Operator:

Good morning, and welcome to the Mosaic Company's Second 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. Your host for today's call is Jason Tremblay. Jason, you may begin.

Bruce Bodine:

Good morning. Thank you for joining our second quarter earnings discussion. Before we begin, I want to acknowledge that we have recently experienced some serious safety incidents. We take safety extremely seriously, and we are working to further improve our culture to ensure our people go home safe after every shift. Moving on to our earnings discussion. This morning, I will add some color to the information we published, and then we'll get to your questions. This was another solid quarter for Mosaic, both in terms of our results and our operational progress. For the quarter, Mosaic delivered adjusted EBITDA of $584 million on revenues of $2.8 billion, compared with adjusted EBITDA of $744 million in revenues of $3.4 billion a year ago. Adjusted earnings per share for the quarter were $0.54, compared with $1.04 in 2023. We are making good progress across our strategic initiatives, both to grow the company and manage costs, and our market outlook remains constructive. I'll start with the actions we're taking to strengthen the business for the long term. We are hyper-focused on managing costs, and we're making good progress across G&A operating and capital expenditures. Since the announcement of our $150 million expense reduction program between SG&A and cost control measures implemented in Brazil, we have already achieved more than one-third of the annual run rate cost savings target. This does not include phosphate fixed cost absorption, resulting from higher production volumes in the second quarter. We have also executed Phase 1 of our third-party contractor reduction plan in Brazil, and expect to begin seeing the benefits in the second half of this year. With several projects winding down in careful CapEx management, we are on track to achieve our targeted $200 million reduction in capital expenditure. Our work to improve our operations and driving operating efficiency is paying off. Phosphate production volume in the second quarter increased by almost 100,000 tons over the first quarter. This is a significant improvement on an annualized basis. Efficiency improvement is also seen in our potash and Mosaic Fertilizantes segments, where unit production costs improved meaningfully across the board. Our growth projects are proceeding well. Our microessentials expansion at Riverview is operating and ramping up. Our potash compaction project at Esterhazy is complete, and the new Palmeirante blending facility in the northern region of Brazil is on track to be completed in 2025. Our Mosaic Biosciences business is making significant progress. In fact, we have launched our biological products in North America, Brazil, China, India, and nine other Central American markets. Our products are now in use on 5 million acres in North and Central America, which highlights the competitive advantage our brand, customer relationships, and distribution strength provide as we introduce new and innovative products. We completed and successfully launched our global digital acceleration program, which is driving improved customer service, cost reductions, and many other benefits. The strength of our business and our cost controls have allowed us to continue to return significant capital to shareholders. We have returned almost $300 million to shareholders, including $160 million of share repurchases in the first six months of this year. Our business improvements are complemented by the positive signs we're seeing in fertilizer and broader agriculture markets. Strong global phosphate demand drove higher prices through the second quarter as seasonal sentiment improved. We believe the long-term outlook for phosphate with increasing demand for food, fiber, fuel, and industrial use is compelling. Potash contract settlements in China and India established a price floor and brought buyers back to the market. In-season fertilizer demand in Brazil is strong, and we continue to execute well amid the recovering ag environment there. Mosaic Resources results are solid and our cost position demonstrates improvements. Let's take a deeper look at our progress in the U.S. phosphate business, where our goal is to return to a run rate of 8 million tons per year by the end of 2024. We're making good progress as demonstrated in our second quarter production volumes, which advanced 98,000 tons from the first quarter. On a run rate basis, some of our facilities, specifically Varto in New Wales, have achieved about 90% of the production levels we need to reach our system-wide goal. Our turnaround work is clearly paying off. For example, in New Wales, following the turnarounds we executed in March and April, we saw a significant step up in production for the second quarter. In Louisiana, our production run rate has improved after several unplanned outages last year and has reached 85% of the target production level. Several projects are scheduled for the remainder of the year, which will further close the gap to the target rate. Riverview performance in the quarter was lower than target rate due to the outage caused by a brush fire earlier this year and a normal pace of production ramp-up after a major capacity conversion, which was completed in May. The outlook for the rest of the year is solid. All in all, we are pleased with the progress we have made in our production ramp, and our hard work will continue to grow. We will continue to pay off for the remainder of the year. Higher production brings lower unit costs, as you can see in our second quarter results. The majority of our turnaround activity will be complete by the end of the year, resulting in significant production improvements and a $20 to $30 per ton conversion cost savings. Now, let's move on to a brief look at the markets. Ag commodity markets have diverged around the world, with corn and soybean prices softening and other crop prices, notably for palm oil, rising. The important factor for Mosaic is that crop nutrients remain affordable for most of the world's farmers, which leads to strong fertilizer demand and application. In phosphate, our long-term positive outlook continues. Rising demand for grains and oilseeds to support both increasing food and fuel demand combines with soaring demand for industrial uses to create competition for limited phosphate supply. Chinese exports remain subdued, and major new supply is years away. In the short term, the seasonal price reset that we saw in the first and second quarters of this year was shorter and less severe than expected. Prices have rebounded, given strong demand and tight supply. North American demand is particularly strong, with buyers seeking summer fill after emptying their bins this spring. Brazil demand is also good, with growers concerned about limited availability. In India, where grower demand is very strong, importers are still awaiting a more compelling government subsidy. While Chinese exports have resumed, recent news indicates that government restrictions could tighten, given rising in-country phosphate prices. Due to the positive dynamics and sentiment, as well as subdued raw material costs, stripping margins remain well above historical averages, and we expect strong margins to continue. The potash market remains balanced. After a very strong North American spring planting season, our summer fill program was very well received. In fact, the recent contract settlements in China and India signaled a floor for prices, and as usual, stimulated buying activity all over Asia, resulting in Canpotex being sold out through quarter three. We restarted Colonsay in early July to make sure we have enough product to meet our customer commitments while Esterhazy is in turnaround. Keep in mind, we need to run Colonsay for approximately five months to offset one month of Esterhazy production. We will continue to flex Colonsay as needed. Now, I'll provide some color to our segment results. In phosphate, we reported adjusted EBITDA of $308 million on revenue of $1.2 billion. Sales volumes were solid and higher than first quarter, and prices were strong. Margins were up from the first quarter due to strong pricing, fewer tons purchased from third parties, and our lower conversion costs. We expect sales volumes to increase sequentially in the third quarter. Potash adjusted EBITDA was $271 million on revenue of $663 million. While second quarter prices declined from the first quarter, sales volumes were solid and costs were down. We remain highly efficient in our operations. In fact, production unit costs improved again in the second quarter with MOP cash production costs per ton declining 11% from the first quarter. Our third quarter pricing expectations reflect a higher mix of international sales compared with the second quarter. In Brazil, we recorded adjusted EBITDA of $96 million and sales volumes of 2.2 million tons. Our results were solid due to our strategy of prioritizing margin and cash flow over volume. Our distribution margin was within our normalized $30 to $40 per ton range, and we expect similar margins in the third quarter. Our production margins improved from prior year. Cash unit costs of mine rock and phosphate and potash production all came down due to our focus on cost reductions. In addition, we had another strong quarter in co-product sales. Finally, a brief word on capital allocation. Our strategy has not changed. We're investing in the business, conserving capital where we can, and returning excess cash to shareholders. To conclude, Mosaic is executing well across our strategic initiatives. And we are generating solid results, and our outlook for the remainder of 2024 and beyond is positive. Now, let's move on to the first set of questions.

Bruce Bodine:

That's a great question. So let me start first with the ag commodity market, which is very constructive with global grain and oil seed stock-to-use ratios still well below historical average. While no doubt corn and soybean prices have softened, other grain and oil seeds, and specialty crops, are favorable, especially for crops like palm oil and rice. And I want to remind investors, as we've said in the last couple of earnings calls, that only one-third of phosphate and potash consumption is related to corn and soybeans. And the demand pull from the remaining crops continues to support constructive fertilizer fundamentals. On a higher level, phosphate demand is strong across all the key markets we sell in. For potash, demand has definitely come back significantly, particularly in Southeast Asia given the favorable weather conditions, pent-up demand for multi-year under-application, and the current attractive prices. The recent settlements of the China and India seaborne contracts are going to further simulate demand all over Asia. With that, I'm going to pass it over to Jenny to talk a little more details about the near-term demand.

Jason Tremblay :

Thanks, Bruce and Janie. For our next question, what is the latest on phosphate exports out of China, and how do you see that evolving over the rest of the year?

Jenny Wang:

Thanks, Bruce. As Bruce mentioned, the first half export in China reduced by 27% or over a million tons. That is the result of the changes in Chinese local S&D for phosphate. On the demand side, Chinese phosphate domestic shipment increased over 20% in the first half of the year, which is probably the record. They're driven by several factors. First, strong ag fundamentals supported by ag policies to ensure food security. Second, meaningful growth of vegetable and fruit planting acreage over the last five years. Third, the introduction of high-tech seeds technologies have required more balanced fertilizer to maximize the yield. And lastly, we also recognize there are some earlier seasonal pools for the fall demand. As a result of it, the demand of Chinese phosphate domestic shipment has increased significantly in the first half of the year. And then let's look at the supply side. Continued shift from fertilizer production to industrial products like PPA, LFP, has reduced availability of fertilizers, especially DAP. The production of LFP in the first half of the year has reached to over 1.1 million tons, which is an increase of 82% year-over-year. And that represents over 90% compound annual growth rate from 2020 to 2023. So in the first half of 2024, over 1 million tons of DAP products are shifted to LFP. So the growth of domestic demand, the reduction of production, fast rising prices have had Chinese government tightly controlled the export of phosphate out of China. We expect the restrictions is going to continue in the second half and going forward.

Bruce Bodine:

We're making significant progress in our phosphate production ramp up. And as a result, we're seeing good fixed cost absorption benefits, especially in the past two months. You can see the progress in our second quarter production volume and unit conversion costs. Our volumes were up close to 100,000 tons sequentially, which is a significant achievement. And our cash conversion costs were the lowest since the end of 2023. We have certain sites, for example, Bartow in New Wales, which are performing particularly well and are contributing at the rates required for the business to return for historical production objectives. We'll undertake several maintenance turnarounds in Louisiana and Riverview to further improve our production run rate in the second half of the year. Note, we will always see some variations from quarter to quarter due to the normal turnaround schedule, the scope of those turnarounds, and the decisions we make on finished product mix from the phosphoric acid we produce. So we expect annual production to be in the range of 7.8 million to 8.2 million tons once we get back into a normal routine on turnaround activities. Unit costs are expected to demonstrate continued improvement as we increase production, and we're on track to achieve $20 to $30 per ton in cost reduction from higher operating efficiency.

Bruce Bodine:

Well, thanks for that question. I know it's on a lot of people's minds, but for Mosaic, and we've been consistent with this. Colonsay is an important component of our Potash portfolio. It gives us the flexibility to meet our operating objectives. One objective is to ensure we meet market demand. Now that the settlements of the China and India Potash contracts are behind us and a price floor is established, our focus is to produce enough product to meet customer commitments. We have maintenance activities and turnaround scheduled for our assets every year, and in fact, Esterhazy is scheduled for one in the third quarter of this year. In order to have enough product on hand to meet our commitments with Canpotex, which we just mentioned was sold out for the third quarter, we must restart Colonsay. And just as a reminder, it takes approximately five months of Colonsay operating to replace approximately one month of Esterhazy production.

Bruce Bodine:

The operating environment in Brazil agriculture has been challenging for the past year. And it has taken a toll on many participants in the market. I will highlight that our deep expertise and strong brand in Brazil market, with over two decades of distribution experience, has allowed us to mitigate the market-related risks and deliver strong results. Our assets, which include in-country production, ports, warehouses, and blending facilities, provide us with the required scale, geographic diversification, and cost efficiency to succeed in this geography. Our strengths have allowed us to gain further advantage as others have exited the market or reduced their footprint in-country. Retailers and large growers have turned to us for reliable supply, and we are here to meet that demand.

Bruce Bodine:

We've made significant progress on our cost and CapEx initiatives. There are three categories. The first, operating efficiency. In phosphate, higher production volumes have significantly improved our fixed-cost absorption. We had very good results in the past two months, as I previously mentioned. And as you can see, our cash conversion costs have decreased 15% from the high point in the end of last year. We do expect further improvement in the remainder of the year as production volume continues to recover. Operating efficiency is not just in the phosphate segment, however. Costs came down in the potash and Mosaic Fertilizantes segments as well. Our unit cash cost of mined rock, Phosphate conversion and Potash production declined across all three segments since the same time last year. Second, our cost focus is not exclusively on operations. We have a focus on reducing costs in all areas of the company. As mentioned last quarter, we have had plans to reduce headcount, mostly third-party contractors. I'm pleased to announce we have implemented the first phase of that reduction. We will start reaping the benefits in the second half of 2024. The full program will be completed by mid-2025 and result in run-rate savings of approximately $20 million to $30 million. Our other cost controls in Brazil and SG&A reduction are also on track. Since the inception of the initiatives, we have achieved about $50 million in run rate cost reductions, about one third of the total $150 million target. Finally, on the CapEx front. We finished several growth projects in the past six months. As these projects continue to wind down, we are on track to reduce CapEx by $200 million this year.

Operator:

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ben Isaacson from Scotiabank. Please go ahead.

Bruce Bodine :

Well, thanks, Ben. I'll take the first part of your question and then maybe pass it over to Jenny for any commentary on the LFP. But we agree, Phosphate prices look very constructive for the near term. And as far as what is out there to change something, we don't see a lot of new capacity come on, which historically is -- or announced in the near term, which historically has been something that could influence kind of outlook on price and the fact that that's not there of significance. We're very optimistic about how prices are going to play out. If you look at our stripping margins well over $400. We kind of continue to see that in the back half of the year and that kind of mid-$400 range. No doubt, there's affordability issues. But if you look at total crop affordability, I think Jenny talked about that earlier in the fireside chat, it is still very constructive, although no doubt pressures on certain areas on corn and soybeans as an example. But again, 30%, 33% of overall P&K demand is in corn and soybeans and then the other 67% is in other grain and oilseeds, which quite honestly, it's very constructive and healthy. For example, palm oil, sugarcane, coffee, other things like that. But I don't see right now a big catalyst to change that in the forthcoming future. But you never know what could come out geopolitically or something like that, but I think that's what it would take. With that, I'll turn it over to Jenny to maybe answer the LFP part or Jenny, if you've got anything else to add on the market itself.

Operator:

The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Bruce Bodine :

Yeah. No, thanks, Vincent. For Phosphate, our projections in the range of 73 million to 76 million tons global shipments. For Potash, that range is 70 million tons to 73 million tons. I think -- and Jenny, correct me if I'm wrong, our Potash numbers have kind of have gone up a little bit, that midpoint around 1 million tons based on what we're seeing develop in Southeast Asia and really all Asian markets in general, given where these contracts have settled in China and India and kind of the sentiment that, that's provided confidence in the industry that kind of the bottom set in on potash. On Phosphate, I don't think that range has changed very much for us, since the beginning of the year, just given that supply is limited, Vincent.

