Q3 2024 Mosaic Co Earnings Call
Speaker Change: This is a work of fiction. Any resemblance to actual persons, living or dead, is coincidental and unintentional.
Speaker Change: Good morning, everyone, and welcome to the Mosaic Company's 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: At this time, all participants have been placed in a listen-only mode.
Speaker Change: After the company completes their prepared remarks, the lines will be open to take your questions.
Speaker Change: If you need assistance, please send your conference specialist by pressing the star key followed by zero.
Speaker Change: To ask questions, you may press star and then one using your touch-tone telephones.
Withdraw your questions, you may press star and two.
We also know today's event is being recorded.
Speaker Change: I would now like to turn the floor over to Jason Tremblay. Please go ahead.
Jason Tremblay: Thank you and welcome to our third quarter 2024 earnings call.
Speaker Change: Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer, followed by a fireside chat and then open Q&A.
Speaker Change: Vice President and Chief Financial Officer, and Jenny Wong, Executive Vice President Commercial will also be available to answer your questions.
We will be making forward-looking statements during this conference call.
Speaker Change: 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.
Speaker Change: Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published today and in our reports filed with the Securities and Exchange Commission.
We will also be presenting certain non-GAAP financial measures.
Now I'd like to turn the call over to Bruce.
Good morning. Thank you for joining our call.
Speaker Change: I would like to start by acknowledging the great work done by so many of Mosaic's people to help us prepare for and recover from Hurricanes Francine, Helene, and Milton.
Speaker Change: I'm especially pleased that we made it through the storms with no safety incidents, no significant environmental events, and no material physical damage.
Speaker Change: Even as most of our people in Louisiana and Central Florida were dealing with storm impacts at home, they came together to ensure we could get back up and running as quickly as possible after the storms.
Speaker Change: Because of their dedication, our Florida operations were back at full operating rates just two weeks after Milton, with some locations returning to normal within days.
I'm extremely grateful to the team.
Speaker Change: Before we get into our results, I also want to address our announcement this morning that Clint Freeland plans to retire as Mosaic's Executive Vice President and Chief Financial Officer at the end of this year.
Speaker Change: During his time with Mosaic, Clint has been an outstanding CFO for the company.
Speaker Change: Mosaic's financial profile and capital allocation program are much stronger than they were when Clint arrived six years ago.
Speaker Change: I want to extend my sincere thanks for his leadership and we wish him all the best in his retirement.
Speaker Change: As part of this planned transition, Luciano Ciane Perez will join the company as CFO-designate on November 18.
Speaker Change: Luciano was previously the CFO at Vale and later served as the company's EVP of Strategy and Business Transformation.
Speaker Change: Luciano also served on Mosaic's Board of Directors following the valet for Lasanches acquisition in 2018, so we know him quite well.
Speaker Change: We look forward to welcoming him to Mosaic and we're confident that he'll be a worthy successor.
2025.
On to our third quarter results.
Speaker Change: The storms were part of a challenging third quarter for us.
Speaker Change: We also faced electrical issues at our Esterhazy and Colonce Potash Mines that affected our production levels.
All those challenges are now behind us.
Speaker Change: For the third quarter, Mosaic generated $2.8 billion of revenue, resulting in net income of $122 million and adjusted EBITDA of $448 million.
Transcription by https://otter.ai
Speaker Change: The lower-adjusted EBITDA was driven by the aforementioned challenges, lower potash prices, and a delayed agriculture recovery in Brazil, partially offset by ongoing strength in phosphate stripping margin.
Speaker Change: That said, we have continued to focus and execute on the things that are within our control, and these actions and initiatives are positioning us to benefit from the improving ag and fertilizer markets.
Speaker Change: We expect to achieve our targeted annualized phosphate production run rate of 7.8 to 8.2 million tons by year-end once the ongoing turnaround activities are completed later this month.
Speaker Change: We're making good progress on our cost management front and on track to achieve our $150 million annual run rate cost savings target by the end of 2025.
Speaker Change: We are on track to achieve our targeted $200 million reduction in CapEx this year.
Speaker Change: Mosaic Bioscience's growth is accelerating. In fact, our biological products are now being used on nine million acres in key markets around the world this year.
Speaker Change: Due to our extensive market access and the strength of our brand, the biosciences operating model is highly leverageable and positioned for long-term growth, which is powered by new product launches using our internal R&D capabilities as well as leveraging external partnerships.
Speaker Change: Mosaic Biosciences is largely self-funding and does not require significant new capital to fuel its growth.
Capital allocation remains a key focus for us.
We are continuing to invest in our strengths.
Speaker Change: We're also focused on capital reallocation for other assets in our portfolio, such as the conversion of our MWSPC joint venture into modern shares, which are worth $1.5 to $1.6 billion at today's share price, and the strategic review of our Carlsbad, New Mexico potash mine.
Speaker Change: During the first nine months of the year, we returned $415 million to shareholders, including $210 million of share repurchases.
Speaker Change: Now let's spend a few moments to discuss the state of the market and outlook.
Speaker Change: Corn and soybean prices have improved from their August lows, while other commodity crops, including palm oil, sugar and coffee, are quite strong.
