Q4 2023 Mosaic Co Earnings Call
Good morning, and welcome to the mosaic company's fourth quarter and full year 2023 earnings conference call.
At this time, all participants have been placed in a listen only mode.
After the company completes their prepared remarks, we'll be open to take your questions.
As a reminder, today's call is being recorded.
Your host for today's call is Jason from Bliss, Jason you may begin.
Thank you.
Jason: Welcome to our fourth quarter and full year 2023 earnings call.
Opening comments will be provided by Bruce Balding, President and Chief Executive Officer.
Followed by a fireside chat and then open Q&A.
Jason: Clint Freeland Executive Vice President and Chief Financial Officer, and Jenny Wang Executive Vice President commercial 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.
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 factor.
Factors that could cause actual results to differ materially from those in the forward looking statements.
In our press release published yesterday, and our reports filed with the Securities and Exchange Commission.
Jason: 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 Bruce.
Good morning, Thank you for joining our call today.
Bruce: This is my first earnings call as mosaic CEO now I'd like to begin by acknowledging jocko Roark for his many contributions to the company.
Bruce: Jock held this role for nearly a decade and the company is much stronger today, thanks to his leadership.
Under Jock Mosaiq expanded its footprint in Brazil, with the successful Vale for Lazard Chase acquisition.
We completed development of the world's largest potash mine, we transformed our cost structures, and we deleveraged and optimized our balance sheet.
Bruce: We have opportunities to improve returns and drive shareholder value by building on the current position of strength that Jacques helped create.
I look forward to evolving mosaic strategy and to helping all of you understand just how we will do that.
Speaker Change: So for today there are a few key messages that we would like you to take away from this call.
First phosphate markets are very strong we expect dynamics to remain constructive for the foreseeable future and we are working to optimize our production. So we can benefit fully.
Speaker Change: Second we expect demand recovery in potash in fact, we are seeing early signs of demand emerging in Brazil that said given current potash economics, we will be curtailing production from our Colonsay mine.
Third we are taking these actions as well as reducing costs and capital expenditures to improve through cycle returns.
Finally, with our strong financial foundation in place, we remain committed to prudent capital allocation selectively investing when risk adjusted returns are compelling and returning excess cash through share repurchases and dividends.
For full year 'twenty twenty-three mosaic generated revenue of $13 7 billion adjusted EBITDA of $2 8 billion and adjusted earnings per share of $3.57.
Speaker Change: We invested $1 $4 billion in the business refinanced $900 million in long term debt and returned $1 1 billion to shareholders, including over $750 million in share repurchases.
Let's start by looking at the market.
Speaker Change: 2022 brought extreme volatility to fertilizer markets.
Speaker Change: High prices driven by supply disruption eventually reduce demand.
In 2023 as prices retreated customers returned in many key markets.
The long term global grain and oil seed supply and demand picture remains encouraging with secular demand growth outpacing supply.
In addition to population and income growth demand for agricultural commodities is being driven by renewable fuel adoption, which we expect will continue to ramp over the next several years.
Recent policy mandates have been announced in California, The European Union and in Singapore, and additional mandates are expected in the future.
Speaker Change: This emerging source of demand has the potential to require tens of millions of additional acres of production.
Short term fundamentals also look positive we believe that ongoing weather challenges in key growing regions, including Brazil, where result in grain production lower than what the market is anticipating.
This suggests that already low stock to use ratios will remain under pressure and support a healthy grain price environment.
On this point there tends to be a lot of focus on the stock to use ratios for corn and soybeans.
As you can see in the presentation materials, we posted these two commodities represent approximately 30% of the global potash and phosphate consumption.
Speaker Change: This means that 70% of consumption is tied to other crops.
Speaker Change: Many of which are experiencing continued tightening in their ratios.
Speaker Change: We believe the result is that growers around the world continue to be incentivized to maximize yield and crop production through strong fertilizer applications.
Speaker Change: In North America, a long fall application season drove strong demand well into the fourth quarter salt.
Speaker Change: Solid winter fill activity tells us bins are near empty and channel inventories are low.
Speaker Change: We are seeing demand strength to continue into the spring planting season and sales volumes are mostly committed through March.
Speaker Change: In Brazil, BARDA ratios for both soybeans and corn are favorable and while weather impacts have delayed fertilizer purchases our outlook for full year 'twenty 'twenty four is very positive with the expectations of fertilizer shipments at or near an all time record as growers need to replenish soil nutrients.
Speaker Change: Favorable and commodity in fertilizer demand drivers are especially promising for phosphate markets.
Speaker Change: We expect global supply will remain tight due in part to China's fertilizer export restrictions and the government prioritizes domestic food security.
Speaker Change: Tighter environmental oversight has also had an impact with a reduction of domestic D. E. P production.
Speaker Change: China also continues to direct more asset to industrial markets lift.
Speaker Change: Lithium iron phosphate production has more than tripled in the last two years and we expect growth to continue at a rapid pace.
Speaker Change: The competition for phosphate molecules is intensifying and it will continue to do so for quite some time.
Speaker Change: This together with limited capacity additions in the near future suggests phosphate market fundamentals will remain constructive.
Speaker Change: For potash.
