Q2 2023 Mosaic Co Earnings Call
Good morning, and welcome to the mosaic company's second quarter 2023 earnings conference call.
This time, all participants have been placed in a listen only mode.
After the company completes their prepared remarks, the lines will be opened to take your questions.
Your host for today's call is Paul Massoud, Vice President of Investor Relations and F. Pane of the mosaic company. Mr. Misheard you may begin.
Thank you and welcome to our second quarter 2023 earnings call opening comments will be provided by John <unk>, President and Chief Executive Officer, followed by a fireside chat and then open Q&A Clint Freeland Senior Vice President and Chief Financial Officer, 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 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.
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 published yesterday and in our reports filed with the Securities and Exchange Commission.
We'll 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'd like to turn the call over to Jack.
Good morning, Thank you for joining our second quarter 2023 earnings call mosaic delivered revenues of $3 4 billion adjusted EBITDA of $744 million and adjusted earnings per share of a dollar for.
First I'd like to discuss the broader agricultural market, where fundamentals remain constructive global demand for crops is very strong and supply is struggling to keep up.
No political events or having a major impact the war in Ukraine continues to restrict supply from one of the world's most important agricultural regions.
Last month, the U N Black Sea grain initiative collapsed and was followed by the bombing of several grain terminals.
As a result, we expect to create and exports of corn and wheat to be down by as much as 30% versus last year, which wasn't itself a down year.
But conflict is only one part of the supply problem.
The world weather extremes are having a profound effect on crop production.
North American yields this year could be negatively impacted by dry conditions and El Nino is hurting production across southeast Asia and Australia.
This situation is exacerbated by under application of nutrients, especially potash, which is crucial for drought resistance and crop Brazilians.
To maximize yields and meet global consumption needs growers need to increase cropping intensity, which will mean, increasing fertilizer applications. The world can't afford multiple years of under fertilization and crop production shortfalls.
Today, China is importing record levels of soybeans, wheat, and beef roughly 5 million tons of China's corn imports over the last 12 months were sourced from the Black Sea grain deal. This is supply that must be replaced by other regions.
The shortfall extends beyond China countries across Europe Africa, and Asia will need to replace lost Ukrainian supply and.
In India. The focus remains on food security and affordability recently, the government responded by banning the export of non basmati white rice to ensure adequate domestic supply.
Strained supply and strong demand will continue to put pressure on global stocks to use ratios, which are already at multi year lows. All these dynamics together continue to sport constructive AG market.
The strong AG fundamentals should lead to strong fertilizer demand for the next several years and we're already seeing robust demand in several of our key markets.
Since the spring improved affordability channel inventory destocking and sustained demand for grain and oilseeds have brought customers back to the market in North America, a strong spring application season depleted fertilizer inventories, which customers are now looking to replenish logistical constraints associated with low <unk>.
Water levels on the Mississippi River and limited trucking capacity persist, but favorable grower economics are leading retailers to secure supplies early to avoid any backups.
In Brazil, the market is beginning to move as we expected like we saw in North America demand was deferred late into the typical window, but customers have returned to the market in country inventories are well below the levels seen earlier this year and growers are trying to secure tons ahead of the fast approaching soccer season.
In India monsoon rains have been strong enough to drive broad demand for fertilizer phosphate imports are expected to be strong throughout the rest of the year.
Switching to potash supply sanctions continue to restrict byelorussia exports after a surge earlier in the year rail volumes to China started to level off.
We continue to expect Belorussian potash exports to be in the range of seven to 8 million tonnes, which is well below their historic 13 million tonnes.
In North America Port terminal capacity has been constrained by multiple events repairs that Canpotex is Portland terminal are ongoing and should be completed by the end of the year.
In Vancouver at 13 days strike resulted in a temporary curtailment of the Neptune terminal, but work continues to finalize a new labor deal and we hope this will be resolved shortly.
Canpotex is making use of alternative ports in Canada and in the southern and eastern United States to mitigate some but likely not all of the impact on international shipments.
We expect constrained phosphate supply as well over the last several years changes to China's environmental policy led to the permanent closure of 25% of their domestic capacity.
China is also focusing on food security by ensuring adequate domestic supply while also meeting rising industrial demand both of which are expected to limit exports for the foreseeable future.
