Q2 2021 Mosaic Co Earnings Call
Good morning, ladies and gentlemen on what comes at them SaaS Company second quarter 2021 earnings Conference call.
This time, all participants have been placed in a listen only mode.
After the company completes their prepared remarks, Doug.
All lines will be opened to take your questions.
Your host for today's call is Laura Gagnon, Vice President Investor Relations of them on say a company Who's got ma'am you may begin.
Thank you and welcome to our second quarter 2021earnings call.
Operating comments will be provided by Jack O'rourke, President and Chief Executive Officer, followed by a fireside chat as well as open Q&A.
Freeland Senior Vice President and Chief Financial Officer, Jenny Wang Vice President Global strategic marketing and other members of the leadership team will also be available to answer your questions. 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 X.
Spectation 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 in 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, our second 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 Josh.
Good morning, Thank you for joining our second quarter earnings discussion I Hope you've had a chance to review our force commentary on slides as well as our news release and performance data all made available on our website yesterday.
Today I will provide some additional context before we respond to your questions. We received was in.
Then we'll conclude with a live Q&A session.
Oh, that's delivered excellent financial performance in the second quarter on the second half of 2021 is set up to be 1 of the strongest periods in over a decade.
Our earnings are driven by 2 key factors first strong underlying agricultural markets, coupled with pipe fertilizer supply and demand dynamics are driving fertilizer prices higher.
And just as important are the results of our effort to optimize our business to fully realize the benefit of these market trends.
Our long term on ongoing work to reduce costs, we have created a significant earnings leverage.
This quarter's performance demonstrates.
Looking ahead, we expect further upside our third quarter order book is now 90% committed and priced as a result, we expect a sequential increase of 90 to $100 per ton and realized phosphate prices and 25 to $35 per ton and realized potash prices.
Beyond the third quarter, we were seeing buyer appetite for fourth quarter commitments as well all of this implies earnings in the third quarter and very strong results in the fourth and into 2022.
The dynamic skewing the agricultural markets point to a period of strength that we believe will extend well beyond 2021 grain.
Grain stocks remain limited and global corn and soybean demand is growing driven in part by surging Chinese demand from Biofuels as well.
Result, agricultural commodity prices remain high and the outlook is promising for continued strong farm income.
World's farmers have saw wasn't set up to maximize yields from every acre and that is what drives higher fertilizer demand.
Demand in the Americas is considerably stronger than we expected beginning of the year, Brazil is expected to once again set records for fertilizer shipments.
Across the Americas, we saw a big recovery on 2020 unexpected the demand growth to moderate this year. The office that has happened demand for potash and phosphate is up substantially this year compared with last year and nearly all of the fertilizer delivered this year has gone to the brand, which means channel inventories in most regions.
Below historic norms.
In North America demand continues to be strong following the completion of our CVT petition U S phosphate prices now traded at parity with global benchmarks and the domestic market is benefiting from elevated imports from a more diverse pool of suppliers. This is reflective of a healthy market this risk.
Bonding to the market signals.
In India farmer demand remains very strong, but in Puerto economics with negatively impacted available supply in the country because of the disconnect in government subsidies as a result, it is difficult for the Indian farmer to get the phosphate. They desire. It is clear that more work needs to be done to rectify the imbalance.
But we continue to see demand from other regions absorbing fertilizer supply.
Given how depleted Indian inventories are we see India as a source of pent up demand for the future South East Asian fertilizer demand is benefiting from the strength in palm oil and China isn't something as farmers to maximize yield.
Well the demand dynamics for potash and phosphates are similar driven by the strong underlying agricultural markets. The supply outlook is slightly different for the 2 products in phosphate new supply is limited and any new greenfield supply editions or several years from completion.
Recently, Russia requested producers prioritize domestic demand.
To stabilize in country pricing.
And while supply from Chinese phosphate exports during the second quarter was elevated to meet global demand Chinese exports are expected to decline in the second half of the year as any country seasonal demand increases.
This expectation was reinforced by news last week, the China's National Development and Reform Commission has begun requesting the export of fertilizer stopped to ensure adequate domestic supply.
