Q3 2025 Mosaic Co Earnings Call
Speaker #3: Good morning and welcome to the Mosaic company's third Quarter 2020 earnings conference call . At this time , all participants have been placed in a listen only mode .
Speaker #3: After the company completes their prepared remarks, the lines will be open to take your questions. And now I'll turn the call over to Jason Tremblay.
Speaker #3: Please go ahead .
Speaker #4: Thank you and welcome to our third quarter 2020 earnings call . Opening comments will be provided by Bruce Bodine President and Chief Executive Officer Jenny Wong .
Speaker #4: Executive Vice President , commercial will then cover the market update . Luciano Perez , Executive Vice President and Chief Financial officer , will review financial results and capital allocation progress .
Speaker #4: We will then open the floor for 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 are based on management's beliefs and expectations as of today's date , and are subject to significant risks and uncertainties .
Speaker #4: Actual results may differ materially from projected results . Factors that could cause actual results to differ materially from those in the forward looking statements are included in our press release , published yesterday , in our reports filed with the Securities and Exchange Commission .
Speaker #4: 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 .
Speaker #4: Now , I'd like to turn the call over to Bruce . Good morning . Thank you for joining our call . Mosaic third quarter results reflect the resilience and strength of our global business , as well as the extraordinary work our teams are delivering to help us operate effectively in a highly dynamic market and geopolitical environment .
Speaker #4: We've demonstrated the ability to shift tons to regions with the strongest demand and capture value across agricultural and industrial markets , and we're navigating near-term fertilizer affordability issues while looking ahead to positive structural market trends .
Speaker #4: We remain focused on achieving reliable and consistent production from our assets , leveraging our market access advantage and executing our capital reallocation strategy , all in the service of creating shareholder value .
Speaker #4: Let me begin with our key messages for the quarter . First , we've made major investments in asset health , and we are seeing improving reliability .
Speaker #4: U.S. phosphate production has improved sequentially throughout the year , and we remain focused on driving consistent performance across our phosphate assets . Second , our business in Brazil continues to deliver excellent performance .
Speaker #4: Adjusted EBITDA increased year over year , and we are managing well despite a challenging credit environment . Third , global potash demand remains very strong , especially in the Eastern Hemisphere , and we are running near record operating rates to meet that demand .
Speaker #4: And capture value . Fourth cost discipline remains a priority . We've achieved $150 million in initial cost savings and are on track to achieve our revised $250 million cost savings target by the end of 2026 , driven by automation , supply chain optimization and improved fixed cost absorption .
Speaker #4: As production increases . And finally , we remain committed to disciplined capital allocation . Recent investments , including the Tacori potash mine and the Patos de Minas Asset , reflect our commitment to streamlining the portfolio and redeploying capital toward higher return opportunities to cover our third quarter results .
Speaker #4: Net income for the third quarter increased to $411 million , versus $122 million in the prior year , while adjusted EBITDA in the third quarter rose to $806 million from $448 million a year ago , driven by higher prices across all segments and very strong performance in Mosaic for licensees .
Speaker #4: Let's look briefly at market dynamics . I'll leave the details to Jenny . Phosphate markets remain tight as global supply constraints persist . Key long term drivers remain intact , including continued growth in LFP battery demand , rising domestic fertilizer demand in China , which is likely to further erode exports and limited new capacity additions over the next few years .
Speaker #4: Despite coming off recent highs . Phosphate prices remain elevated and affordability pressure remains a concern . We've seen growers in the U.S. and Brazil cautiously approach seasonal buying , which is moderated prices and impacted the timing of sales volumes .
Speaker #4: The challenging farm credit situation in Brazil continues to exacerbate this trend. In India, strong shipments in 2025 have largely recovered back closer to historical norms.
Speaker #4: But we still see a need for substantial replenishment after multiple years of tight supply and under application . Potash markets are balanced as good affordability drives demand around the world , particularly in China and Southeast Asia .
Speaker #4: Potash and phosphate demand should benefit from the strong yields US and Brazilian farmers have generated this year . We expect big crops in North America and Brazil to remove additional 1.5 million tons of potash and similar amount of phosphate from the soil compared to last year .
Speaker #4: Growers will need to replenish these nutrients to avoid lower yields next year. For Mosaic, the focus on U.S. phosphate asset health is allowing us to run more reliably and at increased rates.
Speaker #4: We have experienced three consecutive quarters of production volumes , improvement and volumes for the trailing three month period ending October have reached approximately 1.8 million tons , which is further improved from the third quarter .
Speaker #4: We remain committed to return to previously achieved normalized production rates . Our focus now is on consistent and sustainable performance in potash . We completed the Esterhazy turnaround in the second quarter and the new hydro float system is delivering incremental tons .