Speaker Change: In Brazil, barter ratios are healthy for corn and soybeans. In fact, the corn barter ratio is improving, an increasingly constructive setup for the safrinha crop in the coming months.
Speaker Change: We have also seen a continued uptick in Brazilian corn used for ethanol production, which has provided further corn price support there.
Speaker Change: Over the longer term, biofuels remain an attractive driver for grain and oilseed demand far beyond current levels, supporting a highly constructive picture of long-term ag fundamentals.
Speaker Change: The government in Indonesia reiterated that it would be moving forward with a B40 biodiesel program starting in January.
Speaker Change: In India, the latest ethanol mandate could lead to India becoming a net importer of corn.
Speaker Change: In Brazil, the approval of the new biofuel policy calls for a gradual increase in the mixture of soybean biodiesel and diesel fuel, and changes in the ethanol content in gasoline and sustainable aviation fuel for airplanes.
Speaker Change: Fertilizer demand is running high around the world this year as nutrients remain affordable and growers are catching up after recent years of under application.
Speaker Change: Large crops and solid yields in many regions this year are drawing nutrients from the soil, with removal particularly pronounced in North America with an additional 4-5% compared to last year.
Speaker Change: So, we expect demand will remain solid in 2025 as nutrients are replenished.
Speaker Change: The potash market remains relatively balanced. We think potash prices have hit bottom as we've seen resistance to low offers in key markets and prices have begun to trend higher.
Speaker Change: We continue to expect near-record global shipments for 2024 and record-breaking shipments in 2025, driven by broad-based demand recovery, particularly in Southeast Asia where palm oil economics are solid.
Speaker Change: For the phosphate market, stripping margins are expected to remain elevated. Prices remain strong, driven by persisting global supply constraints and solid demand for fertilizer, fuel, and industrial uses.
China has continued to restrict phosphate exports.
Speaker Change: And we expect total Chinese exports to be around 7 million tons for 2024, down from 7.9 million tons last year and about 11 million tons at their recent peak.
Speaker Change: Domestic phosphoric acid production is increasingly consumed by industrial uses, resulting in reduced availability for production of phosphate fertilizers. This trend will likely continue well into the future.
Speaker Change: In addition, because of an unfavorable government subsidy environment, Indian phosphate demand is going unmet.
Speaker Change: Leaving farmers short of a critical nutrient and setting up strong demand for 2025, assuming an improvement in importer economics.
Speaker Change: The potash segment generated adjusted EBITDA of $180 million for the quarter, compared with $267 million a year ago, driven by lower prices and approximately 250,000 tons of lost production due to the electrical issues at Esterhazy in Colonce.
and were further impacted by the broad Canadian rail strike.
These issues are now fully resolved.
Speaker Change: For the fourth quarter, we expect potash sales volumes in the range of 2.2 to 2.4 million tons and prices in the range of $200 to $220 per ton.
Speaker Change: Note that this outlook includes limited impact from the labor issues at the ports of Vancouver and Montreal.
Speaker Change: Campitex has contingency plans to mitigate the impacts from the strike as much as possible by diverting product flows via other ports. However, the longer the strike goes on, the higher the potential for volume impacts given the significance of the terminal to the Campitex network.
Speaker Change: Our phosphate segment generated adjusted EBITDA of $265 million for the quarter compared with $201 million a year ago.
Speaker Change: The improved results are due to a combination of solid pre-hurricane production levels and strong stripping margin.
Speaker Change: Our sales volume came in at 1.5 million tons in the third quarter, driven by lower production volumes and shipping delays caused by weather events and related port closures.
Speaker Change: Our realized stripping margins remain strong, in part because of our advantageous ammonia economics.
Speaker Change: We produce about a third of what we consume. And we have a reliable supply of ammonia and sulfur from our partners.
Speaker Change: We have executed two new ammonia supply offtake agreements, with an additional one nearing completion to meet our needs in 2025 and beyond.
Speaker Change: Our balanced raw material sourcing approach reduces our risk exposure in varying market conditions and sustains our strategic advantage.
Speaker Change: Our phosphate conversion cash cost per ton was largely unchanged from the second quarter. As we continue to ramp up production to the target run rate, we expect to achieve a $20 to $30 per ton reduction in conversion costs from the high water mark at the end of 2023.
Speaker Change: Hurricane Milton resulted in a production loss of about 250,000 tons, which will be reflected in our fourth quarter volumes.
Speaker Change: For the fourth quarter, we expect phosphate sales volumes in the range of 1.6 to 1.8 million tons and prices in the range of $570 to $590 per ton.
Speaker Change: Mosaic for Lysantes generated $83 million in adjusted EBITDA, compared with $147 million a year ago.
Speaker Change: EBITDA was lowered due to $32 million in bad debt reserves we booked in SG&A and $20 million of legal reserves.
All in all, we're back on track.
Our operations are restored to full capacity in all geographies.
and we are optimistic as we look ahead to 2025.
Thanks, Bruce.
Speaker Change: Before we move on to the live Q&A, as we have done in past quarters, we would like to address some of the most common investor questions that we have received throughout the quarter.
