Q4 2020 Mosaic Co Earnings Call
Good morning, ladies and gentlemen, and welcome to day mistake company fourth quarter 'twenty 'twenty.
This conference call.
This time, all participants have been placed in a listen only mode.
Australia company completes their prepared remarks, Dave.
Since we'll be open to take your questions.
He hosts for today's call is Laura again.
Vice President Investor Relations of the mosaic company.
You may begin.
Thank you and welcome to our fourth quarter and full year 2020 earnings call opening comments will be provided by Jakob for our President and Chief Executive Officer, followed by a fireside chat as well as open Q&A, Clint Freeland, Senior Vice President and Chief Financial Officer, and Jenny Wang Vice President Global strategic marketing will also be.
Available to answer your question.
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 results. They are 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 to differ materially from those on the forward. Looking statements are included in our press release furnished yesterday and in our reports filed with the Securities and Exchange Commission.
We will also be presenting certain non-GAAP financial measures are for.
Fourth quarter press release 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 John for opening comments Doug.
Thank you for joining us today for our fourth quarter earnings call before we get started I would like to emphasize the key points from our quarterly earnings report first we are realizing the benefits of our extensive cost transformation work and we are beginning to see the earnings leverage we have created.
Second agriculture, and fertilizer markets around the globe for very strong phosphate prices are at seven year highs on potash prices have risen substantially we expect the global supply and demand balance to remain tight in 2021 and third we delivered.
Great results for 2020, and we expect significantly higher earnings this year.
Now, we'll get to your questions Laura.
Josh The C. D D filing is a hot topic and we perceived a large number of questions about the case status and the outlook can you bring us up to date with the case on your views.
Thanks, Laura I'd be happy to.
Last week, the department of Commerce announced final duty rates and the CVD case, having adjusted them from a preliminary rates that you announced in November. The final rates are about 20 per cent for O C. P. 9% for force I agree with 47 per cent for your accounts.
We really appreciate the work for Department of Commerce is done on this investigation and its efforts to enforce our trade laws were closely reviewing their findings to determine whether additional upward adjustments are required also last week. The international Trade Commission held its public full day hearing the ITC is charged with determining whether the <unk>.
Object imports caused injury to the U S phosphate industry, we continue to believe that our injury cases compelling, especially given the undeniable surge in imports during the relevant period.
The price effects of those imports and the resulting harm to the U S industry, which manifests itself in plant curtailments and closures job losses and reduction in market share production capacity on revenue.
We're thankful for the ITC is work on this case and we look forward to its vote on or about March 11th in terms of the current unexpected imports into the U S.
You've seen the expected trade flow shifts such that the U S market continues to be well served with phosphates are.
Our main concern is that wherever the supply comes from it needs to be fairly priced and not priced based on highly subsidized production that comes at the expense of a free unfair market.
Jonathan we have a related question from John Roberts of UBS, who have since.
Since the first quarter 2021 U S phosphate imports should be flat year over year, who has replaced from Morocco and Russian imports.
Thank you John.
Importers that have increased their sales into the north American market include the Australians the jordanians the Egyptians.
Saudis and the Mexicans.
All of these have also been excluded from this market due to the subsidized imports and so now we're seeing for your unfair trade I'd encourage you to look at our market update deck published on our website, where Andy provide some historical context as well.
Josh we've had several questions related to our taxes, specifically Jonas oxcart at Bernstein asks can you simplify what happened in the quarter and how should we think about both for GAAP and cash taxes going forward and.
Artem <unk> from V. T. B assets. If you can provide details on the tax benefits related to acquisitions other words.
<unk> was formed N Y it was reversed in the fourth quarter.
Thank you art them join us I'm going to hand, this straight over to Clint to give you a little bit of a background on some of the moves in our taxation in the quarter. Thanks.
Thanks, John maybe I'll start with the second question and then move back to Jonas as question afterwards.
So related to the tax benefit associated with the Vale acquisitions, when we acquired the Brazil business in 2018, it came with certain tax assets that we ended up having to put a valuation allowance against given the historic profitability.
