Mosaic Q3 2024 Earnings Report

Mosaic EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.58
• Beat/Miss: Missed by -$0.24
• One Year Ago EPS: $0.68

Mosaic Revenue Results

• Actual Revenue: $2.81 billion
• Expected Revenue: $3.17 billion
• Beat/Miss: Missed by -$354.69 million
• YoY Revenue Growth: -20.80%

Mosaic Announcement Details

• Quarter: Q3 2024
• Date: 11/12/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, November 12, 2024
• Conference Call Time: 11:00AM ET

Mosaic (NYSE:MOS), through its subsidiaries, produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. The company operates through three segments: Phosphates, Potash, and Mosaic Fertilizantes. It owns and operates mines, which produce concentrated phosphate crop nutrients, such as diammonium phosphate, monoammonium phosphate, and ammoniated phosphate products; and phosphate-based animal feed ingredients primarily under the Biofos and Nexfos brand names, as well as produces a double sulfate of potash magnesia product under K-Mag brand name. The company also produces and sells potash for use in the manufacturing of mixed crop nutrients and animal feed ingredients, and for industrial use; and for use in the de-icing and as a water softener regenerant. In addition, it provides nitrogen-based crop nutrients, animal feed ingredients, and other ancillary services; and purchases and sells phosphates, potash, and nitrogen products. The company sells its products to wholesale distributors, retail chains, farmers, cooperatives, independent retailers, and national accounts. The company was incorporated in 2004 and is headquartered in Tampa, Florida.

Mosaic Q3 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, everyone, and welcome to The Mosaic Company's Third Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Please also note today's event is being recorded. I would now like to turn the floor over to Jason Tremblay.

[Operator]

Please go ahead.

[Jason Tremblay, Investor Relations at The Mosaic Company]

Thank you, and welcome to our Q3 2024 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer, followed by a fireside chat and then open Q and A. Clint Freeland, Executive 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. The statements include, but are not limited to statements about future financial and operating results.

[Jason Tremblay, Investor Relations at The Mosaic Company]

They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward looking statements are included in our press release published today and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non GAAP financial measures. Our press release and performance data also contain important information on these non GAAP measures.

[Jason Tremblay, Investor Relations at The Mosaic Company]

Now, I'd like to turn the call over to Bruce. Good morning.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Thank you for joining our call. 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. I'm especially pleased that we made it through the storms with no safety incident, no significant environmental events and no material physical damage. 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. Because of their dedication, our Florida operations were back at full operating rates just 2 weeks after Milton, with some locations returning to normal within days.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

I'm extremely grateful to the team. 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. During his time with Mosaic, Clint has been an outstanding CFO for the company. Mosaic's financial profile and capital allocation program are much stronger than they were when Clint arrived 6 years ago. I want to extend my sincere thanks for his leadership and we wish him all the best in his retirement.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

As part of this planned transition Luciano Cianne Perez will join the company as CFO designate on November 18. Luciano was previously the CFO at Vale and later served as the company's EVP of Strategy and Business Transformation. Luciano also served on Mosaic's Board of Directors following the Vale Fertilizantes acquisition in 2018, so we know him quite well. We look forward to welcoming him to Mosaic and we're confident that he'll be a worthy successor. Luciano assumes the role of CFO on January 1, 2025 and Clint will remain a Senior Advisor until July 1, 2025.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

On to our Q3 results. The storms were part of a challenging Q3 for us. We also faced electrical issues at our Esterhazy and Calanze potash mines that affected our production levels. All those challenges are now behind us. For the Q3, Mosaic generated $2,800,000,000 of revenue resulting in net income of $122,000,000 and adjusted EBITDA of $448,000,000 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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. We expect to achieve our targeted annualized phosphate production run rate of 7,800,000 to 8,200,000 tons by year end once the ongoing turnaround activities are completed later this month. We're making good progress on our cost management front and on track to achieve our $150,000,000 annual run rate cost savings target by the end of 2025. We are on track to achieve our targeted $200,000,000 reduction in CapEx this year. Mosaic Biosciences growth is accelerating.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

In fact, our biological products are now being used on 9,000,000 acres in key markets around the world this year. 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 and D capabilities as well as leveraging external partnerships. 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're continuing to invest in our strengths.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