Industrial demand, particularly in China's lithium iron phosphate production is expected to grow dramatically over the next several years last year L. S. P production more than doubled to $1 1 million tonnes of finished fertilizer equivalent and production is expected to grow by an additional 500000 tons in 2020.
Three.
This new market will continue to take phosphate volumes away from fertilizer production, we expect China's exports to be in the range of seven to 8 million tons, this year or roughly 35% below 2021 export levels.
Overall, the fertilizer market recovery is playing out as we expected in a tight market volumes are moving and prices are following.
Phosphate prices have risen over the last month, while potash prices have stabilized and are now beginning to move higher this sets the stage for a constructive second half of the year and into 2024.
We believe our business is well positioned to capitalize on the recovery over the last several years, we've invested in our business to maintain our position as a reliable supplier to customers in.
In addition to the work we've done on our production assets. We've also invested in the infrastructure necessary to deliver that product.
A few examples include the overhauling of our rail fleet revitalizing our in country distribution facilities and our purchase of the remaining share of golf sulfur services to secure logistics surround our sulfur supply. These investments are integral to our results.
In potash sales volumes for the second quarter reflected the benefit of a strong north American spring planting season.
Prices reflected the bottoming of the global market.
Markets are improving a trend we expect to continue throughout the second half of 2023 over the last year mosaic has met the man by carefully managing production and inventory we have built a flexible low cost system, that's able to capture market opportunities as they become available.
Last month, we temporarily restarted or Kalonzo mine to replace extra hazy production, which is currently undergoing its summer turnaround.
In the third quarter, we expect total potash sales volumes of 2.1 to $2 3 million tonnes. This guidance reflects the results of a very successful summer fill program in North America, which was oversubscribed by 30%. We currently expect MLP prices at the mine in the range of 252.
$300 per ton.
In phosphates, we reported strong sales volumes in the second quarter. Our average realized price was at the high end of our guidance range and our stripping margin benefited from lower raw materials costs.
As we discussed last quarter, we are pushing ahead with increased investments in our phosphate business targeted at improving reliability.
This may require short term increases in maintenance like we experienced during the second quarter looking ahead to the third quarter, we have a solid order book with 70% committed and priced today, we anticipate total sales to be in the range of one seven to $1 9 million tonnes and DAP prices at the planned in the range of 400.
75 to $525 per ton.
In Brazil, we reported sequential improvements in our operating results our distribution margins are recovering and we expect that trend to continue in the third quarter as Brazil demand moves higher 90% of our third quarter volume is already committed and priced.
Finally, I'd like to spend some time on our capital allocation strategy. Our approach has not changed we remain committed to investing in our business, maintaining a strong balance sheet and returning capital to shareholders.
In potash and independent audit of the case remind NK to mill expansion was recently completed which verified a total nameplate capacity of 7.8 million tons at our Esterhazy potash complex.
Yesterday hazy is now the largest potash operation in the World and certainly one of the most efficient in addition to the underground optimization. We've also began debottlenecking. The K two mill at Astro hazy by installing a new hydro float flotation process.
This will add up to 400000 tons of incremental production capacity with minimal additional operating costs, we're investing $55 million in this project, which has an unlevered after tax IRR in excess of 75%.
In phosphates, we continue to move production away from commodity products and towards differentiated value added products through the expansion of micro essentials capacity at our river view facility. Following the expansion, which is expected to be complete by the end of the year about half of our north American phosphate sales volumes will be higher valley.
Specialty products. This is a $34 million investment with an after tax unlevered IRR in excess of 50%.
This expansion comes just ahead of next year's launch of micro Essentials Pro which is the next generation of micro essentials, our field trials in Brazil indicate the growers will see a yield bump on soybean acres of 3% or roughly two bushels per acre versus current generation of micro essentials.
Against traditional MH piece solutions micro Essentials pro provides an 8% yield advantage or nearly five bushels an acre the patent on the new formulation extends through 'twenty 38, we are very excited about the launch of micro essentials probe, which builds on an already strong foundation of value.
Creation for the growers are customers and for our shareholders.
In addition to higher grade phosphate fertilizer, we're also exploring entry into purified phosphoric acid for the lithium iron phosphate battery market. Our initial work has validated this opportunity and together with constructive and developing discussions with Oems and battery manufacturers. Our board of directors has approved an additional <unk> <unk>.
<unk> million dollars to commence engineering work on the commercial plant.