Of that subsidiary not just according to GAAP rules.
Let's now transpired is that that the profitability of that subsidiary has improved to the point where under GAAP accounting.
We can now remove that valuation allowance and recognize those tax assets on our balance sheet. So that was the $580 million valuation allowance that affected our GAAP earnings for the for the year.
Now the Jonas his question.
Around our effective tax rate for the year, we actually realize some foreign tax benefits.
On the fourth quarter that we had originally thought would be temporary in nature and reported on the balance sheet, but as we concluded our analysis, we got our opinions and finished our work it became apparent that those foreign tax benefits, we're going to be permanent and when that's the case you need to take it through the income statement.
Through P&L on the tax line.
You know when we look at where our earnings and earnings mix came out for the year, which provided a lot on quite a bit of volatility in our rate last year all of that came out as expected, but as we again concluded our work on these foreign tax benefits and recognize that they were going to be permanent we ended up needing to again run that through the <unk>.
Tax line and Thats, what brought our effective tax rate down to the level that we recorded.
As we go forward into 2021, a couple of things to keep in mind first the foreign tax benefits that we recognized in 2020, we expect that to continue to benefit our rate.
In future years, the other thing to keep in mind is that the.
The better our phosphates business does the more income is generated in the United States, which is which is our lowest tax jurisdiction.
So the better that business performs the lower our rate should go.
Our next question comes from P. J <unk> from Citi Vincent Andrews from Morgan Stanley, Mike Aitken from Cleveland, and Joel Jackson from BMO, they've all asked about our sales volume outlook for 2021, specifically can you help investors assess the implications from the strong demand current production.
And our view of channel and producer inventories as we think about volumes for 'twenty, 'twenty, one and phosphates potash and mosaic fertilize entrees and how much of the fourth quarter volumes were pulled from 2021.
Thank you folks.
Soft commodity prices for multi year highs on the expectation is that the strong egg economics will continue so what that applies for us as continuing strong demand for fertilizers as farmers seek to maximize their production.
Our quarter for shipments were definitely strong.
And they lowered our inventories even further which means that we will be constrained by production capacity as we move into 2021 that said our phosphate volumes are expected to include up to 150000 tons from our joint venture M. W. S. P C.
We will bring to know all of that as we work to meet the U S customer needs. As a result, we expect our quarter one shipments to be in line with historical performance as we work to meet what is pretty strong demand. Despite the strong volumes we saw in quarter four.
A few extra things to consider in both phosphates and potash, we will maximize our production net operating facilities, but we don't expect to be able to build our own inventories prior to the North American spring season, we believe channel inventories across products and regions are lower than normal.
Which minimizes the potential for deferrals of fertilizer needed for upcoming seasons, we expect to keep more of our U S phosphate production here in the U S to meet those customer needs.
Our next question comes from Arden bogey on a cloth from VEB, Vincent Andrews, and Ben Isaacson from Scotia who've I'll ask questions related to asset optimization can.
Can you provide an update on the clumsy mine and any thoughts on bringing idled capacity back online.
Do you have any plans of expanding capacities are increasing operating rates in phosphates and potash amid such strong pricing.
Thank you again folks.
Today, we're running our assets and we're working hard to meet all of our customer needs in terms of increasing production, we're going to meet the needs of the customers with our production. So we have places where we can probably debottleneck overtime now.
No colons they remains idled, but we would consider bringing them back if the long term economics on the demand was there to justify it. So again, we're not going to bring production on that isn't required but we do have some latent capacity that we can use if market conditions demand it.
Doug Vinson and part of also ask for some clarity on the incremental 400000 tonnes in our fourth quarter volumes.
Thank you Vincent on the Artem.
Two things are happening here first a large portion of these tons simply relate to a catch up on sales for canpotex to meet our portion of full year sales.
And the remaining reflect a reduction of our canpotex inventory deferral, so basically a pretty simple stuff remember these are lower priced lower margin tons compared to other sales and when you net out all of our non notable typical year on noise in the quarter.
The net impact to EBITDA was virtually nil.
