Q1 2022 Mosaic Co Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the MSA at companies first quarter 2022 earnings conference call. At this time, all participants have been placed in a listen only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Your host for today's call.
It's Paul Massoud, Vice President of Investor Relations and financial planning and analysis of the Mosaic company. Mr. Min Xu you may begin.
Thank you welcome to our first quarter 2022 earnings call.
Opening comments will be provided by Chonko Rourke, 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 Senior Vice President Global strategic marketing will also be available to answer your questions. We will be making forward looking statements. During this conference call the statements.
<unk>, 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 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 press release and performance data also contain important information on these non-GAAP measures now I would like to turn the call over to Chuck.
Good morning, Thank you for joining our first quarter 2022 earnings discussion I hope you've had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday I will provide some additional context before we respond to questions. We received last night and then.
We will conclude with a live Q&A session.
Mosaic delivered first quarter net income of $1 2 billion and earnings per share of $3 19.
Adjusted EPS was $2 41, and adjusted EBITDA was 145 billion. Our results continue to highlight the positive evolution of our business, which reflects the contribution from Brazil. The additional production from the restart of colon site and the transition to Q3, one of the largest and most efficient.
Potash mines in the world.
<unk> segment, adjusted EBITDA totaled $632 million, reflecting the impact of strong pricing, which more than offset higher input cost potash also benefited from higher prices as well as the transition to <unk> three and the elimination of brine inflow management costs as a result Sigma.
Adjusted EBITDA totaled $651 million in Brazil, Mosaiq furloughs on today's generated first quarter adjusted EBITDA of $233 million as the team capitalized on the strong market environment and its inventory position, particularly towards the end of the quarter as seasonal demand began.
To pick up.
Looking forward, we continue to see agricultural market strength, extending well beyond 2022, the year began with a tight agricultural market and elevated prices, reflecting a 20 year low in global grain and oilseed stock to use ratios.
The conflict between Russia, and Ukraine has exacerbated the situation and pushed soft commodity prices, even higher together. These two countries account for 16% of global grain and oilseed export market with Ukraine's planting season now at risk in the coming year and Russian crop export potentially also being <unk>.
Constrained the market is grappling with the potential of reduced supply of a number of key crops, which includes wheat and corn, but also oilseeds like soybeans sunflowers and their respective oil.
This situation has amplified food security concerns and is resulting in protectionist government policies that will likely drive commodity prices, even higher as an example last week, Indonesia placed a temporary ban on exports of palm oil one of the most commonly used cooking oils in the world to ensure.
Domestic supply all of this suggests elevated crop prices are likely to persist for the remainder of 2022 and beyond.
The strength in crop prices combined with global fertilizer industry supply constraints have pushed nutrient prices higher.
In potash sanctions against Belarus, and uncertainty over Russian exports are having an impact on supply global prices have pushed higher as buyers look to secure adequate volumes for.
The global phosphate market has also priced and uncertainty around Russian supply of both finished products and inputs like ammonia and sulfur, though we are seeing some movement of Russian phosphates today.
In addition, China's export restrictions remain in place.
While we expect an easing of China's restrictions, we believe phosphate exports will drift lower over time as secular demand trends continue to grow, especially on the industrial side from chemicals and electric vehicles lithium iron phosphate batteries on.
On the demand side, we expect global shipments of potash and phosphates to be down from 2021, but the cause of this is availability not affordability consumption will be forced to adjust to available supply.
In North America, whether is indicating the possibility of a compressed application season, but growers remain incentivized to maximize yield today's crop prices more than offset input cost, which suggests that farmer profitability in 2022, we'll be at the second highest level in more than a decade.
Similarly grower economics have also improved in Brazil, thanks to rising soybean prices in India farmer demand for nutrients remains very strong. Thanks to another good monsoon season, and strong global grain prices, but availability is still lagging in response to stronger grower demand and historical.
Low domestic inventories last week the government increased fertilizer subsidies, we see this as a positive development that should help to meet some though likely not all of India significant pent up demand.
As we look at our business in the context of today's global markets, we remain very optimistic.
In potash <unk> ramp up to the initially targeted five 5 million tonnes per year is now complete.
Logistical constraints and winter weather impacted first quarter shipments and production, but these issues appear to be largely behind us. In addition, clumsy which was down in March as rail constraints forced temporary curtailment is now back online and operating at an expanded run rate of $1 3 million tonnes.