Our mosaic fertilize on taste business, we're building, a 1 million ton blending and distribution facilities and parmesan cheese in the state of token teens in northern Brazil. We currently don't have much presence in this region. So the facility will extend our distribution footprint into an attractive high growth area. This is an 80 million.
Investment with an after tax unlevered IRR in excess of 20%.
In total our capital spending expectations. This year remains unchanged at one three to one 4 billion.
Our balance sheet is strong during the quarter, we entered into a $700 million credit facility, which gives us additional flexibility to manage our capital.
Our final focus is on capital returned to shareholders all excess cash will be returned to shareholders through dividends and share buybacks year to date. We're ahead of our target over the last 18 months, we've repurchased 15% of our float and believe our shares still represent good value.
Our regular dividend today is 80 per share and our business positions us to consider further increases over time.
To sum up mosaic continues to demonstrate the earnings power and resilience. We have created over the last several years, our second quarter results were strong despite deferred fertilizer demand in many markets.
Our outlook for the remainder of the year and beyond is quite positive.
The world's farmers have strong incentive to maximize crop production and meet global food demand fertilizer is critical to their success and mosaic will continue to meet that need.
Thanks, Chuck before we open the lines for live Q&A, we'd like to address some of the most common questions that came in last night.
Our first question is on our guidance with fertilizer markets turning higher in the last few weeks is there conservatism in our outlook what are we assuming in our volume and price ranges for phosphates and potash.
Thank you Paul in potash, our volume will be dependent on the ability to ship internationally.
With the continued labor unrest following the 13 day strike in Vancouver, and the ongoing repairs at Portland, our export capability may be limited, but the midpoint of our guidance range is in line with our historic average, which tells you how strong the north American demand has been this summer.
Demand has been very strong with our summer fill program oversubscribed by 30%.
Phosphate volumes could also see some upside given the strong global demand, but we're limited on inventory.
We expect production to be higher sequentially. So there is some opportunity to exceed our current guidance range on pricing, 70% of our Q3 order book is committed and priced depending on how the rest of the quarter plays out there is an opportunity for price upside.
But much of that would get realized in the fourth quarter, where we have more unpriced tonnes.
Chuck Our next question is on Brazil.
So those lunches recovery appears to be slower than some had expected.
Are there any major surprises in the second quarter and how should investors think about that business in the second half of the year.
Thank you Paul weaker pricing affecting our production business and demand deferral due to grow or liquidity issues extended longer into the second quarter than we had been anticipating but the market did eventually turn and at today's prices. The barter ratio for beans, as very attractive, which is driving farmers to secure supply for their software suite.
Our distribution business posted a sequential improvement in quarter, two and we see that trend continuing into the second half of the year.
Half distribution margins are expected to be at the high end of our targeted range of 30 to $40 per ton.
In production second quarter results were impacted by unplanned outages, Edinburgh and are sure.
Those issues are behind us so we expect higher volumes in the third quarter.
The other issue in our production business was working through higher cost inventories of sulfur and ammonia, which we now expect to be lower in the third quarter.
Overall with high cost finished product destocking in distribution now complete and Brazilian operational issues behind us the business is very well set up for Brazil's busiest quarter of the year.
Chuck Our next question is on clumsy.
What was the rationale for <unk> restart as market demand now strong enough to keep it running after esterhazy turnaround is complete.
Thank you Paul Yes, calonge, they will be needed for the foreseeable future over the last year, we've met potash demand by carefully managing production and inventories in.
In quarter, two strong demand in North America resulted in approximately 300000 tons of inventory drawdown with Astra hazy as planned summer turnaround and a very successful summer fill program Kalonzo tonnage is required to meet our customer expectations and needs.
At present rates Colons, they must run approximately five months to replace the one month esterhazy maintenance turnaround.
With strong demand in North America, and a rebounding international market. The main determinant to future volumes will only be limited by export logistics capabilities.
The last question that we wanted to address is on capital allocation.
It's mosaic still committed to returning all free cash flow to shareholders.
Our commitment to return all of our free cash flow has not changed though to reiterate that as a commitment to return cash flow over time, not a quarterly commitment returns will vary from quarter to quarter based on the seasonality of our business and internal capital needs.
However, keep in mind year to date, we have returned in excess of 100% of our free cash flow to shareholders.
That concludes the fireside portion of our call operator could you. Please open the lines for the live Q&A.