Moving on to the next question, Josh a number of analysts, including Duffy Fischer from Barclays, Chris Parkinson from Credit Suisse, Andrew Wong from RBC and Steve Byrne from Bank of America have all asked about the China and Indian contracts cash.
<unk> and other producers have been publicly critical of the recent BPC contract settlement typically in the past for potash contract settlements with China or India, we've seen that when one producer settles at a certain price other producers shortly follow at that same price can you talk about why that's the case why haven't other producers in the Pea.
<unk> held up for higher prices and for this year, specifically well the situation end up differently do you expect others to hold.
And how do you think of the economics at this price.
Thank you folks.
Look I think the surprising outcome here is really centered around the India contract, where BPC was the first mover and as you've heard from other suppliers, including Canpotex settled at a price that was what we believe lower than what market fundamentals were pointing towards.
From our perspective.
The price doesn't represent the reality, we're seeing at for the tightness of the market and pricing and other jurisdictions highlights. This.
I can only speculate as to what motivated BPC to do that but given the political uncertainty in Belarus over the last year. There may have been non market drivers that played into it in terms of mosaic given that we sell internationally through canpotex, we're going to allow canpotex to do what it was set up to do and therefore.
We won't be negotiating contracts on our own or on calls like this.
But it is important to keep in mind the contracts involve prices volume grades and durations not to mention any number of other terms, which can impact producer economics, and which we believe will come into play given how tight the market is.
We would expect canpotex to take a holistic view as it interacts with Chinese and Indian buyers.
Chuck we've had a number of similar questions from Mike Pagan Seth Goldstein from Morningstar, Ben Isaacson, and Mark Connelly from Stephens about Chinese phosphate production and exports. What is your expert for exports for 2021, and how do they align with recoveries from Covid curtailments potential demand destruction from high prices and.
The government's latest initiative to increase phosphate operating rate.
Yeah.
Thank you.
What we saw last year with regard to Chinese exports as they fell by approximately 800000 tons down to $9 3 million total tons.
From a capacity standpoint, we believe capacity was reduced by in 2020 by roughly a million tons year over year, both due to closures and product mix shifting this was in line with our expectations and we'd characterize that magnitude is significant.
It is expected that in 2021 capacity is going to be stable, but at the same time domestic demand is likely to increase once again.
And our fairly conservative export forecast, maybe too high on the Chinese government has indicated the desire to increase phosphate operating rates on our analysis already points to a relatively high operating rate and the Chinese effective capacity.
Even if <unk>.
We were to assume a dramatic step higher in Chinese utilization of say five percentage points.
That would increase export availability by no more than 1 million tons.
And upside growth in domestic demand could easily absorb a portion of those tons.
Yeah.
Doug Adam Samuelson to Joel Jackson are both asking about mosaic for Lazard she's outlook.
Despite a quarter over quarter rise in selling prices gross profit per ton declined in fertilizer in the fourth quarter from the third quarter.
Can you explain the key drivers of the decline in operating rate and increase in cost and how we should think about growth margins progressing into 2021.
Thanks, gentlemen.
Historically, our quarter three margin per ton is the highest for the year in Brazil, reflecting the seasonality of demand and the economy of scale that we see in that quarter.
It's normal to see a decline from quarter three to quarter for this year, though it's probably exacerbated by additional impact of delaying our turnarounds and the lower production volumes, we saw in quarter, four which negatively impact our fixed cost absorption.
The movement of the Brazilian real <unk> from $5 six at the beginning of the quarter to $5. One at the end of the quarter also caused a non cash non economic translational impact and the Cogs lowering gross margin by about $13 million. Looking ahead, we continue to make great progress towards our transformation goals.
And we expect to see our margins continue to improve because of that over time.
Chuck we have more questions about Brazil from Steve Burns and Chris Parkinson.
Given the sharp spike in inland Brazilian phosphate prices can you remind investors of your inland market share and domestic production capabilities and how much of the 10% volume game, but it fertilize on she is in quarter four with overall market growth from acreage expansion in higher application rates in Brazil versus market share.