Over our initial target of 1 million tons in the second quarter, we expect sales volumes of two four to $2 6 million tonnes.
Realized prices in the second quarter are expected to be 40 to $60 per ton higher than realized prices in the first quarter.
In phosphates, we expect a recovery in volumes in 2020 to raw material costs have escalated, but we are well supply to meet our production targets in ammonia. We continued to benefit from a significant cost advantage. Thanks to our internal production at Faustina and our supply agreement with CF industries in the first quarter.
<unk>, 80% of our ammonia needs were met by tons linked directly to Henry hub.
And shielded from the price swings in the global ammonia market as a result, our first quarter ammonia costs were roughly half of the benchmark prices in the second quarter, we expect phosphate sales volumes of one 9% to $2 1 million tonnes are expected sales volumes reflect an improvement in logistics delays somewhat offer.
Set by inventories well below historic levels second quarter phosphate prices on an fob basis are expected to be 140 to $160 per ton higher than first quarter prices.
Price increases in the quarter are expected to significantly outpace the impact of higher raw material prices on our cost structure.
For mosaic <unk>, we expect the business to continue reflecting the favorable market backdrop, and our transformational efforts over the last two years seasonal demand began picking up.
In the first quarter and should continue through the software season, we expect to benefit as potash inventories, which were built during the fourth quarter begin shipping to customers.
We are seeing inflation affect our cost structure, but believe ongoing optimization should offset much of the impact.
Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022, returning capital to shareholders remains a key part of our strategy. We continue to expect returning up to 75% of our free cash flow to shareholders through a combination of share repurchases and dividends.
Sure.
Including the $463 million returned in the first quarter of 2022.
We completed the $400 million.
Accelerated share repurchase program announced last quarter and continue to repurchase shares through our existing authorization as a reminder, last quarter. Our board also approved a new $1 billion authorization.
In the area of balance sheet strength, we remain committed to reducing long term debt by $1 billion part of that target was met with the retirement of $450 million last year, and we expect to reach the finish line later this year when another $550 million of long term debt reaches maturity.
Given our outlook for the year, we expect will also be able to continue investing wisely and efficiently in our business. We seek out high returning modest investments in areas like enlarging our footprint in Brazil expansion of micro essentials and investments in soil health in biologics.
With recent disruptions to global fertilizer supply situation, we believe could extend for some time. We are also actively exploring debottlenecking opportunities to increase our fertilizer production as quickly as possible and potash we've already raised kalonzo as annual run rate to $1 3 million tons up from our inner.
Shall restart target of 1 million tons, and we see a path to reach one eight to 2 million tons in the second half of 2023 through the restart of Colons a second mill.
At Esther Hazy, we are exploring the debottlenecking of the mills.
Which could add several hundred thousand tons by the second half of next year in total these initiatives could add roughly $1 5 million tonnes of potash production by the end of 2023 the cost for all these projects is expected to be less than $100 million.
In North America in phosphates, we expect production to be roughly 1 million tons higher than the 2021 production total of $7 3 million tons as.
As headwinds experienced last year are addressed in our assets run at more normal rates.
In Brazil, we are pushing for improved recovery from our phosphate mines and we're exploring the expansion of our Macquarie mine that increases production and extends its life.
In total when one considers our footprint in North America, our production in Brazil, and our allocation of modern <unk> finished product by the end of 2023, we have the potential to see operating rates close to 25 million tons of total finished product well above our 2021 production total of 19.
7 million tonnes.
We take our mission of helping the world grow the food it needs very seriously. We believe the geopolitical issues that have impacted global supply during the first quarter will not be reversed anytime soon as a result, we're pulling every lever we have to efficiently raise our production rates to help offset the supply shock.
<unk> from other sources in ways that also creates value for shareholders.
With that let's move on to the Q&A portion of the call.
Thanks, Chuck before we open lines for the live Q&A, we're going to address some of the most common questions. We received last night after our materials were released.
Our first question is on the issue of the potash market and the geopolitical issues that are impacting supply what is mosaic assuming for global supply and where replacement tons might be coming from.
Thank you.
Together, Belarus, and Russia represent close to 40% of the global potash market.
<unk> absence is nearly impossible to replace in today's prices reflect that.
Belarus remains sanctioned and our previous assumption of those tons coming back mid year appears optimistic as most or all of their exports will be curtailed due to logistics.
