Q3 2023 Mosaic Co Earnings Call
Good morning, and welcome to the mosaic company's third quarter 2023 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 opened to take your questions.
Please note today's event is being recorded.
Your host for today's call is polymer suit.
You may begin.
Thank you and welcome to our third quarter 2023 earnings call.
Opening comments will be provided by Jocko Roark, Chief Executive Officer, followed by a fireside chat and then open Q&A.
Bruce Bodine, President Clint Freeland, Executive 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.
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 published yesterday and in our reports filed with 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'd like to turn the call over to Chuck.
Good morning, Thank you for joining our third quarter 2023 earnings call before we get to the normal part of our call I'd like to take a moment to discuss the next step forward for our company last month, we announced that I plan to retire at the end of the year. It has been an honor to work at this outstanding organization and to lead this incredibly talented.
The team we've accomplished a tremendous amount over the last eight years, but one of the areas I take most pride in is our focus on identifying talent and developing the next generation of leaders.
As a result of those efforts mosaics board of directors appointed Bruce Bodine, President and selected him to be mosaics next CEO starting on January one 'twenty 'twenty four.
Bruce is the mosaic veteran who has been with the company for 24 years and led several functions across our business, including most recently as senior Vice President of North America.
As a member of mosaic senior leadership team for the last eight years. He's played a major role in establishing our current strategic priorities.
The board takes succession seriously and its been planning for my retirement for some time Bruce's selection follows an exhaustive evaluation of both internal and external candidates.
Bruce has broad experience strategic mindset and leadership throughout the organization make him the ideal person to lead mosaiq into the future.
Please join me in congratulating Bruce.
Thank you Jack.
I'm excited to take the next step in January as CEO, and I'd like to take a moment to lay out my vision for the future.
Mosaiq is a global leader in the fertilizer industry over the last few years, we have grown our footprint in the world's most important agricultural regions expanded our portfolio of value added specialty fertilizers and built one of the world's most efficient potash production complexes.
These investments were being made while we were reducing long term debt by $1 billion and repurchasing 15% of our outstanding shares.
Looking ahead, we will continue creating value for our shareholders.
With the expansion of micro essentials capacity at River view and the investments we've made in Mosaiq Biosciences, we're pushing further into non commodity value add AG products.
We're also continuing to explore entering the purified phosphoric acid market for lithium iron phosphate battery production we're.
We're engaged in discussions with auto and battery manufacturers and our board has already approved engineering work on a commercial plant.
In Brazil mosaic is already of the country's largest supplier fertilizer and we're expanding our footprint even further with a 1 million ton distribution facility at Palmer raunchy and the fast growing northern region in Brazil.
In potash, we are further optimizing our esterhazy facility by Debottlenecking, the mills, and adding 400000 tons of very low cost production.
Across our business, we're pursuing cost reduction initiatives operational.
<unk> improvements and our global digital acceleration program are expected to drive significant savings throughout the enterprise or at least $150 million, which you'll be able to see in our segment results and SG&A.
These are all modest investments with very high returns, which means we expect 2023 to be a high watermark for capital spending.
Next year, we expect total capex to be down by up to $200 million from 'twenty to 'twenty three.
This will allow us to continue returning all excess cash to shareholders through share repurchases and dividends.
We believe our shares present very compelling value.
I look forward to continuing this dialogue with all of you, but for now I'll hand, it back to Jack for his final discussion on broader markets and our results.
Thank you Bruce today's agriculture market is tight food security is a major concern around the world, but crop production is constrained global stocks to use ratios for grain and oilseeds remains near historic lows, which highlights the crop supply is struggling to keep up with demand.
Weather conditions around the world, particularly in developing markets have impaired production today El Nino weather patterns are having an impact across southeast Asia and Australia.
The situation is being exacerbated by persistent under fertilization over the last two years, we've begun to see a significant relationship between insufficient nutrient consumption and disappointing yields.
And of course key growing regions are being impacted by geopolitical flare ups and all out war as is the case with the war in Ukraine over the last two years Ukrainian grain and oilseed exports are down 32% from pre invasion levels, it's difficult to see how other regions.
We'll be able to offset the shortfall given poor weather and reduced fertilizer applications. Despite.
Reduced production levels demand around the world remains strong.
China's imports of soybeans beef and we are at record levels, India, which accounts for nearly 40% of global Rice trade has a limited ban on non basmati white rice exports and places duty on a portion of its remaining rice sales in order to ensure adequate domestic supply.
Additionally, we're now seeing emerging demand from renewable diesel and sustainable aviation fuel in the U S. Biofuels represent a quarter of soybean consumption.
These dynamics mean elevated crop prices could persist through 'twenty, 'twenty, four and beyond and growers will want to maximize yields.