Speaker Change: Apply is adequate to meet demand in the near term and economics have not yet improved.
Speaker Change: Which is why we intend to curtail production at Kalana Zhang.
Speaker Change: We will continue to monitor market developments and customer demand and when needed Colonsay will be prepared to return to service in short order.
Speaker Change: Overall AG and fertilizer market dynamics remained solid.
Speaker Change: At mosaic, we continue to focus on meeting customer needs executing on our business strategy, optimizing our operations and delivering value to shareholders.
Speaker Change: Turning now to fourth quarter results in our first quarter outlook.
Speaker Change: For the fourth quarter of 2023 mosaic delivered revenue of $3 1 billion adjusted EBITDA of $646 million and adjusted earnings per share of 71 cents.
Speaker Change: Our potash business generated $322 million of adjusted EBITDA on sales volumes of roughly $2 6 million tonnes.
Speaker Change: The port at Portland, Oregon back up and running the team at Canpotex had a strong finish to the year, enabling us to deliver sales volumes well within the range of our initial guidance.
Speaker Change: We expect sales volumes for the first quarter of 'twenty 'twenty four in the range of two to 2.2 million tonnes and potash prices at the mine in the range of 225 to $250 per ton.
Speaker Change: In phosphates, we generated $259 million and adjusted EBITDA on sales volumes of 1.6 million tonnes.
Speaker Change: Realized stripping margins remain strong for the quarter, but were offset by lower cost absorption from lower production levels.
Speaker Change: For the first quarter, we expect phosphate sales volume in the range of 1.6 to 1.8 million tonnes and DAP realized prices at the mine in the range of 580 to $605 per ton.
Speaker Change: Moving to our business in South America.
Speaker Change: Despite the weather driven fertilizer demand headwind in the fourth quarter, we delivered strong operating results.
Speaker Change: With adjusted EBITDA of $111 million disc.
Speaker Change: Distribution business margins came in well above the historical normal annual range of 30 to $40 per ton.
Speaker Change: In the first quarter of this year, we expect margins to recede from the fourth quarter as part of the normal seasonality of the business.
Speaker Change: The first quarter of each year typically has a higher amount of fertilizer volume going to Brazil, corn crop, which demands a higher percentage of nitrogen products, which historically generate lower and less consistent margins and lower volumes of micro essentials, which generates higher margins.
Speaker Change: As a result margins are generally lower during the quarter, but improved from there resulting in annual margins in line with our historic norm of 30 to $40 per ton.
Speaker Change: We executed well against our capital allocation strategy in 2023, and our balance sheet remains optimized.
Speaker Change: We spent $1 $4 billion in Capex and made significant progress on our investment projects.
Speaker Change: We refinanced $900 million in debt and returned $1 $1 billion to shareholders through an increased dividend and share repurchases.
Speaker Change: Our returns included not only free cash flow, but also proceeds from asset sales such as the sale upstream song resort.
Speaker Change: Finally.
Speaker Change: I want to discuss our top strategic initiatives for 2024.
Speaker Change: First we're focused on driving down costs over time, we expect to achieve at least $150 million in annual run rate savings off of a 2023 baseline driven in part by savings from our global digital acceleration program, which will go live later this year.
Speaker Change: Next we will continue to transform our operations to increase resilience and flexibility our.
Speaker Change: Our top priority and phosphate is to improve our production volumes were.
Speaker Change: We're working toward an annual run rate of 8 million tons over the next few quarters by enhancing the overall reliability and efficiency of our operations.
Speaker Change: To this end, we have a busy turnaround schedule at our Florida facilities in the first half of this year as we target areas that have caused us the most significant maintenance issues.
Speaker Change: Next we will further expand our presence in Brazil.
Speaker Change: One of the most dynamic agricultural regions in the world by completing a 1 million ton distribution facility at Palmer raunchy to serve the fast growing northern region of the country.
Speaker Change: We will also further strengthen our product portfolio by growing non commodity products.
Speaker Change: We're expanding micro essentials capacity at our river view plant here in Florida, and we expect those additional tonnes later this spring.
Speaker Change: We anticipate that more than half of our phosphate sales will be value added products, which clearly is a differentiator for us.
Speaker Change: In addition, we're planning for the next generation micro Essentials pro which is delivering significant yield improvements and field testing.
Speaker Change: Micro Central's Pro will also extend our patent protection until 2038.
Speaker Change: Finally, we will remain true to our disciplined capital allocation strategy.
Speaker Change: In 'twenty 'twenty four we expect to reduce total capital spending by about $200 million and will continue to return excess cash to shareholders.
Speaker Change: To summarize.
Speaker Change: Our outlook for agriculture, and fertilizer markets remains positive.
Speaker Change: At mosaic, we have a strategic roadmap to optimize returns through the business cycle to grow into D commoditize, our product offerings.
Speaker Change: And we have a very strong financial foundation from which to operate.
Speaker Change: I'm looking forward to updating you on our progress as the year proceeds.
Speaker Change: Now, let's move to Q&A.
Speaker Change: Before we move on to the live Q&A as we've done in the past quarters, we would like to address some of the most common questions that we received after we published our earnings materials last night.