This year, we completed the compaction project at our low cost Esterhazy mine and the MicroEssentials conversion project at Riverview. And next year, we will complete the Hydroflow project at Esterhazy and the Pomeranci blend plant in Brazil. We're also focused on capital reallocation for other assets in our portfolio, such as the conversion of our MWSPC joint venture into Moden's shares, which are worth $1,500,000,000 to $1,600,000,000 at today's share price and the strategic review of our Carlsbad, New Mexico potash mine. During the 1st 9 months of the year, we returned $415,000,000 to shareholders, including $210,000,000 of share repurchases. Now let's spend a few moments to discuss the state of the market and outlook.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Corn and soybean prices have improved from their August lows, while other commodity crops including palm oil, sugar and coffee are quite strong. In North America, farmers are enjoying solid yields that offset the impact of strained commodity prices and an early harvest allowing more opportunity to complete fall field work, which is good news for the near term fertilizer demand outlook. 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. We have also seen a continued uptick in Brazilian corn used for ethanol production, which has provided further corn price support there.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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. The government in Indonesia reiterated that it would be moving forward with a B-forty biodiesel program starting in January. In India, the latest ethanol mandate could lead to India becoming a net importer of corn. 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. 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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% to 5% compared to last year. So we expect demand will remain solid in 2025 as nutrients are replenished. 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. 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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 and we expect total Chinese exports to be around 7,000,000 tons for 2024, down from 7,900,000 tons last year and about 11,000,000 tons at their recent peak. 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

In addition, because of an unfavorable government subsidy environment, Indian phosphate demand is going unmet, leaving farmers short of a critical nutrient and setting up strong demand for 2025 assuming an improvement in importer economics. Now I'll move on to our segment results. The potash segment generated adjusted EBITDA of $180,000,000 for the quarter compared with $267,000,000 a year ago, driven by lower prices and approximately 250,000 tonnes of lost production due to the electrical issues at Esterhazy and Calanse and were further impacted by the broad Canadian rail strike. These issues are now fully resolved. For the Q4, we expect potash sales volumes in the range of 2,200,000 to 2,400,000 tons and prices in the range of $200 to 2.20 from the labor issues at the ports of Vancouver and Montreal.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Canpotex 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 Canpotex network. Our phosphate segment generated adjusted EBITDA of $265,000,000 for the quarter compared with $201,000,000 a year ago. The improved results are due to a combination of solid pre hurricane production levels and strong stripping margin. Our sales volume came in at 1,500,000 tonnes in the 3rd quarter, driven by lower production volumes and shipping delays caused by weather events and related port closures.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Our realized stripping margins remained strong, in part because of our advantageous ammonia economics. We produce about a third of what we consume and we have a reliable supply of ammonia and sulfur from our partners. We have executed 2 new ammonia supply offtake agreements with an additional one nearing completion to meet our needs in 2025 and beyond. Our balanced raw material sourcing approach reduces our risk exposure in varying market conditions and sustains our strategic advantage. Our phosphate conversion cash cost per ton was largely unchanged from the Q2.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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 watermark at the end of 2023. Hurricane Milton resulted in a production loss of about 250,000 tons, which will be reflected in our Q4 volumes. For the Q4, we expect phosphate sales volumes in the range of 1,600,000 to 1,800,000 tons and prices in the range of $5.70 to $5.90 per ton. Mosaic for Los Angeles generated $83,000,000 in adjusted EBITDA compared with $147,000,000 a year ago. EBITDA was lower due to $32,000,000 in bad debt reserves we booked in SG and A and $20,000,000 of legal reserves.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

The bad debt reserve was a result of the Brazilian customer's bankruptcy filing. We expect to recover the majority of this amount through an insurance claim, which will be recorded in the quarter it is received. All in all, we are back on track. Our operations are restored to full capacity in all geographies and we are optimistic as we look ahead to 2025. We expect constructive agriculture and fertilizer market fundamentals and we believe that we will produce at levels that will allow us to meet robust demand from our customers around the world and generate good financial performance.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Our strategy of refining our portfolio while pursuing exciting opportunities in Mosaic Biosciences will deliver meaningful shareholder value.