This brings us to the fertilizer market supply of potash and phosphates is being impacted by sanctions weather disruptions and evolving producer behavior in potash sanctions and other disruptions continue to limit exports from the former Soviet Union, Belarus remains blocked from port access and Lithuania.
Forcing it to find other outlets for its shipments some of those exports are shipped via ports in Russia or by rail into China, though total shipments remained well below pre sanctioned levels of 12 million tons.
This year, we expect Belarus exports to be in the range of eight to eight 5 million tonnes and we expect limited increases from that range in 2024.
In Canada Labor strikes rail congestion and terminal repairs have limited to the west ability to mitigate lost FSU tons more recently the conflict in the Middle East. In addition to the ongoing war in Ukraine highlight the risk of further supply disruptions.
In total global potash shipments are expected to be in the range of 64 to 65 million tonnes simply because the supply isn't there to meet additional demand, particularly in developing markets where crop supply is primarily made up of subsistence farming.
In phosphates over the last decade, China grew to be the largest exporter of finished phosphate fertilizers supplying about 30% of the seaborne market in 2021 but over the last 18 months export restrictions and a shift of production away from agriculture to industrial markets has significantly reduced.
Phosphate fertilizer exports.
This year, we estimate China's exports could be three to 4 million tons below the 2021 level of 11 4 million tons or roughly seven to 8 million tons.
On the demand side, we are seeing strong consumption. Returning we saw this play out in the spring in North America. After a slow start to the season favorable economics and depleted soil reserves brought farmers back to the market.
Our phosphate and potash shipments in North America were the highest in the last five years. This was followed by a great summer fill program and a very strong fall application season.
The last three months through October were a record for mosaics North American potash shipments.
We saw similar dynamics play out in Brazil to offer season fertilizer shipments ended up being very strong for the full year. We expect total fertilizer shipments in Brazil to be 43 to 44 million tonnes. The second highest total in history with Destocking of fertilizers in Brazil complete inventory.
These are quite low and will need to be replenished for 2024.
In India, we continue to see strong demand driving elevated imports phosphate inventory levels are near the low end of the most recent five year range, which suggests shipments are going straight to the ground potash inventories are also very low and we're seeing indications of price acceptance that could drive higher shipments going.
Forward.
For several quarters now we have discussed that once volumes begin to move prices will follow.
We're now seeing available volumes move in pricing has stabilized and shown seasonal strength in many markets.
These dynamics highlight the value of mosaics portfolio, our business is well positioned to meet customer needs and deliver value to shareholders.
In potash, our third quarter results reflect the strong sales volumes in North America to meet that demand and mitigate the impact of extra hazy as planned turnaround colons. It was restarted at the beginning of the quarter. Looking ahead, we expect fourth quarter potash sales volumes of two four to $2 6 million tons.
And netback MLP prices at the mine in the range of 235 to $260 per ton.
Our pricing guidance reflects a product mix shift towards overseas sales as north American fall application season winds down.
In phosphates, we recovered quickly from the impact of Hurricane Italia, and we're able to restart operations and approximately three days, which really minimize the impact of the storm.
Separately, we are working through the repairs at our Faustina facility in Louisiana, following a power disruption by the local utility that occurred late in the third quarter. Those repairs should be completed in the fourth quarter, we expect fourth quarter sales volumes to be in the range of 1.6 to one 8 million tonnes and <unk>.
Prices at the plant gate of 530 to $580 per ton.
Moving to Brazil, our fertilizer segment reported strong third quarter results.
Me emphasize that we pushed to Destocking high cost inventory in the first half of 2023 and this effort was completed early in the second quarter. Our distribution business is no longer experiencing the same pressures that others are as you can see from our results this quarter.
For the fourth quarter over 90% of our sales volume is already committed and priced with our order book and inventory position, we expect our fourth quarter distribution margin to be in the range of 40 to $50 per ton.
Our approach to capital allocation has not changed we remain committed to investing in our business, maintaining a strong balance sheet and returning capital to shareholders our.
Our capex budget for 2023 is 1.3 to $1 $4 billion and as Bruce mentioned earlier, we expect to reduce total capital spending for 2024 by up to $200 million.
Our balance sheet is strong and our commitment to return capital to shareholders remains unchanged all excess cash will be returned through dividends and share buybacks.
Year to date, we have returned nearly $900 million to shareholders through buybacks and dividends, including $150 million of repurchases in the third quarter.
Before we go to questions, let me summarize.
The world needs more crop supply.
And we won't get it without good fertilization far.
Farmers are seeing good economics and want to maximize yield with fertilizers, but supply is uncertain and channel inventories are low.
Jose is well positioned to benefit while continuing to deliver value to shareholders and we're returning significant capital while still investing in the business.