Russia is another factor following the invasion of Ukraine, while some tons are making it to market. The swift system expulsion makes shipment and transactions difficult.
We expect that some buyers, especially in Asia, and South America, we will try to work around the hurdles, but they can't all be overcome.
Remaining producers will struggle to make up those tons in the near term. That's why we're pushing ahead with our Debottlenecking plans and expect others to do the same.
We are expecting a tight potash market to extend well beyond 2022.
A follow up question on this issue how much can mosaic raise volumes to help fill the gap.
Specifically, what is mosaic doing to add the incremental $1 5 million tonnes. Thanks, Paul we are actively increasing productive capacity in our potash business, we're already running assets at a $10 8 million ton run rate with the ramp up of <unk>.
And running <unk> at $1 3 million tonnes per annum.
As we move forward, we have project teams actively working.
On two additional miners for Esther hazy.
The debottlenecking of the extra hazy mills and the restart of the second Kalonzo mill.
Chuck some have asked about the potash price guidance for the second quarter can you elaborate on what is reflected in those figures.
Our price guidance of 40 to $60 per ton increase over Q1 does include some conservatism first we're seeing today's market prices, but our realization timing will depend on our railways ability to return to normal rates, we believe the sooner rail returns to nor.
Emel the sooner our price realization will reflect a shorter lag to market pricing.
Let's shift focus to nutrient affordability, our growers beginning to hesitate given the level of fertilizer prices. Thank you Paul if theres anything thats inhibiting grower demand its availability of nutrients not affordability.
With near term corn at $8 20, a bushel near term soybeans at 16, plus a bushel.
Palm oil at 7000 to 8000 ringgit per ton global growers are seeing solid profitability levels in North America buyer behavior is focused on near term applications, whether has forced a compressed planting season, but today's crop prices suggest growers will continue seeking maximum yields.
In Brazil grow our appetite for fertilizers is quite strong, especially with recent crop price moves and a slightly weakening Brazilian reais.
In India, a good monsoon as predicted and the government has just raised importer subsidies last week.
If there is a threat to consumption, it's the lack of supply across both P and K, but global demand is there if the tons are available.
Clint This last question is for you can.
Can you discuss our capital allocation priorities for 2022.
Sure. Thanks, Paul.
So as we think about 2022, I don't think our capital allocation priorities.
It changed I think we continue to look for ways to strengthen our business through prudently investing.
As well as strengthening our balance sheet as we've spoken about in the past.
And I think as we look towards the balance of the year and our expectations around earnings and cash flow.
I think theres, an opportunity to return a significant amount of cash to shareholders as we've spoken about in.
In the past.
Yes, I think as we look at our capital investment program.
We're finding opportunities to improve reliability to find opportunities for debottlenecking to again be able to produce at elevated levels given the market environment that we're in today.
I also think we have an opportunity to hit our debt target later this year with the maturity of another $550 million in that that would get us to the $1 billion debt reduction target and again as we look at the balance of the year and our expectations for.
For the amount of free cash flow that we should generate we should also be able to return a significant amount of cash to shareholders in line with what we've spoken about earlier.
Well, thank you, everyone and with that I want to open it up to live Q&A.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. Please limit your question to one question only.
And your first question comes from the line of Steve Byrne from Bank of America. Your line is open. Please go ahead.
Yes. Thank you.
Curious to hear your view on.
Any potential shifts in the global phosphate industry.
With respect to the production of staff versus map versus TSP.
And maybe that's really more applicable to some of your competitors that don't have your.
For ammonia cost advantage could this lead to.
More and more applications of TSP does that does that satisfy grower needs.
Could this lead to maybe a premium price for that that could be to your advantage.
Yes, Thank you Steve good morning.
Absolutely, we expect that with the ammonia shortage globally.
There will be a shift in some situations to TSP up we understand that our Moroccan competitor is already shifting some of their production towards TSP again, the idea there being that we do.
They maximize the amount of phosphate fertilizer that gets to market.
With this exact issue of.
A decrease in ammonia supply.
This doesn't really impact us of course because of our.
Very solid supply of ammonia.
What I would also say I guess your second part of your question was is this being a premium for DAP I wouldn't really expect a premium but it probably will mean that it will be the first to sell right now at this stage any fertilizer is probably pretty easy to sell so I suspect there will be yes.