Speaker Change: For our first question Bruce a number of analysts have asked questions about potash and phosphate.
Speaker Change: Market dynamics of these two crop nutrients seem to be diverging with phosphate as being strong potash is finding its way.
Speaker Change: Can you tell us how you see these markets developing as the year progresses.
Bruce: I think this is a good way to characterize current market conditions phosphate markets are very positive due to strong demand low inventories and a tight supply situation globally, leading to some of the strongest stripping margins in the last decade.
Bruce: We believe stripping margins will remain elevated for the remainder of the year.
Speaker Change: Looking at the key regions.
Speaker Change: In North America channel inventories are low and we're seeing strong demand for spring planting.
Speaker Change: For Mosaiq, specifically, we continue to operate at minimum inventory levels and our first quarter sales are almost fully committed.
Speaker Change: And Brazil inventories are well below the five year range and our outlook for the year remains positive as growers need to replenish soil nutrients.
Speaker Change: India's proposed subsidy rates announced earlier this month showed an increase for phosphate fertilizers from the prevailing rates in the fourth quarter of last year.
Speaker Change: But importer margins remain negative.
Speaker Change: With very strong group demand and low inventories, which are at the low end of the five year range subsidies should move higher.
Speaker Change: In China, we are seeing an increased focus on food security.
Speaker Change: The government is limiting exports to ensure adequate domestic supply while also meeting rising industrial demand we.
Speaker Change: We expect these dynamics to continue to limit exports for the foreseeable future.
Speaker Change: Industrial demand, particularly China's lithium iron phosphate market has been very strong with production more than tripled in the last two years to $1 7 million tonnes of finished fertilizer product equivalent in 2023.
Speaker Change: We expect additional production growth in the future as demand continues to soar.
Speaker Change: Overall this leads us to conclude that phosphate markets will remain constructive for the rest of the year.
Speaker Change: In potash the supply constraints from Belarus, and Russia seen in the past few years, we will continue to abate in 2024.
Speaker Change: On the demand side, we see stability in North America.
Speaker Change: In fact, our winter fill program was fully sold in similar to phosphates, we are almost fully committed for Q1.
Speaker Change: In Southeast Asia, particularly Malaysia, and Indonesia high priced inventories were worked down in 2023.
Speaker Change: Two years of under application in those markets will put further strain on crop yields if nutrients are not replenished.
Speaker Change: We're seeing significant pent up demand in that region.
Speaker Change: In China, while potash inventories are higher than historical periods. The fertilizer stock to use ratio is normal due to increasing on farm demand as a result of favorable pricing.
Speaker Change: It's been reported that China intends to increase its strategic reserves, meaning that inventories will have to remain higher than historical periods to meet this objective.
Speaker Change: We also expect lower Chinese domestic production as a result of the recent news capping production in its key potash basin due to environmental concerns.
Speaker Change: The combination of these factors should drive a need for continued high import volumes to meet the demand.
Speaker Change: The weather in Brazil has slowed demand in the near term, but we are seeing early signs of demand emerging in potash prices moving up slightly.
Speaker Change: In fact, when you look at the entire fertilizer market, we expect shipments to be at or near peak levels in 2024.
Speaker Change: Putting these factors together, we expect the pace of global potash shipments to improve as 2024 progresses.
Speaker Change: Thanks, Bruce as a follow up question given the market backdrop, you just describe what actions are you planning to take.
Bruce: Well given the strength of phosphate markets mosaics focuses on increasing our phosphate production volumes and further improving our margins by increasing our micro essentials volumes.
Bruce: Getting our production to an annual run rate of 8 million tons, not only increases revenue, but also significantly reduces our unit costs.
Bruce: Micro essentials generates significant yield improvements and as a result generates superior margins for farmers retailers and mosaic.
Bruce: For mosaic not only do we earn a premium margin and our phosphate segment, but we also command a premium margin in Brazil, as we capture the retail premium for these products.
Bruce: In potash.
Speaker Change: I think as focusing on flexibility and cost management.
Speaker Change: Curtailment of production at our Colonsay site demonstrates our commitment to flexibly managing our network to ensure our low cost sites at Bell planar Nestor hazy operate at capacity, while Colonsay is only used when market conditions dictate.
Speaker Change: We have a couple of projects that will increase our product mix flexibility before the end of the year.
Speaker Change: This will enhance our ability to adjust our product mix to respond to changes in the market conditions more effectively in order to optimize our cost structure and margins.
Speaker Change: In addition to cost reductions in our operations, we are focused on driving SG&A reductions and optimizing our investments in capex and working capital.
Speaker Change: These initiatives will ensure our customer demand has met our through cycle financial performance will continue to advance and shareholder value is maximized.
Speaker Change: Okay. Our next question is related to mosaic for Lazard days, Brazil remains a problem like region for many AG input companies what is your outlook for 2024.
Speaker Change: That's a fair observation.
Speaker Change: Lot of these companies are still in the process of Destocking excess high cost inventories or writing off their assets given the challenging market conditions.
Speaker Change: At mosaic, we took early action to complete the Destocking of high priced inventory in the first half of 2023 without any significant write offs.
Speaker Change: As a result, we entered the second half of the year in a great position and it shows in our margins.