We will now begin the question and answer session.
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To ask a question at this time, we will pause momentarily to assemble the roster.
And our first question will come from Steve Byrne of Bank of America. Please go ahead.
Yes, Thank you Josh I'd like to hear your view on what you think is.
And appropriate potash price in the market right now given as you highlighted the reduced production of Belarus, you got tight inventory levels and most of the world lower nutrient levels in much of the soil and yet.
You're expecting pricing in the high two hundreds mine gate is that seem appropriate to you or is there something thats, causing potash pricing.
To be weaker than maybe we would've thought some second tier pricing out there thats coming from.
Perhaps Russia, Belarus is there some of that is causing this.
Good morning, Steve.
It's a really good question and I think you have to start with the after effects of last year, where I think in some key markets. There was panic and then over pricing and then you know.
The reflection or the shadow of that was a complete walk away from from the market by farmers.
We talked about our potash holiday or whatever.
I think as we move into particularly this third quarter I would say that we have probably overcorrected significantly to the downside now based on the basic facts. The the market is not going to be demand limited the market is definitely going to be some.
Ply limited in.
Potash.
Our expectations from the former Soviet Union, Belarus, we're expecting it to still be in the range of 7 million down from seven to 8 million down from $13 million.
The Russian producers themselves are down as much as four to 5 million tons. This year.
So I definitely think that mine gate prices are probably you know.
Arguably at least $100 below what they could easily move to and probably the near term. So do I believe the prices are appropriate for where we are today no but at the same time I will reiterate that from.
From a first perspective the volumes have to move those volumes are now moving in there moving strongly Brazil's moving strongly as we move into soft rock, our North American film fill program extremely successful, we're starting to see not only volume move but price move in China.
India still has its problems, but I think that they need product. So I think all of those things lead to a very strong rebound and I'm, hoping it doesn't create.
Too much of a rebound that it can't happen in a more orderly way. So overall I would say the fundamentals point to something that should be quite bullish.
The next question comes from Joel Jackson of BMO capital markets. Please go ahead.
Good morning, Jack and team.
Phosphate could you talk a little bit about in your release your comment.
<unk>.
For phosphate in the third quarter, you expect margins will benefit from lower raw material costs in the third quarter. So does that imply that you think Eric corridor phosphate margins will be up sequentially and then just in general phosphate rock costs have been higher for several quarters should we expect that to continue wynwood phosphate rock costs, maybe go back down to more normalized.
Ranges.
Your normal.
Okay. Thanks Joel.
So.
Assuming the phosphate prices hold clearly lower raw materials prices will.
Resulting in a better margin and we see actually a divergence we were still seeing the at least the sulfur prices has remained low and has gone even lower.
Yeah.
Ammonia on the other hand is starting to tighten up a little bit. So we might expect ammonia to be flat or even up a little bit over the over the rest of the year, depending obviously on markets, but overall, we think that.
Raw material costs will help our margins this year or this next six months and what we're seeing is we're seeing price movement. Jenny do just want to clarify price movement on phosphates, particularly I guess, Brazil right now.
Yes, Jon Firstly price changed well moved up to our assess things.
Beginning of July .
North America.
I mean, if you price them moved up over $50 per tonne in Brazil, followed over the last few weeks Tesco and we should see the price upward impact not only in Q3, but also into Q4.
And the second half your question or the.
The second part of your question was the rock costs in.
Our mining and I guess, there's a couple of issues within mining that are relevant are new area, we're mining in and.
Four corners.
We have run into which isn't surprising as we start a new area, we've run into variations in the rock quality and the rock and what we're running into as we mine.
And then.
In South Fort Meade, we're running it and we're in a new area in the eastern extension of that mine in both those cases, we in the second quarter, we were moving into new areas. So as we get into the new areas and we're in the main.
May.
The main ore bodies, we expect those costs will come down as the as the grade and the ease of mining increases.
The next question comes from Richard <unk>.
<unk> of Wells Fargo. Please go ahead.
Great. Thanks for taking my question.
Looking at the slides when you look at global shipments it looks like your checking your potash shipments down.
As well as phosphate assumptions for the year I was just wondering is that a function of the.
Limitations, you're seeing it on the port level.
Demand still remains Paramount talking about sorry demand in North America as well as in Brazil.
And then just yeah.
Yeah.