Speaker Change: Thanks Jason. Ag fundamentals are solid and fertilizers are affordable, which bodes well for fertilizer demand.
Speaker Change: Significant changes to phosphate supply will keep the market tight into next year and the potash market is balanced.
Let me ask Jenny to provide you with her view.
Jenny Wong: Thank you, Bruce. Overall Ag Fundamentals remains strong for many crops.
Speaker Change: We continue to remind investors that only one third of phosphate and potash consumption goes to corn and soybean.
Prices for other egg commodities.
Speaker Change: Especially palm oil, sugar, coffee continues to be very attractive, which supports significant demand of fertilizer growth in this year.
for Corn and Soybean. Fundamentals are improving.
Speaker Change: In Brazil, domestic prices of corn and soybean are actually traded at a premium over international future prices.
Speaker Change: This is due to the RE-I devaluation and also the growth of new demand, i.e. bioethanol.
As of last Friday,
Speaker Change: The sales of corn and soybean have come back to the same pace of last year, so has the fertilizer purchases for saffron corn and the summer crops.
Speaker Change: Speaking about biofuel, I'd like to highlight another dynamic that will influence the market both in near term and in long term.
Speaker Change: which is increasing demand to corn soybeans for biofuel and bioethanol.
Speaker Change: In Brazil, the recent approved government fuel bill suggests the biodiesel and bioethanol blending rate to increase by 5%.
Speaker Change: This increases of the blending rate implies significant increases of new demand for corn and soybean. Our estimation
Speaker Change: That would imply to 4 million tons of NPK fertilizer demand if the rate are going to be realized by 2032.
Speaker Change: in India. The country has shifted to a net corn input country this year as the government corn ethanol investment plans to push use of corn for ethanol production.
In addition to sugarcane and rice.
Speaker Change: and this is even before they hit their E-20 goal, and the Indian government has a target to get to E-25 by 2030.
Speaker Change: Fostering markets are tight this year and expected to stay constructive as we get into 2025 and beyond.
Overall demand in this year.
are generally at par as 2023.
with Supply Constraints, holding back demand growth this year.
Speaker Change: Indian Manson and the grower economics have driven demand outpace supply.
Speaker Change: We see reduced shipment in 2024 due to unfavorable importer economics, which is related to the government subsidy program.
This is setting up a pent-up demand for 2025.
in North America.
We are expecting a large crop.
Speaker Change: With the yield increase, the nutrient removal could be up to 4-5% from the soil compared to 2023.
Speaker Change: This nutrient must be replenished, while growers have been cautious as the headwind of corn soybean prices.
The Big Yield and Early Harvest improved the sentiment.
Speaker Change: We've been hearing from our customers that they were surprised by growers' appetite to phosphate.
Speaker Change: In Brazil, phosphate inventories are very tight, the grower economics and butter ratio are improving. We expect Brazil fertilizer demand to continue to expand in 2025.
Lastly, on the supply side.
Speaker Change: We are seeing limited new supply is coming in, in 2024.
Speaker Change: China exports are limited by their very strong domestic demand both in fertilizers and industrial use.
Speaker Change: Up to end of Q3, the production of LFP for electrical vehicles and the stationary batteries increased by 51% to 1.8 million tons.
Speaker Change: The dynamic of competition between ag use and industrial use have tightened availability of P2O5. In fact, China has been stepping up to import phosphate rock in order to meet the demand.
The dynamic is expected to continue next year.
for Potash.
Speaker Change: The elevated palm oil price and constructive rice prices have really supported the demand recovery of potash.
Speaker Change: Year-to-date input growth in Malaysia, Indonesia was up by 57% and we are seeing similar level for other countries in Southeast Asian region.
Speaker Change: We expect the global shipment of potash this year will be rebounded to the record year as we saw in 2021.
On Supply Side, Supply from Russia and Belorussia.
Next question is on phosphate production levels.
Speaker Change: Assuming you achieve your target run rate in the fourth quarter, how should we think about production volumes moving forward?
Speaker Change: We do expect to achieve the target run rate by the end of the quarter. Our turnaround schedule will be complete in the next couple of weeks, which will set us up for hitting the target.
Speaker Change: Our phosphate production level will be sustainable once we achieve the target, but please note that it will continue to vary on a quarter-by-quarter basis depending on turnaround scope and schedule.
Speaker Change: For example, we have some turnaround activities scheduled for the first quarter next year, which will set us up well to produce at full rates for North American spring demand. This will result in lower than run rate production for the first quarter, which we expect to make up during the balance of the year.
Speaker Change: One other factor that affects the production volumes, order to quarter, is product mix.
Speaker Change: Our teams are continually monitoring the markets and working to optimize product mix to maximize profitability.
Speaker Change: Each of our products requires a different amount of P2O5, so the product mix decisions will dictate the finished product production rates and where we land within the target range each quarter.
Transcription by ESO. Translation by —
Speaker Change: Our next question is related to the credit situation in Brazil.
Speaker Change: You recorded $32 million of bad debt in the quarter. What is your exposure to future credit losses?
We have limited risk to further credit losses.