Speaker Change: The margin per ton in our distribution business return to the 30 to $40 range in the third quarter and came in above that range in the fourth quarter in 2024, we expect record or near record fertilizer shipments despite lower fertilizer demand in quarter, one due to weather conditions as growers continued to be incentivized by.
Speaker Change: Truck to BARDA ratios and the need to replenish soil nutrients.
Speaker Change: From a distribution margin perspective, we expect normal seasonality on a per ton basis.
Speaker Change: Lower than the normalized annual range in the first quarter, but within the range for the full year.
Speaker Change: Changing topics there was a question about capex, you're indicating that spending will decline by approximately $200 million. This year, how do you see that capex evolving longer term.
Speaker Change: We're coming out of a period of elevated capex due to an unusual number of high returning opportunity projects from across the business.
Speaker Change: We're coming to the end of these projects and as a result, our spending is declining.
Speaker Change: In addition to the $200 million reduction in 2024, we anticipate a further reduction in 2025 with a longer term run rate to be at or below $1 billion.
Speaker Change: Thanks, Bruce and with that we will now move to the open question and answer session. Operator. Please open the line for follow up questions.
Speaker Change: Absolutely and as a reminder, if you'd like to ask a question. Please press Star then one.
Speaker Change: Remove yourself from Q.
Speaker Change: Starving too.
Speaker Change: Our next questioner will be limited to one question.
Speaker Change: Today's first question comes from Steve Byrne with Bank of America. Please go ahead.
Steve Byrne: Bruce you mentioned a couple of times a bump in the <unk>.
Steve Byrne: Crop land needed to replenish soil nutrients when I look at your your forecast for global shipments of phosphate and potash are this is slide eight it doesn't really support that thesis.
Bruce: Well it looks like potentially a massive deficit.
Steve Byrne: Of consumption in the last two years of both nutrients.
Steve Byrne: Close to 10 million times on each and yet your forecast for 24 on both.
Steve Byrne: Just kind of like where it was in 2021 is that a conservative view or or was that is that based on our view that those nutrient levels were maybe above normal in the world and therefore, it's not needed to be replenished.
Steve Byrne: Yeah.
Speaker Change: Hey, Steve.
Steve Byrne: Good talking to you. Thanks, Ed we share your view that.
Speaker Change: Theres been under application of fertilizer for the last couple of years for sure and nutrients had been depleted from the so I think that's why we're pretty.
Steve Byrne: Bullish on you know where things return from a supply standpoint demand standpoint on both P and K are at or near record shipments in in those markets.
Speaker Change:
Speaker Change: And maybe I'll turn it over to Jenny a little bit to talk maybe a little bit about the specifics in each individual market to better answer that I think what you're getting at.
Speaker Change: Steve.
Jenny Wang: Think we definitely don't believe that there was sufficient P and K in the soil where would allow farmers to mine without replenish their first either and we have seen evidence over the last two years and I'd say you may recall, we shared one slight loss to call that to a show.
Speaker Change: The yellow to impact due to under application, especially on potash. So why we're projecting a higher demand for 'twenty 'twenty four mm partially it just related to the supply situation.
Speaker Change: We we we believe that's the global shipment this year and beyond is that we will continue to see a very strong demand tollway tailwind at the grille with me to punish this nutrients in order to pursue there.
Speaker Change: Aspiration and in particular this year as we forecast the demand grows our recovery on potash, we aren't going to see some recovery in the in the market, where we usually don't talk about the smaller market in Asia, the smaller market in Latin America.
Speaker Change: After two years under application.
Speaker Change: I must have realized that they need to put down for P and K into the field and that is actually has been built into our demand forecast in this year.
Speaker Change: Thanks.
Speaker Change: Thank you and our next question today comes from Richard Gotcha.
Richard Gotcha: With Wells Fargo. Please go ahead.
Richard Gotcha: Great. Thanks for taking my question.
Richard Gotcha: Just wanted to ask now that you have decided to curtail colonsay.
Richard Gotcha: What are you.
Richard Gotcha: <unk> in terms of operational capacity for Mosaiq in 2024.
Richard Gotcha: Hmm.
Richard Gotcha: Levels of demand or price.
Richard Gotcha: Would you need to see to make the decision to restart Colonsay and then maybe some <unk>.
Richard Gotcha: Color on in terms of the cash cost differences this year versus last year, with Australia up and running in colon side down.
Richard Gotcha: Yeah.
Richard Gotcha: Okay.
Speaker Change: Thanks Richard.
Richard Gotcha: Yeah for sure.
Richard Gotcha: Short term here at potash supply is adequate to meet demand and now we've made the decision to.
Richard Gotcha: Curtailed colonsay as production not based on one factor so as we as we've continued to evaluate the flexibility within our network. We're looking at not only the market and customer demands, but also really how do we.
Speaker Change: Consider shareholder value as well and I think that's getting to your point and we will continue to do that and at the current time. The economics just didn't make sense, but if you look at the broader 'twenty 'twenty four for the whole year, we're very optimistic about demand recovery, particularly on potash and.
Speaker Change: Let Jenny talk about some areas in a minute but.