Potash demand growth continues to exceed new supply from higher operating rates recently announced by producers as a result prices continue to rise.
Price increases have largely offset the financial impact from our early closure of cable on MK 2 shafts with Yesterdays. We recently resumed production co on site and now expect our net production loss to be approximately 700000 tons per year down from our original 1 million ton estimate.
This also brings the sales impact down to approximately 500000 tons as we draw down available inventories.
Our earnings are leading to significant free cash flow generation, which has allowed us to proceed with the early retirement of our $450 million in long term debt later this month.
We are currently evaluating additional options for capital deployment capital expenditures are expected to total $1.2 billion in 2021.
This includes accelerated cage free spending to speed up our ability to bring <unk> to full production as well as approximately $75 million in additional high returning opportunities within our businesses.
Given the strong cash generation, we continue to evaluate opportunities, but also allow us to further strengthen our balance sheet grow the business.
And share with our investors.
Overall mosaic continues to execute and perform very well in this robust fertilizer market.
And we expect to continue building momentum from here with that we will move on to your questions.
Doug a number of analysts, including Adam Samuelson from Goldman Sachs, Ben Isaacson from Scotia, and Rick and per child from eczema BNP are asking about fertilizer affordability specifically.
Globally are you seeing any demand destruction due to affordability.
Are there any regions or areas you're watching.
Thank you folks.
The way we look at this as actually it is the grain prices and higher grain demand that's driving the fertilizer. So from our perspective its demand for grains and oilseeds on the price. So that's creating this driving fertilizer to them, which is of course driving fertilizer.
Reising, so we see the supply and demand balance the other way around if you will know we may see at some point the impact of higher prices today tight grain and oil seed markets.
Going to be tight for a while they're not going to loosen in just 1 growing season. So this should last a while with global prices up it seems that.
Most growers have become comfortable with the prices, we're seeing for fertilizer.
1 area of concern of them. We've talked about this is India and this is not on affordability issue for the farmer, but an affordability issue for the importer because of the Indian subsidiary system, but sooner or later la India on inventories will mean that they have to buy fertilizer.
A handful of analysts, including Andrew Wong from RBC, John Roberts from UBS, Steve Byrne from Bank of America have asked about mosaic <unk> realized price progression.
It appears that price realization has lagged in potash when comparing spot pricing trends to the third quarter guidance, but spot prices and guidance appear to be fairly in line in phosphates.
Can you discuss the underlying dynamics and what that means for price realization into quarter 4.
The lag between the potash prices, we're seeing at the mine gate today.
The actual international prices are driven by a couple of things first of all when we look at international shipments through Canpotex.
1 we had delays due to port issues.
2 we're now seeing delays due to wildfires and rail impacts as we go through the.
British Columbia interior. So this is starting to push shipments box. So there is a higher than normal lag period. The work experience plus you have to consider that these prices are the Asian prices.
Our lagging as well from the Brazilian on North American prices, if we turned on North America, a lot of the tons that we're delivering now and we'll deliver through quarter 3 our tons that were sold in early may for August shipments to meet summer fill demand.
And of course, those were delayed further due to the K 1 day to closure, which makes a lot of the main volume won't be priced or shift until October and so the pricing lag is higher than it would normally be but I will emphasize that we are in our distribution business share.
And so on.
On the 600, plus dollar price that we're talking about.
Being the spot market.
Jack Steve Byrne, Rick Patel, and Adrian Tomorrow, No from Aaron Berg are asking questions about the impact of increasing ammonia volumes delivered under the CF contract.
What do those increases mean for spot purchases and are there any volume related discounts provided or premiums required under the contract.
Thank you.
Shortly our ammonia tons have been split roughly evenly between produced spot and C. L.
The increased CFS supply in the second half with meetings for the full year.
And the range of 75% of our total ammonia needs will be based on our natural gas price and be below todays market.
This reinforces our competitive advantage in ammonia and the effectiveness of our hedging program to make sure that we have a number of supplies.
For us against times like this.
In another raw material related question, John Roberts, and Ben Isaacson on asking you about the potential for future sulfur supply disruptions through 2021 and into 'twenty 'twenty 2 what.