Bruce Bodine :

Yeah. As we've said before, there's always a lot going on in that space. I know it's hard to track, but ITC still has appeals and rulings that they owe the industry and the Department of Commerce several months ago came out with their preliminary rate adjustments for last year 2023. And those went up for OCP like 12%. They went down for PhosAgro, about 10% and stayed the same for EuroChem. But again, those are preliminary. The final numbers will come out in November. So we'll wait and see what happens between now and then.

Joel Jackson :

Hi. Good morning. Mosaic Fertilizantes. Can you talk about -- normally, we're obviously going to see seasonality in Q3, the business earns more in Q3 versus Q2. And talking about normal -- can you talk about like what you're seeing in that business? Are volumes normal? Or are we seeing is it destocking or just in time in Brazil? Are margins going to be similar in Q3 versus Q2 to the point where maybe you'd see a smaller Q3 seasonal earnings bump than normal Q2 because Q2 was pretty good for margin? Thank you.

Jenny Wang :

Sure, Bruce. Probably I just want to provide a little bit color on the seasonality and where we see the market as of today. The sulphur season, it's in full swing. We are seeing very strong demand and which is basically the ongoing Q3 is the delivery for the sulphur season. The farm economics were very solid, and the farmers are selling their own crops. On soybean are actually ahead of last year and at 5 years average, though they're selling of the corn a little bit slower than 5 years average, but they're same as of last year. So farmers are really keeping pace on selling their crops which are really improving the liquidity in the system. And specifically for fertilizer, they call commercialization. If we assume the full year is going to set a new record for the shipment of the year, 82% of the fertilizers for the full year has been sold. This number is slightly lower than last year. For Mosaic, we are tracking the same pace as of last year. So we are selling ahead of the market trend for the season. And even with that, we are focusing on value, the volume and we're really prioritizing our sales and shipments to the customers who have a much lower credit risk. Lastly, there are some potential shift for the Q4 sales, which is a safrina season for corn and cotton. And there might be shift from November, December sales into January, that is going to define what is going to be the final shipment in Brazil going to be. The farmers are relatively more cautious for that season -- of seasonal buying. As of today, we have seen 30% of the buying for safrina versus in the mid-30s in the previous year. So it's relatively slower. There might be some of the demand shifting from late Q4 into early Q1. So that's basically the situation. We have sold every single our Q3. We're in full execution mode.

Bruce Bodine :

Yeah. Joel, thanks for the additional questions. But the safety incident we had a serious incident at New Wales recently, actually was a fatality. And did -- not that it matters, but did get headline news and just wanted to be very transparent about that. It's something that is worse outcomes for us as industrial operators. And as we said, take that very seriously and lessons learned and shared across the entire geography with that. But we feel for the families and those impacted by any incidents that we have of seriousness within Mosaic. On the Phosphate ramp-up and return to production, as you saw Quarter 1 to Quarter 2, definitely demonstrating results. I think one of the slides we have on our earnings material in the presentation kind of hopefully shows a little more color on how we're progressing. As we said, Bartow and New Wales have shown good signs due to the investments that we've made there and finally catching up on the turnarounds, even going back to COVID, as we've talked about in several calls before. Louisiana is also ramping up, had a decent quarter, but still more to go as we've got some more work to do there in the back half of the year. And then Riverview with the brushfire that we've talked about before and then the conversion of the one large granulation plant over to MicroEssentials and ramping that production up as kind of hurt that operating rate in Quarter 2, but still more work to do in the second half of the year that we have planned, but definitely optimistic that in aggregate with the work that we have teed up and the demonstration that we've seen at New Wales and Bartow that we're well on our way to kind of hitting that historical run rate that we've talked about, and confident that we'll get there Joel.

Steve Byrne :

Bruce. I'd like to drill into your outlook for Potash fundamentals, you raised your global -- or your shipments for the year a bit, but we've had a couple of years that were really low. I guess my question is, do you have a view on whether inventory levels in the world are roughly back to normal or soy nutrient levels relatively back to normal? And if not, why do you think pricing here is roughly the same as they were in 2019? And yet we got 40% of global supply, the sanctions? Are you getting a value proposition out of Canpotex?

Steve Byrne :

Okay. Very good. Thank you. And I'd like to drill in just a little bit on the, the biologicals that you're now selling, I believe that both are involved in nutrient uptake. I guess my question for you on that is what is the business model of selling these biologicals? Are they effectively blended with your P&K blended material that you sell? Or is this sold through a completely different channel? Just where do you see this business model going? And do those biologicals result in any reduction in the P&K application rates required on that land?

Jenny Wang :

Sure, Bruce. Steve, in terms of the go-to-market for our bioscience products, firstly, as you can imagine, we go through our current customer base and the current market access, basically, the products are coated with the fertilizer granulars. So that is one of the major go-to-market approach for our product. One of the major leading brands that currently we're selling in Americas. North America and Central America, PowerCoat, are basically coated on the fertilizer granulars. We also have a current brand bypass are sold as a standalone foliar application. So that usually can be mixed with fungicide and insecticide. So when the farmers are treating their crops. As you well know that we have invested in the next-generation nitrogen fixation product, that product is likely going to go with seed coating, as the go-to-market approach, which is going to give the highest efficiency and the lowest cost. And we're working with several major seed companies on that front. And hopefully, we can provide more updates in the near future. Thanks.

Unidentified Analyst:

[indiscernible] Can you basically quantify in terms of how long Esterhazy will be down during the quarter? And then also related to that, Colonsay being restarted. So this is essentially in capacity just to replace that lost tonnage during the turnaround. Any associated costs with that? And how do you expect cost to be impacted in 3Q? And then into 4Q, I guess? Do we go back to the normal sort of portfolio of the Esterhazy, the bulk capacity for production? Thanks.

Operator:

The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Bruce Bodine :

Thanks for the question. Let me maybe answer it a little bit well, differently, actually, our realized stripping margins are higher than benchmark stripping margins. And that's something that probably don't have a lot of insight as we don't report on that. But because of exactly what you just said is our ammonia cost advantages with our long-term CF contract as well as up the first internal production at Fostina at producer economics. And then just our buying power for sulphur and even ammonia that's left on spot, it gives us a pretty good advantage given the geography where we import those raw materials as well. So it did go up on ammonia cost, as you said, Adam, in Q2, and that's really because in Q1, our ammonia plant was down for turnaround for much of Quarter 1, where we did have more spot going into inventory. And that's just actually that raw material ammonia flowing through inventory from quarter 1 into quarter 2. So the benefits of running more in quarter 2, you'll start to see those in quarter 3. So I hope that answers the bulk of your question in a little different way.

Chris Parkinson :

Thanks so much for taking the question. Bruce, your execution is, I'd say, very much on trajectory for kind of the goals you've been laying out phosphate stripping margins are looking a little bit higher. The cost curve is a little bit steeper than people have been anticipating, balance sheet is in great condition. I mean what else do you think needs to be done to reengage investors? Is it just -- is it your belief that further execution is the key, proving out your thesis in the context of low crop prices? Just what would be your kind of sense on current market dynamics right now?

Operator:

The next question comes from Ben Theurer from Barclays. Please go ahead.

Bruce Bodine :

I'll start maybe at a high level and Jenny, I'll turn it over to fill in a little bit more details. But we're very optimistic about the second half of the year in Fertilizantes -- mean just at a high level, again, just to reiterate kind of how we see this business is 9 million tons distribution historically growing to 10 million tons from a volume standpoint. $30 to $40 distribution margin, about $100 million of EBITDA contribution on co-products on an annualized basis. And maybe something we haven't talked about publicly, but as much -- it's available in our information, but I think it's worth highlighting is that there's another $100 million thereabouts of SG&A costs that kind of -- you got to take off the top. So throw all that together, you can do the math on what you think volumes are going to be quarter-by-quarter based on historical performance or whatever you do. But given the demand in Brazil, we see good returns and EBITDA contribution out of Fertilizantes in the second half of the year. Jenny?

Bruce Bodine :

Thanks, Jenny. The only other thing maybe to think about is FX tailwinds. I mean with the FX movement over the last month, several weeks, there's definitely providing some tailwinds to our operating costs that are real-based. So that should help on the margin expansion as well.

Edlain Rodriguez :

Thank you. Good morning, everyone. Just I mean -- Bruce or Jenny, just a quick question on the resiliency of phosphate price. How do you see that playing out in terms of the disconnect between P&K prices, like does that gap narrow by P coming down or K going up? Because it doesn't seem like that gap can continue forever.

Operator:

The next question comes from Josh Spector from UBS. Please go ahead.

Bruce Bodine :

Yeah. Thanks, Lucas. Definitely -- I don't -- definitely may see that as volume at fixed cost absorption, and there's other benefits like electricity generation that we've talked about rather than buying third-party, will produce more of our own internal power that we generate and reap the benefits there. But overall, kind of from that historical high, we see a $20 to $30 reduction in total cost. Will we get back to that $65, $70 number, listen, the inflation that we've seen overall across the globe in United States, it's no different, and our operations are no different. I don't see getting back to those numbers. But we should definitely see further improvement, maybe another $20 down from where we are right now as we get to that historical run rate.

Andrew Wong :

Hey, good morning. Actually two questions. So with the expansion stage for mid-2025, do you still anticipate needing to keep Colonsay kind of like on hot standby. And what's the cost to maintain that on standby, like if you permanently kind of shut that down like what would be a cost savings? And just broadly on the Potash strategy, can you just talk about the rationale and maintaining supply flexibility? How do you see that impacting buyer behavior, knowing that supply can just be available when they want it? And would it make more sense to maybe not have that excess capacity or flexibility available and maybe have a little bit more scarcity on supply?

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning, everyone, and welcome to The Mosaic Company's First Quarter 2024 Earnings Conference Call. [Operator Instructions] At this time, I'll turn the floor over to your host for today's call, Jason Tremblay. Jason, you may begin.

Bruce Bodine:

First, I want to mention that our partnership with Ma'aden has been a great one. We brought deep technical expertise to the joint venture, and we benefited from secure phosphate supply for our customers in key markets. Now as Ma'aden shareholders, our relationship has evolved but our partnership continues. We're committed to working together on opportunities that create mutual benefits. When I think about the transaction, I believe Mosaic shareholders will benefit in multiple ways.

Jason Tremblay:

Our next question relates to the markets. What is your view on how the potash and phosphate markets will evolve for the remainder of the year?

Bruce Bodine:

We believe Mosaic has a competitive advantage in Brazil. We have a large and geographically diverse distribution network across the country. This not only minimizes our risk exposure to disruptions in any one specific region but also equips us with the best market intelligence to inform our business decisions. Our unique positioning in the market is what led us to proactively manage our inventories last year, and set us up for a much more constructive first quarter in 2024. Now we're certainly seeing the same credit and liquidity issues in Brazil that many others are. But our view into the market has allowed us to avoid any significant impact to our business to date by identifying customer issues early and taking decisive action knowing that our decisions might have short-term impacts to market share and sales volumes.

Jason Tremblay:

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

Bruce Bodine:

Steve, thanks. Let me answer it this way. And I think we've been consistent about this in the past. But the way I look at EBITDA generation in that business is we've got 9 million tonnes of kind of distribution capability today at $30 to $40 distribution margins. On top of that, we've talked about before, we've got co-products and other product sales of probably around another $100 million. And we've announced the Palmeirante project and going into 2025, when that's complete, we'll add another 1 million tonnes of distribution capability, add that $30 to $40 margin and you kind of add all those up in the kind of the baseline. The other things that we are looking at is our cost reduction initiatives.

Vincent Andrews:

Bruce, is there a way to hedge in the value of the Ma'aden position since it's a publicly traded equity. I'm just looking at their share price being at record level and your's not. So I'm just wondering if there's a way you could maybe crystallize or walk in that value now and maybe put it to work somehow in your own equity ahead of the lockup period on the shares?

Clint Freeland:

Yes, Vincent, I would say, look, protecting our investment, I think, could be important. And certainly, we'll look at the different options that are available to us, I think we'd have to consider the liquidity of the market that it's traded on and other factors like that. So I would say more to come on that. What we'll need to continue thinking through exactly the best way to manage that position. But I would say right now, we're not ready to speak with any clarity on that topic any further.

Operator:

Our next question comes from Ben Isaacson from Scotiabank.

Bruce Bodine:

Thanks, Victor. So I'll start with phosphate. We definitely view that the S&D in the overall market is tight on the phosphate side. A lot of that is due to really China backing off on their historical exports. And exports from a few years ago are down 25% from some of the high watermarks on that side, which is a significant reduction of 4 million or so tonnes out of the supply side. Demand has recovered back to kind of prewar levels overall and pretty close to that with the appreciation that we have in the market baked in this year.

Operator:

Our next question comes from Joel Jackson from BMO.

Clint Freeland:

No, the only thing that I would add is that, obviously, we've laid out some of the things that were on our mind as we thought about this transaction. I think at the same time, our partner was looking to consolidate ownership of the JV for their own purposes. And so I think as we looked at the structure, I think the relationship is important. I think the partnership is important. I think we both agree to that. But there were some objectives that each of the parties really had in mind. And I think this deal structure achieves that.

Christopher Parkinson:

A few parts to this. But just when we're taking a step back and looking at forward-looking strip margins, and I understand that a lot has been going on and there's been volatility and you have to kind of roll through the various items through your -- through your inventory.

Bruce Bodine:

No, Chris, thanks for the question. I think you see it very similarly to we -- as we do. The one thing is it does take some time to recognize that flow through inventory on raw materials. And given the heavy turnaround schedule that we have in the first quarter and in the second quarter as well, that's probably a little more delayed than maybe traditionally you may see flow through there, but definitely feeling optimistic on when those raw material flow-throughs do help on stripping margin and will somewhat offset some of the seasonal price pressure, to your point, that we typically see in quarter 2. So we are -- we do see stripping margins throughout the remainder of the year, staying very constructive and strong at kind of decade high numbers.

Operator:

Our next question comes from Richard Garchitorena from Wells Fargo.

Bruce Bodine:

Yes. Thanks, Richard. For sure, we've got thoughts on that, and it will be in quarter 2. I'm going to turn it over to Jenny to get into the details, but a little more of the international export pricing in the mix and then she can talk a little bit about the contract stuff as she's -- and her team are closely watching that and have good thoughts around it. Jenny?

Operator:

Our next question comes from Adam Samuelson from Goldman Sachs.

Bruce Bodine:

Yes, Adam, a lot to unpack there. But for sure, we are working hard, as you have well described, to get to that 2 million-tonne run rate by the end of the year. And as we've said and as you've pointed out, we got pretty significant turnaround schedule still in quarter 2, a little bit into quarter 3.