Speaker #4: The resilience of our Brazil business demonstrates our effective commercial strategy and disciplined risk management , including a focus on sales to customers with strong credit profiles .
Speaker #4: Our team's deep local expertise and longstanding presence in Brazil have been instrumental in navigating market complexities and maintaining profitable growth. While we expect the usual seasonally slower fourth quarter, we anticipate earnings in this year's fourth quarter to be higher than a year ago.
Speaker #4: Cost initiatives are progressing across the company. Mosaic for licensees continues to generate cost reductions, and selling, general, and administrative expenses declined year over year in the third quarter without the impact of the bad debt expense.
Speaker #4: We continue to leverage our market access , which is a key strategic advantage for Mosaic to accelerate growth in Mosaic Biosciences revenues for the first nine months , more than doubled year over year .
Speaker #4: We anticipate Mosaic Biosciences will contribute positively to consolidated adjusted EBITDA beginning in the fourth quarter . In addition to strong growth in the Americas .
Given this persistent Global appetite. We expect a record to compete shipment this year and the further strengths heading into 2026.
North American product, demand has held relatively consistent this year on healthy affordability and for application towns are moving to the ground as we speak.
However, given podcast is often applied with phosphate. We may see some modest fall deferral into q1
Pent-up demand.
Long-term food, security and the industrial use continue to support a constructive outlook for phosphate markets.
Particularly absent any significant capacity additions.
Passage markets are stable on balanced fundamentals and we expect demand growth to reach to a new record.
Thank you, Jamie.
Let us take a deeper dive into our performance. You will remember that Q2 abduction was below expectations due to a number of larger than usual provisions.
Inventory adjustments, environmental reserves, legal reserves.
And also due to a sharp increase in turnaround expenses. We said these effects were going to reverse in Q3, and they did.
Q3 was more of a clean quarter, with minimum one-time items and a reversal of turnaround expenses from $144 million in Q2 to $85 million in Q3.
You should expect idle and turnaround expenses to remain at normal levels in Q4.
Despite being a clean quarter, Q3 Aid, that was impacted by lower sales volumes.
Which reflects a shortfall in faucet production and an intentional slowdown of sales from 15 to Z, given the credit challenges in Brazil.
Let's address phosphates.
On the revenue side for Q4, we expect phosphate sales to be between 1.7 million tons and 1.9 million tons, with risk to the downside.
Due to demand referral.
On the cost side, you saw the significant decline in idle and turnaround expenses from 84 million in Q2 to 42 million in Q3 as expected.
A lot of repair work, mostly in July, recorded into cash conversion costs, which were $131 per ton.
Which is about the same level of the 126 per ton in the second quarter.
The next step is to have a meaningful decline of cash conversion costs in the fourth quarter,
given that the asset health and repair work will be normalized. And also
Due to our expectation of higher production and fixed costs absorption.
So for phosphates in Q4 higher sales volumes, historically elevated sweeping margins and anticipated lower conversion costs should support results.
In Paris.
Cash production cost per ton of $71 was down from $75 from Q2 as production volume increased.
We expect the fourth quarter unit cost to be similar to Q3 and finish the year at low to meet 70s.
if you recall,
we got a 2025 unit production cost in the 64 to 69 range on investor day earlier this year.
Since then, we capped operating our high cost along the M for longer than expected on a Canadian dollar has a strength in against the US dollar.
If we adjust the investor day targets to reflect the current exchange rate,
Or fully or forecast would be on track to hit the targets.
POTUS continues to be a very stable business, in terms of production volumes costs and capital intensity.
15 is Eunice, our results, were driven by 2 opposing forces on 1 hand, strong, underlying business performance, but on the other hand, a softening Market in the near term.
Maybe that came in at $2.41 million.
Above the 200 million that we have guided, even after we strip out the 27 million dollar recovery of the bad that recorded in Q2.
That performance was achieved despite distribution margins, at about twenty dollars per ton, which is again below our targeted 30 to 40 range.
As we had to make margin concessions.
Because of the weakening Market.
The new level of Aida generation of a is a testament to the strong cost performance of the business in 2025 despite the strengthening of the Brazilian real.
What to expect for Q4? Well, uh, we expect an important drop in ibida, due to a number of factors.
Lower prices.
Still compressed distribution, margins.
Normal for the season, but still compressed.
Higher raw. Materials costs.
Seasonally lower overall sales volumes and product mix.
These uncertainties in volumes, prices, and margins are very high in the quarter. So, AB could be in a wide range.
Any scenario was still expected to be above the same quarter prior year. Thanks to the sustained cost improvements.
Cash flow from operations, was only 229 million us for the third quarter.
Because of over 400 million increase in working capital driven by several factors.
Higher physical inventories of end products in North America and Brazil due to the slowdown in sales at the end of the quarter.