Risks do we see and how are we managing them.
Thank you.
Today, our position on sulfur is much better than it was a quarter ago.
At this stage you can see by the sulfur price, which just settled at about $195 per ton versus 192 on the second quarter.
Refinery rates and the demand balance for sulfur is is really.
Sure.
Equalized.
It's a little too early to forecast quarter, 4 but what I can tell you is.
Gulf refinery operating rates how.
Stabilize and go on to normal rates.
We have really done a lot of work too.
Do you have a good inventory of sulfur in our system, which we did not have coming on our quarter, 1 and if you remember the issue we ran into in quarter..1 was low operating rates in the refineries some turnarounds on the refineries in them.
Freezing weather that has shut down a lot of the.
The Gulf.
Refinery so the combination of the 3 men on.
Normally tight situation was exacerbated to quite a bit so at this stage, we see the risk is significantly lower.
Jack we had a number of the analysts acknowledge accelerating cash flows these analysts, including Seth Goldstein at Morningstar.
Stevens and Jeff Zekauskas from J P. Morgan.
Asking what we will do with it how we will allocate it aside from debt reduction and small growth capital and looking for specific insight into how we are thinking about share repurchases and dividend increases.
Thank you gentlemen.
Let me reiterate on.
Our strategy is and always has been but we will balance our capital allocation between debt repayment and working on our balance sheet.
Projects that offer a great return to us through growth and then returning money to shareholders in terms of the specifics, let me hand, it over to Clinton because I think he can give you a little more color on that.
Yeah. Thanks, Josh.
I think as we go further into the year.
I guess, 1.1 thing to note is that.
As we generate free cash flow on cash build on the balance sheet, we're not going to let it just sit idle I think with all that we've got options and whether that is additional debt reduction through some of the maturities that are coming due we've got existing share repurchase authorizations, we can always take a fresh look at the dividend.
We also have a <unk>.
Program in place to review.
Some of them some of them some really high returning internal projects like our opportunity capex relatively small dollars, but very high returning projects that will continue to to look to invest in but I think again I think as we look forward I think we have a number of options are and again I don't see us Jenny.
Generation cash and letting it sit idle on the balance sheet and I would expect as we get further into the second half of the year that will provide more clarity on on what that allocation program is going to look like.
Andrew 1 and Adrian button now are interested in more detail on our opportunity capital spending.
Clint can you elaborate on the new $75 million gross spending allocation.
With phosphate capacity expansion ever be on the agenda and what can we expect to be allocated to the new soil health initiatives.
Thanks Lawrence.
I think when we look at our.
Opportunity Capex investments for this year.
And overall I would say that's about 1 third.
In North America about 2 thirds in Brazil, I think there's a more of a focus in Brazil, but I would say that those investments are generally being made in a number of different areas, but I would include the following.
A number of these investments are around automation and we've spoken about some of the nextgen investments.
That we're making in our production assets and and that is ongoing debt as part of this program.
Another example is down in Brazil, where we're looking to increase gypsum sales.
We needed to make some investments in infrastructure to be able to accommodate that.
In potash, we're looking to increase some of the aspire.
Aspire capacity, but again as we look at these investments, they're all relatively modest investments typically single digit million dollar investments.
But with very very significant returns.
On some in the triple digit type of of return.
On an after tax basis.
From a phosphate capacity expansion standpoint.
I would say that.
Really the things that we've focused on and talked about is along the lines of potentially increasing micro essential capacity in the future you know demand for that product continues to increase and to the extent that we need to expand capacity there I could see that beyond that I think are our a rock in concentrate.
Capacities are in fairly good balance at this point otherwise when.
When we look at the new soil health initiatives again, those are relatively modest investments. Those are typically are expensed, because we treat that really more along the lines of R&D and so I would say.
Overall, those are relatively immaterial investments not additive to Capex and again I think that's just supplementing our R&D into new products for the future.
John We've also had a number of questions related to our potash assets, including question is from Adam Samuelson Goldman and P. J just the current city. So this is really a 3 part question.
1 what was the driver behind changing your volume impacted guidance and how does this change total production expectations for 2022.
Second.