[Jason Tremblay, Investor Relations at The Mosaic Company]

Thanks, Bruce. Before we move on to the live Q and 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. First, what is the current state of agriculture and fertilizer markets? And what is your outlook for next year?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Thanks, Jason. Ag fundamentals are solid and fertilizers are affordable, which bodes well for fertilizer demand. Significant changes to phosphate supply will keep the market tight into next year and the potash market is balanced. Now let me ask Jenny to provide you with her view.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Thank you, Bruce. Overall, ag fundamentals remain strong for many crops. We continue to remind investors that only 1 third of phosphate and potash consumption goes to corn soybean. Prices for other egg commodities, especially palm oil, sugar, coffee continues to be very attractive, which supports significant demand of fertilizer growth in this year. For corn soybean, fundamentals are improving.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

In Brazil, domestic prices of corn soybean are actually traded at premium over international future prices. This is due to the real devaluation and also the growth of new demand, I. E. Bioethanol. As of last Friday, the sales of corn soybean have come back to the same pace of last year, so as the fertilizer purchases for safrinha corn and the summer crop.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Speaking about biofuels, I'd like to highlight another dynamic that will influence the market both in near term and in long term, which is increasing demand to corn soybean for biofuel and bioethanol. In Brazil, the recent approved government fuel bill suggest biodiesel and bioethanol blending rate to increase by 5%, as increases of the blending rate implies significant increases of new demand for corn and soybean. Our estimation that would imply to 4,000,000 tons of NPK fertilizer demand if the rates are going to be realized by 2,032. In India, the country has shifted to a net corn import country this year as the government's corn ethanol investment plans to push use of corn for ethanol production, in addition to sugarcane and rice. And this is even before they hit their E20 goal and the union government has a target to get to E25 by 2,030.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Now let me move over to phosphate and potash market. Phosphate market 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 at 2023, with supply constraints holding back demand growth this year. Indian monsoon and the grower economics have driven demand outpaced supply. We see reduced shipment in 2024 due to unfavorable importer economics, which is related to the government subsidy program.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

This is setting up a pent up demand for 2025. In North America, we are expecting a large crop. With the yield increase, the nutrient removal could be up to 4% to 5% from the soil compared to 2023. These nutrients must be replenished. While growers have been cautious as the headwind of corn soybean prices, the big yield and early harvest improved the sentiment.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

We've been hearing from our customers that they were surprised by growers' appetite to phosphate. 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, we are seeing limited new supply is coming in, in 2024.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

China exports are limited by their very strong domestic demand both in fertilizers and industrial use. Up to end of Q3, the production of LFP for electrical vehicles and the stationary batteries increased by 51% to 1,800,000 tons. The dynamic of competition between ad use and industrial use has tightened availability of pitot-five. 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 and support very tight phosphate market.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

For potash, we've seen very broad base of demand recovery around the globe. Especially in Southeast Asian market, the elevated palm oil price and the constructive rice prices have really supported the demand recovery of potash. 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. 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 Belarussia has largely returned to the historical level or pre war level.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Globally, we see the potash market as balanced with low price now prevailing to spur further demand growth in 2025.

[Jason Tremblay, Investor Relations at The Mosaic Company]

Next question is on phosphate production levels. Assuming you achieve your target run rate in the Q4, how should we think about production volumes moving forward?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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. 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. For example, we have some turnaround activities scheduled for the Q1 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 Q1, which we expect to make up during the balance of the year.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

One other factor that affects the production volumes quarter to quarter is product mix. Our teams are continually monitoring the markets and working to optimize product mix to maximize profitability. 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.

[Jason Tremblay, Investor Relations at The Mosaic Company]

Our next question is related to the credit situation in Brazil. You recorded $32,000,000 of bad debt in the quarter. What is your exposure to future credit losses?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

We have limited risk to further credit losses. While the market conditions remain challenging, not all industry participants are facing the same credit issues. In fact, significant portion of our customers, which are grain traders and co ops, are in good financial condition. During the onset of the credit crisis, we made a concerted effort to reduce our exposure to the retailers that are most impacted by credit problems. As we move into the safrinha and safra 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

In the event that credit losses are incurred, we use credit insurance programs to mitigate them. We believe our prudent risk approach will continue to reduce our exposure to future losses.