Are prices for such inventories and for raw materials.
And the build up of inventory of faucet Rock to support future production plans.
We expect these effects to partially reverse in Q4, supporting cash flows.
But even with that reversal in Q4, if you look at the full year,
And we have a slide in the deck for that working, capital will continue to post a large increase and therefore 2025 cash flows will be well below what is intrinsic to the business.
In 2026, with raw materials prices stabilizing.
Faucet Rock inventory is being consumed by higher production, and the adjustment in inventories in Brazil and North America is expected to improve cash flow from operations and free cash flow significantly.
Therefore, we're proven to be deferring. Any extraordinary dividends or BuyBacks to 2026?
Finally a note on non-core asset sales in capital reallocation.
You saw Mosaic announcing the completion of the taquari transaction yesterday.
we saw this Parish mine in Brazil for 27 million us but
the transactions is also expected to eliminate Capital Investments exceeding. 20 million USD in the short term,
We will avoid significant capital investments to extend the life of the mine beyond 2030 in the medium term.
And we will transfer asset retirement obligations of $22 million. So, a lot of capital that is not going to be deployed anymore. In this asset, Mosaic also announced the closing of the sales of the Potash Mine at Idol Fast.
Early October, with proceeds of $111 million, of which $51 million has already been received, and the rest to be collected over 4 years.
We have many assets in review and several strategic talks ongoing, and we expect 2026 to be a year when capital reallocation will gather steam.
In conclusion, we are highly confident in our ability to finish the year on a high note.
And we encourage you shareholders to focus on the strong momentum. We expect to enter in 2026.
With that operator, please open the line for questions.
We will now begin the question and answer session.
To ask a question, you may press star 1 on your touchtone phone.
If you're using a speaker-phone, please pick up your handset before pressing the keys enter all your question. Please press star. Then 2. Please let me yourself to 1 question and at this time we'll pause momentarily to assemble our roster.
And the first question will come from Chris Parkinson, with wolf research. Please go ahead.
Thank you so much for taking my question. Um, just given obviously, you've been on a, a pretty long-term, you know, fixing of the turnaround schedule across, you know, 4 primary facilities. You know, can we just get an update on, you know, after the issues in late September? You know how you project, you know, how you performed in October versus expectations, how you're thinking about initial November, and just, what's your degree of confidence that you should be within that 4 key production guide and how we should think about the Cadence of such given the outlines that you projected at the CMD back in March, how we should be thinking about the confidence level as it relates to 2026. Thank you.
Hey, Chris. Thanks. Um for your question. Good morning. Uh, first off, we're committed to achieving our normalized production rates that we've been talking about.
um,
We did, um, have those issues that we had a press release out in September. Um, those are behind us, but I think as I've reflected on this things are taking a little longer than anticipated.
Uh as we did as, as you pointed out, get to a normalized turnaround schedule which was the big uh issue for us was to do that first. And as we removed that macro asset health issue, it uh shined a a light on some other issues mostly that for me. And this is my terminology that we kind of lost some muscle memory and I give you some examples.
On The Big Unit operations are not uh the issue anymore. It's really with high turnover in our Workforce Over The Last 5 Years. Uh that institutional knowledge is a place that we've got to focus. The good news is that we're seeing full rates a lot of the time. Uh, and in fact at times even overflow rates, we just need to lock in on more consistency, uh, and then sustain that for longer periods of time.
But, as I reflect for me on the past, 18 months to your point, we've made significant progress and sulphuric acid. Plant turnarounds, were accelerated, the kind of eliminate that really macro asset health issue. Uh but during that time we Advanced several Improvement projects in Foss acid granulation. And more importantly some of our critical support facilities around water and electrical infrastructure.
All In All, We've invested an additional 100 million in capex and an additional 100 million this year in maintenance expense that are above and beyond, just kind of normal for these operational enhancements and asset Health improvements, in addition to that to leave no stone unturned. We have brought on board, uh, some external Consultants, uh, to make sure that, um, we are leveraging everything we can do to, uh, get back to those rates. So, as you pointed out, all the work is led to 3 consecutive quarters.
Of sequential improvements.
And uh, with those consistent gains.
As we reported in the earnings presentation, the trailing three-month period ending in October is at 1.8 million tons, which is the middle of our guidance range.
so, um, we are changing our guidance philosophy a little bit and I think that's important is that
We're going to base guidance on the forward quarter based on kind of how we have proven, um, in the past.
You months. And uh, so
That trailing 3 month was a critical for us to set kind of that um that guidance range of 17 to 19 phosphate uh because we are actually at that 1 188, right? Right now.
But looking ahead, we're going to continue to focus. Uh Chris on our processes and instilling operational discipline across the organization.
Um, we've got work ongoing and a lot of emphasis on strengthening our institutional knowledge at the front line.