What are the arrow costs associated with the closure of K, 1 on K, 2 and lastly.
What does the cost structure look like in 2022.
Thank you Laura.
Our volume production guidance was adjusted basically because of 2 things first of all the acceleration of our shop to cage free and being able to move into production areas sooner in that case free area, which will increase the contribution from <unk>.
Buying in in the fourth quarter. We also were able to optimize some of our turnarounds at the mills because they are being fully utilized and then the second part.
As a successful restart of Colombia, which really has come up very well and we've been very pleased with the.
<unk>, which we've been able to get it into production matter of fact it.
Commission the mills just the other day, so we're fully ready to run their co on site and between the 2 of them, we've been able to accelerate our ability to produce tons at those 2 operations, which has mitigated some of the loss that we had from the early closure of tier 1 day too.
As far as closure cost per kilowatt on K 2 in the second quarter, there were $158 million most of which was non cash write offs of $110 million was fixed asset write downs $37 million was arrow adjustments.
7 million MRO write offs $4 million was contractor severance.
In terms of the Aero itself.
The $37 million brings a total up to about $120 million per arrow up which 70 debt.
$100 million, let's say it will be in the closure of those 2 main shops.
About 40% or so will be spent this year on the rest will be spent next year final closure of that.
For the third part of the question our cost structures.
If we do the sum of the parts our K 3 mine at $6 million on operating capacity will be 1 of the lowest cost in the world. When you said that you know.
In the $50 range already.
I'll play is also very low cost.
We're very well positioned on the cost curve and that's 3 million tons of our operating capacity co.
<unk> costs are still expected to be on the $100 per ton range as per our previous guidance.
We're looking at ways to reduce that amount. So you can.
Kind of work it out from us that 98% to 90% of our costs will be at that very first quartile and then will make up the difference with slightly higher costs from Colons day at $100 a ton, assuming we actually need those tons to meet the market and market requirements lumpy.
Let me emphasize that at these prices.
Kalonzo tons are still very profitable and we would expect that to have a very good margin in today's environment.
Thank you Jack.
Operator at this point, we'd like to open it up for follow up questions from the phones.
On the reminder.
So we need to play from Star 1 on your telephone.
So we do all your questions.
We will limit participants to 1 question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.
Yes, Thanks, Doug good morning, everyone.
Okay.
Was hoping to maybe.
Asking about the hurdles on taste business a little bit.
You called out in the script and.
And the.
Prepared remarks.
An increase in inflation there.
You seem like you're moving from a both phosphate conversion costs and rock mining cost.
Away from your 2023 cost targets.
And I'm, just trying to get a sense of kind of what the plan is to maybe bend the curve on inflation and get back down to those cost targets over the next day 18 months or so.
Thanks, Adam.
Look.
Yes, and if you go back to our.
Multi part analyst presentations.
You'll remember we did say that we would correct the expectations of these.
Cost things based on inflation on overtime. Our expectation is if there is higher from inflation in Brazil, but that will be offset by a weakening.
Brazilian reais so.
Just wanted to highlight that we had accounted or we were not expecting to account for inflation and this was.
Offsetting inflation. So you have to adjust those cost numbers based on that but overall, we continue to drive very hard I think you'll see on our results.
Results that we continue to drive very hard for those transformational benefits us as we call them and a big chunk of that is reducing our cost of mining and in that you know I just want to highlight that this quarter was exacerbated by lower rates caused by some downtime.
And that does it increase your costs because of the fixed cost absorption.
Our next question comes from the line of Mark Connelly with Stephens. Your line is open.
Doug There has a longstanding perception among investors that mosaic has more operational hiccups and other producers.
You, obviously can't control the supply of sulfur and stuff like that but when you look at all the operating metrics internally and the changes you've made to process has your Florida system become materially more reliable and I'm sort of curious how you would answer the question on phosphate and potash too.
Yeah, Thanks, Mark well I would say definitely yes, we've spent a lot of time on a lot of the area where our.
Cost improvements have come have come from better operational reliability.
Maintenance control.
Better.
Outcomes of turnarounds you know there is a high level of unpredictability on any large system.