[Jason Tremblay, Investor Relations at The Mosaic Company]

Thanks Bruce. With that, we'll now move on to the open question and answer session. Operator, please open the lines for follow-up questions.

[Operator]

And our first question today comes from Richard Arcatoriana from Wells Fargo. Please go ahead with your question.

[Richard Garchitorena, Analyst at Wells Fargo]

Great, thanks. Good morning and congratulations, Clint, on your retirement. Yes, so I just wanted to first touch on the phosphate business.

[Richard Garchitorena, Analyst at Wells Fargo]

I know you put strong margins up despite the challenging weather events. I was wondering, given you're also on track on the cost savings of $150,000,000 what would your costs have looked like, I guess, if you didn't have the temporary shutdowns? And was there

[Richard Garchitorena, Analyst at Wells Fargo]

a cost impact from the shutdown during the quarter?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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 really has on our fixed cost absorption.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Even though we did have to your point impacts from the various hurricanes in Louisiana and a little bit of Helene at the end of Q3 and Florida mostly on shipping ability out of the ports. We've kind of had production flat versus quarter 2, which was about 100,000 tons, 110,000 tons improved over kind of historic. So I believe we're seeing that coming through. I know it's hard when you have these interruptions with storms or taking things up and down, but we believe that that underlying performance really is there and definitely we're going to demonstrate that and we'll talk more about that I'm sure going into Q4 as we get past our turnarounds. But we've always said that from our kind of high mark in 2023, which was quarter 4, we'd expect $20 to $30 cost improvements due to absorption when we get at full run rate.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

We obviously weren't there because of the hurricanes and the other turnaround work that we had. So we should have expected another notch down on our costs and would expand a little bit more in margin as we go forward. And I think that's what investors should look forward to as we do demonstrate that run rate forward. And Clint, I'll just turn it over to you since he congratulated you. You can talk about that and if you wanted to add anything to that.

[Clint Freeland, Senior VP & CFO at The Mosaic Company]

Yes. No, I appreciate it, Bruce. And Richard, I do appreciate your congratulations. I think, Bruce, I think you really spoke to it well. I think as you look at the production levels in 3 and adjust for kind of the production shutdowns, I think you would have seen a lower cost per ton and you would see improvement on those lines.

[Clint Freeland, Senior VP & CFO at The Mosaic Company]

And again, as we've on the right path on that. And again, if you just adjust for the close, I think you would see that

[Operator]

And our next question comes from Steve Byrne from Bank of America. Please go ahead with your question.

[Steve Byrne, Research Analyst at Bank of America Securities]

Yes, thank you. I'd like to drill in a little bit on the comments you made about biosciences. This 9,000,000 acres, what are the functional products in here? Are these bio stimulants or are these biologicals? Is this a blended product with fertilizer or seed treatment?

[Steve Byrne, Research Analyst at Bank of America Securities]

How does it flow through your income statement? And more importantly, what's the pipeline look like in this group? Anything in there you'd call out as having some meaningful longer term potential?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes. Thanks, Steve. Hoping we'd get a question and 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

I'm going to let Jenny talk about the specifics of your question. But we do feel that 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.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Thanks, Bruce. Thanks for the question. The product that we are selling in the market, Steve, are basically nutrient use nutrient efficiency enhancement products. So the 2 major products we're selling in North America and Central America called PowerCode and Bio Path. This product what these products do, they basically improve nutrient use efficiency.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

We do have product that we're selling in Brazil, in China. They are third party customer third party products as of today. They are biostimulants. So how the products are used today? More than 70 product that we're selling are coated on fertilizer granulars.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

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 have made our products very steady. So our product can be mixed with UAN with ammonia and let alone other crop protection products. Going forward, we will have product to be coated on seeds. So you asked the questions on pipeline.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

In the pipeline, we are looking for quite a wide range of the products. The most exciting ones, Steve, that I can mention, one is nitrogen fixation materials. And we are at the final stage for our field trial and the registration. And we also have a range of product which improve phosphorus solubility 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.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

So stay tuned. We will have more report on the new product pipeline and as well as the accelerated growth that we're making with our market access in the market, major agriculture markets in North America, Brazil, China and India.

[Operator]

And our next question comes from Chris Parkinson from Wolfe Research. Please go ahead with

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

your question.