Driving the reduction on the phosphate side as well thanks.
Sorry, Richard Mike problems there. Thanks.
Thanks Richard.
And in terms of our phosphate volumes, if we look at the first half they've probably been a little lower than what we might have expected the markets have been good the limitation has probably been in general.
<unk> inventory at the start of the year was low and then you know we're running I would say hand to mouth would be the way to say it. So every ton that we make.
Is going straight to market and that means.
Your if anything any hiccups.
You have you get delays so.
It puts risk on the timing for particularly the end of the year. So on that in that case I think the market is strong.
It will be whatever we can produce we'll be able to sell in potash.
Is exactly what I said earlier, which is the logistics constraints, particularly for our exports will be the main limitation.
The next question comes from Christopher Parkinson of Mizuho. Please go ahead.
Great. Thank you so much just on the pilot rock costs, just given the shift in mind mix.
At least temporarily towards colonsay versus Astro hazy, how should we be thinking about cash flow cash costs during the second half of 'twenty.
<unk> 23 based on your projected operates and then any preliminary views once that <unk> backup and presumably colonsay back online just what would be kind of the normalized run rate that we should be considering into 2024. Thank you. So much.
Yes, Thanks, Chris.
If I think about this from a macro level. If you will which is probably the easiest I think the costs of Colons. There are cash costs at Colons I. So we'll look at those with the way, we're running are probably coming in $30 higher than Astra hazy.
So for the one month of Astra hazy downtime that we're replacing in let's say the next five months of Colons aid running that incremental.
<unk> thousand tonnes, a month, we'll be at a $30 increase in cost.
<unk> highly profitable still and again part of our thinking is always you know we want to be selling a highly profitable tons. So, but once Esther hazy is up and running and again. After he is it'll be up and running probably in a month. After we finished the maintenance turnaround.
And then we'll be looking at continuing to run colon Z, because we will need to make up that ton plus the sorry the tons from a month of downtime on the Yesterdays complex plus the 300000 tons that we we didn't start up kalonzo until we absolutely had to and now is the time, we absolutely had to do so it will run for a while.
And during that time 100000 tonnes, a month will come out at a 30 dollar higher cost than probably what our average would have been prior to that.
The next question comes from Edlin Rodriguez of Credit Suisse. Please go ahead.
Thank you and good morning, everyone.
Quick questions on potash shipments again.
At 60 to 65 million tons like do you see it going back to that 70 million range over the next year or two and part two of that same question part of the reduction was due to fewer tons out of battle within Russia like why can't the other producers ramp.
Club to replace those lost tons from Eastern Europe , if the issue is not lower demand.
Yes, thanks, everyone.
Again, I just want to reiterate the 62 to 65 million tons is not demand driven this year. It is supply driven.
Gonna give over to Jenny to just walk through the details, but but let me say.
No.
The market was slow to start at the start of the year. So there were constraints in terms of.
A slow start to Brazil.
But later, China contract or whatever and so it took some time to get product really moving this year.
But as as we go through that like we said earlier the limitation is going to be logistics and I. You know I think what will allow the other producers to make up the gap is going to depend on if you can actually move it I would imagine that most of the other producers are most of the other sources.
Other than maybe Canpotex are actually supply limited and Canpotex is likely going to be logistics limited, but Jenny do you want to just go through the supply and demand balance yes, I. Thank you.
Well on the supply side of the limitations from Belarus.
And Russia earlier and.
So the limitation on the logistics side for the Canadian producers on the supply side, we are seeing a wide range of the recovery in the global market. Firstly light by the North America market and we are saying North America potash demand are growing back by 20% or more.
For this year versus last year. So this is so this has been proven from a strong spring application and a very strong summer field programs were saying the rebounding of the demand in Brazil, as well and and also similarly to the other Latin American market.
How this demand is going to cover this year even greater.
Current.
Escalation, which is 64 million tonnes.
Really supply driven so.
So back to your question when we will see this number a shipment number to go back to 17 million tons, probably next year to supplies unlikely going to go back to 17 million tons.
We are forecasting in 2025, when the FSU producers shipment could be recovered back to pre sanctioned that number might be achieved so once again the shipment for potash at a global level is really constrained by supply.
Yeah, just just to reiterate and I think this also answers part of where Steve Burns was coming from earlier.