Gains against imported product.
Thank you.
Our market share.
In Brazil in 2020 was roughly 18%, but remember what is driving this domestic production and a vast distribution network that gives us a dominant market access position.
Production rates for $3 5 million tonnes of phosphate concentrates in Brazil, and about a half tons of potash now regarding quarter for specifically, we think it was a combination of factors, but market share growth was definitely part of it.
Junk, Andrew Vaughn, and Chris Parkinson or asking about capital allocation.
A few years ago mosaic cut dividend payments during some tough years for potash and phosphate now that market conditions have improved and volleys integration is mostly complete and ask for hazy Q3 is around the corner what are your thoughts on capital returned to shareholders, our dividend increases or share buybacks in the future and if current conditions.
Persist two you will have cash flow beyond debt paydown needs, what will you do with it.
Yes, thank you for.
For capital allocation priorities are really unchanged, we're targeting a balanced approach and a balanced allocation of capital to pay down debt over time return capital to shareholders and invest in what we believe are high return projects to grow our business and maximize volume.
We've talked about reducing debt by $1 billion on that remains a priority.
Aiming to fortify our balance sheet for an entire cycle.
Growth capital spending on Q3 as you mentioned is winding down and the highlights the types of return we're focused on when thinking about new investments.
In terms of capital returns to shareholders.
<unk> evaluating what is the sustainable return policy.
Taking into account our earnings profile, our capital spending needs and especially as we continue to drive sustaining profit improvements through transformation.
And our spending on major projects winds down so we will be hosting a call on March 11th and we will and that call specifically address capital allocation in more depth and I'd encourage you to listen in on the Clinton would you want to add anything to that.
No I think that covers it Jon.
Thank you.
John Pizza Uber car asks despite improved volumes in the second half of 2021 was your operating cash flow week in the fourth quarter of 2020. Thanks.
Thanks P. J, if I am going to sum it up I think the biggest thing is working capital swings, but I'm going to let Clint just give you a little bit of detail on that.
Yeah, Thanks, Jack and Thanks P. J I think as we look at last year working capital was a source of about $80 million in cash as we liquidated our inventories.
During some of the idling of our facilities. This year working capital was a use of about $140 million in cash primarily because of an elevated level of receivables.
Associated with with higher sales.
Jack Jonas Oxcart, and Ben Isaacson are both asking about phosphate pricing outlook the.
The U S prices, well above global prices, which clearly isn't sustainable.
You have a perspective on where they will settle out and how long it will take and what do we need to see in advance of prices moderating.
Okay.
Thanks, Ben Thanks Jonas.
On the U S. Specifically as we've said before we do expect the trade flows are going to adjust and find a new normal.
For the final determination of the CBD petition next month.
Now U S and international prices will have to be basically at parity adjusted for things like freight differentials. So in other words, if the U S prices are high it'll bring in new imports and if U S prices are more parity with the market maybe people will be less inclined to import so price.
We will take care of our trade will work as trade is supposed to work and we expect that that convergence will take place somewhere in 2021.
More generally on global pricing markets are efficient that finding equilibrium. It appears the demand is on very solid footing given the recent commodity AG commodity prices.
But a few seasons of above trend yields could calm those markets and slow demand growth and we can never forget the potential impact of weather on both yields and our ability to apply fertilizers. No. We were expecting current prices to modestly lower demand in India, given the current subsidy scheme.
Josh Adam Samuelson asks.
Your guidance calls for the first quarter phosphate price to rise 40 to $50 per ton quarter over quarter would mean average realized prices would have risen less than half of the increase in benchmark prices over the past nine months, what explains this spread and if current benchmark prices hold should we expect a more sizable.
Quarter over quarter increase in realized pricing for the second quarter.
Thank you Adam look the first thing to keep in mind is that some other recent new Orleans pricing reported at.
At the high end of the range was published in the trade publications and.
There were very little volume is actually attached to them. So excluding those data points for Delta is actually quite a bit smaller we have worked hard to meet our customer needs as well and so in this rapidly moving market. This means we've committed to sales in some cases ahead of our production. This would push the lag between market prices on realized prices high.