And frankly, our system runs very close to its capacity. So you know in the case of the sulfur it with a very good spring ahead of us a little sulfur hiccup impacted our our tonnage, but I think if you look at it over time, you'll see that.
You know really we Howe run very close to our capacity and I've made big improvements in that area.
Likewise in potash I mean, if you look back where we were running you know the the 3 potash mines continuously.
Had a lot of flexibility, which we don't have anymore. So we do need those plants to run consistently all the time.
For the most part.
We believe they do now and I think those have been big improvements to how we can keep our costs on a much lower level.
Your next question comes from the line of P. J <unk> from Citi. Your line is open.
Yes, hi, good morning, Mike.
Question on phosphate you know as phosphate prices moved up.
China, maybe opportunistically raise exports and.
And we've seen that in other 40 licenses was in ammonia Chinese exports of.
Urea is Chinese <unk>.
Exports went up.
What is your confidence level that Chinese exports will decline in second half, which is what you said in your remarks.
Yeah. Thanks P J.
Ill talk a little bit about this but I'm going to hand, it to journey because I think.
She has got a pretty good idea on the world supply and demand and on some of the forces here, but let me say.
The Chinese do need to get their domestic phosphate.
They're farmers for the growing season in the next quarter on as such internal demand is going to be high but.
You know 1 or 2 things basically has to happen either the price has to go up internally in China or they won't put restrictions on exports either way our expectation is from a supply and demand perspective.
That demand is there internally in the country on these exports should slow down Jenny do you want to talk a little bit about particularly some of their government interactions.
Yeah.
Sure John.
P J, you're right we have seen.
Chinese exports off of phosphate.
Probably you as well have increased in the first half of the year driven by their strong international.
International market on that day.
Amanda was so small and.
It's a pure economic children.
As a result of it but the Chinese government has been a growing concerns over to.
On the liquidity.
For the domestic market as well.
The raising prices for the domestic market as well so as a result of this concern.
On the RFP, they called the Super easy.
This free in China.
Development net.
The National development and the reform coming he has required the major producers.
On nitrogen and phosphate to meet basically Doug.
Guidance from Andy our speech, where the major producers work you guys need to stop export.
And you need high powered high power supply to the domestic market and also supervise the pipe we know why they do it they need from maximize the act protection in China. So that's been a parakeet. So at this moment and Dr seafood class or a kind of a soft on a regulation.
The total costs are mainly to the state owned enterprises.
Oh this is Doug.
Major.
Producers are going to comply and the pharma on the guidance from N D. R. C on the Gulf, which is closely watching it and they're looking at to whether the domestic supply is being improved and if the prices have been stabilized.
If the situation is not believed to be improved over the next period of time.
We may see a very hard on measurement to be taken on and DRC.
The reason that we have got the confidence 1 is coming from the other industry. If you pay attention to the steel industry.
Which are the Chinese government.
Exports are attacks.
And then that was not strong enough at the time and the yesterday, they hiked export taxes on again.
So that's 1 of the measurements that NTIC has taken to the steel exports what are they going to do the same to phosphate, possibly to urea will really depending on how much export is is coming on over the next 2 months, we will see significant flow down well coming from September.
Q4, because on the export in July on <unk>.
Company has been committed earlier before this request was sent by NTIC.
Over to you on.
Thanks Jenny.
Yeah.
Our next question is from John Roberts from UBS. Your line is open.
Thank you could you talk a little bit about the Belarus, potash sanctions and maybe compare and contrast that with the earlier U S sanctions on phosphates.
Yeah. Thanks, Thanks, John.
Interestingly enough I guess the.
Belarus sanctions.
I'm going to call them relatively toothless.
Very much bite 2 of them in the basis that they did.
It didn't include what were the most of the main grades of potash I think the only effect with about 20% of the industrial potash the Belarus might've sold so.
Other than other.
Other than I.
Other than a slap on the risk really wasn't much.
Of a restriction to the Russians.
With security concerns in the mix I'm not surprised by that compare that to the C. V D, which was I mean, the countervailing duty case was all about unfair subsidies.
And you know really taking advantage of those on their subsidies to.