Until there's resolution of the Ukraine War and until there's resolution of the Belarus sanctions.
Yeah. This is gonna be a supply constrained market and I don't think any of us can really say when either of those issues are going to get resolved.
Our next question comes from Andrew Wong of RBC capital markets. Please go ahead.
Hey, Thanks for taking my questions.
The question on the Astra hazy.
Pasty figure.
What does that mean for your normal operating capacity.
Does that mean that the mine can just can produce a lot more than what it was doing previously.
What does that mean for the Canpotex allocation.
Thanks, Andrew well first of all let me say the.
Way that the.
Nameplate capacity, if you will is determined.
Determined is an independent audit with a a short run to demonstrate that the unit operations are capable of the design. So that is complete we are now working.
With canpotex to fill.
Figure out what that means from an allocation perspective, and we will update you on that when that is complete in terms of the actual operating rate.
You have to remember that that is the I'm going to call. It a peak capacity there would be a probably a further.
Youre not going to run that everyday and then youre going to have your yearly downtime and stuff like that so it's a theoretical.
Number will run Astra hazy, you know probably reasonably hard, but I wouldn't expect it to run at those rates I would I would down right from that at all.
Once we put the new hydro float process in place that it may well run over 7 million tons.
The next question comes from Vincent Andrews of Morgan Stanley . Please go ahead.
Thank you and good morning, everyone. Just a quick clarifying question would be one.
Chuck did you say that the colon say you anticipate just sort of running for until you make up for the what you've losing having extra hazy down and then you intend to probably turn it back off or is your intention to keep to keep it running perpetually and then my real question is whether you could talk about the micro essentials pro products.
Product, a little bit more and just help us understand how you're going to price it versus that incremental yield value you talked about and then over what period of time do you think Michael Central's two replaces micro essentials, one and how we should be thinking about all that.
Yes, Thanks, Vincent Yes, let me start with <unk>.
Hi.
For now Colons needs too.
Ron to reestablish our inventory levels.
To where they would've been.
Previous to the extra hazy shut down as Youre well aware. These these operations shut down pretty much every summer in Canada.
So we've managed our inventories such that you know, where we don't have a bunch of excess coming into the summer.
And so now we'll run Kalonzo first to fill that them to make up the the gap of what we had.
An extra we had in Q2 and what we're seeing for the summer fill in Q3, So I would say for the foreseeable future, we could see colons, they running but again I'm not going to.
Run an operation for the sake of running it we were gonna, Matt we're going to manage our inventories managing of working capital carefully and part of that means using.
Production capacity of Colons.
To manage that that function in terms of micro essentials pro and I you know as I said earlier this is a pretty exciting.
Piece of progress first of all.
The very fact that it takes the.
The patent and level out to 2038 gives us a nice a nice protection for a long time, but equally exciting is it appears that what we're seeing is real agronomic benefit and we don't have a pricing strategy or a <unk>.
And implementation strategy, our launch strategy quite finished out yet, but I will say our philosophy has always been that we would share of the benefit from the.
From the new products basically.
Equally between the grower or the farmer, the retailer who is selling it and ourselves so our pricing strategy will be such that.
We can do that and you know again the economics.
Should be fairly strong because the gain is fairly strong as it was for micro essentials.
Yeah.
The next question comes from Josh Spector of UBS. Please go ahead.
Yes, hi, thanks for taking my question.
Just wanted to ask within potash when you're talking about making up most of the disruption within the logistics in Canada to get material out.
Assume that's going to have a higher shipment costs. So one I'm wondering can you quantify roughly how you are thinking about what that could de and two is that a cost that you would have to eat or is it something that you can get actually buyers to kind of back I assume that's going to impact your cost structure, but wanted to clarify that thank you.
Yeah, Josh Thank you.
We are using both new Brunswick, and Thunder Bay, and looking at even some southern U S golf Oh.
To move the product and obviously those come with higher prices I can't give you the exact as we would.
Those flow through Canpotex, which as.
Our marketing organization that we use.
And it doesn't what we talk about when we talk about our.
At mine site return.
Corporate's those extra logistics costs, so, it's very much dependent on which which country or which market. These are going to it depends on whether it flows through like I say, new Brunswick, but but yes, you can assume there will be some extra cost.
Whether the.
Whether the buyer will absorb those costs are ours is.
Really a supply and demand issue rather than a we don't price.