I look forward to watching Bruce lead mosaiq into the future Paul let's move over to questions.
Before we move onto light Q&A as we've done in past quarters, we'd like to address some of the most common questions. We received after we published our earnings materials last night.
For our first question Jacques many have asked us to discuss recent rulings regarding a countervailing duty petitions.
Yes last week, the department of Commerce raise duties on Russian product, but at lower duties on Moroccan supply. The department of Commerce reviews are done on a yearly basis and are based on their assessment of foreign subsidies.
While we welcome fair competition, we expect to compete on a level playing field and.
Unfair foreign government subsidies disturb that dynamic so we will continue to seek remedies when foreign players use aggressive marketing based on unfair subsidies that cause harm to our industry.
In today's market trade flows may shift as a result of these adjustments, but as we saw over the last two years global supply and demand is unaffected pricing.
Pricing continues strong due to high demand and decreased supply, particularly from China.
You know tight market suppliers will seek out the highest return for their product and as such U S consumers will need to meet global pricing to ensure sufficient supply for their needs.
Jock others had been struggling with Destocking in Brazil, but mosaic fertilize entrees performed quite well in the third quarter, what differentiates mosaics business in Brazil from others and what is your outlook for the rest of the year and in 2024.
In 2022, we like others in the Brazil agricultural industry, we're carrying inventory to support the expected demand.
When that demand slowed in the second half of the year, we were left with higher priced inventory, but unlike others in Brazil, who are reliant on third party distributors and retailers. They have limited ability to directly destock their inventory we on the other hand, we're able to effectively deal with the destocking in the first half of the year.
Year and by the third quarter prices have stabilized and the distribution margins had returned back to our expected range of 30 to $40 per ton.
And as I mentioned with 90% of our product committed and priced in the fourth quarter, we expect margins to increase further to 40 to $50 per ton.
There is always some positional risk in a distribution business. However, I believe we have managed through this volatile market as effectively as possible, which really sets us apart from other AG input companies and emphasizes the value of the integration of our production and distribution businesses.
Chuck Our next question is on the potash market pricing has been muted despite supply uncertainty how do you see the potash market evolving over the next year.
Thank you.
As you've seen from the slides, we published last night, there's a clear relationship between under application of phosphate and potash and below trend yields.
No farmers and retailers are recognizing this and demand is rebounding as we've said in the past demand returns volumes move in prices follow.
We saw this pattern play out this year with global volumes, returning Jenny can you walk us through the volume rebounds, and why we expect a higher potash volume in 2024.
Sure Josh we are seeing very strong broad based demand recovery in 2023, which we are forecasting 5 million tons, a recovery to a 65 million times.
Just laid by North American market, we have had a very strong spring application and then from a field trip punish the MPT channels and for this full application. We are seeing a very strong application again, we're still having customers find has for us.
For the <unk> season education and for this new tons, we have realized a $20 per ton price increases for Midwest warehouses in North America.
Gil Similarly to North America, we have very strong application for summer crop soybean applications the window for the delivery.
Non default by two months, which give families the opportunity to put down more potash into the market.
With a strong so from application in Brazil, that's a very strong recovery in that market and we believe there are a big buying to come forward. That's the farina corn season, which is about two stocks and.
And cost awards to China, We are seeing China has the court input to potash this year and domestically in terms of the consumption and theres, probably 10% of the potash application interest is in China, and that's just driven by the concerns to the food security and also.
There is strong at commodity prices there as well so with this major markets demand growth in 2023, which says Wow into 2024, that's what we're going to continue to see broad based demand recovery.
Starting from Southeast Asia.
In Malaysia, Indonesia, they have been working through their high priced inventory throughout 2023, and we are seeing customers re engaging now to prepare for 2024 as they've come out of our email drought impact and although inventory off the potash in the channel and lastly.
Rice and Palm all your prices are very constructive for the farmers there to put down potash, which has been under applied over the last two years.
India is the subsidy program is supportive to potash as well with Lord I'm, a price we should see a boost of the farmer usage of potash in that part of the market and with improved affordability and stabilize the price we are going to see their broad range of.
The demand recovery across the board in 2024.
Thanks, Jenny So Jenny has given our view of the demand side from a supply side, we're modeling a recovery in Belarus from 70% to about 80% of pre sanctioned shipments were expecting your colleague to a recover to prewar levels.
And modest growth from your chems vulgar Cali and Laos, We also expect to see some modest growth. So overall if any of these fall short we will see lower shipments not because of a demand problem, but because there is not enough supply.
Thanks, John Operator, please open the lines for follow up questions.
Thank you.
I'd like to ask a question. Please press Star then one to remove yourself from queue. Please press Star then two.