Speaker Change: While the market conditions remain challenging, not all industry participants are facing the same credit issues.
Speaker Change: In fact, a significant portion of our customers, which are grain traders and co-ops, are in good financial condition.
Speaker Change: As we move into the Safrina and Saffra seasons next year, we have employed additional risk mitigation measures by requiring prepayments from our customers and continue to ensure sales contract integrity to prevent losses.
Speaker Change: In the event that credit losses are incurred, we use credit insurance programs to mitigate them.
Speaker Change: We believe our prudent risk approach will continue to reduce our exposure to future losses.
Thanks, Bruce.
Speaker Change: With that, we'll now move on to the open question and answer session.
Operator, please open the lines for follow-up questions.
Speaker Change: Ladies and gentlemen, at this time, we'll begin that question and answer session. To ask a question, you may press star and then one. If you are using a speakerphone, we do ask you please pick up the handset before pressing the keys.
Withdraw your questions, you may press star and two.
Speaker Change: We do also ask that you please limit yourselves to a single question.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: And our first question today comes from Richard Garkatoriana from Wells Fargo. Please go ahead with your question.
Great. Thanks. Good morning. And congratulations, Clint, on your retirement.
Speaker Change: Yeah, so I just wanted to first touch on the phosphate business. Sometimes you put strong margins up despite the challenging weather events.
Speaker Change: I was wondering, given you're also on track on the cost savings of $150 million, what would your costs have looked like, I guess, if you didn't have the...
Speaker Change: Temporary shutdowns and was there a cost impact from the shutdown during the quarter?
Transcription by ESO. Translation by —
Speaker Change: Hey Richard, this is Bruce. Thanks for the question. We're pretty proud of the margins. It does show, to your point, the strength of our cost reduction program and how much improvement in production it really has on our fixed cost absorption.
Speaker Change: Even though we did have, to your point, impacts from the various hurricanes in Louisiana.
Speaker Change: And a little bit of Helene at the end of third quarter and Florida mostly on shipping ability out of the ports.
Speaker Change: I believe we're seeing, you know, that coming through. I know it's hard when you have these interruptions with storms, we're taking things up and down, but we believe that underlying performance really is there.
Speaker Change: definitely would demonstrate that. We'll talk more about that, I'm sure.
Transcript by Transcription Outsourcing, LLC.
Speaker Change: But we've always said that, you know, from our kind of high mark in 2023, which was quarter four, we'd expect $20 to $30 cost improvements due to absorption when we get a full run rate.
Speaker Change: We obviously weren't there because of the hurricanes and the other turnaround work that we had, so we should have expected, you know, another
Speaker Change: down on our costs and would expand a little bit more in
as we go forward, and I think that's what...
you know, investors should look forward to.
As we do demonstrate that run rate.
forward.
Speaker Change: And Clint, I'll just turn it over to you since he congratulated you.
Talk about that and if you wanted to add anything.
Yeah, no, I appreciate it.
and Richard, I do appreciate your gratitude.
Speaker Change: on the right path on that. And again, if you just adjust for the closed, I think you would see that improve.
Speaker Change: And our next question comes from Steve Byrne from Bank of America. Please go ahead with your question.
Speaker Change: How does it flow through your income statement, and more importantly,
Thanks Steve, I was hoping we would get a question.
Speaker Change: maybe you would be the one. So appreciate that question on biosciences because it is something we're proud of. We're seeing really
Exciting acceleration on the acres covered in these products.
Speaker Change: I'm going to let Jenny talk about the specifics of your question.
Speaker Change: But we do feel that, you know, in the course of time, this really could be a growth engine for Mosaic. So, as I said, we're excited about it, but let me turn it over to Jenny to kind of get into the specifics of the products and then the pipeline.
Thanks Bruce. Thanks for the question.
Jenny Wong: The products that we are selling in the market, Steve, are basically nutrient-efficiency enhancement products.
Jenny Wong: So the two major products we're selling in North America and Central America called PowerCode and Biopath. What these products do, they basically improve nutrient use efficiency.
Jenny Wong: We do have products that we are selling in Brazil, in China. They are sub-party products as of today. They are bio stimulants.
Jenny Wong: So how the products are used today, more than 70 products that we're selling are coated on fertilizer granulars.
Jenny Wong: And the rest of the 30% are basically being mixed with liquid fertilizer or fungicide or insecticide. And the formulation strains, which is the strains of our product.
Jenny Wong: have made our products very steady, so our products can be mixed with UAM, with ammonia, and let alone other crop protection products. Going forward, we will have products to be coated on seeds.
Jenny Wong: So you asked the questions on pipeline. In the pipeline, we are looking for quite a wide range of the products.
Jenny Wong: The most exciting ones, Steve, that I can mention, one is the nitrogen fixation materials. And we are at the final stage for field trial and the registration.
Jenny Wong: And we also have a range of products which improve phosphorous solubility.
Jenny Wong: and that's in the pipeline, and that is one of the investments we made over the last few years, and this is in the development stage as well. So stay tuned. We will have more reports on the new product pipeline as well as
Jenny Wong: the accelerated growth that we're making with our market access in the market, major agricultural market in North America, Brazil, China, and India.