Within our ranges.
Let's call it 45 to 60 days.
But given the current price environment, you are absolutely right if benchmark pricing hold you will see further price increases realized in the second quarter.
Doug.
Last Fireside question comes from P J Jill for car.
Yes.
With your phosphate mining costs of $37 per ton and conversion costs of $62 per ton, where do you fall on the global cost curve and just to clarify is this conversion cost.
In including sulfur.
Yeah.
Thank you P J.
We believe in our third party sources such as C are you really reflect this that we're solidly within the second quartile on a cash cost of production basis.
But as you know we continue to strive to push ourselves lower on the curve now conversion cost. Obviously don't include raw materials of sulfur or ammonia. So whereas lead you to is we published a modeling deck in February 2020.
Where we are and we're in the process of updating that the sensitivities have been updated in our recent earnings release. This deck also describes the impact of inputs on our production and so you can follow up there with Laura Paul for additional details.
Thank you Doug.
That concludes our fireside chat part of this call. We will now open it up too for the further questions. Operator can you open it up to the audience.
Thank you as a reminder to ask a question you will need to press star one on your telephone keypad.
A question from Japan.
We will limit questions to one per participant.
For other questions to be addressed.
Thank you and please standby, while we compile the Q&A roster.
We have our first question comes from the line of Steve Byrne from Bank of America. Your line is open. Please go ahead.
Yes. Thank you would like to ask you a little bit about your understanding of what's going on in China right now.
It appears that the government there is changing course on it.
Previous plan the whole fertilizer use constant.
Is that your understanding and if so do you.
Do you see a potential change in an application rates or consumption of fertilizer in China, yes.
For those limits were removed in the government wanted to drive crop production up.
To reduce the level of imports.
Sorry, Thank you Steve.
Let me just make a couple of comments, yes in fact, the federal government in China has said they will.
Loosen their fertilizer restrictions and they've also said they want to increase the rate of fertilizer production and obviously those are to help their own food security, Let me ask Jenny Wang if she can give a little bit of details there.
Thanks Chuck.
Steve I think the policy that you quoted was caught on.
The real fertilizer growth policy.
Actually five years ago, and with a very specific timeframe and by end of 2020 on the.
Government has declared the goals have been achieved so theres no new policies came out in 2021 is that the government's basically shifted their focus to.
Sure production co production to meet domestic demand.
Part of the input as they attempted to true.
In terms of the fertilizer demand imputation based on the academic.
The recommendation.
For a recommendation from the Ministry of Agriculture on theirs.
Very clear indication cash should be interest income off the application in China.
With some of the secondary on nutrients and Micronutrients.
In terms of the indication to phosphate.
Very clear indication that the pharmacy needs to manage their application tool phosphate and we've seen phosphates demand reduced over the last five year Doug.
We found it in 2020, we foresee this is going to continue in 'twenty to 'twenty. One onwards, basically the farmers are going to a pipe in.
More appropriate way nitrogen for different story, it's a very clear indication to us to reduce the supply back to the supply situation.
China as a country they are self sufficient for the production off on.
Based on nitrogen there. So we have nothing policy support from the government to.
Encourage more capacity to be built in this too.
Two new training potash kind of needs to be.
Input and they have limited.
Oh, hi, extraordinarily per week.
Leif.
For a country they still need to continue to.
The demand and also towards there.
Volume production.
We have our next question comes from the line of Chris Parkinson from Credit Suisse. Your line is open. Please go ahead.
Great. Thank you very much.
Yes.
Sticking with the China theme, just taking it for taking a step back from all the debates around export flows near term price action et cetera et cetera. The fact, the changes on the marginal cost exporter to the tune of plus or minus $9 million on across the primary products.
There has been on distinct inflationary and steepening of the global cost curve, which spans pretty much across all components of the production costs due to safety environmental and Ace III sulfur Iraq, especially if you are et cetera can you just give us your own update on your current calculation of Chinese applebee rate so at port.