[Operator]

And that gentleman dropped off. We'll move on to Joel Jackson from BMO Capital. Please go ahead with your question.

[Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets]

Can we talk a bit about your outlook for potash for 20 25? You're showing about a demand growth, I think, 2 or 2,500,000 tons of demand growth next year. Just talk about what you also see for supply next year? And then in your base case, how much of that incremental demand will Canpotex and Mosaic be able to supply? How many more tons can Mosaic supply next year?

[Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets]

You haven't really gone above 9,000,000 tons, I think, for 7 or 8 years. What is the most you can do through K3, Collinsay, Bell, Plane and Tetra? Thanks.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes, Joel, you picked up on obviously in our materials, we do see the market growing anywhere from 1,500,000 to 2,000,000 tonnes and somewhere in that range next year. See Laos being part of the 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 remainder probably supplied as you said out of Canada in some form or fashion depending on how that demand materializes. I'm going to turn it over to Jenny and maybe get into the details of what potentially could happen in sharing of supply on that demand.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Thanks, Bruce. Joe, probably want to give you a little bit more specifics on our base case assumptions. On the demand side, we believe the current price level or the affordability will have support to the further demand growth in some market as a demand recovery, for example, in Indonesia and Malaysia. And on the supply side, our base case assumptions are assuming further ramp up of EuroChem's Volkergali project and some of the final push of Urokali's production. So which is going to make the product out of Russia, we are estimating roughly 500,000 tons more than this year.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

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. Lastly, as Bruce mentioned, we have big assumptions on the expansion in Laos. So the expansion of the capacity including Asia potash and also partially including YTH as well. And Asia potash, their capacity expansion in 2024 was very slow due to well known management change and also the water inflow issues. We baked our assumption for next year that they will be back to the pace for their expansion of the capacity.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

So as you can see, as we forecasted the supply increases in 2025, the 2 major growth drivers are from Russia and also from Laos. And as we all know, this expansion are also with some significant uncertainties. 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Joel, just the other part of your question is what could we produce? And we've announced and we talked about in the opening comments, the investment in Esterhazy, which in our Hydrofloat project, which is a high return, low modestly expensive investment, will generate another 400,000 tons when that comes online mid year next year. At that point in time, Esterhazy and Belle Pling combined should be able to produce in that 9,000,000 ton range. And then based on what we need above and beyond that for Canpotex participation and our market share in North America, We'll continue to use Calanthe 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 Calanthe back up if it happens to be idle at the time.

[Operator]

Our next question comes from Chris Parkinson from Wolfe Research. Please go ahead with your question.

[Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC]

Jose, I promised to ask a nice question.

[Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC]

All

[Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC]

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. Just when we just take a step back and kind of consider everything that your asset base has gone through for the last several years inclusive of the Q3, how should the Street ultimately just be thinking about what's the average run rate of phosphate rock procurement in terms of the concept of normalized earnings? Same question for processing costs. So when we just sit back and compartmentalize how much your assets should be earning in a normalized environment in 2025, hopefully, or presumably into 26, what kind of broad framework should we ultimately be using?

[Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC]

Thank you.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes, Chris, I appreciate the question. As we've talked multiple times, the way I'll answer that is more like we have is I think, yes, we are recovering and 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 in the next couple of weeks. And then so December pretty will be wide open.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Unfortunately, we do have a turnaround at Bartow scheduled in the Q1 of next year, pretty major sulfuric turnaround. So there'll be some lumpiness to that, but look out beyond that at that $7.8 to $8.2 Conversion costs should come down as I said earlier from kind of that high watermark in 20 $23 by $20 to $30 per tonne and that should be sustained on an annualized type basis. Rock costs that we were about 55 kind of flat to where we had been this quarter in Florida. I think there's some upside to that when we get better lined out because there was some impact due to the hurricanes on fixed cost absorption there. But some minor upside on rock cost.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

And then it's just going to be a matter on blended rock, how much Miski Mayo is being consumed at any given time in the mix as that is a little higher cost on a blended rock side. So you put all that together and seeing around that $50, dollars 55 rock cost sub $95 ish on conversion cost and that's probably I think the numbers that you're looking for the way I understand it.