Each caller will be limited to one question.
Today's Q&A session.
Today's first question comes from Steve Byrne with Bofa. Please go ahead.
Well, thank you and it's been a pleasure working with you Jock.
Wanted to drill into furloughs on things a little bit here.
Are we right that roughly 20% of the fertilizer volumes that you distribute come from your own phosphate production in the country.
But we would assume the EBITDA contribution from that in country production is is much greater than that 20% is that is that right and what what are what's your prospects for either expanding production or maybe switching it to more TSP and reducing your.
Your ammonia purchasing costs down there.
Whoops, sorry, thanks, Steve.
Yeah, So in Brazil, one of the benefits of the integration of course is we can move our own production through our distribution system and while we sell a good chunk of it as a b to b business to other players in the market about 20% is not a bad number to it.
Estimate of what goes through our own our own system.
That product we transfer at market price, so we try to keep as clean.
Between the two as possible that said now we would expect under general market conditions that your margins for the production business would be better than distribution or at least they would be for products such as T. S. P. R. D E P.
As you say, our probably our least profitable product, we make down there would be the S. S. P for for good reason and so you know where we're constantly looking at how we make that product mix better how we make it more profitable.
And we can't ignore die calcium phosphate or animal feed as well in there so which is again one of our highest return products. So that whole area of mix. We're looking at we've got a strong plan down there to reduce costs, but also to optimize production rates.
So all of that is in works and all of that will be something that Bruce.
Bruce and with Karen Swagger and her team will be working hard to accomplish.
Okay.
Thank you and our next question today comes from Richard <unk> with Wells Fargo. Please go ahead.
Great Thanks, and congrats Josh.
So my first question just on the outlook for potash.
We see strong growth next year of 5 million tons.
I was wondering how do you think about your operations heading into next year.
Like with the <unk> guidance.
You're going to come in around $8 79 million tons of production. So.
Do you expect to.
Keep those production levels next year.
Carl them to grow with the market how are you thinking about that thank you.
Thanks, Richard and let me, let me follow that with also a little bit of a discussion on how we look at colon say for the first part of the question I think.
Yes, we would expect the same sort of level next year, maybe a slight uptick because of increasing demand.
But we're looking at somewhere in that same range of production like I say, maybe a couple hundred thousand tons higher depending on Canpotex in particular.
But in terms of the strategy for it.
Over the last few years.
<unk> has been our swing plant and we've been able to ramp it up and down efficiently, giving us the ability to run our lower cost extra hazy on bell playing at full rates, while being able to flex.
Flex production to meet demand. So as we look forward to next year that is really going to be the question. What is demand going to look like and we certainly have the ability to go either up or down from the approximately as you say $8 nine which is about where we think we will spend and this year. If you include came.
So we always prioritize esterhazy and Belle plane, and we focus that on the North American granular grade market, where we see our best net backs and then.
Our next focus is meeting the international sales program of Canpotex.
This year strong north American demand, coupled with lower imports meant we needed colons, both to offset esterhazy turnaround and to meet that increased demand in the fourth quarter, we're expecting strong international shipments through Canpotex.
Global markets continue to rebound.
So at this stage, we expect to need Kalonzo you to meet that demand.
And replenish our granular grade inventory in preparation for the North American spring season.
And then.
So that would put us about probably about the same level, but as we move into the second half of 'twenty 'twenty four and beyond Astra hazy K three will be fully ramped up and the addition of our hydro flow project will optimize their capacity there and so at this stage, we'll have to reassess the longer term role for Klondike.
And as always we're focused on running our assets in a manner that maximizes value for taking into account the need for flexibility and to deal with the seasonality and market variability in our business. So.
Just to summarize that in terms of your original question, we expect to run in that same sort of range, maybe growing with the market, which is growing at about two or 3% a year, but next year will grow even more.
And if we need that volume or if we find good value, adding sales for that kind of volumes.
We'll we'll run up and if we don't we'll probably hold where we are today.
With colons, they being the the variability in that.
Thank you and our next question today comes from Joel Jackson with BMO capital markets. Please go ahead.
Hi, Jack and congratulations as well.
I got a follow up on that last question your answer because I'm confused.
No.
You are saying mosaic is saying today that you think demand for potash globally is gonna grow 5 million tons next year.
65% to 70 Canpotex partners at 66 to 69 2 million tons by many times whatever that's great growth.
The answer says that you're going to produce about the same in potash you mosaic next year. Then you said that you might grow with the market, which goes to 80% and actually grows more.
So explaining the question if the market is going to grow 3 million times 4 million down five one times next year and humor that can't supply more and you're tied off Charlotte nutrient Andrew Canpotex who's going to supply the extra 345 million tons.