Operator:

Our next question comes from Ben Theurer from Barclays.

Bruce Bodine:

Yes. To confirm, the Department of Commerce did as part of their process due to their preliminary ruling from an annual review standpoint, this would be on 2022 duties, so going back in time. And what were their interpretations of subsidies or things that were done in those jurisdictions, namely Morocco and PhosAgro in Russia. And yes, the preliminary numbers went up on one then went down on the other. The other complication in this process is there's appeals that are still outstanding waiting for rulings on. And then the annual review and new duties for what was just announced don't get finalized until November of this year. So I think to your point, there is a lot of volatility, uncertainty around where some of these duties lie.

Andrew Wong:

So just going back to Ma'aden, it's been mentioned a few times now that the deal was done in part to bring more transparency on the value of your investment. So I'm just kind of curious how you feel about the valuation now. Like I understand it's a market value. But the valuation also seems kind of high relative to some of their peers like yourselves and the ability to realize that value and maybe depends on liquidity. So how should we -- and how do you view that $1.5 billion valuation today?

Clint Freeland:

Yes. Thanks, Bruce, and thanks, Andrew, for the question. A couple of different thoughts on this. One is -- as we looked at the value of our JV interest, we look at it as you traditionally would through DCF means and other means and we feel like that the call it, $1.5 billion valuation is a very fair valuation that we found attractive and obviously agreed at that kind of level with our counterparty.

Operator:

Our next question comes from Josh Spector from UBS.

Bruce Bodine:

Yes. Thanks, Josh. As far as the supply agreement, I think it's just -- we have the option to look at that if we needed for key markets so addressing your latter part of your question. And those things would be -- to be negotiated, but we have that optionality. As far as the first part of your question, maybe I'll turn it back over to Clint and give your thoughts around the EBITDA.

Charles Neivert:

Just a couple of things. One, in the turnaround -- and I'll just ask them all at the same time and you can just answer whatever. Turnarounds coming up, does they -- I know they improve efficiency, there -- they have to be done. But is there any consequent like increase in supply? I know it's not a chemical operation, so you don't necessarily get that, but would there be any supply increase on the turnaround?

Bruce Bodine:

Thanks, Charles. Let me start with the latter because I didn't write it down as fresh in my mind. So I don't think the deal structure changes are influenced really a whole lot. We've been a technical kind of adviser in that and a minority partner so I don't think that's going to change a whole lot. The deal, they still want Mosaic as technical input and Mosaic Resources as part of this, where we can participate and help them. And then you're going to have to talk to them about what their future plans are as far as expansion. I know there's been stuff that they've talked about in the press. And obviously, as a shareholder, we're going to be interested in them maximizing their shareholder value. But I don't think our influence is going to be much different than what it's been in the past, nor should you expect anything of significance there. Turnarounds, they are a necessity. And the ones that were the primary focus has been for us, although it's on a lot of our assets, but the primary one where we struggled over the last few years is on sulfuric acid.

Operator:

We do have an additional question from Edlain Rodriguez from Mizuho.

Bruce Bodine:

I think we'd be surprised, based on what we believe about the supply and demand and what's needed in the marketplace. But I'll turn it over to Jenny and see if he's got any more since she addressed that original question.

Operator:

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Operator:

Good morning and welcome to the Mosaic Company's Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. As a reminder, today's call is being recorded. Your host for today's call is Jason Tremblay. Jason you may begin.

Bruce Bodine:

Good morning. Thank you for joining our call today. This is my first earnings call as Mosaic's CEO and I'd like to begin by acknowledging Joc O'Rourke for his many contributions to the company. Joc held this role for nearly a decade and the company is much stronger today thanks to his leadership. Under Joc, Mosaic expanded its footprint in Brazil with the successful Vale Fertilizantes acquisition. We completed development of the world's largest potash mine. We transformed our cost structures and we deleveraged and optimized our balance sheet. We have opportunities to improve returns and drive shareholder value by building on the current position of strength that Joc helped create. I look forward to evolving Mosaic's strategy and to helping all of you understand just how we will do that. So, for today, there are a few key messages that we would like you to take away from this call. First, phosphate markets are very strong. We expect dynamics to remain constructive for the foreseeable future and we are working to optimize our production so we can benefit fully. Second, we expect demand recovery in potash. In fact we are seeing early signs of demand emerging in Brazil. That said given current potash economics we will be curtailing production from our Colonsay mine. Third, we are taking these actions as well as reducing costs and capital expenditures to improve through cycle returns. Finally, with our strong financial foundation in place, we remain committed to prudent capital allocation, selectively investing when risk-adjusted returns are compelling, and returning excess cash through share repurchases and dividends. For full year 2023, Mosaic generated revenue of $13.7 billion, adjusted EBITDA of $2.8 billion, and adjusted earnings per share of $3.57. We invested $1.4 billion in the business, refinanced $900 million in long-term debt, and returned $1.1 billion to shareholders, including over $750 million in share repurchases. Let's start by looking at the market. 2022 brought extreme volatility to fertilizer markets. High prices driven by supply disruption eventually reduced demand. In 2023, as prices retreated customers returned in many key markets. The long-term global grain and oilseed supply and demand picture remains encouraging with secular demand growth outpacing supply. In addition to population and income growth, demand for agricultural commodities is being driven by renewable fuel adoption, which we expect will continue to ramp over the next several years. Recent policy mandates have been announced in California, the European Union and in Singapore, and additional mandates are expected in the future. This emerging source of demand has the potential to require tens of millions of additional acres of production. Short-term fundamentals also look positive. We believe that ongoing weather challenges in key growing regions, including Brazil, will result in grain production lower than what the market is anticipating. This suggests that already low stock-to-use ratios will remain under pressure and support a healthy grain price environment. On this point, there tends to be a lot of focus on the stock to use ratios for corn and soybeans. As you can see in the presentation materials we posted, these two commodities represent approximately 30% of the global potash and phosphate consumption. This means that 70% of consumption is tied to other crops, many of which are experiencing continued tightening in their ratios. We believe the result is that growers around the world continue to be incentivized, to maximize yield and crop production through strong fertilizer applications. In North America, a long fall application season drove strong demand well into the fourth quarter. Solid winter fill activity tells us bins are near empty and channel inventories are low. We are seeing demand strength continue into the spring planting season and sales volumes are mostly committed through March. In Brazil, barter ratios for both soybeans and corn are favorable. And while weather impacts have delayed fertilizer purchases, our outlook for full year 2024 is very positive, with expectations of fertilizer shipments at or near an all-time record as growers need to replenish soil nutrients. Favorable ag commodity and fertilizer demand drivers are especially promising for phosphate markets. We expect global supply will remain tight due in part to China's fertilizer export restrictions as the government prioritizes domestic food security. Tighter environmental oversight has also had an impact with the reduction of domestic DAP production. China also continues to direct more asset to industrial markets. Lithium iron phosphate production has more than tripled in the last two years, and we expect growth to continue at a rapid pace. The competition for phosphate molecules is intensifying. And it will continue to do so for quite some time. This, together with limited capacity additions in the near future, suggests phosphate market fundamentals will remain constructive. For potash, Supply is adequate to meet demand in the near term and economics have not yet improved, which is why we intend to curtail production at Colonsay. We will continue to monitor market developments and customer demand. And when needed, Colonsay will be prepared to return to service in short order. Overall, Ag and fertilizer market dynamics remain solid. At Mosaic, we continue to focus on meeting customer needs executing on our business strategy, optimizing our operations and delivering value to shareholders. Turning now to fourth quarter results and our first quarter outlook. For the fourth quarter of 2023, Mosaic delivered revenue of $3.1 billion, adjusted EBITDA of $646 million and adjusted earnings per share of $0.71. Our potash business generated $322 million of adjusted EBITDA on sales volumes of roughly 2.6 million tonnes. With the port at Portland Oregon back up and running, the team at Canpotex had a strong finish to the year, enabling us to deliver sales volumes well within the range of our initial guidance. We expect sales volumes for the first quarter of 2024 in the range of two million to 2.2 million tonnes and potash prices at the mine in the range of $225 to $250 per tonne. In phosphates, we generated $259 million in adjusted EBITDA on sales volumes of 1.6 million tonnes. Realized stripping margins remained strong for the quarter but were offset by lower cost absorption from lower production levels. For the first quarter, we expect phosphate sales volume in the range of 1.6 million to 1.8 million tonnes and DAP realized prices at the mine in the range of $580 to $605 per tonne. Moving to our business in South America. Despite the weather-driven fertilizer demand headwind in the fourth quarter, we delivered strong operating results with adjusted EBITDA of $111 million, distribution business margins came in well above the historical normal annual range of $30 to $40 per tonne. In the first quarter this year, we expect margins to recede from the fourth quarter as part of the normal seasonality of the business. The first quarter of each year typically has a higher amount of fertilizer volume going to Brazil's corn crop, which demands a higher percentage of nitrogen products, which historically generate lower and less consistent margins. And lower volumes of MicroEssentials, which generates higher margins. As a result, margins are generally lower during the quarter but improved from there resulting in annual margins in line with our historic norm of $30 to $40 per tonne. We executed well against our capital allocation strategy in 2023 and our balance sheet remains optimized. We spent $1.4 billion in CapEx and made significant progress on our investment projects. We refinanced $900 million in debt and returned $1.1 billion to shareholders through an increased dividend and share repurchases. Our returns included not only free cash flow but also proceeds from asset sales such as the sale of Streamsong Resort. Finally, I want to discuss, our top strategic initiatives for 2024. First, we're focused on driving down costs. Over time, we expect to achieve at least $150 million in annual run rate savings off of a 2023 baseline, driven in part by savings from our global digital acceleration program, which will go live later this year. Next, we'll continue to transform our operations to increase resilience and flexibility. Our top priority in phosphate is to improve our production volumes. We are working toward an annual run rate of eight million tonnes over the next few quarters by enhancing the overall reliability and efficiency of our operations. To this end, we have a busy turnaround schedule at our Florida facilities in the first half of this year as we target areas that have caused us the most significant maintenance issues. Next, we'll further expand our presence in Brazil, one of the most dynamic agricultural regions in the world by completing a 1 million tonnes distribution facility at Palmeirante to serve the fast-growing northern region of the country. We'll also further strengthen our product portfolio by growing non-commodity products. We are expanding MicroEssentials capacity at our Riverview plant here in Florida, and we expect those additional tonnes later this spring. We anticipate that more than half of our phosphate sales will be value-added products, which clearly is a differentiator for us. In addition, we are planning for the next-generation MicroEssentials Pro, which is delivering significant yield improvements in field testing. MicroEssentials Pro will also extend our patent protection until 2038. Finally, we'll remain true to our disciplined capital allocation strategy. In 2024, we expect to reduce total capital spending by about $200 million, and we'll continue to return excess cash to shareholders. To summarize, our outlook for agriculture and fertilizer markets remains positive. At Mosaic, we have a strategic road map to optimize returns through the business cycle, to grow and to decommoditize our product offerings, and we have a very strong financial foundation from which to operate. I'm looking forward to updating you on our progress as the year proceeds. Now let's move to Q&A.

Bruce Bodine:

I think this is a good way to characterize current market conditions. Phosphate markets are very positive due to strong demand, low inventories and a tight supply situation globally leading to some of the strongest stripping margins in the last decade. We believe stripping margins will remain elevated for the remainder of the year. Looking at the key regions. In North America, channel inventories are low, and we are seeing strong demand for spring planting. For Mosaic specifically, we continue to operate at minimum inventory levels, and our first quarter sales are almost fully committed. In Brazil, inventories are well below the five-year range, and our outlook for the year remains positive as growers need to replenish soil nutrients. India's proposed subsidy rates announced earlier this month, showed an increase for phosphate fertilizers from the prevailing rates in the fourth quarter of last year, but importer margins remain negative. With very strong grower demand and low inventories, which are at the low end of the five-year range, subsidies should move higher. In China, we are seeing an increased focus on food security. The government is limiting exports to ensure adequate domestic supply, while also meeting rising industrial demand. We expect these dynamics to continue to limit exports for the foreseeable future. Industrial demand, particularly China's lithium iron phosphate market has been very strong, with production more than tripled in the last two years to 1.7 million tonnes of finished fertilizer product equivalent in 2023. We expect additional production growth in the future as demand continues to sort. Overall, this leads us to conclude that phosphate markets will remain constructive for the rest of the year. In potash, the supply constraints from Belarus and Russia seen in the past few years will continue to abate in 2024. On the demand side, we see stability in North America. In fact, our winter fill program was fully sold. And similar to phosphates, we are almost fully committed for Q1. In Southeast Asia, particularly Malaysia and Indonesia, high-priced inventories were worked down in 2023. Two years of under application in those markets will put further strain on crop yields if nutrients are not replenished. We are seeing significant pent-up demand in that region. In China, while potash inventories are higher than historical periods, the fertilizer stock-to-use ratio is normal due to increasing on-farm demand as a result of favorable pricing. It's been reported that China intends to increase its strategic reserves meaning that inventories will have to remain higher than historical periods to meet this objective. We also expect lower Chinese domestic production as a result of the recent news capping production in its key potash basin due to environmental concerns. The combination of these factors should drive a need for continued high import volumes to meet the demand. The weather in Brazil has slowed demand in the near-term but we are seeing early signs of demand emerging in potash prices moving up slightly. In fact when you look at the entire fertilizer market, we expect shipments to be at or near peak levels in 2024. Putting these factors together, we expect the pace of global potash shipments to improve as 2024 progresses.

Bruce Bodine:

Well, given the strength of phosphate markets, Mosaic's focuses on increasing our phosphate production volumes and further improving our margins by increasing our MicroEssentials volumes. Getting our production to an annual run rate of 8 million tonnes, not only increases revenue but also significantly reduces our unit costs. MicroEssentials generates significant yield improvements. And as a result, generate superior margins for farmers, retailers and Mosaic. For Mosaic, not only do we earn a premium margin in our phosphate segment but we also command a premium margin in Brazil, as we capture the retail premium for these products. In Potash, Mosaic is focusing on flexibility and cost management. The curtailment of production at our Colonsay site demonstrates our commitment to flexibly managing our network to ensure our low-cost sites at Belle Plaine and Esterhazy, operate at capacity while Colonsay is only used when market conditions dictate. We have a couple of projects that will increase our product mix flexibility before the end of the year. This will enhance our ability to adjust our end product mix to respond to changes in the market conditions more effectively in order to optimize our cost structure and margins. In addition to cost reductions in our operations, we are focused on driving SG&A reductions and optimizing our investments in CapEx and working capital. These initiatives will ensure our customer demand is met. Our through-cycle financial performance will continue to advance and shareholder value is maximized.