[Operator]

Our next question comes from Ben Theurer from Barclays. Please go ahead with your question.

[Benjamin Theurer, Analyst at Barclays Capital]

Hey, good morning and thanks for taking

[Benjamin Theurer, Analyst at Barclays Capital]

my question. Just wanted to dig a

[Benjamin Theurer, Analyst at Barclays Capital]

little bit Just wanted to dig a little bit deeper into the Brazilian business, into Fertilizantes, if you don't mind. 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. Would love to see what the business is for you right now in Brazil in particular. Thank you.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes, 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 she's headed that commercial side and has a good pulse of that. So Jenny?

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Sure. 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 is that some things changed, a, it's really on the commodity prices.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

We see the prices started to climb up from the mid of the year and especially at the local level. The prices on reais are actually higher than the U. S. Dollar traded in Chicago market. Partially, it's just because of the devaluation of real, partially it is because of the new demand, local demand, especially the newly added bioethanol plants in the middle of the core growing states.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

And with that new demand, we're saying that the farmers are selling at a higher price and to the local demand and that has largely improved their economics. So we are tracking very closely on A, how much greens the farmers have sold for their next crops and B, how much purchases they have made for their next season. So as of last Friday, for the coming safrinha corn, farmer have sold 67% of their crops, which is 7% higher than same time of last year and close to the historical average. As a part of the progress as the farmers are selling corns and they are buying fertilizers. So for the coming safrinha corn season, they have purchased over 60% of their fertilizers, which is ahead of the same time of last year.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

It's a similar situation for the summer soybean season. It is early, I know, but usually at this point of time, farmers started to sell their next soybean crops already. As of last Friday, the farmers have sold 28% of the soybean, which they are going to plant next summer. And this is a 4% higher than the same time of last year and 7% higher than the year before. It's similarly to the purchases of the fertilizers.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Last week, we saw a big step up. They have purchased 5% of their fertilizer for their next summer season, which is at par as the last 2 years. 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.

[Operator]

Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead with your question.

[Justin Pellegrino, Analyst at Morgan Stanley]

Hi, this is Justin Pellegrino on for Vincent. 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?

[Justin Pellegrino, Analyst at Morgan Stanley]

Thank you.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes, 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 details. But whether it's a shift in the MRP or something on the subsidy itself, definitely see that that's necessary in order to 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 Wang, Executive Vice President of Commercial at The Mosaic Company]

Sure, Bruce. So the farmer demand in India this year to DAP and for the same reason, MLP as well are very strong, which is A, supported by very good monsoon and B, supported by very good commodity prices. But on DAP itself, the demand has been so strong, supply was not able to catch up. The economics that you mentioned on importers, the importers economics are actually defined by 2 things, right? 1 is really the subsidy from the government B is the differences between international price, CFR price and the farmer price.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

This year farmer price are very low at $3.60 per ton. If you think about international market price is at 6.40 ish level. So there is such a big gap, the government has not been able to catch up on the subsidies. 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 2,000,000 tons.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Farmers still need this 2,000,000 tons. The shipment take partially from reduced consumption and partially coming from this fully depleted inventory. So as we get into next year, things likely going to be changed that we assume. A, is the farmer price likely going to be adjusted. 3.60 is just probably too low and how that price is going to be adjusted.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

We assume that will be adjusted to the level farmers still have good economics to support it. But partially, the government subsidy will need to be adjusted as well. So however that dynamics are going to be played out, 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. So that laid a good foundation as the government get into their consideration for the subsidy into 2025.

[Operator]

Our next question comes from Andrew Wong from RBC Capital Markets. Please go ahead with your question.

[Andrew Wong, Equity Research Analyst at RBC Capital Markets]

Hi, good morning. Just a few questions on phosphates again. So can you just clarify on the 8,000,000 tonne phosphate run rate? Is that annualizing a monthly or quarterly production level when there's no turnarounds? And if so, what would be considered a realistic total annual production going forward when you just kind of account for all of that?