Well I think that's exactly what I said in the prepared questions Joel. Thank you by the way for the questions and thank you for the.
The.
Comments.
Yeah. So if you look at this we expect to see Belarus bring out about another million tons. We expect your colleague to bring out probably another million tons, and then euro Kim with their.
There are vulgar Cali mine, which is ramping up now and recognize that it's been a pretty slow ramp up but if we got a half a million to 700000 tons between between you saw ski and vulgar Cali are there you are right now you're at $2 7 million tonnes out another 1 million tonnes from Laos and you.
We're pretty much at that gap and that's what I was saying if those players and then probably likely up too.
You know maybe.
Maybe and I'd say maybe.
Tons for Canpotex, which would mean that that is satisfied that difference between 65 and 70 million tons. So our share of a canpotex of that would be three or 400000 tons at which point.
We would need count we would need kalonzo for 'twenty 'twenty, four otherwise colons, they wouldn't be needed but again.
Those are based on expectations that these other players bring up those tons.
If it plays out differently, if they do better last year, I think Belarus did better than what we expected.
Well they continue that ramp are we think that's unlikely but you know.
We'll see how it plays out so I don't think there's any inconsistency in how we're looking at it we.
We see tonnage being similar to what it is this year with the exception of maybe three or 400000 tons for Canpotex and North America's had a very good year, but not sure I'll probably will continue and then the one thing I will say on all of it is.
You know Canpotex has never done those levels of tonnage and not because the mines can't supply it but the logistics and the market haven't the market hasn't needed or the logistics haven't supported it last year, while the year before last we had floods we had.
Rail.
Problems, we had fires.
This year, we've had port strikes we've had failures at ports.
More port strikes.
It just isn't.
Thinking that we're going to jump up by two or 3 million tons. I. Just don't think is realistic so.
I don't know how you put that in your model, Joel, but youre going to have to try.
Thank you and our next question today comes from Ben Theurer with Barclays. Please go ahead.
Yeah, good morning, and as well from my side, all the best for retirement enjoy that piece.
Now all my question I wanted to go back to some of the phosphate.
Comments, you made and the projects you are looking into a PPA for L. S. P and there was those investments clearly something.
That's that's come up more frequently as a as a solution to the electrification of some light vehicles. So if we think about how you're positioned and maybe the capex needs can you help us put that into perspective, just what would you think this might cost you to build this out and whats like the expected return.
Profile of that business that would be much appreciated. Thank you.
Okay. Thanks, Ben.
Yeah. So.
At this stage, we're at the I would say early feasibility stage moving into the design phase to get to a final let's call. It a bankable feasibility to do all this so the numbers are pretty preliminary.
What we've looked at so far though has been for unified phosphoric acid and potentially building a powder plant, which would be the precursor to a lithium iron phosphate.
<unk>.
So at this stage, we're probably looking at a 100000 tons of purified phosphoric acid at our Louisiana facility and our expectation of cost is probably in the range of half a billion dollars to build that.
Now.
Obviously, we have to look at the long term demand profile and what we can expect for pricing, but what we've seen so far is first phase has got a strong no.
Higher than well over our cost of capital return.
And then if we go future phases, obviously the capital per tonne decreases.
And.
And that return gets gets better as we go forward, but we're going to do it in a modular way and by doing it in a modular way, we will reduce the long term risk market risk et cetera et cetera.
And you know what we're seeing though from a.
Qualitative perspective is.
Due to the expense of nickel cobalt et cetera.
There is a strong trend towards.
Lithium iron phosphate batteries, not only for electric vehicles, but also for stationary power and particularly you know our view is that while electric vehicles will be the early growth engine long term you will need these stationary batteries to make up for the variability.
D of.
Both solar and wind they don't tend to come at exactly the same time as demand. So you have to have some level of buffering.
Okay.
Thank you and our next question today comes from John Roberts Mizuno. Please go ahead.
Thanks, and best wishes, John and congrats Bruce.
I'm looking at slide seven and the hand deck on under application versus yield obviously the bottom line is that most of the world is in the left quadrant, but are there any other key takeaways from those slides.
I think the key takeaway there from my perspective, John and you know again. Thanks for the question I think this is so.
Intuitively, we've been saying for a long time that fertilization is what drives plant growth I mean, you. If you don't feed any organism they don't grow.
But what we haven't been able to do in the past I guess is really shows the relationship in a clear way now what we've seen here is.
Under application and probably mining of the soil, even with both of those we're seeing a clear.
The relationship between the yields and particularly phosphate and potash.
Usage now you see the nitrogen which is more likely to be used in.
You know first and you see particularly when you look at Asia, which includes India, where the over application of nitrogen actually isn't helping yields at all whereas the under application of phosphate and potash really is hurting yields and if you do the math on those things if you take.