And then, um, we've got a lot of work also on further leveraging technology across our Ops and maintenance teams, uh, to put better, uh, data and decision-making at their fingertips. So we're optimistic, uh, and very excited about what the future is bringing. Uh, it's just a little unfortunate it's taking longer to get there, but, um, uh,
Where we are right now. We feel very comfortable and confident to achieving the guidance range that we've set forward.
The next question will come from Joel Jackson with BMO Capital markets. Please go ahead.
Uh, good morning. Thanks for taking my question. If I could follow up on your answer to Chris's question, um, can you maybe Bruce dive into what is a difference between a good day and a bad day? So a good day says, when you're at full rates or better a bad day, you're not there. You know. Is it a certain asset? Is it a certain thing going on? Can you elaborate interesting? A good day and a bad day versus your targets.
Yeah, thanks Joel. Um, a good day. Bad day is
very nuanced as you can. Well, imagine. Um, and it depends on, you know, the facility in the, in the suite. But right now bad days are not where
You know, something is catastrophically failing, uh, prematurely. For that, we're holding it together until we can get to a turnaround. Those are not the structural issues today. The difference between good and bad is...
Did we actually run without an upset?
Uh, more from operational decision. Making at the front line in Foss acid, particularly or granulation. So, again, perfect example, would be, hey, we have to switch from a map to micro Essentials product at doesn't matter what facility facility X, um,
Structural asset health, it's more on operational practice. Um, and, uh,
Just and then delivering on that consistency. So, every time we switch or start up from a repair day, which happened frequently within the month, uh, that's just normal. Uh, you know, Ops and maintenance practices is that getting up to that full rate.
Uh, quickly at quality performance and then sustaining it until, uh, the next, you know, cycle for repair or product switch.
Hopefully, that provides some color.
Um, that it's no longer structural, you know, asset health, as the big issue. It's more operational, knowledge, institutional knowledge, and then consistency of delivering on that day in and day out.
At these higher rates.
The next question will come from Andrew long with RBC Capital markets. Please go ahead.
Hi, good morning. Um, so maybe can I just clarify on the expected faucet? Run rate, is that?
Now, 1.8 million tons, or is that just for the very, uh, near-term upcoming quarter. And then there's longer term upside to that like more on a normalized basis. As someone of that, institutional knowledge comes back and you're able to work in those processes. Um,
And then just on faucet. Margins, can you just think helped us think about all the different moving pieces as, as we kind of get into Q4 versus Q3? Because obviously, there's a lot of changes on prices and input costs and asset Health. Um, but as production goes up, you know that should also help with fixed costs per ton. So, can you just help us understand that? Thank you.
Yeah, as I said, uh,
Andrew.
Um our guidance philosophy switched to you know, more proven but at the end of the day we're committed to get back to full rates there. There's no question about that.
Um, so there's no wavering on that. It's just rather than a guide to the promise. We're going to guide to actually was delivered and then the upside is there. Uh, as as we achieve uh, all those gaps that you just mentioned that we talked about in the last 2 questions as well. So, yes, to your point on cost.
um,
Fixed costs absorption is the biggest thing. We're not seeing any more unusual expenses in the script. Luciano talked about.
Um, the higher costs of, uh, putting in these new jip Handling Systems at New Wales. Th those things are behind us. Uh, from a
An expense standpoint. So normal, um normalized, uh turnaround costs, normalize maintenance costs.
uh,
Labor and all those things being fixed with the higher cost of production. As we go from what we've demonstrated, now 1.8 towards that 2 million tons, all are going to go to the bottom line fixed cost absorption. Luciano, do you have more to say?
Yeah. Uh, Andrew
We posted $131 per ton of U.S. conversion costs.
But if you look uh, August and September the number was actually a little under 120.
and the rule of thumb is for every 100,000 tons additional
in the quarter.
You should see about 7 per ton reduction. So if we were to post 2 million tons in a single quarter, which is our long-term aspiration,
That sub 120 would be somehow between 100 and 105, which is still kind of 5 dollars above our investor day targets.
So we we still have maybe 5 dollars of uh extraordinary
Smaller repair work that we need to shave, but that gives you kind of a ballpark, uh, thinking about how the cost should progress.
In addition, I would like to call attention to the operational leverage in phosphates. So
because most of the costs are fixed.
the marginal tan earns way more than the average done, which means that, for example, if you were to increase production by 25%, so,
For example, coming from 6.4 to 8 million tons rate.
Theoretically Aid, that could improve by more than 50%.
And the impact on cash flows would even be even more, uh, magnified. So that, that is something to bear in mind that, the results of phosphates are very, very leveraged to volumes.
The next question will come from, Lucas Bowman. What UBS please go ahead.