[Andrew Wong, Equity Research Analyst at RBC Capital Markets]

And then just on phosphate demand, what is what are your assumptions assume 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Hey, Andrew. Yes, on phosphates, all of that 7,800,000 to 8,200,000 ton annualized range has what we would consider normal interruption due to historically normal turnarounds at historically normal scope as well as historically normal weather disruptions. What we've seen over the last couple of years and getting back to that run rate is abnormally large turnaround time and turnaround scope. And then of course this year more abnormally weather related. And issues during the hurricane.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

So based on history, now weather history repeats itself on hurricanes, that's a whole different question. If we do see this type of weather pattern going forward, we probably have some downside on the range. But that $8,000,000 if you want to pick a single point between the $7,800,000 $8,200,000 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 or 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.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

So the $8,000,000 is an average realized number, not and need to handicap that more. As far as demand growth, for sure prices in phosphate have been high, but prices overall I think you got to look at affordability on all of the input costs at the farm gate. Obviously, potash, 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 on given acres and that will turn out to be a little better on farmer economics as well. We have seen in Brazil as an example barter ratios as Jenny talked about starting to rise. So the constructiveness is always a function of what's going on in the geography obviously.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

But we believe overall affordability 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's going to be high without suffering some type of yield impact. I'll turn it over to Jenny and see if you want to add any more.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Yes. Thanks, Bruce. I think, Andrew, I would say next year the demand growth probably not likely going to say because price comes down and the demand grow. I would turn that to say the demand might only grow if supply can be really improved. Our current forecast on supply side of the assumption for 2025, There's no major increases, but more on the improvement like ourselves on the production.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

So if the supply can be improved next year, the demand will get to grow. The price like Bruce mentioned, it's probably not necessarily going to be the factor to define the size of the demand. Thanks.

[Operator]

Our next question comes from Edlain Rodriguez from Mizuho. Please go ahead with your question.

[Edlain Rodriguez, Equity Analyst at Mizuho Securities]

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 phosphate affordability being such an outlier compared to the other nutrients, what goes through your mind? Is it that, great, I'm exposed to the best and highest nutrient right now in the AP?

[Edlain Rodriguez, Equity Analyst at Mizuho Securities]

Or is there some apprehension being such an outlier?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes, Helane. I appreciate the question. Right now, it obviously appears to be well, it is high as a nutrient on its own. I talked about the aggregate, but I know that's not the nature of your question. What would things that we would be looking for to be more concerned or more confident would be the announcement of significant new capacity, right?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

As Jenny said, 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 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 phosphate. If somebody were to announce new capacity historically if you look back in time when things have trended for this long whether it be an OCP or a modern new supply would have been announced, that just simply hasn't happened to significance that we believe is going to change anything in our forecast or the way we look at that price at least in the near term.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

So going into 2025 still feel that realized stripping margins for Mosaic are going to be quite good. And until we see something change on the supply side fundamentally that is going to stay, I don't think we have great concerns that there is an obvious catalyst for something to change on the pricing side. Jenny, anything that I may have missed?

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Yes. I guess the only one thing Bruce I would add. The high prices of phosphate today are also supported by high raw material prices. If you look at the price of ammonia and sulfur, they stay at their elevated level as well. So if anything changes next year on the S and D side of ammonia, for example, or sulfur that might adjust the price for phosphate, although the stripping margin of phosphate are really depend on the S and D as Bruce mentioned earlier.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

So just want to add that one point.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Operator, is there another question?

[Operator]

Yes, sir. Our next question comes from Joshua Spector from UBS. Please go ahead with your question.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Good morning. This is Lucas Sponeman on for Josh. I just wanted to go back to Fed Elizantes. So you guys have your kind of updated shipment outlook there on Slide 10. You're kind of putting 2025, that's going to be like the 5th year in a row with relatively kind of range bound shipments.

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

I know we've had a lot of interruptions of different phases over that period. I guess just going back further, we used to kind of get 5% a year and sort of growth there in the prior decade. 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 higher growth rates there? Or have we sort of reached a more stable kind of lower growth size now?