<unk> state and potash application into account and then you look at the yield loss, it's about a two to one price of fertilizer to yield loss. So in other words, if you're saving $10 on fertilizer, you're losing $20 on yield. So you know the the point.
Here is our farmers are incentive to properly fertilizer field and they cannot afford to continue to mine the soil.
Thank you and our next question today comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Thank you and let me Echo the comments Jack Congratulations on retirement and a pleasure working with you all these years.
In terms of my question I wanted to ask a bit more on the Brazilian market and some of the comments that were made.
In terms of the <unk> season, and it sounds like you're pretty optimistic about application rates there.
Just maybe youre getting good intelligence from your fertilize on taste business versus.
Some of the other comments that are out there, but there is there is commentary and some data, suggesting that planted acreage is going to be down on corn.
So that's going to cover crops and some of the grower associations, you're talking about are advising their growers to.
Maybe back off on inputs, but are you seeing on the ground that are you know the demand in the shipments and so forth. It was quite strong ahead for that season or whats, giving you the confidence.
About this.
Yeah. Thanks Vincent.
Try to unpack that one a little bit yeah. So as we as we head into Sabrina I think the concern that's out there if you will and I I'm not saying, it's an unfounded concern is when you look at the.
Basis for corn, but we're starting to see in the market, it's not the global market price. It's the idea that the the basis the in country basis, the availability of transport and et cetera to get it out of the country has been challenging and it's probably hurt the economics.
Of some of the farmers that being said if.
If we look at the general in country price to the price of fertilizer in what we call the barter ratio down in Brazil, It's still shows a fairly profitable corn.
Yield in corn soy corn market. So our view is that probably is early stage and probably a little overstated. It's like what we saw this year and soft rough season, where you know earlier.
Our projections, we were looking at people. We're looking at 40 million tonnes now we're looking a lot closer to 43 million tonnes of total fertilizer to Brazil, which is starting to get back to.
The peak of 46 million tonnes, historically, Brazil was growing at about 445% a year. So we expect.
In general.
<unk> to continue to grow both acreage and yields.
So fertilizer demand has to follow that.
Thank you and our next question today comes from Jacob Boot with CIBC. Please go ahead.
Good morning, and congratulations on your retirement.
Maybe just going back to the potash industry.
Last week, there was an announcement of the second phase of Janssen.
Curious on getting your thoughts on what the impact of GNC will be on the potash industry. Both in North America and also globally.
And do you think about changing your market strategy.
Amps.
Yeah.
Yeah. Thanks Jacob.
Yeah, Let me first of all say.
Oh, you know by their own announcements and I have had conversations.
That would tell me that while they will start up first phase at the end of 2026, they won't be ramped up until to 4 million tonnes on their own estimates until 'twenty 30 at 2030, they would start the second phase and that would probably ramp up similarly over four five years.
So you know in our five year.
Forecast, we have little or no.
Significant production from BHP.
As we look out 10 years, which is what we're talking about here are if we see the market growing at the rate I'm from.
Spud to Joel and maybe the the point here is growing from the 72 million tons. We were pre war not from the 65 million tonnes, but if we see the market growing at that 2% a year you know that's a million plus tons a year. So in 10 years.
You could easily be in a position where that could be absorbed.
Reasonably how.
How it will work from a trade flow perspective is absolutely yet to be seen.
We assume.
That they would go into the North American market, but you know the best analogy, probably as the K plus S. Bethune mine, where you know for all the.
I worry about the disruption there as you know it really came on and it came on slowly are they focused on the export market and it really was absorbed in.
Quite reasonably so who knows what to do I guess, if if it comes on faster that could change people's strategies, but for now I think.
I would say you just hold the course and that I don't see it as a big threat for a long time.
Thank you and our next question comes from Joshua.
<unk> with UBS. Please go ahead.
Good morning, this is like a spotlight on for Josh.
Switching to our sites.
So your forecast is calling for an increase of two to 3 million tons next year.
So I'm just wondering could you kind of walk us through how you see your production.
Production outlook.
Compared to this year and how much of that shifting up what would you expect to capture from this year's guys. Thanks.
Okay.
Thank you.
So we are expecting growth in the range of two to 3 million tons next year as the market continues to recover.
There will be some recovery by us and probably our Moroccan competitor will have some increased production. We expect a small increase again from China's exports not back to where they were but about flat too.
Where they were last year or this year sorry.
And in all cases the.
The demand like I say will be met by by all of those and then some of the middle East producers will also be ramping up in fossil hydro I think has a small ramp up there they're looking at.
So.
It will be met but what we see there is probably a phosphate market that continues to be tight and maybe even tightening a bit next year. So.