On how you believe this may compare to your outlook for both for 'twenty two 'twenty three so just really trying to get into that.
The structural components of what we're seeing in the phosphate market. Thank you.
Thanks, Thanks, Chris.
<unk>.
If I understand the question on the global cost curve, and where China basically sits on it from there.
The positioning of curve I think youre right Theres no question, the Chinese represent or some other non integrated producers, particularly represent the top end of that cost curve.
Yes.
And obviously those costs have been going up Jenny do you want to talk a little bit about where we sit on those cost curves are where they sit on those cost curves today sure.
So with the latest phosphate price for.
O'reilly globally clearly.
On the margin expansion has occurred across.
The whole cost curve for all producers specifically for Chinese producers.
They are facing the raw material pricing for since like you mentioned on software and also facing Doug.
Natural gas related to ammonia prices and that's where all the <unk>.
For exchange rate depreciation on Chinese RMB I've also added cost to the F O b.
So at this time, we believe the break even F O b.
Tiny DP price is about 400000 metric ton.
And Chris Let me just add to that as well I mean, the limit to Chinese export may well be structural as well as as price because I think the.
You know the very top end producers will have costs higher than that but also a lot will be redirected to or some of that will be redirected to the domestic market. So it's not quite as simple as the breakeven price.
We have our next question comes from the line of Jeff Zekauskas from JP Morgan. Your line is open. Please go ahead.
Thanks, very much two questions.
What's the relationship between the deliberations on the Department of Commerce, and the International Trade Commission and what I mean by that.
Is.
Are some of the.
Conclusions of the department of Commerce taken as premises for.
For the decisions that the ITC will make for you.
Nonetheless there.
Analysis taken as a premise.
Secondly.
Your equity loss really dropped in the fourth quarter do you expect your.
Equity income to be positive in 2021.
Sorry, yes, Jeff. Thank you let me, let me take that into two pieces. Obviously first of all in terms of the department of Commerce on the ITC They are independent.
And their determination.
It is meant to be independent so the D. O C decides the level of <unk>.
Subsidize Asian, and the ITC decides whether or not that.
The presence of those imports has caused harm to the U S industry.
So technically I guess, they're not related but I I suppose.
There's got to be some element of relationship that says well if you have subsidized material coming in on it harms you that there's there's a problem.
So technically the older I don't believe they're related directly in terms of the equity loss most of that is modern and.
I think we've talked about before where modern is delayed by one quarter. So we report our equity earnings or losses from modern a quarter in arrears.
So if you look at the global price on phosphates today, I would expect certainly a much lower.
Equity loss or for that to turn to our two again at some point, but again that would be my expectation.
Thank you so much.
We have our next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open. Please go ahead.
Yes. Thanks, good morning, everyone I'm thinking about about phosphate you gave.
Comments on pricing certainly for the first quarter and point on kind of lagging in the benchmark pricing is well taken can you talk about kind of the cost side. I mean, you should have pretty good line of sight.
How the ammonia sulfur input cost moves kind of would impact.
The first quarter kind of cash margin and help us think about.
And how you would frame that first half or even 2021, if you could just from a ammonia sulfur kind of the movements on on the input cost side. So we can be thoughtful about calibrating to benchmark pricing. Thank you.
Yeah. Thank you Adam.
Certainly as you say there is a lag and we've talked about it in terms of lag on sulfur. There's also a lag for both sulfur and ammonia.
What I would what I would point you to there I guess is just the stopes geometric requirement.
Our need for ammonia represents about a point to one tons per ton on adapt produced our use of sulfur represents about <unk> for tons of sulfur for every ton of that produce so you know as you can see what that means if sulfur moves from the $60 to the 90 to $97 today.
Hey.
$30 increase in sulfur is going to add something like a $12 increase to our overall price.
So you know on sulfur you should be able to take fairly much the Gulf price or our quarterly price and work that in in terms of ammonia.
Again same thing except that obviously, we produce one third of our ammonia. So that is that normal cost one third of our ammonia is one third or so of our ammonia is produced by CF on a long term contract and then on we only by about a quarter of our quarter to a third of our ammonia on spot.