[Lucas Beaumont, Director Equity Research Analyst at UBS Group]

Thank you.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes. 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 of static. 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 Wang, Executive Vice President of Commercial at The Mosaic Company]

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 barter ratios are improving. So the sign that we're seeing today support our forecast for next year on overall market expansion. For ourselves, you mentioned if I heard you correctly, you mentioned our own sales volume.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

I would say we've been very consistent as we operate in the market like Brazil, especially for our distribution business. We are always pursuing for margin of value than the volume, especially in this year and with the credit risk environment, 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 probably not growing as much as the market growth, but we again, we are pursuing value over volume.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

And then Lucas, again, now that Jenny was talking about it, we do have our Pomeranti investment as well which will add another 1,000,000 tons of distribution capability which right now we're at kind of that $9,000,000 mark of distribution capability for blended fertilizer. So Pomerangi will add another $1,000,000 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, based on what's going on with credit and other things like that. But that will be the flexibility that we'll have to continue to grow in Brazil, which we still believe is one of the key agricultural markets to be in, in the world.

[Operator]

And our next question comes from Jeff Zukauskas from JPMorgan. Please go ahead with your question.

[Jeff Zekauskas, Analyst at JPMorgan Chase]

Thanks very much. Two part question. President Lukashenko of Belarus suggested that Russia might curtail its potash shipments. Have you seen any signs that either Belarus or oral collie or EuroChem are curtailing in any way? And second, in China, if you look at overall phosphate production in China, inclusive of what shipped to the local markets and exports, has that total volume risen or fallen relative to the year when China exported at very, very high rates, 11,000,000 tons?

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes. No, Jeff, thanks. I think between Jenny and I, we can 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. Yes, we saw that article from President Lukashenko as well, but there's no evidence.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

In fact, I think the shipments at least in the data that we have access to out of Belarus anyways has been pretty consistent, Jenny, hasn't it, over the last quarter?

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Yes. Yes.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

Yes. 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 look forward to whatever that is one way or the other and then make our adjustments on our strategy. But that's the beauty of the resilient supply chain that we have, both with Canpotex and then ourselves with Calantse as our flex.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

And we'll react appropriately if something were to change in the overall S and D based on what has been said by Belarus. 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?

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

Sure. Hey, Jeff, on the to your question on phosphate production out of China, at the P2O5 level, this year we are forecasting they're going to produce more phosphate related products than last year or the year before. This increases of production including the increases of LFP, as we mentioned earlier, but also increases of P4, which is yellow phosphorous, which used to be coming from other route and now to produce herbicides like glyphosate. Now more and more glyphosate are used are shifting production coming from the wet process, which is P2O5 that we're in the same space to compete the pitwofive molecule. So the increases of LFP, PPA and also the raw material for glyphosate is one of the drivers driving higher production of pitwofive.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

On DAP, MAP, TSP, SSP level, we are seeing a increase of the production as well. While you don't really see it from export with this increased production, but that is mostly driven by increases of local consumption. So we are seeing significant step up of overall NPK consumption. Well, I take it back phosphate and potash consumption in China. Partially, I believe it is driven by the overall economics of the crops.

[Jenny Wang, Executive Vice President of Commercial at The Mosaic Company]

The other thing that we're keeping very close eye on is the adoption of GMO. This is the 1st year they started to grow GMO corn and GMO soybean, which will require more intensified fertilizer management to maximize the yield. So that's just the other driver we will continue to report going forward.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

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. We've overcome 3 hurricanes and other challenges. And today, Mosaic is in excellent position to benefit from improving business conditions.

[Bruce Bodine, CEO, President & Director at The Mosaic Company]

We're investing in our strengths while acknowledging areas where we need to improve returns. We're reducing costs and capital expenditures. 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. We're energized for the future and our outlook for the remainder of this year and 2025 is positive. So thank you for joining our call and everyone have a great and safe day.

[Operator]

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.

Participants

Executives

• Jason Tremblay, Investor Relations
• Bruce Bodine, CEO, President & Director
• Jenny Wang, Executive Vice President of Commercial
• Clint Freeland, Senior VP & CFO

Analysts

• Richard Garchitorena, Analyst at Wells Fargo
• Steve Byrne, Research Analyst at Bank of America Securities
• Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets
• Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC
• Benjamin Theurer, Analyst at Barclays Capital
• Justin Pellegrino, Analyst at Morgan Stanley
• Andrew Wong, Equity Research Analyst at RBC Capital Markets
• Edlain Rodriguez, Equity Analyst at Mizuho Securities
• Lucas Beaumont, Director Equity Research Analyst at UBS Group
• Jeff Zekauskas, Analyst at JPMorgan Chase