It actually looks pretty pretty good from a perspective of our.
All of our future.
Thank you and our next question comes from Andrew Wong with RBC capital markets. Please go ahead.
Yeah.
Hey, good morning, Thanks for taking my questions.
In the phosphate segment kind of as we work through this more recent issue and operations returned to normal can you just talk about what normal looks like on a quarter to quarter basis.
Kind of difficult with the different impacts over the past.
A couple of years to just kind of get a good sense on northern normal production run rate what are normal course, what do they look like today.
Relative to where we've been historically.
Yeah, Thanks, Andrew I'm going to hand, this over to Bruce because Bruce will be obviously responsible along with Karen and her team.
For for.
The future of the phosphate here and I think.
Yeah Fair Fair question, because we have had a lot of issues with respect to our.
Big Hurricanes Pandemics and some.
Mechanical fault, so worth worth of AR.
Bit of a detailed answer Bruce can I give it to you.
Yeah, Thanks, Jack and thanks, Andrew.
Just to start with your question.
All right.
I think historical levels that we've proven and about 2 million tons a quarter is what we would expect them out of Florida. Once we get back to kind of normal operation, but I think it's worth to Jack's point kind of walking through some of the the history here in the last two years with our phosphate production.
It has been below those historical levels for sure.
Of it has been a function of some of the new rock reserves that were now mining here in Florida.
We are becoming a lot more familiar with the chemistry of the rock and.
And should see some of those incremental impacts start to subside.
In the future as we move forward, we're really the larger issue is there's kind of two one is has been Louisiana. This year we've experienced.
Some unexpected operational and maintenance issues with two of our larger sulfuric acid plants, which are you restricted ultimately finished product production on the back half of this year a large chunk of that production was just return to service this week and.
And then the remaining work that needs to be done there will be completed by the end of the year. So going into 2024 are those issues should be largely behind us in Louisiana and then the last Jack kind of alluded to as the lingering effects of the pandemic and the various hurricanes. These past few years in both Florida and Louisiana.
We have proven more difficult than I think we otherwise would have expected and I think that's not uncommon not only for us but in other industries that we've heard as well and if so.
We are investing a significant part of our sustaining capital to restore some of the historical proven turnaround cycles that have been disrupted through the pandemic and some of these hurricanes.
And we are aggressively in addition to that replacing some of our aging assets throughout North America.
When we couple all of that from an asset base with the better technology that our global digital acceleration of investments that we've talked about are coming to bear.
As well as some other internal organization realignment that we've done we should see even better proactive managing of maintenance of our equipment and Onboarding and training of some of our key personnel and all of that leading to improved reliability.
And productivity, so to close and get to your point do we expect to see production volumes significantly improve next year from the last two years and a return to historical run rate levels at that $2 million a quarter in the back half of 'twenty 'twenty four.
Thank you and our next question today comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
I wanted to come back to potash and mosaics on kind of production outlook and I just want to be clear on the this year the company has.
Especially in the third quarter.
You've taken out of your sales have exceeded your own production about 575.
Tons now of last year, you sold more than you produce more than you sold but you've worked down pretty healthy amount of your own inventories youre, calling for a sequential uplift in sales volumes in the in the fourth quarter.
Which would be at a level that really the companies.
Really never hit on a quarterly basis.
I know <unk> been expanded but.
I guess.
Going back to some earlier lines of questioning.
Why.
Couldn't.
Rather than <unk>.
Jack you alluded to.
Thanks constraints being a real challenge for mosaic to operate at higher volumes why wouldn't the natural investment for Canpotex P. J increases logistics capability and alternative port infrastructure maybe.
Maybe away from the West coast that could kind of provide some risk mitigation.
Winter weather.
That would allow the company and and your Canpotex partner to produce more consistently and reliably at higher rates because clients that might be your higher cost mine, but it's not high cost really in the context of the below market.
Thanks, Adam you you make great points there.
Let me start by saying.
Canpotex has greatly improve their logistics capabilities through rail infrastructure.
Prove months in.
In our facility in Vancouver, our facility in Portland has been expanded.
We have maximized our optimize our use their use I'd say there because it's a it is an independent entity.
Their use of the St John's Port and and the use of Thunder Bay. So we are sending as canpotex significant volumes, both to the east coast and the West coast and that allows us to deal with things like the port.
Strikes and whatnot my only point there is there is a limit to what you can move and how fast you can grow we've probably grown canpotex over the years from let's say 10, 10 5 million tons to 13 to 14 million tons. So if you look at it from that.
Perspective, Canpotex has actually done a pretty darn good job and you know.
I can tell you that under the leadership of Ken Seitz and continued under the leadership of Gordon Mackenzie.