Speaker Change: And our next question comes from Chris Parkinson from Wolf Research. Please go ahead with your question.
And...
Speaker Change: That gentleman dropped off. We'll move on to Joel Jackson from BMO Capital. Please go ahead with your question.
Transcription by CastingWords
Morning.
Speaker Change: Can we talk a bit about your outlook for Potash for 2025? You're showing about a demand growth I think two or two and a half million tons of demand growth next year. Let's talk about what you also see for supply next year and then, you know, in your base case, how much of that increment demand will Campitex and Mosaic be able to supply? How many more tons can Mosaic supply next year? You haven't really gone above nine million tons, I think, for seven or eight years. What is the most you can do through K3, Columns Day, Bell Plane, etc. things?
Speaker Change: You know, anywhere from a million and a half to two million tons and somewhere in that
Speaker Change: See Laos being part of the, you know, additional capacity, there's a little bit more out of Russia and Belarus that probably can be squeaked out as well. And then it's just going to be a, you know, remainder price applied, as you said.
Speaker Change: Out of Canada in some form or fashion, depending on, you know, how that demand materializes. But I'm going to turn it over to Jenny and maybe get into the details of, you know, what potentially could happen in sharing of supply on that demand.
Jenny Wong: Thanks, Bruce. Hey, Joe, probably want to give you a little bit more specifics on our base case assumptions.
Jenny Wong: On the demand side, we believe the current price level or the affordability will have support to the further demand growth in some markets as a demand recovery, for example, in Indonesia and Malaysia.
Jenny Wong: And on the supply side, our base case assumptions are assuming further ramp-up of Eurochem's Volga Gali project, and some of the final push of Eurocali's production, which is going to make
Jenny Wong: The product out of Russia, we are estimating roughly half a million tons more than this year.
Jenny Wong: and we assume BPC probably already reached to their plateau by using the alternative route to get their product to the market and knowing it is very expensive to serve the market through this alternative route.
Jenny Wong: Lastly, as Bruce mentioned, we have big assumptions on the expansion in Laos.
Jenny Wong: So the expansion of the capacity including Asia Potash and also partially including YTH as well.
Jenny Wong: And Asia Potash, their capacity expansion in 2024 was very slow due to well-known management change and also the water inflow issues.
Jenny Wong: We base our assumption for next year that they will be back to the pace for their expansion of the capacity.
Jenny Wong: So, as you can see, as we forecast the supply increases in 2025, the two major growth drivers are from Russia and also from Laos. And as we all know, this expansion are also with some significant uncertainties.
Jenny Wong: So, in the case the supply is not coming online as what we suggested, there is a potential that the market is going to be tightened.
Speaker Change: Joel, just the other part of your question is what could we produce? And, you know, we've announced and we talked about in the opening comments
Speaker Change: The investment in Esterhazy, which in our Hydrofloat project, which is a high return, low, you know, modestly expensive investment.
Speaker Change: will generate another 400,000 tons when that comes online mid-year next year. At that point in time, Esterhazy and Bellpling combined should be able to produce
Speaker Change: in that nine million ton range. And then based on what we need above and beyond that for Camputex participation and our market share in North America, we'll continue to use Colante,
Speaker Change: Hopefully more sparingly once that comes on, but to cover things like major turnarounds at Esterhazy, something unforeseen, or if there happens to be slow in timing and some of the things we've baked in for other supply around the globe, then for sure we'll be prepared to ramp
Speaker Change: Colonce back up if it happens to be idle at the time.
Speaker Change: Our next question comes from Chris Parkinson from Wolf Research. Please go ahead with your question.
Speaker Change: I promise to ask a nice question. All right, so I want to circle back on some of the phosphate commentary in terms of just getting to the run rate and then obviously factoring in some downtime.
Speaker Change: You know, we just take a step back and, you know, kind of consider everything that your asset base has gone through for the last several years, inclusive of the third quarter, you know, how should the street ultimately just be thinking about what's the average, you know, run rate of phosphate rock procurement in terms of the concept of normalized earnings?
Speaker Change: You know, same question for processing costs. So, when we just sit back and compartmentalize, you know, how much your assets should be earning in a normalized environment in 25, hopefully, or, you know, presumably into 26, you know, what kind of broad framework should we ultimately be using? Thank you.
Speaker Change: Yeah, Chris, I appreciate the question, and as we've talked multiple times, the way I'll answer that is more like we have, is I think, yes,
Speaker Change: We are recovering. There's evidence of that on a run rate. As we've said and been consistent, just to put it in context, we won't achieve kind of that 7.8 to 8.2 run rate until largely end of the year after we finish turnarounds. Our turnarounds will finish this year.
Speaker Change: Unfortunately, we do have a turnaround of Bartow scheduled in the first quarter of next year. A pretty major sulfuric turnaround. So there'll be some lumpiness to that, but look out beyond that at that 7.8 to 8.2.
Speaker Change: Conversion costs should come down as I said earlier from kind of that high water mark in 2023 by 20 to 30 dollars per ton and that should be sustained you know on an annualized type basis.