It's a pretty good price for TSP right now as we've seen in the market.
Thank you and your next question comes from the line of Chris Parkinson from Mizuho Securities. Your line is open. Please go ahead.
Great. Thank you just given all the debate pertaining to the longevity of the potash shortfall what are your team's latest thoughts in terms of the potential shortfall from Russian producers Youre accounting Euro can just.
Just given obviously your assumptions for domestic demand rail capacity in China as well as Baltic ports, and then also probably more importantly, Belarus Cali. So just how has your team basically balancing those shortfalls not only for 2022, but what are your expectations.
A reasonable range for 'twenty, three and 'twenty four.
Thank you very much.
Yes, Thanks, Chris.
I think in my prepared remarks, I mentioned that are.
Rich sorry, our original expectation was that the belarussian sanctions might come off towards the middle of the year in past.
Yes.
As we look at it now we don't see how that will be resolved, especially now with Belarus.
Working with the Russians in terms of the invasion of Ukraine, and that being a starting point for their some of their invasions. So as we look forward.
We see a fairly large gap. This year I think we've talked about 8 million tons of exports being loss from Belarus, and around 2 million tons from Russia.
We think the Russians will find ways to get things.
By probably next year and so in 2023, we still expect Belorussian sanctions, but we think at least the Russians will find more ways to get their product to market.
So maybe it'll be a two year.
Problem and then even then it probably will take two to four years after that for the.
Deficit to catch up.
Thank you and your next question comes from the line of Jeff Zekauskas from Jpmorgan. Your line is open. Please go ahead.
Thanks very much.
Yeah.
My first question is are there any belarusian tons that are now traveling by ocean freight.
And if there are out of which Russian port are they moving from.
And secondly for Clint.
Accounts payable I think went down $400 million sequentially, why is that and where should payables date.
Okay. Thanks, Jeff well, let me start.
I just mentioned, we expect BPC will reduce their exports by about 8 million tons and that means that probably what they're going to ship. This year has already been shipped or at least the vast majority of it we have not seen or heard or been able to track down.
Any BPC.
Tons on ocean borne freight the only tons, we've heard that have been exported as early in the piece. There was some export by rail through a very circuitous route through to China, but I think even that has dried up now completely.
Okay and clinical leaders.
Hugh.
Yeah, Thanks, Jack and thanks, Jeff.
Yes, I think what Youre seeing is.
A combination of a couple of things typically in our first quarter, yes, we have.
Kind of a seasonal dynamic where we have.
Payables and accrued liabilities from the previous year things like.
Canadian taxes payable things like compensation paid.
Payables. We also have as an example in the fourth quarter is it Brazil distribution business is building up its inventory in advance of season, a lot of those payables come due in the first quarter. So I think theres, a seasonal dynamic to our working capital that youre seeing.
I would expect that to normalize as we go through the year.
Thank you and your next question comes from the line of Vincent Andrews. Please state your firm name. Your line is open. Please go ahead.
Thank you Vincent Andrews from Morgan Stanley .
Wanted to get your guys sense of how summer fill is going to play out this year and just sort of in terms of.
Where do your customers in North America, what's there.
<unk>.
To hold inventory and to build inventory over the summer.
I think they'll have to be incentivized with price or some type of indexation or is the demand there that theyre just going to be confident that the price will stay elevated.
Elevated all the way through the summer and into fall and then Glenn if I could just ask a follow up on the working capital can you remind us how these higher ammonia prices.
Flow through your working capital thanks.
Okay. Thanks Vincent.
Let me start by.
Giving you just a quick update on what we think is going to happen in the summer fill program and working capital all having some of that over to Jenny as well and then working capital.
Probably clint can kind of address that.
First of all the summer fill program, we're already seeing probably good confidence in the potash market that.
Our buyers are coming to the table and looking for product for summer fill I think there with the high level of uncertainty of supply through byelorussia on Russia.
There really is.
And understanding that there will be a very strong.
Demand and probably tough to get products. So we're seeing people come to the market quickly for that in phosphates, I think theres a little more hesitation. Because there is there is a little more uncertainty of whether the Russian tons will get to markets and whether we'll be able to supply all of their needs but in general.
We don't see a huge dis.
Discounting coming through in the summer for either product matter of fact, we expect that there'll be pretty strong demand and it'll be pretty tight.