Speaker Change: In the meantime, we're gonna shut Colonsay down we've done this before we've demonstrated our resolve to flexibly you know moving that mine up and down we can do that very quickly and we can restore things very quickly as well and as we expect when market demand returns.
Speaker Change: We will in short order return production at Colonsay again is if the market demand is there and if we determined shareholder value is there as well.
Speaker Change: And you know some of the complexities are well, what's going on with the rest of our network and turnaround schedules and things like that those things have to come into you know the analysis as well, but all of this is designed as we've said earlier to really let bell plane and aster hazy, our two large low cost production facilities.
Speaker Change: You know run at full rate and continue to extract maximum value out of those two facilities. So Jenny maybe you want to talk about a little bit of the you know the market dynamics.
Jenny Wang: And why we expect pricing to be pretty good.
Jenny Wang: Sure.
Jenny Wang: I think I'd, probably just want to build on the earlier comment on the potash demand recovery in 2023 last year. The recovery of the demand was over 13% and added 8 billion tonnes the biggest to recovery in the market.
Jenny Wang: North America, we saw 27% of the demand increases over the previous year and we have seen very strong consumption increases.
Jenny Wang: Increases in growth in China, and apart from these two major market in India in Brazil in Brazil, we have all seen over 18% of the demand increases last year in potash. So.
Jenny Wang: So as we get get into 2024, we continue to expect the growth of potash demand in Brazil, and India and we are going to we are going to see a much broader demand recovery from the other markets as I mentioned earlier, our smaller hitting Asia smaller marketing.
Jenny Wang: And all.
Jenny Wang: All this demand projections well need to have the supply to meet the demand when we look how much did the supply side of the equation, but he was late 2023, we've seen some recovery.
Jenny Wang: Shipments out of our Belarus, and Russia, and also some incremental tons.
Jenny Wang: From Laos is.
Jenny Wang: As we get into 2020 for the season itself. We are in the the typical no season time, and we are watching the market dynamics and we believe we are at or close to the to the price of a button.
Jenny Wang: The market in fact, we have seen some major price recovery over the last two weeks in Brazil. So as Bruce mentioned earlier, we run our business our potash operations to meet our customers' demand and in the meantime, we want to maximize value creation for the shareholders as well so that's the economic decision.
Jenny Wang: <unk>.
Speaker Change: Thank you.
Jenny Wang: Question today comes from Joel Jackson with BMO capital markets. Please go ahead.
Joel Jackson: Hi, good morning, Thanks for taking the call question Bruce Congrats on promotion here at this call.
Joel Jackson: You said that phosphate margins should remain elevated talk about how strong profit is can you comment on that a bit more do you expect in Q1 that phosphate margins would be better the same or lower than Q4 margins.
Joel Jackson: Or would that be an EBITDAR, a gross margin basis on other basis. Thanks.
Jenny Wang: Hey, Joe Thanks for your kind words.
Jenny Wang: Phosphates.
Joe: Listen the bottom line as supply is extremely tight and you know we've talked about that balanced and even as much as demand.
Joe: If you theoretically could go higher it is going to be tough to reach you know supply with the restrictions out of China and the things that we talked about in one of the fireside chat questions. So.
Joe: So that is driving pretty good stripping margins in this business some of the best we've seen over the last decade, and we do expect that to continue we may see pricing, Bob a little bit just due to seasonality.
Joe: Throughout the year, but we do believe our realized stripping margins given raw material pricing on sulfur and ammonia and what we have projected for the year. We will continue to stay relatively flat and strong for the remainder of the year.
Joe: Thank you and our next question today comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Vincent Stephen Andrews: Thank you and good morning, everyone can I just ask about on the phosphate production side, what's you're anticipating.
Vincent Stephen Andrews: Coming out of Morocco. This year it seemed like they ran.
Vincent Stephen Andrews: At lower rates last year are you expecting that to continue into this year and.
Vincent Stephen Andrews: What are you expecting in terms of imports into the U S market year over year, given I guess, there's still some uncertainty over countervailing duties, but an update on those issues would be helpful. Thank you.
Speaker Change: Yeah Vincent.
Speaker Change: Good talking to you today, it's something we watch pretty closely is what's going on in that part of the world. As you can imagine I Didnt know Jenny and her team and our market analysis team and economic team are really looking at that so I'm going to turn it over to her.
Jenny Wang: To provide a little more detail on the commentary.
Jenny Wang: Hi, Vincent Yes, I think we would be watching very closely I O C piece shipment.
Jenny Wang: Last year, we've seen some major recovery off their phosphate.
Jenny Wang: Neither export.
Jenny Wang: So, especially in the second half of the year. This is basically bring their export tours to their record level over the last few years in the meantime, we're seeing some major reduction under our fast fast phosphate rock exports last year and that was actually less than half.
Jenny Wang: After the towns they export it in the E. In the record here back in 2021, and therefore, I said exports were basically a.
Jenny Wang: There are flat so.
Jenny Wang: To think about Oc piece.
Jenny Wang: Apply them into 2024, our forecast is that they are going to continue to keep their normal way of.
Jenny Wang: Operation and that they might add a little bit into their new granulation capacity, but not really in the big deal. So even with this recovered otp supply and increased a small amount of fertilizer production, we believe 2020 for phosphate supply well.