Impact from market in particular with arm.
The U S producers. So I think you know very very different sort of situations and drivers.
But what I would say about the C V D and I think as I've said. This on my opening remarks is now with the C. V. D. What we're seeing is we're seeing on a number of new countries and companies importing into the U S and we're seeing the market run essentially parity to other other may.
Your markets, which I think is what we expect in the case of the Russian I mean, it was simply a political.
Statement to.
Hopefully put a pressure on lukashenko to do something about some of their.
Well some of their human rights issues.
Our next question is from Brian.
From Bank of America. Your line is open.
Hi, Good morning, this is actually Luke washer on for Steve.
I wanted to ask you about your Chinese or your thoughts on Chinese port inventories of potash, where do they stand today from what you can tell relative to history and when do you think China could start looking to renegotiate at a potash contract.
Yeah. Thank you Luke.
Again, I'm going to have a little of this over to Jenny, but I can I can tell you right now that you know the.
The potash inventories at port and probably up country as well are starting to get fairly depleted and I think you are starting to be at a place where they'll have 2.
Dip into their national reserve, if they're going to continue to supply the M. P K producers and the internal market.
So from my perspective, this is getting pretty tight for China, and I expect that they will not from producers because I don't think the producers are in a position on needing to ship.
Chip those tons, but.
But I think China will have to start looking at negotiating their next round of purchases sooner rather than later Jenny any comments on.
Port inventories.
Sure.
Specific to inventory as of today, we see it below $2.3 million tonnes. This is 35% north on the same time on flat. So if you recall Doug.
No reserve itself is 1.5 million. So the available accounts really is really minimal. So just that that's just to support Chuck's earlier comment.
There's strong demand.
Lastly, in China strong spring, that's pulled down the inventory and also we believe imports in the second half will be largely snow worked on so we foresee the on the buy.
They can put his will have to come to the table full on.
Negotiation on for new contract from sooner than many would have expected.
Just like to highlight that the Chinese contract is probably a $100 lower than the Asian price so that really.
Makes it difficult for them to receive the product they need at these prices at those prices.
Our next question is from Israel on tobacco with Brendan Your line is open.
Hello, Good morning, Thanks for taking my question.
Question on Brazil.
So you mentioned low channel inventories across the globe.
I would like to ask you a bit more.
That's also the case in Brazil.
And your expectation for Q3 volume.
Thank you.
Yeah. Thank you Adrian.
Well our belief is that yes in fact the.
The volumes are.
Relatively low inventories in Brazil, obviously.
With the prices what would show up on our books will be slightly higher than normal.
Normal because of the price of the product.
But yes, the prices or the inventory is lower than usual. Although it is of course built up for expectations of a strong third quarter, where we do deliver most of our our product. So our expectation for the third quarter will be a very strong in.
In Brazil, what we expect to see there is with the drought conditions planting maybe a little later, so Mike pushed the purchases back slightly but there will be.
Higher prices and pretty strong demand for fertilizer in this third quarter and probably heading into fourth quarter.
Our next question is from Michael <unk>.
We've done research your line is open.
Yeah, Hi, good morning, Yeah, just wanted to follow up a little bit more on <unk>.
Brazil, and specifically you know looking at kind of the distribution business and just trying to understand you mentioned that some of those sales took place at $600 potash. When we think about kind of the timing of when your distribution business typically purchases inputs is there the potential for the margins to maybe be a little bit higher than norm.
On the distribution side and then also just wanted to understand on the production side, how much of a freight advantage you might have with some of your end market segment.
Thanks.
Yeah. Thanks, Michael.
Great couple of questions.
The way we report.
Earnings in our distribution business of course is we're purchasing from Canpotex and selling those in the market. So what you can expect there is us to have a.
On ongoing position, if you will and so in cases of a rising market like we see today. There is no question, we will have a positioning gain and our product management team is very efficient at making sure that we understand on the market. So that we take the positions.
And can realize as much greater margin as possible and certainly in this environment.
We're able to execute on that and take advantage of that.
That distribution margin.
Second part of your question I mean comes to unimportant piece of our whole investment thesis and Bruce at all which is to compete in Brazil being in country and having that transportation advantage.