Speaker Change: We were about 55 kind of flat to where we had been this quarter in Florida.
Speaker Change: Unknown Speaker I'm going to be speaking a little bit about the impacts due to the hurricanes on fixed-cost absorption there, but it's a minor upside on rock cost. And then it's just going to be a matter on blended rock, how much MiSKy MiO is being consumed at any given time in the mix, as that is a little higher cost on the blended rock side. So what we're going to be doing is we're going to be looking at the greenhouse gas emissions, and we're going to be looking at the rate of emissions, the
Speaker Change: So you put all that together, and, you know, seeing around that $50, $55 rock cost, you know, sub $95-ish on conversion cost, and that's probably, I think, the numbers that you're hoping.
that you're looking for, the way I understand it.
Speaker Change: Our next question comes from Ben Therer from Barclays. Please go ahead with your question.
Ben Therer: Good morning, and thanks for taking my question. Just wanted to dig a little bit deeper into the Brazilian business, into particular incentives, if you don't mind.
Ben Therer: Could you elaborate on what you're seeing in terms of like just farmer activity right now in Brazil, buying behavior and just like how transactions are going through because we're getting so many different signals out of Brazil. We'd love to see what what the business is for you right now in Brazil in particular. Thank you.
Transcription by CastingWords
Speaker Change: Yeah, Ben, thanks. I'm going to just go ahead and turn that one right over to Jenny and talk about what's going on in Brazil as you know she's headed that
Commercial side.
and has a good pulse of that. So Jenny.
Sure.
Jenny Wong: Thanks, Bruce. Hey, Ben. I'm not surprised to hear that you say mixed message out for Brazil. I would start to say Brazil has been facing some challenges throughout the year, partially because of the headwind on the commodity prices, and partially also due to the credit or liquidity constraints at the farmer level.
What we are saying most recently
Jenny Wong: is that some things changed. A, it's really on the commodity prices. We see the prices have started to climb up from the middle of the year and especially at the local level.
Jenny Wong: The prices on REITs are actually higher than the U.S. dollar traded in Chicago market.
Jenny Wong: Partially it is because of the devaluation of REI, partially it is because of the new demand, local demand, especially the newly added bioethanol plants in the middle of the corn growing states.
Jenny Wong: And with that new demand, we're saying that the farmers are selling at a higher price and to the local demands, and that has largely improved their economics.
Jenny Wong: So we are tracking very closely on, A, how much grains the farmers have sold for their next crops, and B, how much purchases they have made for their next season.
Jenny Wong: As of last Friday, for the coming Sepharina corn, farmers have sold 67% of their crops.
Jenny Wong: So for the coming Safrina corn season, they have purchased over 60% of their fertilizers, which is ahead of the same time of last year.
Transcription by Transcription Outsourcing, LLC.
Jenny Wong: 5% of their fertilizer for their next summer season, which is at par as the last two years.
Jenny Wong: So what I want to conclude is that as challenging as it is, at the grower level we are seeing improving sentiment, improving economics, and improving activities.
Speaker Change: Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead with your question.
Speaker Change: Hi, this is Justin Pellegrino on for Vincent. I just had a quick question. You mentioned the unmet demand in India for phosphate because of the unfavorable government subsidy environment. Can you just give some commentary around how you're seeing those subsidies shifting on the ground and then maybe how much product was missed out on 2024 that you could see shifting to 2025? Thank you.
Speaker Change: Yeah, Justin, thanks. Definitely saw a significant amount missed versus what trend demand would be in India. And I'm going to turn it over to Jenny to give the
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Speaker Change: Incentivize growers to actually put the demand that they need on the crops. So with that, let me turn it over to Jenny and kind of get into the detailed statistics.
Jenny Wong: Sure, Bruce. So, the farmer demand in India this year to DAP and for the same reason MOP as well, are very strong, which is A, supported by very good monsoon and B, supported by very good commodity prices.
Jenny Wong: But on DAP itself, the demand has been so strong, supply was not able to catch up.
The economics that you mentioned on importers.
Jenny Wong: The importance of economics are actually defined by two things, right? One is really the subsidy from the government. B is the differences between international price, CFR price, and the farmer price.
Jenny Wong: This year, farmer prices are very low at $360 per tonne. If you think about international market price, it's at $640-ish level. So there's such a big gap, the government has not been able to catch up on the subsidies.
Jenny Wong: So therefore the importers were reluctant to import from international market and that has caused the shortage to the farmers. We estimate the DAP shipment reduction this year due to this dynamic might be around 2 million tons.
Jenny Wong: Farmers still need this 2 million tons. This shipment is partially from reduced consumption, and partially coming from this fully depleted inventory.
So, as we get into next year,
Jenny Wong: Things likely going to be changed, we assume, A, is the farmer price likely going to be adjusted.
Jenny Wong: 360 is just probably too low, and how that price is going to be adjusted, we assume that will be adjusted to the level farmers still have good economics to support it.
Jenny Wong: Partially, the government subsidy will need to be adjusted as well.
So, however, that dynamics are going to be played out.