On that one.
It's it's much more dampened if you will.
Okay.
We have our next question comes from the line of Joanne Ox, Greg from Bernstein. Your line is open. Please go ahead.
Hi, good morning.
I wanted to ask about the deep freeze.
It's had any effect on your operations or logistics up the river.
Yes.
Follow up on that.
Does the deep freeze limit availability on potash in the Midwest.
Yeah, Okay, well, let me, let me talk both commodity.
Let me start with phosphates.
So you had some problems in our faustina plant with freezing in Louisiana isn't a place that freezes very often so we actually probably will have a couple of days shutdown of the plant in different parts of the plant. So so it's definitely going to have an impact on that the other area of interestingly.
Enough is.
Moving ships on unloading and loading sulfur and in the.
Gulf of Mexico, and around Galveston and.
Different parts of the river are definitely.
Are definitely being impacted.
But again, we kind of look on this as being you know just normal course of business. These things happen no different than when you have to slow down for a hurricane or anything else. So we're we're well prepared to deal with weather events in terms of potash you know I guess the good news there is we deal with this every year in Canada with cold.
Weather and so the railways and everything else for supply chains are well equipped to deal with this kind of.
This kind of cold weather, although you will remember a few years ago, where snow actually delayed the delivery of potash to the Midwest.
Next question.
Our next question comes from the line of Joel Jackson from BMO Capital markets. Your line is open. Please go ahead.
Hi, good morning, Jonathan.
I have two questions on Brazil first off on your crop inputs here to talk about elevated channel inventories in Brazil impacting some of their crop and for volume. There can you just talk about that convertibles on the.
On the products that you sell and then also in Brazil I.
I mean, we've seen the <unk> or BPC.
For sell potash about a year into Brazil at.
Higher prices, how does how does that impact what canpotex confounds, Brazil, perhaps on a long day.
Uh huh.
On the pricing two things.
Yeah.
Can you can you help me with your first question about the channel inventory Joel I Didnt quite yet, but we've seen that we've seen.
Crop input suppliers.
Talk about like larger inventory now on the channel up things like pesticides.
And I wanted to see how you.
If you would comment on how you see channel inventories in Brazil.
The other crop nutrition crop nutrition.
Okay got it let me start by saying good morning Joel.
Thanks, Good morning, Doug.
If.
In terms of our our main fertilizers being potash and phosphates, we haven't seen.
Elevated inventories of those I mean, if you look at last year I think the in the final analysis.
The use of fertilizers is going to be another record year and I think it's gonna top 37 million tons in Brazil. So there really was a big big pole, particularly on the third and fourth quarter and in the country and so we don't see elevated or above normal elevated.
Inventories right now in terms of the the Belo Russians or anyone else selling fertilizer into Brazil, I guess, what I would say is.
You know those sales once made.
What they are and they don't affect the other the rest of the S. N D. So so if they have below market sales and we're seeing this with the India, China that it really has not impacted other sales because.
People need the product.
They are willing to pay the market rate for those products on the market rate.
Has moved up so normal supply and demand is demanding that people pay more for the for potash and particularly we're seeing that in Brazil, which is almost like a market leader in the in the potash markets.
Our next question comes from the line of John Roberts from UBS. Your line is open. Please go ahead.
Thank you congratulations on your making the Barron's 100, most sustainable companies list I don't think we've ever had a fertilizer firm or even an AG firm on that list before what do you think was the most important reason that you are in for the first to make that list.
Well thanks John.
That's a really good question I think look if anything I suspect the the reason for it is because we've been focused on it for a long time.
You know when we've set very concrete.
Goals.
We just set new goals for both air and water recently in terms of Cotr missions.
And water use but those are followed from five years of goals that we achieved over the last five years. So I would say you know first of all in terms of the basic environmental.
Ah projects, we've been very focused on that for a long time, we certainly understand that as a resource company, we have to be more aware and more conscious of our impact on the environment. We believe we do an excellent job of of running one we're running and then recovering and reclamation after after the for.