In the U S going into summer and then through into fall journey any comments from you.
I think Jack I, just wanted to add one point related to the phosphate.
You said the customers are being cautious on phosphate and Theyre also watching when the Chinese government is going to losing control on export and which will define.
<unk>.
Into the market.
I fully agree with you that the demand is going to be very strong and we have seen.
Now, let's come to customers already.
And then in terms of the working capital in.
And our ammonia I'm going to hand that straight to Clint, but obviously it does play in our finished product inventory as well as.
Raw materials that we hold.
Yes, that's right Jack.
It actually moves to our working capital in a few different spots over kind of the.
The evolution of buying raw materials through actually delivering and receiving payments from customers. So.
Raw materials globally.
In total when you look at our.
Inventory balances.
Depending on price environment, it can be anywhere from $2 million to $400 million I think it tends to be a little bit on the high end of that right now given.
Given the pricing environment that we're in but then as we use those raw materials that will go into inventory, but it will go into inventory.
Finished product at cost.
And so it will migrate.
Honestly into that account when we sell it and Thats again at cost and so it's still a relatively small number.
<unk>.
And that will really be driven by volume of finished product, but once once we sell and deliver to customers and then it goes into our receivables and Thats, where you see the full price of the finished good and Thats, where you will tend to see the receivables grow pretty materially because embedded in there is also our <unk>.
Margin on top of the cost so I would say it travels really through our raw material inventory then into finished product at a full costing and then into our receivables balance at kind of full sale price to our customer.
Thank you.
Next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open. Please go ahead.
Yes, Thank you and good morning, everyone.
I was hoping maybe.
On capital allocation and I think the comments on 2022 and the desire to return cash are pretty clear small step up in growth investments and I guess I'm just trying to think on a multiyear basis, if high prices high high levels of profitability and cash flow.
Persisted.
Kind of where that desire for growth investment in the capacity for growth investments.
We would be.
In terms of things that have been in progress are things on the on the drawing board long lead equipment that you might have been looking at just trying to think about.
If this is if this is the beginning of the next fertilizer cycle, just where how.
<unk> X can be participating from an investment perspective at that growth.
Sorry turned it the wrong way sorry.
Alright, Thanks, Adam.
Terms of this year lets start there our capital allocation strategy hasn't changed this year at all our goals remain the same strong balance sheet, we want to make sure we do.
Take down that $1 billion of debt, we want to continue to invest in our business and we've got some really good attractive short term.
Investments that we can make to increase production on the short term and of course because of the increased sales.
And then the majority of course, we expect this year, we're going to return to shareholders.
Shareholders in terms of looking at this from a multiyear perspective at this stage.
We don't see anything in the large investment range that we think is going to give our shareholders or stakeholders.
Superior value so we're focusing on those.
Minor capital high return brownfield type projects Debottlenecking Investor Hazy mills, increasing the number of mining machines at our K three mine restarting the.
Colons.
Second mill et cetera, and growing our footprint in Brazil, we think those are a much better way to add significant value to our shareholders over the over the mid term.
Thank you. Your next question comes from the line of P. J P J.
Please state your firm name. Your line is open. Please go ahead.
Yes, hi, good morning.
Quick question on your reserve additions in phosphates at Fort Meade.
Does that only increase reserves also.
Or is it also production.
And then I have a question for Jenny about.
The China Phosphates, and you mentioned the LSP battery for a couple of quarters.
LSP or big that bigger.
And it's that big a part of.
The phosphate market in China.
Wondering if you have any numbers around that thank you.
Okay. Thank you P. J, let me start with the reserves the Fort Meade reserves.
I think you're referring to is our south Fort Meade Easter.
Eastern extensions.
And.
This is a normal part of the ongoing development of our phosphate business. So we're.
Constantly buying new land.
Bringing in new reserves to our system.
What that does is that allows this business to.
To run sustainably for.
A long long time.
I would like to say, we I came to the company and I think we had 35 to 40 years of reserves and I have we have 35 to 40 years of the reserves 15 years. Later, so you can see where every year, we're adding new reserves. So this is a big new area, but it is not expected to increase production per se.
But to extend the life of our operations and our quality rock for many years to come in terms of lithium iron phosphate batteries Jenny is right up on the supply and demand and what China has been doing particularly on that front, so I'm going to hand, it over to Jenny directly.
Thanks, Chuck Yes.