Uh, thanks. Yeah, I just wanted to uh touch on the cash flow again. So, um, I mean the operating cash flow conversion this year has been about 45%. Technically, your long-run range is in sort of the 80s.
Um, so just wanted to kind of, you talked about it, improving into next year but just wanted to get your thoughts on where you think that conversion should should go. Um, and then just secondly. So if you guys have also sort of talked about trying to get capex down after fixing the production issues, but uh, I mean this year's kind of tracking towards sort of that 1.3 billion which is pretty much in line with where it's been the past, kind of 7 years. So, just how much scope do you think there is to kind of help free cash flow into next year on that side as well? Thanks.
Yeah, Lucas thanks. I'll just start and then turn over to Luciano. He's
got got a lot to say about this issue particularly but uh yeah cash flow is a little weaker than we wanted or anticipated for the quarter mostly because of the kind of slowed down in sales
In the, in the Americas, which caused a little bit of a build in inventory, and then the higher pricing and inventory. Uh, and our, uh, buildup of rock inventory, particularly in North America, for phosphates anticipated higher production, kind of added some of that cash into inventory, but that will revert, as, um, you know, production starts to
materialize and sales start to move.
Into spring season. So, um, feel good about that. And it'll improve on the cash conversion. Uh, but but go ahead, Luciano, man. You want to talk about that?
Yeah, so look, because um, you'll probably be referring to an annual cash conversion rate, and I understand you are referring to the conversion between maybe D.I.E. and operating cash flow. Which, yes, this year should be in the year at around 50%. You referenced 45%, like maybe a little more than that with the recovery in the fourth quarter.
But but that's because uh inventories and working capital are kind of taking up about 20% of that ibida uh, in the year.
So if you were to adjust for working capital slash inventory changes, you would be at a level of around, 70%, which we believe is kind of the industry Norm. Like we see some competitors around that uh, that level as well.
And which means that looking forward to 26, uh, we actually have an expectation of a, a wind down, and a positive contribution of working capital. So we may be in 26 above the 70%, maybe who knows close to 80%
But that’s before CapEx, as you pointed out.
It happens that Capital expenditures this year are also close to 50% of of um ibida. So
You.
Net cash conversion of 50% with capex running at 50%. You're basically at a free cash flow of $425 million, which is very close to 0.
uh, but again in 2026, um
With the an improvement, in NBA with higher volumes and the cash conversion going more uh above 70 towards 80%. It it is possible that you're going to have like a free cash flow to conversion rate of
85 to 30%. So, so that's the situation in the short term.
Over the long term.
Uh we see already a positive trend in reduction of Aro and legal environmental reserves. This is uh 1 line that we're been been spending around 400 million this year and we
Expect next year to be the first of a long-term brand of the client. So, this is a, a Tailwind to cash flows.
Um, but in terms of capex, we have this uh, long-term view of, um, reducing, uh, Capital expenditures. We are exactly now in our budgeting process, we're seeing what, uh, what, what's going to be the rate uh, for for next year. Um, and we will inform you appropriately once we make our decisions. But
the, the good remark would be like, uh,
Asset retirement obligations, environmental reserves, and all the reclamation work are already showing. Uh, uh, the clients in...
The next question will come from Matthew. Do with Bank of America, please go ahead.
Thanks. Um.
Sorry, hold on. If I'm just looking at
At the mine site, particularly in Florida, in the degradation, is it realistic to hit 2 million tons per quarter for phosphate?
and I say that because I I assume with like higher throughput,
it means you're probably driving up asset where you're probably burning out pumps more quickly.
And that probably plays into just uptime in general. So can you manage these issues? Is that already, is that already been handled and that, and that's really not the issue anymore. Is that a non-factor? How, how does that just in general play into this?
Yeah. Thanks Matthew or the chemistry of the ores, not
Really a concern for us. Yes, on the margins, you're right. Where that played out this year was particularly in New Wales when we needed to upgrade the gypsum handling system. Excuse me.
Uh, because we did have more waste generated per ton of feed, uh, and and hadn't tested those systems in the last say 5, 6 years, um, at these higher rates. Um, but but
P205 quality. Um, you know, the chemistry of the ore
Definitely not a concern about hitting those rates, uh, it does limit.
You know, ketchup capacity, so it forces us to be that much more precise on operating, uh, discipline. To your point, um, but from a rock quality standpoint, it's more the geology that drives some of the issues on cost. Uh, and for mine rock, particularly in Florida, those things come down to stripping ratio— you know, how much overburden do you have to remove? Um, what's your pumping distance? Uh, things like that, that may affect cost.
Um, that goes into total profitability on finished product.
Um but those are pretty stable as well. So uh, or grade
The chemistry of it is not the biggest concern. Uh, even though it does create challenges, we, we just have to be very consistent and more disciplined on, uh, you know, being better operators. Uh, as, as we were processing that
Maybe, Bruce, your point is in order to reduce the risks.