Jenny Wong: We know the Indian farmers will need to put down DAP on the ground and we know that they were short this year already. There were a lot of publicity in country for the shortage of phosphate.
Speaker Change: Our next question comes from Andrew Wong from RBC Capital Markets. Please go ahead with your question.
Hey, good morning. Just a few questions on phosphates again.
Speaker Change: So can we just clarify on the 8 million ton phosphate run rate, is that
Speaker Change: annualizing a monthly or quarterly production level when there's no turnarounds and if so what would be considered a realistic
Speaker Change: total annual production going forward when you just kind of account for all of that.
Speaker Change: and then just on phosphate demand what is what are your assumptions assume
Speaker Change: for next year based on pricing and affordability because that's obviously had a big impact on phosphate demand this year as you've highlighted. So do prices need to come down a little bit to kind of support that phosphate demand growth? Just kind of wondering how you think about that. Thanks.
Hey, Andrew. Yeah, on phosphates...
Speaker Change: All of that 7.8 to 8.2 million ton annualized range has what we would consider normal
Interruption due to historically normal turnarounds.
Speaker Change: at historically normal scope, as well as historically normal weather disruptions.
Speaker Change: What we've seen over the last couple of years in getting back to that run rate is abnormally large turnaround time and turnaround scope.
And then, of course, this year...
More abnormally weather-related.
Speaker Change: and issues due to the hurricane. So based on history, you know, now whether history repeats itself on hurricanes, that's...
You know, a whole different question.
Speaker Change: If we do see this type of weather pattern going forward.
Speaker Change: That 8 million, if you want to pick a single point between the 7.8 and 8.2, is something that we'd expect on an annualized basis. The lumpiness may be month to month, quarter to quarter, depending on how many turnarounds are in any given quarter.
Speaker Change: You know, in any given month, obviously, but that we would make that up, as we said, in the back half of the year, or in the first half of the year, depending on when that turnaround fell. So the 8 million is an average realized number, not a need to handicap that more.
Speaker Change: For sure, prices in phosphate have been high, but prices overall, I think you've got to look at affordability on all of the input costs at the farm gate.
Speaker Change: Obviously, Potash is very affordable right now, but what's going on with land rent, what's going on with other input costs have to go into account, as well as what we've seen this year is pretty large yields.
Speaker Change: on given acres and you know that will turn out to be a little better on farmer economics as well.
We have seen in Brazil, as an example, barter ratios,
Speaker Change: It's always a function of what's going on in the geography, obviously, but we believe overall affordability.
Speaker Change: will still be there for the farmer when you add everything together. And the amount of nutrients being taken off of this crop, particularly in North America, are quite large. I think Jenny talked about that earlier. And the need to replenish that is going to be high.
Speaker Change: not likely going to say because price comes down and the demand grows. I would turn that to say the demand might only grow if supply can be really improved.
Speaker Change: Our current forecast on supply side of the assumption for 2025.
Speaker Change: There's no major increases, but more on the improvement like ourselves on the production. So if the supply can be improved next year, the demand will get to grow.
Speaker Change: Our next question comes from Edlaine Rodriguez from Mizuho. Please go ahead with your question.
Speaker Change: Thank you. Good morning, everyone. Just a follow up to that phosphate question. So Bruce, when you look at all the data and charts showing, you know, phosphate affordability being such an outlier compared to the other nutrients, like what goes through your mind? Is it that
Speaker Change: Great, I'm exposed to the best and hottest nutrient right now, NEP, or is there some apprehension being such an outlier?
Speaker Change: More concerned or more confident would be the announcement of significant new capacity, right? As Jenny said,
Speaker Change: In our view, the constructiveness of the phosphate market on its own is unique because it is limited on supply. That is what's driving prices. It isn't the fact that anyone...
Speaker Change: Is trying to manipulate or do anything on prices one way or the other it just is that is based on the limited supply Intersecting demand that is the fair price for
Speaker Change: Borg Fossate. If somebody were to announce new capacity, historically, if you look back in time.
Speaker Change: When things have trended for this long, whether it be an OCP or a modern new supply would have been announced.
Jenny, anything that I may have missed?
Speaker Change: If you look at the price of ammonia and sulfur, they stay at a very elevated level as well.
Speaker Change: So if anything changes next year on the S&D side of...
Speaker Change: ammonia, for example, or sulfur, that might adjust to the price for phosphate, although the stripping margin of phosphate are really depend on the S&D as Bruce mentioned earlier. So just want to add that one point.
Operator, is there another question?
Speaker Change: Yes, sir. Our next question comes from Joshua Spector from UBS. You can go ahead with your question.
Speaker Change: Good morning, this is Lucas Bowman, I'm for Josh. I just want to go back to Federal Azante. So you guys have your kind of updated shipment outlook there on slide 10. You kind of put in 2025, that's going to be like the fifth year in a row with relatively kind of range bound shipments. I know we've had a lot of interruptions of different factors over that period.
Speaker Change: I guess just going back further, we used to kind of get 5% a year and sort of growth there in the prior decade.