Per se, we follow all global market and we have to take what the global market gives us. So you know and it's in a sense. We're a price taker. So if the market is tight and supply and demand drives price up we'll absorb those will absorb the expenses, if if the supply and demand.
Is not then probably it'll come to the suppliers, but we think the market is tight so we think that that probably gets absorbed by the end user.
The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
I was hoping to maybe dig in a little bit more on on Brazil and <unk>.
And maybe just trying to calibrate.
On the production side, certainly you gave some a clear view on the distribution business, but as I think about profitability and prevent in second half.
On production can you just help maybe dimensionalize the.
The benefits.
They come from the lower inputs that you have been buying can.
And finally flow through the P&L.
Size maybe.
The conversion cost improvement cost improvement that comes.
From operations running.
And is there is there any anything to think about from a product mix perspective niche competition on TSP and FSP has maybe been mark kind of intense then map that might be influencing.
Your realized price and sales mix. Thanks.
Yeah, there's a lot to digest and not one I might just throw out a journey and ask her to talk a little bit about raw materials pricing and some pricing strategies and what we see with competition, particularly on the different grades.
Grades in Brazil, yes.
Yes, so youre right that in Brazil, we sell our phosphate product till we do have to competitions on DSP and SSP and similarly to MEP over the last few weeks. So we are seeing the price rebound crossed a whole portfolio of phosphate. So therefore the price increases.
<unk>, which is much more visible for MEP and that is actually the same for DSP and SSP. So we are going to see a higher price for all range of phosphate products that we're going to sell in Q3.
Great.
Raw material prices.
Really to the realm.
What's your price are lacking.
In turn off the reflection in our market.
Lower priced sulfur and lower priced ammonia is going to take time to really be reflected in Q3, we will see a lower cost of sulfur and ammonia, but in comparison with the market benchmark.
Probably the speed of that comparison, probably going to be a little bit lucky.
Yes, Thanks Jenny.
The next question comes from Erin Ciccarelli.
Baird. Please go ahead.
Hello, Hi, good morning, I have one on.
Potash imports in Brazil.
First half industry figures suggest that inputs interestingly went down 10% year over year.
After being down in.
In 'twenty two around 10% again, so dispute if this trend continues with breastfeed, but ashamed, but at around 10 million tons, we should.
Reasonably lower low level, so maybe can you.
Comments on the behavior now you see from pharmacy in Brasil, and how you see demand picking up but would that please thank you.
Thanks Erin.
Yes in fact, Brazil imports have been lower this year.
And you know what we earned last year for that matter. If you look overall.
You know there was a buildup of inventory in Brazil, because actual application last year was particularly in the second half of the year was quite low as prices probably drove drove that.
But potash imports have been Laura we've actually lowered our expectation for overall, Brazil.
Yeah.
Fertilizer uses too I think it's 42 million tonnes now Jenny thank you.
42 million tons from what was probably peaked at about 46 million tons of couple of years ago. So you are down a good 10% on overall fertilization you know the one.
One thing I want to highlight what that means though is it doesn't I don't think that's indicative of a decreasing market per se because Brazil has had very good harvest in Brazil, as a tropical depleted soil needs to fertilize every year, so Brazil double crops in other words it takes two crops a year.
Year.
Off that land every year, so the carryout of fertilizer in the crops is high.
And they have to add that fertilizer back every year. They have not been doing that for the last two years that will not continue without having.
Some sort of agronomic impact on yields Jenny do you want to just talk about that a little bit of the Brazil market.
I think you've covered it well I'm Chuck I, just wanted to say for potash.
Shipments last year reduced by 10% year right and this year, we are actually.
St.
The shipment total shipment in country, it's probably going to be flat and we do see the potential upside in the rest of the year.
So just want to reiterate.
If the potash or other nutrients are end up side in that kind of market you will see that impact.
The Brazilian farmers, they know that very well and that has been reflected in the very recent to buy activity.
The next question comes from Jeffrey Zekauskas of Jpmorgan. Please go ahead.
Thanks very much.
Potash prices have come down your Canadian resource taxes have also come down.
They are a way to gauge what Canadian resource taxes are going to be over the next couple of quarters.
Or into next year.
Yeah. Thanks, Jeff.
I'm looking curiously at my partners here to see if anybody has a good answer to that.
Probably a little more detail than I have off the top of my head.
