is there any risks that.
They remain offline in the first quarter.
Thanks, Thanks, Vincent Yes, our intentions are at this stage, the Louisiana would probably come up your end or early in the new year, depending on how how the fall season is going and what we see is a need there in terms of the.
Colonsay.
And the potash.
The tradeoff there will be both will be twofold. One will be you know how is the potash market developing do we have a Chinese contractors that shipments started have the we've seen good increases in pricing for palm oil do we see higher shipments into Malaysia, and Indonesia from.
From Canpotex, so if those canpotex shipments start a that will lead us to favor, bringing calonge. They up at the same time, our K three as we keep saying is coming up faster than we expected. So if we can meet the need with the lower cost K three product that will probably be where we would focus.
And the last question.
From Don Carson scan.
Your line is open.
Thank you just a couple of questions on potash one can you talked about potash pricing in the domestic market I know you raise prices post the completion of summer fill or you're actually seeing any of those higher prices being realized currently and Jack if you could just clarify what's the future of Colonsay once K three is up and running given.
Its cost structure relative to the case screen, even K, one NK too.
Thanks, Don Let me take the the second question first I look I Kwanza is a a good asset.
In the potash markets that we had maybe even five years ago Kalonzo. They was a very good profitable operation today with the new structure and K three coming up kwanza is going to definitely be our swing planned and as such we want it there.
Be available when we need it.
But at the same time, Oh, if we can supply from aster hazy and Belle Plaine.
We feel that's a more economic way to supply the market need. So it really is going to depend on how far the pass the market grows I.
I mean current projections from C. R U and stuff says that probably.
Ones, they will be running intermittently in the next little while rather than steadily but you know more does more to come on that and final decisions will be made probably in the early next year in terms of potash pricing in in the market I think maybe Karen it's best to answer that.
Sure we did get good participation in our summer fill program and got a lot of products sold for that time period.
We then posted prices higher as we normally do after a fill program I would say it has been difficult to get those prices to stick, we seen a lot of pressure from aren't domestic competitors, who seem to accepted much lower prices on and we have continued to make sales today corn belt, whereas prices in that to 72 way.
80 ish kind of range.
Okay, well without I'd like to conclude our core call. I know you have a lot of other calls today and I'd like to reiterate our key points well 2019 has been a challenging year for North American agriculture mosaic has maintained its focus on the things we can really control.
We've made tremendous progress we've accelerated K three mine again.
Which will lead to significant savings in a highly efficient potash operation, we've idled production to help balance supply and demand.
The transformations of our potash and phosphate businesses as well as our corporate functions are ongoing and they're delivering real bottom line results and we're driving remarkable improvements in our mosaic furloughs onto business in Brazil.
All these efforts have mosaic positioned well to benefit from improving market conditions, we expect agricultural fundamentals to strengthen further and we expect strong global demand and rising prices for both phosphate and potash as we move into 2022.
We're highly optimistic that business conditions will improve and the mosaiq will be there to deliver strong returns as that happens. Thank you for joining us this morning and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now.