Yes P J.
I hate to talk about.
LSP production in China last year.
In the background.
Increases of electrical vehicles and also the increase itself the adoption of LSP in the EV battery and this year for the first quarter, we are seeing more than doubled EV penetration to start with the second thing we are seeing more than double with adoption of <unk>.
OSP batteries in the EV adoption. Therefore, the total LSP production in the first quarter. This year has been more than doubled during the same time of last year and reaching tool.
Half of the total production in 2021. So we are seeing significant increase itself LSP production, which are taking away of people five from the FERC in either PPA P protection and lastly, I want to say from the latest to issue the Chinese policy, which was issued.
7% of April .
The government has swiftly control the New addition of MEP EAP and the yellow phosphoric protection capacity.
So with that new restriction, we are going to foresee further reduction of folks either.
With the shift of the Pizza hut five two.
Other industrial use especially on <unk>.
Pete.
Let me remind you P J that while electric vehicles have been the focus stationary batteries for wind and solar power are becoming more and more important because of the.
The variability of those power sources.
While.
The nickel CAD lithium Nicole.
Cobalt batteries are probably us smaller and lighter.
<unk> got a nonrestricted area. These lithium iron phosphate may be the long term solution.
Thank you. Your next question comes from the line of Andrew Wong from RBC Capital markets. Your line is open. Please go ahead.
Hi, Good morning, I have two questions first is on potash run rate in production.
Now that Colonsay in case, III, having fully ramped up.
We expect operating rates to get back closer to 90%.
Or maybe said another way like what's the what's the potential production.
The 11 million ton run rate on operational capacity.
And then my second question is on modern now that we've seen phosphate and then ammonia prices moving up.
Any significantly what's the profit generating potential out of modern.
And then do you have any thoughts on participating in monetary. Thanks.
Okay. Thanks, Andrew.
Potash run rate as you say at 10 8 million tons per annum, which is a.
One 3 million tons out of.
Out of.
Kalonzo now.
Terms of Astra hazy, it's running at its five 5 million ton.
Basic capacity.
We will be adding another two.
Mining machines to Esther hazy, so that'll go up a little bit from that as we.
Not only complete.
Complete, but optimize the run rate.
There.
So overall, if you took a 90 or <unk>.
85% operating factor you are probably in that 9 million to $9 5 million tonnes of potash capacity right now and looking to move up from there as we look at increasing the <unk> capacity to almost 2 million tonnes and aster hazy, probably from the $5 five up to the six.
5 million tons.
In terms of modern profitability I am going to have to hand that over to Clint because I don't know the exact number but I will tell you that modern is now profitable and they are contributing to our.
Bottom line.
However, you also need to note that modern <unk>.
The results are one quarter delayed we only see one quarter behind so theres, a little bit of a lag there from overall, but Clint do you want to talk about that yeah, no happy to.
So as you said, we remember that it is on a one quarter delay, but this quarter for the first quarter, which is representative of Q4 last year.
QWERTY earnings for modern was about 30% to $31 million. So as John said it is now.
Profitable I think you also keep in mind that.
At.
That because theres no cash to mosaic associated with it at this point, maybe a year or two ago, we removed that from our EBITDA calculation. So that's something to keep in mind as well as we go forward.
Alright, good point.
Operator next question.
Our next question is from <unk> <unk> from Scotiabank. Your line is open.
Andy Isaacson your line is open.
Okay.
I believe Thats Ben Isaacson.
Operator.
And our next question is from Michael Picken from Cleveland Research. Your line is open.
Yes. Good morning, just wanted to talk a little bit about your retail operations down in Brazil, there has been some top that.
Potentially consumption for the country might be off.
20% or as margin how is your retail business.
They're handling it and what does it mean also for your wholesale business.
And the type of margin opportunities that are there things trouble attracting.
So again the important thing for whatever reasons.
Yes, Thanks, Michael.
Let me say, yes in fact, Brazil, probably will be one of the areas that we will have some trouble getting all of the fertilizer they may want or need.
We have seen record fertilizer demand in Brazil year over year for a number of years now.
Likely that growth will probably stop or at least slowed down a lot this year because of availability not because of demand.
However, when you look at our business with.
With our.
Yeah.
Extremely good link into ourselves through our phosphate business and our.
The link to Canpotex for our potash.
We expect that we will actually have a pretty good opportunity because we'll be one of the.