Jenny Wang: Ste.
Jenny Wang: It's tight.
Jenny Wang: Yeah.
Speaker Change: Thank you and our next question today comes from eating them.
Speaker Change: Rodriguez.
Edith Rodriguez: Oh. Please go ahead.
Edith Rodriguez: Thank you good morning, everyone I mean, Bruce you've talked about like the Slant, Oh phosphate prices, which exclude it's clearly the case.
Rodriguez: But any concerns that if prices stay way above the other nutrients like this could incentivize farmers to cut back in phosphate if they start thinking about the expenses and so forth given the decline in crop prices.
Edith Rodriguez: Edlund the economic on the farm topic as it is a great one and something again, we're paying a lot of attention to.
Edith Rodriguez: You know with the soy and corn being I'm, sorry, soybeans and corn prices are right now we do see still a pretty affordable economics overall, when you look at the portfolio of nutrients right and that's.
Edith Rodriguez: N P and K and even though you know phosphate because of the tight supply. The journey is outlined before and we talked about in one of the fireside questions.
Edith Rodriguez: Yeah, you know prices are elevated but we have seen potash.
Edith Rodriguez: <unk> come down significantly and nitrogen at a more moderate level as well. So you know combined I think a fertilizer affordability from a percentage of on farm revenue is actually pretty reasonable compared to the last two years. So.
Edith Rodriguez: So we're not anticipating any demand destruction due to pricing of the total nutrient package.
Edith Rodriguez: For farmers, depending on their crops and the other one that we talked about it in some of our materials as well.
Edith Rodriguez: We've made a lot about corn and soybean prices, but corn and soybean demand is really only 30% of the global fertilizer demand the rest, 70% as in other grain and oilseeds and non grain and oilseeds markets and we're seeing a lot of tightness in some.
Edith Rodriguez: All of those markets and actually quite favorable economics, when it comes to nutrient affordability. So overall I think the competitiveness of nutrients and in demand is there the incentive is there.
Edith Rodriguez: Again, driven by lack of fertilization a in the last couple of years good affordability.
Edith Rodriguez: You know the head the tail winds that are being provided on some of the biofuel stuff as well I think theres, a very constructive that you know hopefully add commodity prices continue to.
Edith Rodriguez: Moderate up and then.
Edith Rodriguez: <unk> continued to drive good demand to maximize yields on the farm.
Edith Rodriguez: Ginny has got one more point she wants to make yeah. Just want to first just wanted to provide one more data point as we are watching corn soybean prices in all of the attention we're on corn and soybeans and if you look at other major commodities like right. The price is very very supportive in tow.
Ginny: They actually in fact today, India export price for Rice is setting a new record. So that tells you actually if you go beyond corn soybean. The other commodities are very constructive in terms of the prices and and also that the farm economics.
Edith Rodriguez: Yeah.
Ginny: Thank you and our next question today comes from Andrew Wong with RBC capital markets. Please go ahead.
Andrew Wong: Thank you for taking my questions.
Andrew Wong: So on the phosphate production.
Andrew Wong: One is what's your expectation on when you could return to an 8 million ton.
Andrew Wong: Run rate.
Andrew Wong: And when that happens, what's your expectation on phosphate rock costs and conversion costs.
Andrew Wong: Yeah.
Andrew Wong: Andrew Thanks.
Andrew Wong: We've been talking about this for a few quarters and it's a big focus area for us strategically, particularly given the strong margins that are in the market today, given the high demand limited supply.
Andrew Wong: We have stated and continue to state that you know we're on a path over the next few quarters to get to an 8 million ton annual run rate and we're confident in that.
Andrew Wong: Last year, the second half of the year, we had some.
Andrew Wong: Some impacts with two of our large sulfuric plants in Louisiana went down both of those have now returned to service we had a major turnaround at the end of last year and another sulfuric plant down at Bartow again, both of those are done and back to service. So we are starting to see you know grad.
Andrew Wong: Really a return to that but as mentioned in some of the fireside chat comments, we do have a heavy turnaround schedule you know baked into the first half of this year, so getting to that 2 million ton level.
Andrew Wong: More towards the end of the year part of that is with this turnaround scheduled to continue to focus on some of those actors that have caused us some maintenance unplanned maintenance issues over the last couple of years. So.
Andrew Wong: Again confident we're going to get there by the end of the year, it's needed and.
Andrew Wong: Well, we're going to continue to do is focus on our asset health and we've been infusing a lot of our sustaining capex by the way.
Andrew Wong: To actually do that over the last two years as well so.
Andrew Wong: Look forward to that near the end of the year.
Andrew Wong: And Clinton has something to add I think on the economics piece, Yeah no. Thanks Bruce.
Clinton: Andrew you know when we look at the the the impact of moving our production back up to that target level I think on a cost per ton basis, and I think that was part of your question. You know you you would likely see something on the order of magnitude of call. It 20 to $25 a ton improvement in that per unit cost. So it's.
Clinton: We'll as we as we begin to ramp up to those target levels.
Speaker Change: Thanks, Glenn and then even on top of that Andrew.
Andrew Wong: We've talked about our cost reduction initiatives. Just in addition to that but we expect to layer in $150 million of cost reductions through the enterprise.