Canpotex has taken some real strides to solidify their markets to.
Improve their logistics capability.
My point, there is not to say that we haven't been doing a lot on that and it's to say that we can't ignore those as real limitations to how fast you can possibly grow and how fast you can respond to a step changes or you know.
Options in the international market.
And then finally of course, you're relying on Canadian National and Canadian Pacific Railways Hu.
From time to time have issues as well.
Thank you and our next question today comes from Aaron does currently was Wehrenberg. Please go ahead.
Hi, good morning, and thanks for taking my question and I would like to go back to poach them. Despite your strong safe volume for outlook for Q4 your pricing outlook is relatively muted as you said at the same time, new tennis flag that to Russia, as possibly coming back a little bit faster than originally anticipated.
He painted does that contract with China, and Canpotex expiring if I'm correct at the end of the year. My question is what could really prevent us to see a contracting with China next year between Canpotex between complex in China to be below founded seven donut, but thank you.
Yeah, Okay. Thank you.
Look as we look forward.
On on this if we are back at the 70 million tons, which we expect the demand to be.
There will be room for.
The Russians the Russians will continue to.
Export across the year olds by rail Belarus will continue to export by rail into China.
The seaborne product will have to continue because China is actually buying record amounts of of potash as they need for their growth or their market. So I've.
I've always said and you know, even our Chinese customers fully agree that the.
The Chinese customers need Canpotex and Canpotex needs, our Chinese customers. So it's it is one of those situations, where yes, there's always tension as you tried to build the get to the final contract and it matters what the level of inventory sitting on the ground is in China, what their demand is it the.
Time, and Theres always a hold out till the last possible moment, but in the end do you come up with a a contract which as you know as close as we can to the market.
Oh, that's a.
They're very informed buyers a nurse or a canpotex are marketers are very informed marketers so you'd normally come up with a pretty good balance.
In terms of whether we can repeat the 307.
All her contract really depends on how things look as you move into 2024, the relevance of the seaborne.
Trade is lower today than it was before because of these rail.
These rail imports and because of the Qinghai Lake production, which is I'm, taking up a good chunk of their production, but the point I'd make there is the the issue will not be Russians, new production coming on or anything like that it'll be how does the global market looks like.
What is the price comparator for Brazil for Indonesia, Malaysia, China, possibly and again, what's their inventory position and when are they ready to come to the table. So it's pretty early days.
But that market will always well.
We will always have a fairly complicated dynamic.
Thank you and our next question today comes from Jeff Zekauskas with Jpmorgan. Please go ahead.
Thanks very much.
I think Belarus Cali.
For the past two months has been shipping at a little bit more than 900000 tons per month, which means that they're shipping.
At an annualized rate now of about 11 million tons.
And so I was wondering why you thought next year, they might be 3 million tons below their normal output.
Yeah. Thanks, Jeff I think the simple thing there is we don't know where exactly that is coming from was that product. That's been built up out of port waiting to go out I think you can't look at three months, particularly three months of you know of summer.
And compare it to the whole year, we know that those ports have issues in the winter with respect to freezing and unavailability etcetera etcetera. So as we look at whether we look at Belarus, scally or whether we look at the Russian producers there.
Our seasonal shipments are never as high as their summer shipments. So our expectation is that's what they'll do and again not unlike Canada. It gets pretty darn cold in the winter around that area.
And.
Shipping.
By rail that kind of distance it can be pretty challenging.
We're gonna get all kinds of issues and so our expectation is yes, they may be able to do it in the summer, but we would discount that or at least a risk adjust that for the winter months.
Thank you. This concludes today's question and answer session I would like to turn the conference back over to the management team for any closing remarks.
Okay. So to conclude our call before I reiterate our key messages. Let me just say I've I've dealt with many of you know for 15 years. It has been a pleasure I was hoping you'd be a little easier on me on my last day, but you clearly weren't going to do that so I. Thank you for your honesty anyway.
In terms of Mosaiq.
Mosaic and the business as it goes forward I continue to believe that we are a well positioned company at a great time and a great market.
And I think Bruce.
Bruce and team will do very well going forward, but let me just conclude at least this quarter. Yeah AG fundamentals continue to be compelling growing demand for grains, and oilseeds, just bodes really well for the future farmers around the world continue to have the incentive to maximize production and <unk>.
That in turn leads to strong fertilizer demand and we expect tight supply and demand dynamics for both of our products for the foreseeable future.
Now mosaic as a company is in excellent position to benefit from these market dynamics, our balance sheet is strong.
We're investing in the business and returning capital to shareholders and with that I'm going to sign off pass the baton to Bruce and wish them the best.
In the future and for their earnings calls. Thank you all very much.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Yeah.