And I assume that that is.
A big piece of what they are recognizing.
And again why.
That's not why we do it we are of course honored that they would recognize us in that way.
Thank you.
Once again I would like to remind everyone to ask a question you will need to press Star then the number one on your telephone keypad.
A question you may press per pound.
Again, we will limit the questions to one per participant to allow for other questions.
We have our next question comes from the line of Michael <unk> from <unk>.
We've done research. Your line is open. Please go ahead.
Yes. Good morning, just wanted to talk a little bit more about okay for.
And I know you guys talked about kind of potentially boosting your production from 1.2 to 3 million tonnes. This year can you sort of break out in terms of the cost savings how much is going to be Brian inflow reductions versus actual savings on.
Three and what the cadence might look like as we move into 2022 as well thanks.
Yes, Thanks, Michael.
Great topic we.
You know we've talked about this before where the K three project is run significantly ahead of schedule and it looks like so I think we'll be telling you soon probably slightly under budget. So for 10 year project or an eight year project Thats, a pretty pleasing outcome in terms of the design, we expect it to produce on extra.
Million tonnes of potash from K three when it was out for full production.
Amounts to about 3 million tons of incremental or so when we say.
We'll be up to 3 million tonnes that means we'll be running virtually the whole incremental capacity of K. Three now what happens after that is K three slowly takes overall production at the Astro hazy facility over the next couple of years on what that what does that do for cost.
The cost of first of all the cost of production.
Instead of producing it let's say at a call on say, where you have all the fixed cost. This is all coming in as incremental tons and this is a good part of the reason why we believe our.
Cash cost for mining is going at S. Raise is going to end up somewhere below $60 a ton probably in that 50 to $60 a ton range and that will really drive costs out of our system and we've talked about.
$100 million.
This year from the.
Producing tons from Astra hazy versus Calonge, So that'll continue and it'll continue to go down slightly from here. The other one of course is Brian costs and Brian cost.
Think peaked at 200 and some million dollars a year there'll be they basically immaterial by the end of 2021. So we think that's another big.
Improvement and don't forget as well for Clinton comments.
By pretty much by the end of 2021 will start ramping down the cost capital cost investor hazy and that'll be another big move towards better cash conversion for the company.
We have our next question comes from the line of Mark Connelly from Stephens. Your line is open. Please go ahead.
Chuck I just wanted to ask if you could help us a little bit understand how much is left in terms of the per ton cost benefits from the integrated operating center versus what you've already accomplished and how soon that will be in place.
Okay Mark.
What I would say from our integrated operations Center.
Is.
You know, it's really the first phase of it and I wouldn't say that we've really seen you know in terms of our cost per ton yet.
Too much of what the.
What that impact is going to be but that is the basis.
The integrated operations Center, and I think there's a picture of it in the slides I mean, it's.
I got I got a chance to actually run one of the pit cars and it's pretty exciting how remote mining and whatnot is going to start changing things.
What I will say is that that is the basis of our cost targets that we're talking about but more importantly, I think we're gonna find new things every day as we as we start automating that are going to continue to drive costs out of our system.
Okay. So most of the benefits are probably still ahead of other stuff.
Oh, absolutely yeah right. Thank you.
And we have no questions at this time, Jeff you May continue.
Okay. So if that's.
Rob here I know you guys as analysts have had a very busy morning, but before I close I'd just like to invite you to join US on March 11th at 830, a M eastern for.
Our in depth presentation on optimizing our assets on our capital management.
But clint Freeland and I will be doing.
With that I want to wrap up today's call, but let me say mosaic is performing well, we're increasing our global competitiveness by driving our costs down and we're managing well through the challenges of COVID-19.
With the tailwind as we expect to see from improving fertilizer and agricultural markets. This year. We expect strong results to continue throughout 2021, so with that thank you for joining US please have a safe and healthy day.
Ladies and gentlemen that does conclude your conference for today. Thank you all for participating and you may now disconnect have a great day.
We are clear.
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Okay.
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