Bruce Bodine:

This is a fair observation. A lot of these companies are still in the process of destocking excess high-cost inventories or writing off their assets, given the challenging market conditions. At Mosaic, we took early action to complete the destocking of high-priced inventory in the first half of 2023, without any significant write-offs. As a result, we entered the second half of the year in a great position and it shows in our margins. The margin per tonne in our distribution business returned to the $30 to $40 range in the third quarter and came in above that range in the fourth quarter. In 2024, we expect record or near record fertilizer shipments despite lower fertilizer demand in quarter one due to weather conditions, as growers continue to be incentivized by constructive BARDA ratios and the need to replenish soil nutrients. From a distribution margin perspective, we expect normal seasonality on a per tonne basis, lower than the normalized annual range in the first quarter, but within the range for the full year.

Bruce Bodine:

We're coming out of a period of elevated CapEx due to an unusual number of high-returning opportunity projects from across the business. We are coming to the end of these projects, and as a result, our spending is declining. In addition to the $200 million reduction in 2024, we anticipate a further reduction in 2025 with a longer-term run rate to be at or below $1 billion.

Operator:

Absolutely. [Operator Instructions] Today's first question comes from Steve Byrne with Bank of America. Please go ahead.

Bruce Bodine:

Hey, Steve, good talking to you. Thanks. We share your view that there's been under application of fertilizer for the last couple of years for sure, and nutrients have been depleted from the soil. I think that's why we're pretty bullish on where things return from a supply standpoint or demand standpoint on both P&K at or near record shipments in those markets. And maybe I'll turn it over to Jenny a little bit -- to talk maybe a little bit about the specifics in each individual market to better answer, I think what you're getting at.

Operator:

Thank you. And our next question today comes from Richard Garchitorena with Wells Fargo. Please go ahead.

Bruce Bodine:

Thanks, Richard. For sure in the short-term here, potash supply is adequate to meet demand. And we made the decision to curtail Colonsay's production not based on one factor. So as we continue to evaluate the flexibility within our network, we're looking at not only the market and customer demands but also really how do we consider shareholder value as well. And I think that's getting to your point. And we'll continue to do that. And at the current time, the economics just didn't make sense. But if you look at the broader 2024, for the whole year, we're very optimistic about demand recovery particularly on potash. And I'll let Jenny talk about some areas in a minute. But in the meantime, we're going to shut Colonsay down. We've done this before. We've demonstrated our resolve to flexibly moving that mine up and down. We can do that very quickly, and we can restore things very quickly as well. And as we expect when market demand returns will in short order return production at Colonsay. Again if the market demand is there and if we determine shareholder value is there as well. And some of the complexities are what's going on with the rest of our network and turnaround schedules and things like that. Those things have to come into the analysis as well. But all of this is designed as we've said earlier to really let Belle Plaine and Esterhazy, our two low-cost production facilities run at full rate and continue to extract maximum value out of those two facilities. So Jenny maybe you want to talk about a little bit of the market dynamics and why we expect pricing to be pretty good for the rest of the year.

Operator:

Thank you. And our next question today comes from Joel Jackson with BMO Capital Markets. Please go ahead.

Bruce Bodine :

Hey, Joel thanks for your kind words. On phosphates, listen the bottom line is supply is extremely tight. And we've talked about that balance. And even as much as demand, if you theoretically could go higher, it is going to be tough to reach supply with the restrictions out of China and the things that we talked about in one of the fireside chat questions. So that is driving pretty good stripping margins in this business. Some of the best we've seen over the last decade. And we do expect that to continue. We may see pricing bubble a little bit just due to seasonality throughout the year, but we do believe our realized stripping margins given raw material pricing on sulfur and ammonia and what we have projected for the year will continue to stay relatively flat and strong for the remainder of the year.

Vincent Andrews :

Thank you and good morning everyone. Can I just ask about on the phosphate production side, what you're anticipating coming out of Morocco this year. It seemed like they ran at lower rates last year. Are you expecting that to continue into this year? And what are you expecting in terms of imports into the US market, year-over-year given, I guess there's still some uncertainty over countervailing duties but an update on those issues would be helpful. Thank you.

Jenny Wang:

Hi, Vincent. Yes, I think we've been watching very closely on OCP's shipment. Last year we've seen some major recovery of their phosphate fertilizer export, especially in the second half of the year. This is basically bringing their export towards to their record level over the last few years. In the meantime, we are seeing some major reduction on their phosphate rock export last year. And that was actually less than half of the tonnes they exported in the record year back in 2021. And therefore asset exports were basically very flat. So to think about OCPs supply into 2024. Our forecast is that they're going to continue to keep the normal way of operation and they might add a little bit into their new granulation capacity but not really in the big deal. So even with this recovered OCP supply and the increased a small amount of fertilizer production, we believe 2024 phosphate supply will stay as tight.

Unidentified Analyst:

Thank you, and good morning, everyone. I mean Bruce you've talked about like the strength of faster prices, which is clearly the case. But any concerns that if prices stay way above the other nutrients like this could incentivize farmers to cut back in phosphate if they start thinking about their expenses and so forth given the decline in crop prices.

Jenny Wang:

Yes. just want to -- Bruce just want to provide one more data point. As we are watching corn soybean prices and all the cases were on corn soybean. And if you look at other major ag commodities like rice the price is very, very supportive. And today actually in fact today India export price for rice is setting a new record. So, that tells you actually if you go beyond corn soybeans the other commodities are very constructive in terms of the prices and also the farm economics.

Andrew Wong:

Thank you for taking my questions. So, on the phosphate production, what's your expectation on when you could return to an 8 million tonne annual run rate. And when that happens what's your expectation on phosphate rock cost and conversion cost? Thanks.

Clint Freeland:

Yes. Thanks Bruce. Andrew when we look at the impact of moving our production back up to that target level, I think on a cost per ton basis -- and I think that was part of your question, you would likely see something on the order of magnitude of call it, $20 to $25 a tonne improvement in that per unit cost. So it's material as we begin to ramp-up to those target levels.

Operator:

Thank you. And our next question today comes from Jeff Zekauskas with JPMorgan. Please go ahead.

Bruce Bodine:

Jeff, no, thanks. As you point out, that joint venture for us is an important part of our portfolio of assets for sure, not only do we gain market access in the markets like India with some of the tons that we have there. We get a lot of market intelligence through that joint venture as well. As far as, do we have interest in future investment, I don't think that's in the top of our priority list. I never want to say never, depending on what the return on economics could be in such an investment. But I think we've got better focus areas for any of our cash and liquidity that we may put to something else. But at the end of the day, the Ma'aden joint venture at Saudi Arabia has been a great partnership, and we've seen that really mature over the course of this relationship. And it's got to continue to earn a spot in our portfolio for sure, on a long-term basis, but right now, we're fairly happy with the results and where that is running. They just came off a record year at MWSPC on a production standpoint as well. So we're really starting to extract value out of that in the way that we hadn't previously. But I'm going to turn it over to Clint to talk about a little bit more of the economic questions that you had.

Operator:

Thank you. And our next question comes from Rikin Patel with BNP Paribas. Please go ahead.

Bruce Bodine:

Hey, Rikin thanks for joining us and appreciate the question. Working capital has been. If I understood your question right, broke up a little bit in the beginning for me, has been a focus for us across all of our major markets. I think we've done a pretty good job of managing that risk compared to others in the space. But I'm going to turn it over to Clint to maybe talk a little bit more about how we think about working capital.

Operator:

Thank you. And our next question comes from Josh Spector with UBS. Please go ahead.

Bruce Bodine:

Yes, Josh, thanks. I think we are seeing a little bit of expansion there. For sure, the other part is our costs aren't going to necessarily come down as fast given the turnaround schedule I talked about earlier. So that's still going to be a little bit of a drag. But overall, we still see those healthy realized stripping margins. You got to think about – and I'm going to turn it over to Clint in a minute maybe talk a little bit more about it but our advantaged position on ammonia and our access to low-cost sulfur really kind of differentiates us a little bit from the industry stripping margin what we get on a realized stripping margin, given that a good portion of our ammonia consumption comes from our Faustina facility in-house. And of course, our advantage contract with CF. So we do still think stripping margins are going to be good. Gross margins realized will be good. But maybe, given the cost pressures we're still going to see a little bit of a slowness in full recovery of that. And Clint maybe you can talk a little bit more about that.

Operator:

Thank you. This concludes today's question-and-answer session. I'd like to turn the conference back over to Bruce Bodine for any closing remarks.

Operator:

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Operator:

Good morning, and welcome to The Mosaic Company's Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Please note today's event is being recorded. Your host for today's call is Paul Massoud. Mr. Massoud, you may begin.

Joc O'Rourke :

Good morning. Thank you for joining our third quarter 2023 earnings call. Before we get to the normal part of our call, I'd like to take a moment to discuss the next step forward for our company. Last month, we announced that I plan to retire at the end of the year. It has been an honor to work at this outstanding organization and lead this incredibly talented team. We've accomplished a tremendous amount over the last eight years. But one of the areas I take most pride in is our focus on identifying talent and developing the next generation of leaders. As a result of those efforts, mosaics Board of Directors appointed James O'Rourke, President and selected him to be Mosaic's next CEO starting on January 1, 2024. Bruce is a Mosaic veteran who's been with the company for 24 years and led several functions across our business, including most recently as Senior Vice President of North America. As a member of Mosaic senior leadership team for the last eight years, he's played a major role in establishing our current strategic priorities. The board takes succession seriously, and has been planning for my retirement for some time. Bruce's selection follows an exhaustive evaluation of both internal and external candidates. Bruce's broad experience strategic mindset and leadership throughout the organization make him the ideal person to lead Mosaic into the future. Please join me in congratulating Bruce.

Joc O'Rourke :

Thank you, Bruce. Today's agriculture market is tight. Food security is a major concern around the world, but crop production is constrained. Global stock to use ratios for grain and oil seeds remains near historic lows, which highlights the crop supply is struggling to keep up with demand. Weather conditions around the world, particularly in developing markets have impaired production. Today, El Nino weather patterns are having an impact across Southeast Asia and Australia. The situation has been exacerbated by persistent under fertilization. Over the last two years, we've begun to see a significant relationship between insufficient nutrient consumption and disappointing yields. And of course, key growing regions are being impacted by geopolitical flare ups and all out war, as is the case with the war in Ukraine. Over the last two years, Ukrainian grain and oilseed exports are down 32% from pre-invasion levels. It's difficult to see how other regions will be able to offset the shortfall, given poor weather and reduce fertilizer applications. Despite reduced production levels demand around the world remains strong. China's import of soybeans, beef and wheat are at record levels. India, which accounts for nearly 40% of global rice trade has a limited ban on non-basmati white rice exports and places duty on a portion of its remaining rice sales in order to ensure adequate domestic supply. Additionally, we're now seeing emerging demand from renewable diesel and sustainable aviation fuel. In the U.S., biofuels represent a quarter of soybean consumption. These dynamics mean elevated crop prices could persist through 2024 and beyond and growers will want to maximize yields. This brings us to the fertilizer market. The supply of potash and phosphates is being impacted by sanctions, weather disruptions, and evolving producer behavior. And potash, sanctions and other disruptions continue to limit exports from the former Soviet Union. Belarus remains blocked from port access in Lithuania, forcing it to find other outlets for its shipments. Some of those exports have shipped via ports in Russia or by rail into China. Though total shipments remain well below pre-sanction levels of 12 million tonnes. This year, we expect Belarus exports to be in the range of 8 million to 8.5 million tonnes and we expect limited increases from that range in 2024. In Canada, labor strikes, rail congestion, and terminal repairs have limited the West's ability to mitigate lost FSU tons. More recently, the conflict in the Middle East, in addition to the ongoing war in Ukraine highlight the risk of further supply disruptions. In total global potash shipments are expected to be in the range of 64 million to 65 million tonnes simply because the supply isn't there to meet additional demand, particularly in developing markets where crop supply is primarily made up of subsistence farming. In phosphates over the last decade, China grew to be the largest exporter of finished phosphate fertilizers, supplying about 30% of the seaborne market in 2021. But over the last 18 months export restrictions and a shift of production away from agriculture to industrial markets, has significantly reduced phosphate fertilizer exports. This year we estimate China's exports could be 3 million to 4 million tonnes below the 2021 level of 11.4 million tonnes or roughly 7 million to 8 million tonnes. On the demand side, we are seeing strong consumption returning. We saw this play out in the spring in North America after a slow start to the season, favorable economics and depleted slow reserves brought farmers back to the market. Our phosphate and potash shipments in North America were the highest in the last five years. This was followed by a great summer fill program and a very strong fall application season. The last three months through October were a record for Mosaic's North American potash shipments. We saw similar dynamics play out in Brazil, the after-season fertilizer shipments ended up being very strong. For the full year we expect total fertilizer shipments in Brazil to be 43 million to 44 million tonnes, the second highest total in history. With destocking of fertilizers in Brazil complete inventories are quite low and will need to be replenished for 2024. In India, we continue to see strong demand driving elevated imports. Phosphate inventory levels are near the low end of the most recent five-year range, which suggests shipments are going straight to the ground. Potash inventories are also very low, and we're seeing indications of price acceptance that could drive higher shipments going forward. For several quarters now we have discussed that once volumes begin to move prices will follow. We're now seeing available volumes move and pricing has stabilized and shown seasonal strength in many markets. These dynamics highlight the value of Mosaic's portfolio, our business is well positioned to meet customer needs and deliver value to shareholders. In potash our third quarter results reflect the strong sales volumes in North America. To meet that demand and mitigate the impact of Esterhazy's planned turnaround, Colonsay was restarted at the beginning of the quarter. Looking ahead, we expect fourth quarter potash sales volumes of 2.4 million to 2.6 million tonnes and netback MLP prices at the mine in the range of $235 to $260 per tonne. Our pricing guidance reflects a product mix shift towards overseas sales as North American fall application season winds down. In phosphates, we recovered quickly from the impact of Hurricane Adelia. And we're able to restart operations in approximately three days, which really minimize the impact of the storm. Separately, we are working through the repairs that are Faustina facility and Louisiana following a power disruption by the local utility that occurred late in the third quarter. Those repairs should be completed in the fourth quarter. We expect fourth quarter sales volumes to be in the range of 1.6 million to 1.8 million tonnes and that price is at the plant gain of $530 to $580 per tonne. Moving to Brazil, our Fertilizantes segment report is strong third quarter results. Let me emphasize that we pushed to destock high cost inventory in the first half of 2023. And this effort was completed early in the second quarter. Our distribution business is no longer experiencing the same pressures that others are, as you can see from our results this quarter. For the fourth quarter, over 90% of our sales volume is already committed and priced. With our order book and inventory position, we expect our fourth quarter distribution margin to be in the range of $40 to $50 per tonne. Our approach to capital allocation has not changed. We remain committed to investing in our business, maintaining a strong balance sheet and returning capital to shareholders. Our CapEx budget for 2023 is $1.3 billion to $1.4 billion. And as Bruce mentioned earlier, we expect to reduce total capital spending for 2024 by up to $200 million. Our balance sheet is strong and our commitment to return capital to shareholders remains unchanged. All excess cash will be returned through dividends and share buybacks. Year-to-date, we have returned nearly $900 million to shareholders through buybacks and dividends, including $150 million of repurchases in the third quarter. Before we go to questions, let me summarize, the world needs more crop supply, and we won't get it without good fertilization. Farmers are seeing good economics and want to maximize yield with fertilizers. But supply is uncertain, and channel inventories are low. Mosaic is well positioned to benefit while continuing to deliver value to shareholders, and we're returning significant capital while still investing in the business. I look forward to watching Bruce lead Mosaic into the future. Paul, let's move over to questions.