Andrew Wong: Looking at G&A spending.
Andrew Wong: Some of the operations benefits of getting back to full production.
Andrew Wong: Working capital management, and then just overall capex reduction so add into the the absorption benefits that Glen talked about plus.
Andrew Wong: Some of these other initiatives too to really wring out costs from the enterprise.
Andrew Wong: Through cycle economics should be much more favorable.
Andrew Wong: Okay.
Andrew Wong: Thank you and our next question today comes from Jeff Zekauskas with J P. Morgan. Please go ahead.
Jeffrey J. Zekauskas: Thanks very much.
Jeffrey J. Zekauskas: I was wondering if you can.
Jeffrey J. Zekauskas: Clarify some issues around your relationship with Martin.
Jeffrey J. Zekauskas: Hum.
Jeffrey J. Zekauskas: Is that a joint venture that you wish to.
Jeffrey J. Zekauskas: Western overtime further and.
Jeffrey J. Zekauskas: Through capacity expansion.
Jeffrey J. Zekauskas: It's also the case that historically.
Jeffrey J. Zekauskas: Cash.
Jeffrey J. Zekauskas: That's to come from the.
Jeffrey J. Zekauskas: Equity income.
Jeffrey J. Zekauskas: Has been much lower.
Jeffrey J. Zekauskas: Is there a cash benefit that you get in the future that catches to you up from the equity income that you've made or.
Jeffrey J. Zekauskas: Does it turn out that you don't catch up.
Speaker Change: Hey, Jeff no. Thanks.
Jeffrey J. Zekauskas: As you point out that joint venture for Us is important.
Jeffrey J. Zekauskas: Part of our portfolio of assets for sure.
Jeffrey J. Zekauskas: Not only do we gain market access in the markets like India with some of the tons that we have there we get a lot of market intelligence through that joint venture as well as far as do we have interest in future investment am I don't think that's.
Jeffrey J. Zekauskas: In the top of our priority list.
Jeffrey J. Zekauskas: I'd never want to say never depending on you know what what the.
Jeffrey J. Zekauskas: Return on economics could be in such an investment, but I think we've got better our focus areas for any of our cash.
Jeffrey J. Zekauskas: Cash and liquidity that we may put to something else.
Jeffrey J. Zekauskas: But you know.
Jeffrey J. Zekauskas: At the end of the day that the modern joint venture in Saudi Arabia has been a great partnership and we've seen that really mature over.
Jeffrey J. Zekauskas: The course of this relationship.
Jeffrey J. Zekauskas: And.
Jeffrey J. Zekauskas: <unk> got to continue to earn a spot in our portfolio for sure and a long term basis, but you know right now.
Jeffrey J. Zekauskas: We're fairly happy with the results and where that is running they just came off a record year at M. W. S. P. C on a production standpoint as well so.
Jeffrey J. Zekauskas: Really starting extract.
Jeffrey J. Zekauskas: Value out of that in a way that we hadn't previously, but I'm going to turn it over to Clint to talk about a little bit more of the economic questions that you had.
Clint C. Freeland: Yeah, Hi, Jeff I think.
Clint C. Freeland: You noted that the differential between the equity earnings over time.
Clint C. Freeland: And cash I think our first cash.
Clint C. Freeland: Cash dividend was actually paid out last year.
Clint C. Freeland: I think total equity income last year for us was roughly $57 million. So we did get part of that in the form of a dividend, but one of the things that has been the focus.
Clint C. Freeland: Modern over the past say two to three years.
Clint C. Freeland: Has been on debt reduction so a lot of the earnings and the cash generation of the joint venture has actually gone to paying down some of the debt load in.
Clint C. Freeland: Overall.
Clint C. Freeland: Order of magnitude that has been paid down by about 1 billion and a half dollars.
Clint C. Freeland: So firming up the capital structure of the project and so I think that that's one of the main reasons why you see that differential between equity earnings and actually <unk>.
Clint C. Freeland: Cash being paid out to.
Clint C. Freeland: US and the partners one thing to also note and again, it's relatively modest but we also do get marketing fees and earn some level of income on some of the.
Clint C. Freeland: On some of the tons that we do sell but.
Clint C. Freeland: But again, that's one of the reasons why you've seen that differential between equity earnings and cash because a lot of the cash has actually been going to managing the balance sheet and paying down debt.
Clint C. Freeland: Thank you and our next question comes from Richard <unk> with BNP Paribas. Please go ahead.
Richard Gotcha: Hi, Good morning, Thanks for taking my questions you public garden topics quite well and I.
Richard Gotcha: I was wondering if you could provide some outlook on the working capital requirement for 2020 cool I suppose just given the context of the significant release you had last year would you expect to see working capital investment next year. Thank you.
Speaker Change: Hey, Rick.
Rick: Thanks for joining us and appreciate the question working capital has been a if I understood. Your question right broke up a little bit in the beginning for me.
Speaker Change: It has been a focus for.
Speaker Change: For us across all of our major markets and I think we've done a pretty good job of managing that risk compared to others in the space, but I'm going to turn it over to Clint to maybe talk a little bit more about how we think about working capital.