Um, we actually are building up Rock Inventors this year as well, so that there's ample buffer to absorb any variations. And indeed, back to the cash flow conversation about $160 million.
Of increasing working capital. This year comes from uh, Rock inventory that we are preparing to Fire and all Senators. When we can in the concentration plans,
the next question will come from Jordan Lee. With Goldman Sachs. Please go ahead.
Hi, thanks for taking my question. Um,
Regarding the fourth quarter of phosphate sales, the volume guide is 1 to 2. The potential demand deferral that you called out is reflected in that range. Or would it be lower if that occurs? And could you maybe try to size that potential impact? Thanks?
yeah, let me
Start, Jordan. I appreciate that. Our guidance is really based on...
in the commentary.
that, uh,
Any deferral could be, you know, a risk. Uh, let me just turn it over to Jenny to kind of talk about what that...
um,
what that is, and it looks like
Sure. Um, so I'd like to start talk about overall, um, North America phosphate, uh, shipment this year. I know there have been a lot of discussions, um, demands change. I want to remind, um, ourselves that the import to the US market to North American Market. Uh, yesterday October has reduced by 1.1 million
And uncertainties related to, um, the government payment. We are. We've been cautious on potential deferral of phosphate application, uh, into from Q4, from December basically to into q1. Um, that deferral possibility, um, could be, depending on several factors. Um, we would say, um, if the government payment, uh, which is likely going to come out, we just don't know when and we don't know how much that will impact the customers, uh, decision on, when they want to step in for Winterfield. Um, the second factor is, uh, whether a condition, uh, in the, in the, um, normal November December, if the weather is dry and warm and Farmers, tend to get out to get fertilizers on the ground uh before the uh winter weather really impacts them. So these 2 major factors we're watching very closely. So as our customers
And they are going to say whether the towns are going to go, going to get um uh purchased uh in uh November December or pushed back into a q. Q1 next year. So in summary for phosphate I want to call out the potential of a deferral. It's depending on this 2 factors, the demand, um, impact,
Have been driven by Supply and meaning, uh, import reduced import? Um, potassium is a very different story. Um, the affordability itself isn't really an issue. Uh, we are cautious on the uh, potential deferral just because of some of the customers and Farmers. When they apply potash in North America, they go together with phosphate, so if there was a deferral, some part of the, uh, potash application, uh, could be deferred into, uh, uh, q1 as well.
Um, I would end uh, to say with this with a very big Harvest that we are saying in North America. And also for fact in Brazil as well, there are significant removal of nutrients for phosphate and potash this additional removal uh of phosphate and potassium from the soil need to be replenished into the soil and in order to not to impact productivity and yield for next year, the farmers in the US in Canada and in Brazil, they know that. So um oh and um with that.
Thanks.
Your next question will come from been through with Barclays. Please go ahead.
Uh, yeah, good morning and, uh, thanks for taking my question. I wanted to come, uh, back to, uh, fertilizantes. I mean I remember
About a year ago, I didn't at the at the investor day. We you've talked about it. How you want to bring this business into a level of somewhere north of 100 million. Like 120130 I think was the the Target on the quarterly basis and you've been on a nice track as it relates to the delivery q1 Q2, and then then significantly Surplus Q3. So maybe explain us a little bit more. What drives your expectation for the fourth quarter, so much down, um, particularly considering that this is actually uh, a relatively important quarter in Brazil. Um so help us understand what is what is taking its uh back to Square 1. So to speak. And and how should we think about it as we look into 2026?
Yeah, thanks Ben. I do think we may disagree that it's not going back to Square 1. As I think we put in our earnings material, kind of a comparison to last year, but we, we, we do believe that fourth quarter. This year will be significantly better than last year, but the the credit situation in Brazil is definitely driving. Um,
Some risks in, um, you know, buying in Brazil, particularly for small farmers. So, um, that is maybe more of it and then quarter 4 historically. And that's why you, you you see is a lower, uh, distribution margin quarter based on product mix. Um, the products that we sell more nitrogen products, less phosphate products for, uh, the growing season. Uh, so, you know, that is an impact as well. Uh, but, you know, north of a hundred million dollars and we set approximately 100, um, is actually, uh, we feel not a bad quarter, given the backdrop, uh, of what's going on in that business. And when you average all that out quarter by quarter, you know, I think we would expect north of a 100. Would you say 120 million dollars of ibad on a month on a quarterly basis?
You're going to see seasonality in the first quarter and fourth quarter, as they are always our lowest quarters based mostly on product mix in Brazil. But Jenny, do you want to add anything?
Uh, Luciano go ahead.