One of the retail slash distribution businesses is very well supplied through this.
We've probably already seen some of that in that we had a very good inventory going into the start of the year and now is the demand is picking up.
There to take advantage of that.
Overall, however, there will be probably some people in Brazil that won't get the product they need or want.
Thank you. Your next question comes from the line of Joshua Spector from UBS. Your line is open. Please go ahead.
Good morning. This is Lucas started on them for Josh.
Well I just wanted to get back to sort of what you're seeing from customers.
In terms of it's better than being willing to kind of contract.
Russia and Belorussian producers since the onset of the conflict.
So I mean, our contracts being concluded or is that sort of completely dried up.
And if it is in the process of drawing up is that kind of do you think the volumes they get kind of a slide.
And then just kind of as a second part kinds of that alright.
I think about like.
What's your incentive to kind of push tons at <unk> into China, and India, where the pricing sort of slide 15, okay. So as I said, a much higher netback pricing you can get in Brazil, instead of in North America.
As you kind of get any more incremental tons available is there anything you can do to kind of pushed back into the more profitable market.
Given the tight supply situation.
And can we sort of seeing a two tiered market develop for 'twenty instead of what split between going to tie here as you mentioned earlier and instead of the Ohio.
Capital markets.
Thanks.
Okay.
I'm not sure I fully understood. Your first question are you asking about the China and India contracts with.
With Russia.
On the first part of your question on will those will those contracts dry up.
If you've been muted I'm going to assume that was your question Lucas Okay. So thank you Lucas.
On the first part of the question, which is are the contracts with Russia, and China, China, India likely to dry up certainly in China, we have not seen the Chinese renew contracts with Belo Roche byelorussia or Russia, so other than that.
Other than the product coming by rail over the Euro Mountain range, which is limited in volume to about 1 million five tonnes a year, we're not seeing rush.
Russian or Belorussian tonnage come to China in terms of India, we have seen phosphates make its way.
<unk>, India from Russia, So one would assume that the Russians will also try to move potash to India. If if theyre looking for places where they can sell that product.
In terms of the second piece of your question.
You really only need to look at last year, when the price to China, and India was significantly lower than the market and what we did was exactly what you said we made are we certainly made all of our commitments to those markets, but beyond our basic commitments to the markets.
Any extra tons, we move to <unk>.
More profitable higher priced markets and there are significant opportunities for that this year.
Last year, India actually renegotiated some of its pricing because of that and you could see that happening again this year in both China and India, if the prices as they are persist.
Thank you Sir your next question comes from the line of Adrienne to manual bearing Baird. Your line is open. Please go ahead.
Hello, Good morning.
I have a question on ammonia.
Can you remind us.
Looking beyond DCF agreement I believe it could be extended until 2032, but if you can remind us.
What the swap them for R&D agreement to extend until then there would be helpful.
In addition, do you have any option to increase your fee.
But when you have production.
More meaningfully thank you.
Yes, Thanks Adrian.
Well, let me start with the CF contract with CF contract was written as an eight year contract.
And with the option to extend at mutual agreement.
So.
Whether we would extend or not really depends on on what the market looks like at the time I would expect though because from a physical perspective.
This is a good partnership it's good for them and it's good for us and I suspect, we'll find a way to extend that beyond the original eight years.
In.
Okay.
Oh, yes in terms of our captive production of ammonia at Faustina.
We've looked at Debottlenecking that a few times in the past.
And I guess at these prices its probably.
We're really looking at that but it's it's an older plant and we're not sure that that might would necessarily be the best place to be investing money right now.
Thank you presenters there are no further question at this time I would like to turn it back over to Joel <unk> for any closing remarks.
Okay, well. Thank you all for all your questions to.
To conclude our call I would like to reinforce some of our key points.
This was a very good quarter for mosaic and our outlook for the remainder of 2022 remains strongly positive we expect fertilizer supply to remain extremely tight for the foreseeable future as global crop prices support demand and with these geopolitical situations restricting both fertilizer production and <unk>.
<unk> flows we expect this to continue for some time at mosaic our mission to help the world grow the food. It needs has never been more important than it is today and we are working to produce every possible ton.
Fertilizer, so that we can help farmers around the world to maximize their production.
And in that we are confident that we can do our part while creating significant value for all of you our shareholders.
Thank you for joining our call have a good and safe day.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
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