Clint C. Freeland: Yeah, Thanks, Bruce and thanks for the for the question Rick and.
Clint C. Freeland: As you noted over the last couple of years, we've seen pretty significant changes in working capital and a lot of that has been driven by the price environment. So you saw a significant increase in working capital use of cash in 2022.
Speaker Change: And then you've seen a pretty material release of cash and 23 is a pricing environment changed.
Speaker Change: A lot of times are one of the things that that is also a significant contributor to that is our distribution business in Brazil is a <unk>.
Speaker Change: Manage inventory levels and so forth are around some of those price changes, but as.
Speaker Change: As we look out I think it's.
Speaker Change: It's going to be driven by the price environment.
Speaker Change: We are putting some renewed focus on.
Speaker Change: You know things like inventory turns and and days of payables and receivables and really trying to.
Speaker Change: Work, even harder to manage those to again manage the level of working capital that's needed. The other thing that I would note is over the last couple of years. We've tried to set up some funding alternatives to assist us in managing through some of those seasonal particularly seasonal elements of working capital needs.
Speaker Change: So we've had a number of things like AR and inventory lines, some receivable securitization facilities put in place.
Speaker Change: When we got our rating debt rating upgrade to Triple B flat <unk> two.
Speaker Change: We also set up commercial paper facility and what we tried to do is to maintain a certain level of funding.
Speaker Change: To again take away some of that those seasonal moves and to reduce some of the cash drag on the company throughout the year. So again focusing on on those two areas. One is just the absolute level of working capital and again that'll be dictated by price environment, but then also being trying to be pretty thoughtful on how we fund that through the year and not just.
Speaker Change: <unk> be using cash Ford.
Speaker Change: For that purpose.
Speaker Change: Thank you and our next question comes from Josh Spector with UBS. Please go ahead.
Josh Spector: Yeah, Hi, good morning, So I wanted to follow up on phosphate margins, specifically I think <unk>.
Josh Spector: Most models out there pricing came in higher but gross margins were lower in the fourth quarter. So I'm just trying to square the sequential gross margin move if we think about it in gross margin per ton in the fourth quarter or sorry first quarter here, because you're saying the stripping margin stays high.
Speaker Change: Pricing, you're guiding up $40, we talked about more volume leverage in the first quarter. So is there a way to square all of these moving parts between what you did in fourth quarter versus what you're expecting from a gross margin per ton perspective in the first quarter. Thanks.
Speaker Change: Okay.
Speaker Change: Yeah, Josh Thanks.
Speaker Change: I think we are seeing a little bit of expansion there for sure. The other part is our costs aren't going to necessarily come down as fast given the turnaround schedule I talked about earlier. So so that's still going to be a little bit of a drag but overall, we still see those healthy realized stripping margins.
Speaker Change: Yeah, you got to think about and I'm going to turn it over to Clinton a minute, maybe talk a little bit more about it but it would our advantaged position on ammonia and our access to low cost sulfur really kind of differentiates us a little bit.
Clinton: From the industry stripping margin, what we get on a realized stripping margin given that a good portion of our ammonia consumption comes from our Faustina facility in house and of course, our advantaged contract with CF.
Clinton: So we do still think stripping margins are going to be good gross margins realized will be good but maybe.
Clinton: You know given the cost pressures, we still going to see a little bit of a slowness in full recovery of that and maybe you can talk a little bit more about that.
Speaker Change: Yeah, the only thing that I would add on that around our in house ammonia as well.
Speaker Change: We made it.
Speaker Change: We had a guess a turnaround about 18 months ago in Louisiana, a round up and made some investments in our converter at the facility and it's as a result has had much higher reliability.
Speaker Change: And and again as as we've seen the level of production that we've had we've been able to lean on that a little bit more as a proportion of our ammonia sourcing as well as the CF contract. So we've been less dependent on some of the market purchases and as a result, as an example in the fourth quarter about 35% of <unk>.
Speaker Change: Our ammonia was actually sourced in house and again, so that's helpful from a comparative cost standpoint so.
Speaker Change: You know as we go forward.
Clinton: As production ramps back up overall finished product production ramps back up we will need to access a little bit more on the market, but again in this environment at this point of time.
Clinton: We're getting more benefit maybe then we naturally historically have from our in house.
Clinton: Production of ammonia.
Clinton: Thank you. This concludes today's question and answer session I'd like to turn the conference back over Bruce protein for any closing remarks.
Bruce: Well. Thank you operator to conclude our call I'd like to reiterate our key messages for today.
Bruce: First the global phosphate market as we've discussed is very strong and we expect favorable dynamics to continue throughout the remainder of the year.
Bruce: And second potash demand is emerging and we've talked about that and we expect a strong rebound in global demand this year.
Bruce: Third we are executing plans to optimize our operations. So that we can benefit fully from strong markets, while improving mosaics resilience.
Bruce: And finally, our capital allocation strategy is not changing.
Speaker Change: We will invest in pursuit of compelling returns and return excess cash to shareholders. So thanks, everyone for joining our call today and I hope that you have a great and safe day.
Speaker Change: Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation.
Speaker Change: You may now disconnect your lines and have a wonderful day.
Speaker Change: [music].