Joc O'Rourke :

Yes, last week, the Department of Commerce raised duties on Russian product but it lowered duties on Moroccan supply. The Department of Commerce reviews are done on a yearly basis and are based on their assessment of foreign subsidies. While we welcome fair competition, we expect to compete on a level playing field. Unfair foreign government subsidies disturb that dynamic, so we will continue to seek remedies when foreign players use aggressive marketing based on unfair subsidies that cause harm to our industry. In today's market, trade flows may shift as a result of these adjustments. But as we saw over the last two years, global supply and demand is unaffected. Pricing continues strong due to high demand and decreased supply particularly from China. In a tight market suppliers will seek out the highest return for their product and as such, U.S. consumers will need to meet global pricing to ensure sufficient supply for their needs.

Joc O'Rourke :

In 2022, we like others in the Brazil agricultural industry, we're carrying inventory to support the expected demand. When that demand slowed in the second half of the year, we were left with higher priced inventory. But unlike others in Brazil, who are reliant on third party distributors and retailers, they have limited ability to directly restock their inventory. We on the other hand, were able to effectively deal with the destocking in the first half of the year. And by the third quarter prices had stabilized and the distribution margins had returned back to our expected range of 30 to $40 per ton. And as I mentioned, with 90% of our product committed and priced in the fourth quarter, we expect margins to increase further to $40 to $50 per tonne. Now, there is always some positional risk in a distribution business. However, I believe we have managed through this volatile market as effectively as possible, which really sets us apart from other ag input companies and emphasizes the value of the integration of our production and distribution businesses.

Joc O'Rourke :

Thank you. As you've seen from the slides we published last night there's a clear relationship between under Application of phosphate and potash and below trend yields. Now farmers and retailers are recognizing this and demand is rebounding. As we've said in the past demand returns volumes move and prices follow. We saw this pattern play out this year with global volumes returning. Jenny, can you walk us through the volume rebounds and why we expect a higher potash volume in 2024.

Joc O'Rourke :

Thanks, Jenny. So Jenny has given a view of the demand side. From a supply side we're modeling a recovery in Belarus from 70% to about 80% of presanctioned shipments. We're expecting Uralkali to recover to prewar levels and modest growth from EuroChem's [Indiscernible]. In Laos, we also expect to see some modest growth. So overall, if any of these fall short, we will see lower shipments not because of a demand problem, but because there is not enough supply.

Operator:

Thank you. [Operator Instructions] Today's first question comes from Steve Byrne with BofA. Please go ahead.

Joc O'Rourke :

Thanks, Steve. Yeah, so in Brazil, one of the benefits of the integration of course is we can move our own production through our distribution system. And while we sell a good chunk of it as a B2B business to other players in the market about 20% is not a bad number to estimate of what goes through our own system. That product we transfer at market price, so we try to keep this clean base between the two as possible. That said, now we would expect under general market conditions that your margins for the production business would be better than distribution, or at least they would be for products such as TSP, or DAP. As you say, our probably our least profitable product that we make down there would be the SSP for good reason. And so we're constantly looking at how we make that product mix better, how we make it more profitable. And we can't ignore dicalcium phosphate or animal feed as well in there. So which is again, one of our highest return products. So that whole area of mix we're looking at, we've got a strong plan down there to reduce costs, but also to optimize production rates. So all of that is in works. And all of that will be something that Bruce and with Karen Swager and her team will be working hard to accomplish.

Richard Garchitorena :

Great. Thanks. And congrats, Joc. So my first question is just on the outlook for potash. Obviously, strong growth next year, 5 million tonnes. I was wondering how do you think about your operations heading into next year. Looks like in the 4Q guidance, you're going to come in around 8.7 million 8.9 million tonnes of production. So do you expect to keep those production levels next year? For all them to grow with the market? How are you thinking about that? Thank you.

Operator:

Thank you. And our next question today comes from Joel Jackson with BMO Capital Markets. Please go ahead.

Joc O'Rourke :

Well, I think that's exactly what I said in the prepared questions. Joel, thank you, by the way for the questions. And thank you for the comments. Yeah, so if you look at this, we expect to see Belarus bring out about another million tonnes, we expect your Uralkali to bring out probably another million tonnes. And then EuroChem with their Volga Cali mine, which is ramping up now and recognize that it's been a pretty slow ramp up. But if we got 0.5 million to 700,000 tons between your [Indiscernible] and Volga Cali, there, you're at -- now you're at 2.7 million tonnes add another million tonnes from Laos. And you're pretty much at that gap. And that's what I was saying. If those players -- and then probably likely up to -- maybe, and I say maybe a million tonnes for Canpotex, which would mean that that is satisfied that difference between 65 million and 70 million tonnes. So our share of Canpotex of that would be 300,000 or 400,000 tonnes. At which point we wouldn't need Cab --we wouldn't need Colonsay for 2024. Otherwise Colonsay wouldn't be needed. But again, those are based on expectations that these other players bring up those tonnes. If it plays out different if they do better last year, I think Belarus did better than what we expected. Will they continue that ramp? We think that's unlikely, but we'll see how it plays out. So I don't think there's any inconsistency in how we're looking at it. We see tonnage being similar to what it is this year, with the exception of maybe 300,000-400,000 tonnes for Canpotex. And North America's had a very good year. I'm not sure I'll probably will continue. And then the one thing I will say on all of it is, Canpotex has never done those levels of tonnage. And not because the mines can't supply it, but the logistics and the market haven't the market hasn't needed or the logistics haven't supported it. Last year, while the year before last, we had floods. We had rail problems, we had fires. This year, we've had port strikes, we've had failures at ports, more port strikes, it just isn't thinking that we're going to jump up by 2 million or 3 million tonnes I just don't think is realistic. So I don't know how you put that in your model Joel, but you're going to have to try.

Ben Theurer:

Hi, good morning. And as well from my side Joc, all the best for retirement enjoy that peace. Now all my question wanted to go back to some of the phosphate comments you made and the projects and looking into PPA for LSP and those investments clearly something that that's come up more frequently as a solution to the electrification of some light vehicles. So if we think about how you're positioned and maybe the capex needs. Can you help us put that into perspective, just what would you think this might cost you to build this out? And what's like the expected return profile of that business? That will be much appreciated. Thank you.

Operator:

Thank you. And our next question today comes from John Roberts at Mizuho. Please go ahead.

Joc O'Rourke :

I think the key takeaway there from my perspective, John, and again, thanks for the question. I think this is -- so intuitively, we've been saying for a long time that fertilization is what drives plant growth. I mean if you don't feed any organism, they don't grow. But what we haven't been able to do in the past, I guess, is really show the relationship in a clear way. Now what we've seen here is under application and probably mining of the soil, even with both of those, we're seeing a clear relationship between the yields and particularly phosphate and potash usage. Now you see the nitrogen, which is more likely to be used in first, and you see particularly when you look at Asia, which includes India, where the over application of nitrogen actually isn't helping yields at all, whereas the under application of phosphate and potash really is hurting yields. And if you do the math on those things, if you take phosphate and potash application into account and then you look at the yield loss, it's about a two to one price of fertilizer to yield loss. So in other words, if you're saving $10 on fertilizer, you're losing $20 on yield. So the point here is farmers are incented to properly fertilizer field, and they cannot afford to continue to mine the soil.

Vincent Andrews :

Thank you. And let me echo the comments, Joc, congratulations on retirement and a pleasure working with you all these years. In terms of my question, I wanted to ask a bit more on the Brazilian market and some of the comments that were made in terms of the safrinha season, and it sounds like you're pretty optimistic about application rates there. And I just maybe you're getting good intelligence from your fertilized on taste business versus some of the other comments that are out there. But there is commentary and some data suggesting that planted acreage is going to be down on corn. Maybe some of us can go to cover crops and some of the grower associations are talking about or advising their growers to maybe back off on inputs. But are you seeing on the ground that the demand and the shipments and so forth is quite strong ahead for that season? Or what's giving you the confidence about this?

Operator:

Thank you. And our next question today comes from Jacob Bout with CIBC. Please go ahead.

Joc O'Rourke :

Yeah. Thanks, Jacob. Let me, first of all, say, by their own announcements, and I have had conversations that would tell me that while they will start up first phase at the end of 2026, they won't be ramped up to 4 million tonnes on their own estimates until 2030. At 2030, they would start their second phase, and that would probably ramp up similarly over five years. So in our five-year forecast, we have little or no significant production from BHP. As we look out 10-ish years, which is what we're talking about here, if we see the market growing at the rate from -- as I said to Joe, and maybe the point here is growing from the 72 million tonnes, we were pre war, not from the 65 million tonnes. But if we see the market growing at that 2% a year, that's 1 million-plus tonnes a year. So in 10 years, you could easily be in a position where that could be absorbed reasonably. How it will work from a trade flow perspective is absolutely yet to be seen. We assume that they would go into the North American market. But the best analogy probably is the [indiscernible] mine [ph], where for all the worry about the disruption. There's really came on and it came on slowly. They focused on the export market, and it really was absorbed in quite reasonably. So who knows what it will do, I guess, if it comes on faster that could change people's strategies. But for now, I think I would say is hold the course and I don't see it as a big threat for a long time.

Lucas Beaumont :

Good morning. This is Lucas Beaumont for Josh. Just switching to phosphates. So your shipment forecast there is calling for an increase of 2 million to 3 million tonnes next year. So just wondering, could you kind of walk us through how you see your production outlook compared to this year? And how much of that shipment uplift would you expect to capture from this year's base? Thanks.

Operator:

Thank you. And our next question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

Joc O'Rourke :

Yeah. Thanks, Andrew. I'm going to hand this over to Bruce because Bruce will be obviously responsible, along with Karen and her team for the future of the phosphate here. And I think -- yeah, a fair question because we have had a lot of issues with respect to big hurricanes, pandemics and some mechanical faults. So worth a bit of a detailed answer. Bruce, can I give it to you?

Operator:

Thank you. And our next question today comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Joc O'Rourke :

Thanks, Adam. You make great points there. Let me start by saying, Canpotex has greatly improved their logistics capabilities through rail infrastructure improvements in our facility in Vancouver, our facility in Portland has been expanded. We have maximized or optimized our use -- their use, I'd say there because it's -- it is an independent entity, their use of the, I would say, John's port and the use of Thunder Bay. So we are sending as Canpotex significant volumes, both to the East Coast and the West Coast, and that allows us to deal with things like the port strikes and whatnot. My only point there is there is a limit to what you can move and how fast you can grow. We've probably grown Canpotex over the years from, let's say, 10 million, 10.5 million tonnes to 13 million to 14 million tonnes. So if you look at it from that perspective, Canpotex has actually done a pretty darn good job. And I can tell you that under the leadership of Ken Seitz and continued under the leadership of Gord McKenzie, Canpotex has taken some real strides to solidify their markets, to improve their logistic capability. My point there is not to say that we haven't been doing a lot on that end. It's to say that we can't ignore those as real limitations to how fast you can possibly grow and how fast you can respond to step changes or disruptions in the international market. And then finally, of course, you're relying on Canadian National and Canadian Pacific Railways, who from time to time have issues as well.

Aron Ceccarelli :

Hi, good morning. Thanks for taking my question. I would like to go back to potash. Despite your strong sales volume for outlook for Q4, your pricing outlook is relatively muted, as you said. At the same time, Nutrients flagged that Russia is possibly coming back a little bit faster than originally anticipated. There's a contract with China and Canpotex's expiring if I'm correct at the end of the year. My question is what could really prevent us to see a contract with China next year with Canpotex between Canpotex and China to be below $307 per tonne? Thank you.

Operator:

Thank you. And our next question today comes from Jeff Zekauskas with JPMorgan. Please go ahead.

Joc O'Rourke :

Yeah. Thanks, Jeff. I think the simple thing there is we don't know where exactly that is coming from. Is that product that's been built up at a port waiting to go out? I think you can't look at three months, particularly three months of summer and compare to whole year. We know that those ports have issues in the winter with respect to freezing and unavailability, et cetera, et cetera. So as we look at -- whether we look at Belarus, Belaruskali or whether we look at the Russian producers, their seasonal shipments are never as high as their summer shipments. So our expectation is that's what they'll do. And again, not unlike Canada, it gets pretty darn cold in the winter around that area. And shipping by rail, that kind of distance, it can be pretty challenging. You're going to get all kinds of issues. And so our expectation is, yes, they may be able to do it in the summer, but we would discount that or at least risk adjust that for the winter months.

Joc O'Rourke :

Okay. So to conclude our call, before I reiterate our key messages, let me just say, I've dealt with many of you now for 15 years. It has been a pleasure I was hoping you'd be a little easier on me on my last day, but you clearly weren't going to do that. So I thank you for your honesty anyway. In terms of Mosaic and the business as it goes forward. I continue to believe that we are a well-positioned company at a great time in a great market. And I think Bruce and team will do very well going forward. But let me just conclude at least this quarter. The ag fundamentals continue to be compelling. Growing demand for grains and oilseeds just bodes really well for the future. Farmers around the world continue to have the incentive to maximize production. And that, in turn, leads to strong fertilizer demand. And we expect tight supply and demand dynamics for both of our products for the foreseeable future. Now Mosaic as a company is in excellent position to benefit from these market dynamics. Our balance sheet is strong, we're investing in the business and returning capital to shareholders. And with that, I'm going to sign off, pass the baton to Bruce and wish them the best in the future and for their earnings calls. Thank you all very much.

Operator:

Good morning, and welcome to The Mosaic Company's Second Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Your host for today's call is Paul Massoud, Vice President of Investor Relations and FP&A of The Mosaic Company. Mr. Massoud, you may begin.