It is a great thing both from a cost perspective, and so if you look at our in country production. It's it's very competitive on a cost basis.
But it is also competitive.
Overall as competitive on a logistics basis, because we can really.
We can really take advantage of moving people moving product more effectively than than if we didn't have the assets we have.
Again, if you would like to ask a question you will need to press star 1 on your telephone.
Our next question is from Joel Jackson from BMO capital markets. Your line is open.
Hey, good morning, Josh.
Good morning Joel.
Chuck.
Talk about liquidity and potash market I appreciate your commentary earlier on the issues in Western Canada around the wildfires port and rail ports and rail.
So on your competitors in potash had been saying that the benchmarks were seeing with poor every week, just really aren't real you know not getting 6 hundreds in Brazil, not even getting 500 on it.
And then from the Southeast Asian prices have been an interesting last couple of weeks, maybe it's based on 1 deal or 2 deals you tell me in Taiwan or Vietnam. So I wanted to know like what is the quiddity like right now on the potash market from what you're selling.
Versus normal times like are these benchmarks as liquid as usual.
Oh, you know.
Joel Thanks for the question.
Let me start by saying first of all you know.
Liquidity question is very seasonal you know, we're not selling a lot in North America right now we're sort of between week.
We had a crude that was at the southwest conference reasonable recently and most of our North American customers are probably 70% to 75%.
Supplied for the fall season, so in that sense, there's not a whole lot of activity except for deliver.
Delivering on.
Previous.
Previous contracts, if you think about the.
Some of the other areas there is liquidity in.
There is liquidity in Indonesia, Malaysia, and some of the Asian countries that would be sort of more normal and then if you look at Brazil again, we're sort of between season's a little bit and that's been a bit slow. So I would say it hasn't been a particularly liquid market at this stage, but that is not atypical for the.
This time of year.
On the last question comes from the line of <unk> Patel from Exane BNP. Your line is open.
Alright jokes like Vince.
Well.
Just 1 last 1 on a full cash demands you have shipman.
Shipment forecast.
69 to 71.4 million tons for 2021.
But just curious into 2022 could you size what you.
Think demands could look like.
You guys flagged obviously, the lack of available supply.
As a sort of constraining demand to an extent at the moment.
When do you get sort of release potentially next year.
Well 2 things.
Demand could look like in 2020, thank you.
Yeah. Thanks Richard.
Yeah, I think that's actually quite relevant I think supply has been a limiter to.
Demand growth if you will in this year, we had some 6 million tons of growth last year, and we really expected it to moderate quite a bit this year. So with this year growing as it has I think the biggest limitation has just been getting supply as we go into 'twenty.
'twenty 2.
You know, it's always hard to look into the future, but I would think we would be returning to more normal growth rates.
1 of the things to talk about this year, though is I don't think we've built up a bought a bunch of channel inventories. So I think channel inventories stays low 'twenty 'twenty 2 will be.
Normal demand growth called millions of millions on a half on sort of you know in that 2% plus range.
And then.
You know what the question will be will be the will there be channel inventory build in which case.
Which ultimately has to happen from this market to be a lot more fluid as per Joel as per previous question, but so if the talent inventory build we could see a higher <unk>.
<unk> growth in 2022, so it's going to depend obviously on the.
AG markets, but we're looking pretty positive for 2022 opportunity for growth Jenny anything to add to that.
No I think you you you get this covered on we believe with the App on a commodity.
Commodity prices, not only corn and soybean, but also the palm oil prices still flow Malaysia, Indonesia.
And our other crops are we we believe 50 matched on potash next year will continue to grow strongly with supply likely going to be on.
Limitation sector.
Yeah.
There are no further questions at this time now I'll turn the call back over to Jeff for closing remarks.
Well I would like to thank everyone for joining us on this call I will say it has been a strong quarter for us and as we look forward, we still see.
Strength going forward. So we continue to drive for improvements in our operating performance the markets continue to be positive for that and with that we believe we are well positioned for.
<unk> continued performance as we go forward. So thank you for joining our call. Please have a safe day go get vaccinated.
Take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
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