Um,
Most of the, the the client is going to be driven by uh the production business uh in Brazil. And because of product makes it was mentioned.
and so because of the Brazilian Market these days have been purchasing way more
Low analysis, products SSP, for example, even through Imports. And because part of our production,
uh, in Brazil is of higher value products. We are kind of baking in the forecast lower sales, especially of these higher margin products. So, so that's affecting a lot. So we're baking around 70 million dollars of decline in the results of the, of the production side of it.
The other thing which is seasonal, just to remind, is the co-products. So, the third quarter is kind of a peak season for sales of co-products. They should about...
Uh, the client by another like 20-something million US Dollars. Just the co-products uh uh sales.
And again, we won't have the, the Tailwind of the bad debt recovery. So when you bake, all of this and admittedly with a little bit of a hedge to see how the sale of the higher margin products are going to behave.
That that's why we're being a little more cautious on on, on the guidance.
The next question will come from Edelen Rodriguez with Meizuo. Please go ahead.
Uh, thank you. Uh, good morning, everyone. I mean this is for Bruce or even Jennie. So, given all the puts and takes in the egg market right now, you know, club prices, inventory levels, supply demand, and so forth, in your view, like what drives fertilizer prices higher in the near term?
Yeah, edlane. Thanks
um I'm going to actually let me just start and then turn over to Jenny because she's got some data points on what's happening in various geographies but I think it comes down to the macros at Lane and and I know you're focused on
Maybe part of your question is how do you separate that from a...
Uh fundamentals, maybe a farmer affordability. Um, but on the 2 comma, the snds were fertilizer.
as Jenny did say in phosphate Supply is constrained, um, the
Just the price is half to come up in order to.
make demand meet the Supply, right? And until something fundamentally changes there. And then phosphate particularly
as I've said in the opening script, uh, with China's demand, continuing to grow
Not only for inputs, but also on LFP industrial.
Less Chinese phosphate is going to actually be exported, and I know Jenny's going to talk a little bit maybe about what is coming out on further restrictions potentially. But without new supply of significance coming on,
um, fundamentally changing the fertilizer supply and demand, it's just not happening on the supply side. So we actually see demand continuing to be constrained in the near term because of lack of supply. And that, that likely is not going to change in our forecast. Anyways, of significance, for quite some time. And the first time, you might start to see a little bit more, um, Supply coming.
2028, I think Jenny, uh, as ocp starts to ramp up some of their announced, um, in increases as well as modern. Um, so that's phosphate and and on
Uh, pot ash. It's not a heck of a lot different. It's, it's a very constructive supply and demand and it's that s and D that we see.
driving fertilizer prices on each of those uh you know 2 sides, the the potash and the phosphate so with um the first half of this year and
The former FSU kind of down Supply was tight um, prices.
Picked up. Um, we um, didn't see as much come out of Los.
This year, so FSU was down. China and Chile were down, uh, this year from a supply standpoint. However, China's appetite continues to grow on potash as well.
Was a huge consumer this year of pot, ash keeping things tight. So the demand is very constructive again. Don't see that dramatically changing, um, in 2026. In fact, continuing more of the same as BHP is pushed out. You know their startup, we do see a little bit of tons coming out of Laos, uh, additional, uh, a little bit out of Uralkali and, uh, maybe BPC with the Zinky project near the tail end of this year. Uh, but demand.
Uh, we can see continuing to grow to suck up that Supply. So things take very constructive on the, uh, snd for fertilizer Jenny. Turn over to you, as I maybe covered some of your stuff, but go ahead. Oh good. I probably, uh, want to, um, add some data points. Firstly, when we talk about act economics and farm economics, we tend to only focus in, in, uh, us and the Brazil, I would say the egg, economics are very variable across the globe. Well, it is pressured in America. Um, we have seen much more favorable conditions in the rest of the world. And if you look into the major act Market, China and India are very supportive from their government policies. So, act economics are not really a challenge. Therefore, we have seen very big growth significant growth on the consumptions of potash in both markets.
Market, and also phosphate.
So um, so that's a reminder and the letter on some of the other marketing Asia uh due to different crop Dynamics, right? Um the other data very quick data point on phosphate Chinese export of phosphate is likely going to continuously to be restricted this year year to date already. We we've seen reduced uh, reduction of 18% over a million tons for the rest of the year. We are going to see very little export out of China. Um, so the full year, uh, we are going to see over over 1 and a half million tons reduction. So that whole there's nobody this year on, phosphate Supply is able to put in. So the, the market for phosphate, um, is really demand is constrained by Supply looking into 2026. Um, the economics are really supportive for a further, uh, uh, demand growth. But again, that is going to be, depending on how much Supply is going to be improved and partially, it's
Coming from Mosaic ourselves, um, for potash, I think Bruce, you covered it very well. It's a very stable market, and the nutrient itself is quite affordable. That's the reason we see growth across the board, and this is going to continue in 2026.