James O'Rourke:

Good morning. Thank you for joining our second quarter 2023 earnings call. Mosaic delivered revenues of $3.4 billion, adjusted EBITDA of $744 million and adjusted earnings per share of $1.04. First, I'd like to discuss the broader agricultural market. Where fundamentals remain constructive, global demand for crops is very strong and supply is struggling to keep up. Geopolitical events are having a major impact. The war in Ukraine continues to restrict supply from one of the world's most important agricultural regions. Last month, the UN Black Sea Grain Initiative collapsed and was followed by the bombing of several grain terminals. As a result, we expect Ukrainian exports of corn and wheat to be down by as much as 30% versus last year, which was in itself a down year. But conflict is only one part of the supply problem. Around the world, weather extremes are having a profound effect on crop production. North American yields this year could be negatively impacted by dry conditions and El Nino is hurting production across Southeast Asia and Australia. This situation is exacerbated by underapplication of nutrients, especially potash, which is crucial for drought resistance and crop resilience. To maximize yields and meet global consumption needs, growers need to increase cropping intensity, which will mean increasing fertilizer applications. The world can't afford multiple years of underfertilization and crop production shortfalls. Today, China is importing record levels of soybean, wheat and beef. Roughly 5 million tonnes of China's corn imports over the last 12 months were sourced from the Black Sea Grain deal. This is supply that must be replaced by other regions. The shortfall extends beyond China. Countries across Europe, Africa and Asia will need to replace lost Ukrainian supply. In India, the focus remains on food security and affordability. Recently, the government responded by banning the export of non-Basmati white rice to ensure adequate domestic supply. Constrained supply and strong demand will continue to put pressure on global stock use ratios, which are already at multiyear lows. All these dynamics together continue to support a constructive ag market. The strong ag fundamentals should lead to strong fertilizer demand for the next several years, and we're already seeing robust demand in several of our key markets. Since the spring, improved affordability, channel inventory destocking and sustained demand for grain and oilseeds have brought customers back to the market. In North America, a strong spring application season depleted fertilizer inventories, which customers are now looking to replenish. Logistical constraints associated with low water levels on the Mississippi River and limited trucking capacity persist, but favorable grower economics are leading retailers to secure supplies early to avoid any backups. In Brazil, the market is beginning to move as we expected. Like we saw in North America, demand was deferred late into the typical window, but customers have returned to the market. In-country inventories are well below the levels seen earlier this year and growers are trying to secure tonnes ahead of the fast approaching Zafra season. In India, monsoon rains have been strong enough to drive grower demand for fertilizer. Phosphate imports are expected to be strong throughout the rest of the year. Switching to potash supply. Sanctions continue to restrict Belarusian exports. After a surge earlier in the year, rail volumes to China started to level off. We continue to expect Belarusian potash exports to be in the range of 7 million to 8 million tonnes, which is well below their historic 13 million tonnes. In North America, port terminal capacity has been constrained by multiple events. Repairs at Canpotex's Portland terminal are ongoing and should be completed by the end of the year. In Vancouver, a 13-day strike resulted in a temporary curtailment of the Neptune Terminal, but work continues to finalize a new labor deal, and we hope this will be resolved shortly. Canpotex is making use of alternative ports in Canada and in the Southern and Eastern United States to mitigate some, but likely not all of the impact on international shipments. We expect constrained phosphate supply as well. Over the last several years, changes to China's environmental policy led to the permanent closure of 25% of their domestic capacity. China is also focusing on food security by ensuring adequate domestic supply while also meeting rising industrial demand, both of which are expected to limit exports for the foreseeable future. Industrial demand, particularly in China's lithium iron phosphate production, is expected to grow dramatically over the next several years. Last year, LFP production more than doubled to 1.1 million tonnes of finished fertilizer equivalent and production is expected to grow by an additional 500,000 tonnes in 2023. This new market will continue to take phosphate volumes away from fertilizer production. We expect China's exports to be in the range of 7 million to 8 million tonnes this year or roughly 35% below 2021 export levels. Overall, the fertilizer market recovery is playing out as we expected. In a tight market, volumes are moving and prices are following. Phosphate prices have risen over the last month, while potash prices have stabilized and are now beginning to move higher. This sets the stage for a constructive second half of the year and into 2024. We believe our business is well positioned to capitalize on this recovery. Over the last several years, we've invested in our business to maintain our position as a reliable supplier to customers. In addition to the work we've done on our production assets, we've also invested in the infrastructure necessary to deliver that product. A few examples include the overhauling of our rail fleet, revitalizing our in-country distribution facilities and our purchase of the remaining share of golf sulfur services to secure logistics around our sulfur supply. These investments are integral to our results. In potash, sales volumes for the second quarter reflected the benefit of a strong North American spring planting season, while prices reflected the bottoming of the global market. Markets are improving, a trend we expect to continue throughout the second half of 2023. Over the last year, Mosaic has met demand by carefully managing production and inventory. We have built a flexible, low-cost system that's able to capture market opportunities as they become available. Last month, we temporarily restarted our Colonsay mine to replace Esterhazy production, which is currently undergoing its summer turnaround. In the third quarter, we expect total potash sales volumes of 2.1 million to 2.3 million tonnes. This guidance reflects the results of a very successful summer fill program in North America, which was oversubscribed by 30%. We currently expect MOP prices at the mine in the range of $250 to $300 per tonne. In phosphates, we reported strong sales volumes in the second quarter. Our average realized price was at the high end of our guidance range, and our stripping margin benefited from lower raw materials costs. As we discussed last quarter, we are pushing ahead with increased investments in our phosphate business targeted at improving reliability. This may require short-term increases in maintenance like we experienced during the second quarter. Looking ahead to the third quarter, we have a solid order book with 70% committed and priced today. We anticipate total sales to be in the range of 1.7 million to 1.9 million tonnes and DAP prices at the plant in the range of $475 to $525 per tonne. In Brazil, we reported sequential improvements in our operating results. Our distribution margins are recovering, and we expect that trend to continue in the third quarter as Brazil demand moves higher. 90% of our third quarter volume is already committed and priced. Finally, I'd like to spend some time on our capital allocation strategy. Our approach has not changed. We remain committed to investing in our business, maintaining a strong balance sheet and returning capital to shareholders. In potash, an independent audit of the K3 mine and K2 mill expansion was recently completed, which verified a total nameplate capacity of 7.8 million tonnes at our Esterhazy potash complex. Esterhazy is now the largest potash operation in the world and certainly one of the most efficient. In addition to the underground optimization, we've also begun debottlenecking the K2 mill at Esterhazy by installing a new hydrofloatation process. This will add up to 400,000 tonnes of incremental production capacity with minimal additional operating costs. We're investing $55 million in this project, which has an unlevered after-tax IRR in excess of 75%. In phosphates, we continue to move production away from commodity products and towards differentiated value-added products through the expansion of MicroEssentials capacity at our Riverview facility. Following the expansion, which is expected to be complete by the end of the year, about half of our North American phosphate sales volumes will be higher value specialty products. This is a $34 million investment with an after-tax unlevered IRR in excess of 50%. This expansion comes just ahead of next year's launch of MicroEssentials Pro, which is the next generation of MicroEssentials. Our field trials in Brazil indicate that growers will see a yield bump on soybean acres of 3% or roughly 2 bushels per acre versus current generation of MicroEssentials. Against traditional MAP solutions, MicroEssentials Pro provides an 8% yield advantage or nearly five bushels an acre. The patent on the new formulation extends through 2038. We are very excited about the launch of MicroEssentials Pro, which builds on an already strong foundation of value creation for the growers, our customers and for our shareholders. In addition to higher-grade phosphate fertilizer, we're also exploring entry into purified phosphoric acid for the lithium iron phosphate battery market. Our initial work has validated this opportunity and together with constructive and developing discussions with OEMs and battery manufacturers, our Board of Directors has approved an additional $60 million to commence engineering work on a commercial plant. In our Mosaic Fertilizantes business, we're building a 1 million-tonne blending and distribution facilities in Palmeirante, in the state of Tocantins in Northern Brazil. We currently don't have much presence in this region, so the facility will extend our distribution footprint into an attractive high-growth area. This is an $80 million investment with an after-tax unlevered IRR in excess of 20%. In total, our capital spending expectations this year remains unchanged at $1.3 billion to $1.4 billion. Our balance sheet is strong. During the quarter, we entered into a $700 million credit facility, which gives us additional flexibility to manage our capital. Our final focus is on capital return to shareholders. All excess cash will be returned to shareholders through dividends and share buybacks. Year-to-date, we're ahead of our target. Over the last 18 months, we've repurchased 15% of our float and believe our shares still represent good value. Our regular dividend today is $0.80 per share, and our business positions us to consider further increases over time. To sum up, Mosaic continues to demonstrate the earnings power and resilience we have created over the last several years. Our second quarter results were strong despite deferred fertilizer demand in many markets and our outlook for the remainder of the year and beyond is quite positive. The world's farmers have strong incentive to maximize crop production and meet global food demand. Fertilizer is critical to their success, and Mosaic will continue to meet that need.

James O'Rourke:

Thank you, Paul. In potash, our volume will be dependent on the ability to ship internationally. With the continued labor unrest following the 13-day strike in Vancouver and the ongoing repairs at Portland, our export capability may be limited. But the midpoint of our guidance range is in line with our historic average, which tells you how strong the North American demand has been this summer. Demand has been very strong with our summer fill program oversubscribed by 30%. Phosphate volumes could also see some upside given the strong global demand, but we're limited on inventory. We expect production to be higher sequentially, so there is some opportunity to exceed our current guidance range. On pricing, 70% of our Q3 order book is committed and priced. Depending on how the rest of the quarter plays out, there is an opportunity for price upside. But much of that would get realized in the fourth quarter, where we have more unpriced tonnes.

James O'Rourke:

Thank you, Paul. Weaker pricing affecting our production business and demand deferral due to grower liquidity issues extended longer into the second quarter than we had been anticipating. But the market did eventually turn. And at today's prices, the [indiscernible] ratio for beans is very attractive, which is driving farmers to secure supply for their Zafra season. Our distribution business posted a sequential improvement in quarter two, and we see that trend continuing into the second half of the year. Second half distribution margins are expected to be at the high end of our targeted range of $30 to $40 per tonne. In production, second quarter results were impacted by unplanned outages at Uberaba and Araxá. Those issues are behind us, so we expect higher volumes in the third quarter. The other issue in our production business was working through higher cost inventories of sulfur and ammonia, which we now expect to be lower in the third quarter. Overall, with high-cost finished product destocking and distribution now complete and Brazilian operational issues behind us, the business is very well set up for Brazil's busiest quarter of the year.

James O'Rourke:

Thank you, Paul. Yes. Colonsay will be needed for the foreseeable future. Over the last year, we have met potash demand by carefully managing production and inventories. In quarter two, strong demand in North America resulted in approximately 300,000 tonnes of inventory drawdown with Esterhazy's planned summer turnaround and a very successful summer fill program, Colonsay tonnage is required to meet our customer expectations and needs. At present rates, Colonsay must run approximately five months to replace the one month Esterhazy maintenance turnaround. With strong demand in North America and a rebounding international market, the main determinant to future volumes will only be limited by export logistics capabilities.

James O'Rourke:

Our commitment to return all of our free cash flow has not changed. Though to reiterate, that is a commitment to return cash flow over time, not a quarterly commitment. Returns will vary from quarter-to-quarter based on the seasonality of our business and internal capital needs. However, keep in mind, year-to-date, we have returned in excess of 100% of our free cash flow to shareholders.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Steve Byrne of Bank of America. Please go ahead.

James O'Rourke:

Steve, it's a really good question. And I think you have to start with the after effects of last year where I think in some key markets, there was panic and then overpricing and then the reflection or the shadow of that was a complete walk away from the market by farmers. We talk about a potash holiday or whatever. I think as we move into particularly this third quarter, I would say that we have probably overcorrected significantly to the downside now based on basic facts. The market is not going to be demand limited. The market is definitely going to be supply limited in potash. Our expectations from the former Soviet Union, Belarus, we're expecting it to still be in the range of 7 million, down from -- 7 million to 8 million, down from 13 million. The Russian producers themselves are down as much as 4 million to 5 million tonnes this year. So I definitely think that mine gate prices are probably arguably at least $100 below what they could easily move to in probably the near term. So do I believe the prices are appropriate for where we are today? No. But at the same time, I will reiterate that from a first perspective, the volumes have to move. Those volumes are now moving and they're moving strongly. Brazil is moving strongly as we move into Zafra. Our North American fill program is extremely successful. We're starting to see not only volume move, but price move in China. India still has its problems, but I think that they need product. So I think all of those things lead to a very strong rebound, and I'm hoping it doesn't create too much of a rebound that it can't happen in a more orderly way. So overall, I would say -- the fundamentals point to something that should be quite bullish.

Joel Jackson:

Good morning, Joc and team. On phosphates, could you talk a little bit about in your release, your comment that says for phosphate in the third quarter, you expect margins will benefit from lower raw material costs in the third quarter. So does that imply that you think third quarter phosphate margins will be up sequentially? And then just in general, phosphate rock costs have been higher for several quarters. Should we expect that to continue? When would phosphate rock costs, maybe, go back down to more normalized ranges? Or is it near normal?

Jenny Wang:

Yes, Joc. Phosphate price changed well, moved up towards since beginning of July. In North America, DAP and MAP price moved up over $50 per tonne and Brazil followed over the last few weeks as well. And we should see the price upward impact not only in Q3, but also into Q4.

Operator:

Next question comes from Richard Garchitorena of Wells Fargo. Please go ahead.

James O'Rourke:

Thanks, Richard. In terms of our phosphate volumes, if we look at the first half, they've probably been a little lower than what we might have expected. The markets have been good. The limitation has probably been, in general, starting inventory at the start of the year was low, and then we're running, I would say -- hand to mouth would be the way to say it. So every ton that we make is going straight to market. And that means if you're -- if anything -- any hiccups, you have -- you get delays. So it puts risk on the timing for particularly the end of the year. So on that -- in that case, I think the market is strong. We'll be -- whatever we can produce, we'll be able to sell. In potash is exactly what I said earlier, which is the logistics constraints, particularly for our exports will be the main limitation.

Christopher Parkinson:

Great, thank you so much. Just on the potash rock cost, just given the shift in mine mix, at least temporarily towards Colonsay versus Esterhazy. How should we be thinking about the cash costs during the second half of '23 based on your projected operates? And then any preliminary views once Esterhazy back up and presumably Colonsay stays back online. Just what would be kind of the normalized run rate that we should be considering into 2024?

Operator:

The next question comes from Edlain Rodriguez of Credit Suisse. Please go ahead.

James O'Rourke:

Yes. Thanks, Edlain. Again, I just want to reiterate, the 62 million to 65 million tonnes is not demand-driven this year. It is supply driven. I'm going to give over to Jenny to just walk through the details. But let me say, the market was low to start at the start of the year. So there were constraints in terms of a slow start to Brazil, a little bit later, China contract or whatever. And so it took some time to get product really moving this year. But as we go through that, like we said earlier, the limitation is going to be logistics. And I think what will allow the other producers to make up the gap is going to depend on if you can actually move it. I would imagine that most of the other producers or most of the other sources other than maybe Canpotex are actually supply limited. And Canpotex is likely going to be logistics limited. But Jenny, do you want to just go through the supply and demand balance?