Speaker Change: So just be curious to kind of get your thoughts there now on how you see the outlook for that market going forward. Do you expect a higher return to high growth rates there or have we sort of reached a more stable kind of lower growth phase now? Thank you.
Yeah.
Speaker Change: Thanks, Lucas. I think we're still very optimistic in Brazil on overall fertilizer demand growth. If I understood the nature of your question, because it was a little bit static.
Speaker Change: But let me turn it over to Jenny to kind of talk more about the details on what we see there going into next year.
Jenny Wong: Sure, Bruce. I think for Brazil next year, we do expect the market is going to continue to grow and expand. As we mentioned earlier, the farm economics are improving and butter ratios are improving.
Jenny Wong: So the sign that we're seeing today support our forecast for next year on the overall market expansion.
Speaker Change: For ourselves, you mentioned, if I heard you correctly, you mentioned our own self-volume. I would say we've been very consistent as we operate in a market like Brazil, especially for our distribution business.
Specially in this year and with the credit risk environment.
Speaker Change: We are very surgical and selective on who we sell to and what kind of credit risk that we are taking. As a result of it, our volume is probably not growing as much as the market growth, but again, we are pursuing value over volume.
Speaker Change: And then, Lucas, again, now that I, Jenny was talking about it, we do have our Pomeranchi investment as well, which will add another million tons of distribution capability, which
Speaker Change: Right now we're at kind of that nine million mark of distribution capability for blended fertilizer.
Speaker Change: Pomerantje will add another million in the north of Brazil where we don't have owned footprint today. And that will come online middle of next year. So that's another point where we'll be able to grow, again, to Jenny's point, as long as it makes economic sense and risk-adjusted sense for us.
in the world.
Speaker Change: And our next question comes from Jeff Soukakis from JP Morgan. Please go ahead with your question.
Thanks very much. Two-part question.
President Lukashenko of Belarus suggested that
Speaker Change: Russia might curtail its potash shipments. Have you have you seen any signs that either Belarus or Ural Kali or Eurochem are curtailing in any way?
and second in China.
If you look at overall phosphate production in China,
Speaker Change: inclusive of what shipped to the local markets and exports, has that total volume risen or fallen relative to the year when
China exported, you know, at very, very high rates.
and 11 Million Pounds.
Speaker Change: Yeah, no, Jeff, thanks. I think between Jenny and I, we can.
Speaker Change: We got the gist of the question, but to our knowledge, to my knowledge, I have not seen any evidence that Belarus or Russia have done anything either collaboratively or independently.
to reduce rates.
Speaker Change: Yeah, yeah. So no evidence, Jeff. I mean, obviously, they're going to do what they do. And as a market participant in this space, we'll
Speaker Change: We'll look forward to whatever that is, one way or the other, and make our adjustments on our strategy. But that's the beauty of the resilient.
Speaker Change: supply chain that we have, both with Camputex and then ourselves with Coense as our flex, and we'll react appropriately if something were to change in the overall S&D based on what...
has been set by Belarus.
Speaker Change: On the China thing, I think I'm just going to turn it directly over to Jenny to talk about that because she and the team have a lot of boots on the ground information. So Jenny? Sure.
Jenny Wong: Hey Jeff, to your question on phosphate production out of China, at the P2O5 level, this year we are forecasting they are going to produce more phosphate related products.
Jenny Wong: Unknown Speaker ...than last year or the year before. There's increases of production, including the increases of LFP, as we mentioned earlier, but also increases of P4, which is yellow phosphorus.
Jenny Wong: which used to be coming from other routes and now to produce a herbicide like glyphosate.
Jenny Wong: Now, more and more glyphosate are shifting production coming from the wet process, which is P2O5, that we're in the same space to compete the P2O5 molecule.
Jenny Wong: So the increases of LFP, PPA, and also the raw material for glyphosate is one of the drivers driving higher production of P2O5.
Jenny Wong: On DAP, MAP, TSP, SSP level, we are seeing a decrease of the production as well.
Well, you don't really see it from export.
with the Seamstress Production.
But that is mostly driven by increases of local consumption.
So we are seeing significant step up.
Speaker Change: Unknown Speaker ...of overall NPK consumption, well I take it back, phosphate and potash consumption in China.
Speaker Change: Partially, I believe it is driven by the overall economics of the crops. The other thing that we're keeping very close eye on is the adoption of GMO. This is the first year they started to grow GMO corn and GMO soybean, which will require more intensified fertilizer management to maximize the yield. So that is the other driver we will continue to report going forward.
Speaker Change: So with that, I think, Operator, we're going to stop taking questions and I will go ahead and conclude the call. So thank you, everyone. And to conclude our call, I want to emphasize our key points.
Speaker Change: We've overcome three hurricanes and other challenges, and today Mosaic is in excellent position to benefit from improving business conditions.
Speaker Change: We're investing in our strengths while acknowledging areas where we need to improve returns. We're reducing costs and capital expenditures.
Speaker Change: Our Mosaic Biosciences business is growing fast, and our plants and mines are running hard and safely to help us meet the strong demand for our products.
Speaker Change: We're energized for the future and our outlook for the remainder of this year and 2025 is positive.
Speaker Change: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.