I mean.
Yeah, I'm not I'm not I don't have a forecast detailed enough to kind of give you an answer to that we can get back to you probably that's probably the easiest.
But you're right. It definitely does come down it was quite it's been quite significantly down from where the prices were earlier so.
But I apologize I can't give you much more than that Clint if you got any detail that you could yes, I would just say one of the <unk>.
Factors in that one of the key factors in that is around price and so I think it's going to it's going to track our ore or follow kind of what your price expectations are.
Yes, I think from a.
Our percentage of our margin standpoint, it should remain fairly fairly similar but but again I think it'll follow your price expectations as you go forward.
The next question is a follow up from Steve Byrne of Bank of America. Please go ahead.
Yes, thank you for that.
Let me back in here I was just curious about.
The difference between those two versions of micro essentials.
Is that yield benefit demonstrated by some land grant universities.
You can back it up with.
And when do you think you might have.
<unk>, three or four and so forth that might have some biologics in there from your your collaboration with bio consortia.
Well, Steve I was going to say welcome back.
We missed you.
Yeah. So the big thing, we're talking about really in the new generation of micro Essentials is what we're calling a swallowable granule, which means the granules actually.
Well to kind of control the release and an increase the release of the of the key components and so it's a coding and and how we how we actually make the the product, but the key issue. There is it's making both the sulfur.
The phosphates more bio available and the micro nutrients more bio available to the plant at the plant route so that's kind of the.
The layman's, which is probably as good as I'm going to get for you, but the layman's terms for what this.
Product is designed to do now the field trials. We're doing we're working you know again on our own we normally do field trials with groups like the University of Illinois.
At their Champagne campus.
And.
And on our own and with our customers and in Brazil.
So we do them over a number of places.
As a.
As a producer and our we can't afford to introduce a product that isn't well proven and doesn't give good results to the to the growers. So we're pretty conservative on on how we do that and how we introduce these new products, but it has been in the works for a few years and now with.
The patent in place we feel comfortable we can start introducing it at as well try up Trialed and will continue I think there's another season of trials it'll go next year et cetera et cetera.
In terms of the biologics.
Yeah, we've been working on trying to see what biologics might be I think that's a little further off in the in the future. It is an exciting new area.
Again, but.
We really don't want to stick our neck out too far until things are really proven so.
Watch this space and I think there'll be new stuff in the future.
The next question is also a follow up from Edlin Rodriguez of Credit Suisse. Please go ahead.
Thank you yeah. So just I think John just a follow up on the product shipments question again.
<unk> made it clear that the market is supply limited that's fine, but but you wont see for fact that colon C. We men Appalachian though for good like it doesn't the market need that supply.
Oh, yes, yes, thanks Edwin.
For clarification.
From a from an actual supply and demand perspective, I agree with you 100% of all of our production is.
Likely to be required in the market like I say at least for the near term we have to do two things we have to be able to move it out which you know right now has been a little bit.
<unk>. If you if you think there was a 13 day strike in at the Vancouver Port. So all of those dock workers were often I think theres, a new ratification vote on Friday, but they are right now in labor negotiations, but even as you come out of this.
The time it takes to.
Make the system fluid again will probably be.
Over a month are our main carrier to the West Coast Canadian Pacific has said it will take at least a month to get that system fluid again remember its not just potash, it's not just fertilizers.
You know, there's coal, there's grain and everything else that that moves through that port and then theres a big intermodal.
As well so that the pressure on the on the port and the rail system.
If if it's shut down is pretty pretty substantial.
Pretty substantial to overhaul the Canadian economy, but in terms of US you know, we need that and if the market comes back and say strong no question in my mind, we would love to see Colons. They run for a long long time.
This concludes our question and answer session I would like to turn the conference back over to Jack <unk> for any closing remarks.
Well. Thank you everyone for your attention to conclude the call I just want to reiterate our key messages.
Mosaic delivered solid earnings in the second corner and we have a positive outlook for the remainder of this year.
I agree cultural markets are strong farmers around the world have strong incentive to maximize crop production as a result global fertilizer demand is also robust and we expect that demand to remain strong mosaic today is well positioned to capitalize on the ongoing fertilizer market recovery.
The transformation of our cost structure, along with the investments we've made over the past decade are delivering earnings power and cross cycle.
Brazilians so thank you for joining our call have a great and safe day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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