James O'Rourke:

Yes. Just to reiterate, and I think this also answers part of where Steve Byrne was coming from earlier. Until there's a resolution of the Ukraine war and until there's a resolution of the Belarus sanctions, this is going to be a supply-constrained market. And I don't think any of us can really say when either of those issues are going to get resolved.

Andrew Wong:

Hey, thanks for taking my questions. Just a question on Esterhazy capacity figure. What does that mean for your normal operating capacity? Does that mean if the mine just can produce a lot more than what it was doing previously? And what does that mean for the Canpotex allocation?

Operator:

The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

James O'Rourke:

Yes. Thanks, Vincent. Yes, let me start with Colonsay. For now, Colonsay needs to run to reestablish our inventory levels to where they would have been previous to the Esterhazy shutdown. As you're well aware, these operations shut down pretty much every summer in Canada. So we've managed our inventory such that we don't have a bunch of excess coming into the summer. And so now we'll run Colonsay first to fill that, then to make up the gap of what we had in extra we had in Q2 and what we're seeing for the summer fill in Q3. So I would say for the foreseeable future, we could see Colonsay running. But again, I'm not going to run an operation for the sake of running it. We're going to manage our inventories, managing our working capital carefully, and part of that means using the production capacity at Colonsay to manage that function. In terms of MicroEssentials Pro, and as I said earlier, this is a pretty exciting piece of progress. First of all, the very fact that it takes the patent level out to 2038 gives us a nice protection for a long time. But equally exciting is it appears that what we're seeing is real agronomic benefit. And we don't have a pricing strategy or an implementation strategy, a launch strategy quite finished out yet. But I will say our philosophy has always been that we would share the benefit from the new products basically equally between the grower, i.e., the farmer, the retailer who is selling it and ourselves. So our pricing strategy will be such that we can do that. And again, the economics should be fairly strong because the gain is fairly strong as it was for MicroEssentials.

Joshua Spector:

Yes, hi. Thanks for taking the questions. So I just wanted to ask it within potash, when you're talking about making up most of the disruption within the logistics in Canada to get material out. I assume that's going to have a higher shipment cost. So one, I'm wondering, can you quantify roughly how you're thinking about what that could be? And two, is that a cost that you would have to eat? Or is it something that you can get potentially buyers to kind of back in on? I assume it's going to impact your cost structure, but I want to clarify that.

Operator:

The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

James O'Rourke:

Yes, there's a lot to digest in that one. I might just throw it to Jenny and ask her to talk a little bit about raw materials pricing and some pricing strategies and what we see with competition, particularly on the different grades in Brazil.

James O'Rourke:

Yes. Thanks, Jenny.

Aron Ceccarelli:

Hello, hi. Good morning. I have one on potash imports in Brazil. First half industry figures suggest that inputs in Brazil were down 10% year-over-year after being down in '22 around 10% again. So this would -- if this trend continues would put Brazil potash imports at around 10 million tonnes, which should be a reasonably low level. So maybe can you comment on the behavior now you see from farmers in Brazil and how you see demand picking up over there, please?

Jenny Wang:

Yes, I think you covered it well, Joc. I just want to say for potash, overall shipments last year reduced by 10%, you're right. And this year, we are actually saying the shipment -- total shipment in country, it's probably going to be flat, and we do see the potential upside in the rest of the year. So I just want to reiterate, if the potash or other nutrients are under applied in that kind of a market, you will see the yield impact and the Brazilian farmers, they know that very well, and that has been reflected in the very recent buying activities.

Jeffrey Zekauskas:

Thanks very much. As your potash prices have come down, your Canadian resource taxes have also come down? Is there a way to gauge what Canadian resource taxes are going to be over the next couple of quarters or into next year?

Clint Freeland:

Yes. I would just say one of the factors in that -- one of the key factors in that is around price. And so I think it's going to track or follow kind of what your price expectations are. I think from a percentage or a margin standpoint, it should remain fairly similar, but again, I think it will follow your price expectations as you go forward.

Stephen Byrne:

Yes, thank you for letting me back in here. I was just curious about the difference between those two versions of MicroEssentials. And was that yield benefit demonstrated by some land grant universities that you can back it up with? And when do you think you might have Versions three and four. And so forth that might have some biologics in there for your collaboration with BioConsortia?

Operator:

The next question is also a follow-up from Edlain Rodriguez of Credit Suisse. Please go ahead.

James O'Rourke:

Yes. Thanks, Edlain. Yes, for clarification, from an actual supply and demand perspective, I agree with you 100%. All of our production is likely to be required in the market, like I say, at least for the near term, we have to do two things. We have to be able to move it out, which right now has been a little bit restricted. If you think there was a 13-day strike in -- at the Vancouver port. So all of these stock workers were off and I think there's a new ratification vote on Friday, but they're right now in labor negotiations. But even as you come out of this, the time it takes to make the system fluid again, will probably be over a month. Our main carrier to the West Coast Canadian Pacific has said it will take at least a month to get that system fluid again. Remember, it's not just potash, it's not just fertilizers, it's -- there's coal, there's grain and everything else that moves through that port and then there's a big intermodal as well. So the pressure on the port and the rail system if it's shut down is pretty substantial and pretty substantial to overall the Canadian economy. But in terms of us, we need that. And if the market comes back and stay strong, no question in my mind. We would love to see Colonsay run for a long, long time.

James O'Rourke:

Well, thank you, everyone, for your attention. To conclude the call, I just want to reiterate our key messages. Mosaic delivered solid earnings in the second quarter, and we have a positive outlook for the remainder of this year. Agricultural markets are strong. Farmers around the world have strong incentive to maximize crop production. As a result, global fertilizer demand is also robust, and we expect that demand to remain strong. Mosaic today is well positioned to capitalize on the ongoing fertilizer market recovery. The transformation of our cost structure, along with the investments we've made over the past decade are delivering earnings power and cross-cycle resilience. So thank you for joining our call. Have a great and safe day.

Operator:

Good morning, and welcome to the Mosaic Company's First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Your host for today's call is Paul Massoud, Vice President of Investor Relations and FP&A of the Mosaic Company. Mr. Massoud, you may begin.

James O’Rourke:

Good morning. Thank you for joining our first quarter 2023 earnings call. Mosaic delivered revenues of $3.6 billion, adjusted EBITDA of $777 million and adjusted earnings of $1.14 per share. The fundamentals of the agriculture market remain quite attractive. Global stock-to-use ratios for grain and oilseeds are at 25-year lows. To put that in context, it would take 2 to 3 years of perfect weather and adequate fertilizer applications in every major growing region around the world just to get back to normal levels. With weather patterns shifting to an El Niño environment, the likelihood of that happening is low and would be exacerbated by under fertilization. We are beginning to see the negative impacts on crop production. Yields in the European Union turned lower in 2022 because of poor weather and under fertilization and will remain under pressure this year if fertilizer applications remain down. We're seeing a similar story in rice. The combination of El Niño and under fertilization could further threaten yields in key growing regions. With reduced supply of sunflower seed oil because of the ongoing war in Ukraine, the global market needs alternative edible oils and is looking to palm oil as an important substitute. Lack of fertilization, particularly potash, will impact Southeast Asian production. All of these factors are expected to support global crop prices for the foreseeable future. Switching to fertilizer markets, farmer affordability for phosphates and potash globally is very good with prices that are much more sustainable than the levels we saw a year ago. This is bringing growers back into the market, though supply constraints are still a concern. In potash, Belarusian exports remain limited because of sanctions. We've seen volumes move by rail into China and, to a lesser extent, through excess Russian port capacity, but transportation costs are high, and total exports remain well below pre-sanctioned levels. This year, we expect total exports from Belarus to be roughly 7 million tonnes. In addition, we also continue to see indications of reduced Russian product as well. It is clear that today's potash market is tight and supply chain is under pressure, but this extends beyond just Belarus and Russia. This vulnerability is highlighted by the recent failure of the walkway on a conveyor Canpotex 4 million tonne per year Portland terminal. Canpotex is still assessing the total damage, but expects to redirect much of the lost volume to other North American ports, albeit at some additional cost. In Phosphates, China remains committed to a structural shift away from exports. While it's possible to see a modest increase in exports over the 2022 total of 6.4 million tonnes. Domestic fertilizer demand, rising industrial consumption and environmental restrictions will cap China shipments to other markets. These supply constraints remain even as demand in our key customer markets is seeing a recovery. In North America, spring planting season is well underway, and farmers have returned to the market, though retailers have been slow to adjust their prices to global wholesale market prices. Despite that resistance, growers are still committing and taking tonnes. Retailers are replenishing their inventories. In April, Mosaic's volumes saw a significant rebound in the North American shipments for both potash and phosphate. Combined, Mosaic shipped over 1 million tonnes of potash and phosphates to North American customers in April alone. This is the highest total we've seen in the last 5 years. In Brazil, the is supportive of demand, and we expect commitments for the third quarter to ramp up with prepays for fertilizer ahead of the softer season. We expect Brazil will see a 9% to 10% increase in fertilizer shipments in 2023 over last year. In India, inventories for potash remain depleted as all purchases are going straight to the ground. After a year of reduced potash applications, a potash contract was signed in April at a price of $422 per tonne. In addition to providing necessary supply to Indian farmers, the contract helps stabilize global pricing. In Southeast Asia, with the shortfall in edible oils globally, the palm market is driving strong demand. Globally, we're seeing good farmer economics, which suggest strong demand for phosphates and potash in 2023. Given this landscape, we believe our business is well positioned to benefit from today's market conditions. In Phosphates, after 2 years of production issues caused by multiple hurricanes, raw material shortages and other issues, the segment's performance has improved. Volumes during the quarter were higher than any quarter in 2022, and our stripping margins also benefited from lower raw materials costs. We expect both of these trends to continue in 2023. In the second quarter, we anticipate total sales volumes of 1.8 million to 2 million tonnes with DAP FOB prices at the plant in the range of $550 to $600 per tonne. In Potash, volumes began to move over the last week of the first quarter, and that has continued into the second quarter, especially in North America. We expect demand to continue recovering throughout the year. Our operations at Esterhazy and Belle Plaine are performing well. Esterhazy is one of the most efficient mines in the world, and Belle Plaine should see benefit from lower natural gas costs in 2023. At Esterhazy, the last of the 13 miners is expected to come online later this year. In total, Esterhazy's annual operational run rate should increase from 5.5 million tonnes last year to well over 6 million tonnes by the end of 2023. We're committed to producing enough potash to meet market demand. With the incremental output from Esterhazy, we believe we're producing what the market needs, which means we'll only restart Colonsay when it's needed. We don't think this will be before the second half of the year. In the second quarter, we expect total sales volumes of 2 million to 2.2 million tonnes with MOP prices at the mine in the range of $325 to $375 per tonne. In Brazil, first quarter results reflected the impact of declining prices and inventory destocking. As we said in February, we expected our Q1 results to be impacted by destocking of high-priced inventory. And now that is largely behind us. Looking ahead, we expect distribution margins to trend back towards the range of $30 to $40 a tonne. In the second quarter, 90% of those tonnes are already committed and priced. Finally, I want to reiterate that we are committed to our capital allocation strategy of maintaining a strong balance sheet, investing in our business and returning capital to shareholders. We've met our commitment of reducing long-term debt by $1 billion. As such, we expect to refinance the $900 million that matures later this year. Our CapEx spending expectation this year remains unchanged at $1.3 billion to $1.4 billion. We're focused on high returning modest spend projects like our distribution facility in expansion of MicroEssentials at Riverview and the exploration of purified phosphoric acid. Beyond that, all excess free cash flow will be returned to shareholders through dividends and share buybacks. During the quarter, we returned $608 million, which included $456 million of share repurchases and $152 million in special and regular dividends. Over the last 18 months, we've repurchased 15% of our float and still believe our shares represent very good value. Our regular dividend today is $0.80 per share, and our business positions us to consider further increases over time. Before we move to the Q&A, let me summarize. The global ag market remains constructive. Grain and oilseed supplies are tight, and growers are incented by favorable economics to apply nutrients. We are already seeing the recovery in shipments in North America and expect the rest of the world to follow. Our production operations are performing well. Phosphate production has recovered, and potash is benefiting from the most efficient mines in the world with swing capacity available to meet demand growth. Our balance sheet is strong and sustainable over the long term, and we remain committed to returning significant capital to shareholders while continuing to invest efficiently in the business. With that, I'd like to move on to the Q&A portion of the call.

James O’Rourke:

Thank you. While there has been recent volatility in the agricultural markets, the fundamentals remain strong. We're starting with a 25-year low stock-to-use ratio for grains and oilseeds. Now much has been made of Brazil's larger-than-expected crop, but offsetting that is problems in the Argentinian, Europe, Asia and others who are suffering from lower yields due to weather and under fertilizations. Then as we look at going forward, this year's El Niño and under fertilization brings up a real risk to the 2023 ag markets. Now weather is always a known uncertainty. But as we've seen in recent past, extreme weather events that negatively impact ag production seem to have become more commonplace. Longer term, we do continue to see great potential for demand growth from biofuels, including an increased call on oilseeds to feed renewable diesel production as well as the enormous potential for sustainable aviation fuel. We also believe that biofuel use will continue to rise in the medium term even as cars transition towards electrification. To sum up, there is a rational basis for ag commodity prices to have eased off in recent weeks. However, there is strong fundamentals for ag bullishness .

James O’Rourke:

Well, thank you. I'd like to start by saying what we're seeing in North America demonstrates just how strong the market could be this year. If we look at North America in the months of March and April, those were both very strong months and up about 20% from where we were probably last year. So if I look forward there, I expect that will carry over to a stronger season in Brazil once the application gets started, and then it will continue for Asia and other regions. Now I'm going to turn it over to Jenny to give a little more detail on the supply and demand of the fertilizer markets.

Paul Massoud:

Thank you, Jenny. The next question is a follow-on to what we just talked about. Given this constructive outlook on the fertilizer markets, can you explain your thinking behind the guidance for pricing and volume, particularly for Potash?

Paul Massoud:

Joc, our next question is on Mosaic results. Could you provide more color on the quarter and how you see the performance of the segment evolving over the rest of the year?

Clint Freeland:

Joc, one other thing that I would note that I think is important in this discussion is that we use average cost accounting for the cost of inventory in Brazil. And what that means is that as prices -- sales prices are moving either up or down, the average cost of inventory that we're recognizing in our results is moving a little slower than that market price. And as a result, during increasing price environment, you'll see expanding margins. During declining price environment, you'll see declining margins. But that's why over the course of the year, we will see margins in the target range that we've talked about. But quarter-to-quarter, as market prices are moving, you can see a level of volatility in results.