The next question will come from David Simone with BMP Paribas. Please go ahead.
Hi, yeah. Um, so just 1 on sulfur, please. So, or or sort of force phosphate inputs more generally. So, Russia's sulfur, export ban, seems to be pushing sulfur, prices, higher. Uh, there's been some outages in pneumonia, which are also pushing ammonia prices higher. So,
I'm just curious. Obviously, the spot stripping margin that you show in your presentation has come down to, I guess, more normalized levels.
Is there a risk that that goes further with very weak Farm economics? Making it harder to pass through some of these prices in Dap? Uh, do you see a, a sort of risk in the short term on stripping margins? Thank you.
So, thanks David.
Good question or something. We talked about a lot we definitely do see stripping margins coming down because of exactly what you said on raw, materials sulfur is. We see some of these higher costs sticking uh into early next year, uh, for sure ammonia.
We do see that trending down in time as new capacity comes on, but in the short term.
Um, as you mentioned.
Certain restrictions.
um, have caused prices to increase, but
Dripping margins right now and particularly realize where Mosaic are are still above.
Uh, historical norms.
um, they have come down but they're coming down from a
A 5 handle number, uh, to maybe low fours or upper 3s potentially, but, um, that that is still very healthy, stripping margins. Uh,
For phosphate-based on history. So,
Um, Jenny, maybe you want to comment a little bit more on what you're hearing on the raw material side?
Significantly reduced.
So the recent attack of um Ukrainian 20 refineries in in Russia has for sure. Uh, contributed to the tightness of the export of uh software uh, out of Russia. Um, I would also say the overall software uh, being used on fertilizer production um, is over 50%.
So if the price of phosphate is under pressure and that will have impact to the software prices as well. So I would say not only the software price is not only only driven by supply and demand itself. It will also be impacted by the demand from uh phosphate if any pressure on the price uh prices of soft of phosphate that it will eventually impact um, the software prices as well. So that happened many um,
Many times in the history. Um it will just take a bit of time to work through work through the SMD that Dynamics between phosphate SMD and also software SMD.
The next question will come from Kristen Owen with Oppenheimer. Please go ahead.
Hi, good morning. Thank you for fitting me in. I just wanted to revisit the critical minerals list. I think the comment period for that ends this month. So just remind us what the puts and takes are on whether being added to the list has any implications for you, and how we should think about the puts and takes on that. Thank you.
Yeah, Kristen, great question. Um, we're active in Washington, not only ourselves but through industry associations advocating for that.
It's seems that.
There's momentum to add it. Um, I know even at some of the Senate hearings recently.
Um, talking about that.
Seems to indicate more momentum than not.
Um,
what does it do for us? I think what we're hoping for is that it brings a spotlight to the criticality of that. Obviously being a critical mineral. Uh but it keeps that education within government. Uh that we need streamline regulatory um Frameworks uh maybe less, you know, burden quicker permitting times uh to bring things to Market. Um uh that is probably where the biggest
Um, Advantage is for us.
to make sure that
At the end of the day, we keep a good supply within North America for.
Good free trade and competition are essential for farmers to maximize the food that they grow.
Um, that's what we're interested in, um, by adding phosphate to the critical minerals list.
Next question, will come from Vincent Andrews with Morgan Stanley. Please go ahead.
Uh, thank you. Uh, appreciate you filling me in um just want to ask on the finished goods inventory. Uh I think it's about a billion 7th. Um, how much of that is, is that, is that the mine or 1 of your facilities versus, uh, perhaps on consignment with a customer?
Just going to turn it over to him as he's got that handy here.
so, uh,
I would say the inventors are mostly, uh, spread around the entire supply chain, right? So we have.
uh, or warehouses in the midwest, we have
Barges on the river, we have our finished good yards in our Florida facilities. So there's
it's ready to be moved and it's well positioned uh as soon as demand comes back to be to be sold,
Uh, we're going to close the call as we're out of time. Uh, so thank you for your questions, everyone. To conclude our call, I'd like to reiterate a few of our key points.
First, our work to improve phosphate assets is definitely paying off, and we're seeing that day in and day out with phosphate production climbing as the year moves along.
We intend to reach our targeted rates, and we intend to sustain our production at high levels. Once we get there, our business in Brazil is performing very well despite the difficult credit environment.
And mosaics paudash business continues to deliver very strong results. We're producing at high rates.
Uh, to meet robust Global demand.
Focused on our financial foundation, we're reducing costs and remaining committed to disciplined capital allocation.
In all, Mosaic is in excellent position to deliver compelling returns through 2026 and beyond. So, thank you for joining the call, and have a great and safe day.
Conference is now concluded. Thank you for attending today's presentation. You may now disconnect