Operator:

[Operator Instructions]. Our first question comes from Christopher Parkinson from Mizuho.

James O’Rourke:

Chris, if we look at how we're projecting, I guess, stripping margins for the rest of the year, you will have seen that the raw material prices have declined in the last while. And obviously, I think I've talked before, the sulfur, it takes 0.4 of a tonne of sulfur basically to make a tonne of DAP and about 0.2 of a tonne of ammonia. So those moves, which have been quite material, have allowed -- even though the price of phosphates has come down in time, the actual margins have stayed relatively constant throughout that period. And we see those margins staying relatively constant through the rest of the year. If we look at our cost of our actual inputs, rock and conversion, our rock costs were driven a little higher this quarter basically because of a lower volume throughout the quarter, probably due to both -- well, more than anything due to the grade of the area we've been mining through. And then if we look at conversion costs, those have been impacted by higher variable and fixed costs such as electricity and process chemicals. For the balance of 2023, we believe our maintenance and capital assets that we've invested in should really improve both volumes and costs as we move forward.

Stephen Byrne:

Your price for potash for the second quarter looks like it's roughly $75 a tonne more than historical levels and yet it sounds like Jenny's comments would suggest that potash is the one that is going to be more curtailed in supply in 2023 as opposed to your FOB DAP forecast is a couple of hundred dollars higher than historical prices. So my question is, what is fundamentally different here between P and K that would lead potash pricing to be generally weaker? Is it a reflection of second-tier price coming out of Russia?

Operator:

Our next question comes from Ben Theurer from Barclays.

James O’Rourke:

Yes, sure. So if I'm going through potash, again, it's the same story. First, we're going to see North America. We didn't see a strong -- although we don't sell to it, we didn't see a strong European market. But very quickly, we're going to turn over to Brazil and Latin America, that market should start moving. The softer season starts basically at the start of the third quarter, if you will. So they have to be moving product towards the end of this quarter. So June, let's say, it's things have to start moving to get product in place in time. Now we're coming into the year. And I think one thing that has to be understood is there was some pretty severe overshoot last year. Price went high, usage went way down. And I think we're seeing an overshoot downwards right now. And so it's not following fundamentals. But long term, it has to. So Brazil and the rest of Latin America will start moving. China is a very similar season to North America. And while they are getting more product from Belarus and Russia across from rail, they're still going to have to buy potash. So all of that stuff starts moving. Asia has to move. They need their staples like rice to grow. Indonesia, Malaysia needs the palm oil. So all of those start moving. We think it's still a constrained market. And the short-term -- sentiment drives short-term, fundamentals drive the longer term. So we think right now, it's just sentiment driven.

Andrew Wong:

Just a couple of questions on phosphate for me. What are your expectations for Phosphate segment production run rate? Can we get back to what -- historically, we've seen kind of 2 million, 2.2 million tonnes per quarter coming out of that segment. And then just a question on the Q2 pricing guidance. Yesterday, we kind of saw U.S. NOLA DAP prices drop down to kind of like the low 500s. How does that factor into the price guidance for Q2?

Jenny Wang:

Sure. Andrew, I believe the numbers that you talked about was DAP NOLA barge price. We noticed that as well. And as some of the trade publications reported, the lower prices may be driven by the incoming import vessels the traders play on the index setting. So that's what we learned, and that happened many times in the past. It does not necessarily represent the real market value. As we go through this index setting, we will see the real value to be reflected for summer fill. Having said that, it is very normal for the market like North America, after spring season, we will see -- we might see a price reset. It happened usually in every year, but the price eventually is going to be supported by fundamentals as we discussed earlier. Lastly, we want to remind ourselves, when we say phosphate market, it is a very constructive margin environment. As the raw material prices coming down, there are some pull through to the phosphate prices as well.

Operator:

Our next question comes from Joel Jackson from BMO Capital Markets.

James O’Rourke:

Let me start -- thanks, Joel. Let me start by saying that is the distribution margin that we're referring to there. And it's important to kind of think about that in terms of the overall. If you think last year, I think, in distribution, we sold approximately -- was it 6 million tonnes of distribution tonnes? So 6.5 million tonnes of distribution tonnes at -- I think it was about $60 on average. So if you think about that, that's contributing $200 million of the $1 billion. And I know I'm probably adding to the confusion of how hard it is to estimate what Brazil looks like. But the distribution business itself is a pretty small piece of the overall. We make about $100 million a year of co-product sales, and we make the majority from our actual production business, selling our MAP and feed, TSP and SSP. So those are the ones that are really -- and right now, that market is moving pretty slowly. We're in an off season. And so what we're seeing is a more than usual impact on margin by that distribution business, if you will. So I don't think anything is inconsistent with what we said in 2020.

Richard Garchitorena:

Just wanted to touch on the guidance for pricing in the second quarter. The range reflecting a higher percent of lower-priced export sales. Any reason for that in terms of why more lower-cost sales if demand is picking up in April and you're seeing it as well in May?

Jenny Wang:

Yes. I think it's -- I just want to remind what Joc mentioned. The guidance for the second quarter for potash price, it is a mix of different markets between North America and export market. And in the export market, there are a mix of different grades for different destinations. So for example, the price to Brazil are -- can be very different than the price to go to India because of the freight differences and also the grade differences. So as we forecast the second quarter, this is a combination of different price, different product grade and different market. Very strong North America price, we believe it is going to be carried over into our second quarter. The mix of the market will have impact in the guidance.

Operator:

The next question comes from Edlain Rodriguez from Credit Suisse.

James O’Rourke:

Yes. Thanks, Edlain. And look, from our perspective, the huge price peak, the quick drop back down is certainly not how you'd like to see the markets perform. We were saying that last year, and I wouldn't change my view on that at all. If you think back to -- and you got to almost think back to the start of the Russian invasion of Ukraine, where you had -- for instance, President Bolsonaro of Brazil was in Canada asking for more product, you had him in Russia talking to Putin looking for more potash. You have this huge almost panic run on potash and phosphates as they're trying to make sure they had enough for the season. And the price got to the point where it was literally, at least from a psychological perspective, unaffordable. So people talked about as a potash holiday. Well, now you're seeing virtually the opposite where you still in some markets and some of the retailers are trying to sell their high-priced product. They're resistant on dropping their prices to the market. So now you see overshoot on the downside. And yes, unfortunately, it's kind of that system. It's a -- the highs were too high and now the lows are probably too low. It will balance out again just like it did in '09, but we have to get through the first phase of it. What could we have done differently? We were aware of the risk. And we've -- I think we talked about that risk in some of these meetings even. So what can you do? Do you try and send more to those markets to make sure they're well supplied? We did that. But then, of course, when things slowed down, there's no way around it. So I'm not convinced that anything that the suppliers could have done would have changed the overall outcome. Now this year, again, we're trying to supply. And as people buy, that will start balancing out.

Lucas Beaumont:

This is Lucas Beaumont for Josh. I just have two quick ones. Firstly, so on your potash volume guide for the second quarter, you're talking it sounds like you think North America is going to be up year-on-year. So if that's the case, and I kind of split out like what Canpotex is doing then in the second quarter, what's applied it's implying that's kind of down 15% to 20% year-on-year. So I guess, is that right? Why would it be down that much taking less allocation there? And secondly, just wanted to follow on from Joe's question on Fertilizantes. So maybe how do you kind of see the normalized mid-cycle EBITDA in Fertilizantes now? And could you split that between distribution EBITDA and production EBITDA for us, please?

Operator:

Our next question comes from Jeff Zekauskas from JPMorgan.

James O’Rourke:

Yes. Okay. Thanks, Jeff. Look, let me start with India. It was not India that drove the 6-month contractor. It was the suppliers, including Canpotex, and I don't like to normally speak for Canpotex, but I can tell you that we don't think the fundamentals are such that the price is going to still be at 4 22 come 6 months from now or at least we thought there's pretty good upside potential. So that was the reason that was a 6-month, not a year. In terms of China -- and recognize -- sorry, let me finish the India thing. The other thing with India though is it hasn't really taken off tonnage-wise because they haven't established the subsidy program. So while there is a contract price, the importers are still a little bit leery because there isn't a subsidy guarantee for them, which means the NPK plants are taking what they need, but they're taking it hand to mouth. So it's a bit problematic and it's more of a political and subsidy issue than it really is the -- on-the-ground demand. In China, why didn't China follow? I think there's a couple of reasons. I think the first is they had the inventory that they needed for the short term, and there's -- they're looking for when do they really need product. And recognize that some things have changed in China. With 2 million tonnes coming from the rail across from Kazakhstan with -- from Belarus, and another 2 million plus coming over the euros from Uralkali and the Russians and then 6 million tonnes coming from Qinghai Lake and that production, your seaborne needs while still there are less than they were before. So maybe we have to reassess what 2 million tonnes of inventory really means because I think it will last them a little longer because they're getting their basic needs. Now having said that, I think by about midyear, they still need seaborne tonnes. So I think there's still a place for them. But I will say, and we've been saying this for years, the relevance of the Chinese contract is becoming less and less overall because they're less and less reliant on seaborne tonnes.

Vincent Andrews:

Joc, I'm just trying to synthesize all the comments today about the market and price expectations and so forth in potash with what are the sort of thresholds that you're anticipating crossing in the back half of the year that would get you to turn Colonsay on? Is it that you're looking for a certain increase in price from here? Or is it -- you're waiting for China to come back into the seaborne market? Or what is it that you guys are watching to determine whether you're going to make that decision or not?

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Joc O'Rourke for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning. And welcome to The Mosaic Company’s Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants have been in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Your host for today’s call is Paul Massoud, Vice President of Investor Relations and Financial Planning and Analysis of The Mosaic Company. Mr. Massoud, you may begin.

Joc O’Rourke:

Good morning. Thank you for joining our full year 2022 earnings call. Mosaic had a record year in 2022, delivering revenues of $19 billion, adjusted EBITDA of $6.2 billion and adjusted earnings per share of $11.01. In 2022, we reached several operational milestones that allowed us to benefit from strong prices. K3 reached its initial capacity of 5.5 million tons. In Brazil, we grew our distribution market share from 16% to 18%. In North America in phosphates, performance products represented 43% of total sales volumes and now we have begun to look at expanding our MicroEssentials capacity further, which we will discuss later. These efforts are driving strong free cash flow generation, which allowed us to return significant capital to shareholders in 2022, while also strengthening our balance sheet. Over the last 12 months, we have repurchased $1.7 billion worth of shares outstanding, if we include the fourth quarter of 2021, we have bought back more than 10% of the shares outstanding or roughly 40 million shares. In addition to share repurchases, we have also paid investors nearly $200 million in dividends. Our regular dividend now stands at $0.80 per share, up from $0.60 per share the prior year. And on the balance sheet, we met our long-term debt reduction target of $1 billion with the retirement of $550 million of long-term debt in November. Before diving into our business further, I’d like to briefly discuss broader agriculture and fertilizer markets. Ag market fundamentals remain very constructive, with December corn near $6 per bushel and November beans near $14 a bushel. This reflects ongoing global food security concerns at a time of disappointing production. Global stocks-to-use ratios are at 25-year lows and remain under pressure because of elevated risks that threaten output in 2023. The world continues to watch the war in Ukraine. We have consulted with top military and foreign policy leaders who share our concern that the conflict seems unlikely to be resolved in the near-term and will have long lasting impacts, particularly in the production of key crops like wheat and sunflowers, which is a source of significant amount of the world’s edible oils. Outside of Europe, we believe the USDA’s latest estimate for Argentinian production appears optimistic, as drought conditions during the growing season suggest yields will disappoint. In Brazil, weather has delayed the planting of safrinha corn, which could pressure the record crop that many are forecasting. Around the world, we still see fertilizer shortages in many key agricultural markets, despite some major markets being well supplied. However, the overall shortage still threatens total production and this will underpin global crop prices for some time. Now let’s focus on the fertilizer markets. The sharp spike in nutrient prices in the first half of last year resulted in growers aggressively mining their soils. As we enter 2023, phosphate and potash prices are now half of what they were at the peak. With crop prices still very strong, farmer affordability for nutrients has improved significantly and is now back to the levels seen in 2020 and 2021. This suggests a strong rebound in demand as growers seek to maximize yields with sufficient fertilization. The world is still short of potash. Certain markets are seeing more readily available supply, but this means other markets are not able to get what they need. Belarusian supply remains constrained because of the ongoing sanctions. We believe Belarus, Calais exports were down about 8 million tons in 2022, and we expect only modest recovery in 2023 with total exports of around 6 million tons to 7 million tons or half of their pre-sanctioned export volumes. The limited product Belarus has been able to get out of the country has been aggressively marketed over the seasonally slow winter and we have seen similar actions from some Russian producers. This is driving recent weakness in prices, but we believe the phenomena is temporary and will reverse as spring demand ramps up. In phosphates, China remains committed to the structural shift impacting where it sends its phosphoric acid. In addition to shutting down production for environmental reasons, a significant portion of phosphoric acid is now being directed to industrial uses, including the battery market. Roughly 1 million tons of finished fertilizer equivalent was diverted to the battery market in 2022 and we think that will continue to grow rapidly over the next few years as additional battery capacity is added. This suggests China’s exports of phosphate fertilizers will continue to be down significantly as restrictions extend into 2023. Inventory levels in our key markets for both phosphates and potash have declined considerably from the elevated levels observed in the second half of last year. Grower demand across the Americas has been very strong because of favorable affordability, but retailers have been hesitant to replenish inventories, because of the volatility in global prices, especially in potash with the aggressive off-season marketing from the Russians and the Belarusians. U.S. spring demand is ramping up over the next coming weeks and we believe we have reached a bottom in potash prices. In Brazil, sentiment has improved. Inventories have worked their way down to much more normalized levels for both potash and phosphates, as growers take advantage of much more attractive barter ratios. We estimate fertilizer shipments will total 46 million tons in 2023, up more than 10% from last year and roughly 35% of those expected shipments have already been contracted. In India, phosphate inventories remain very low even after a year of elevated imports as most of the product went straight to the ground. Government subsidies for the coming fertilizer year will determine whether India will be able to attract the nutrients it needs to meet its food security concerns. In Southeast Asia, potash has become much more affordable for palm oil producers as well, which should drive demand recovery. Globally, we are seeing very good farmer economics and depleted inventories that suggest strong demand for phosphates and potash in 2023. Given this landscape, we believe our business is well positioned to benefit from the market’s recovery. In phosphates, lingering issues from Hurricane Ian impacted our operations during the fourth quarter for longer than originally expected, but Florida operations returned to normal operating levels earlier this month. We now believe we have moved past the operational issues that impacted output and are dedicating resources to fixing key components in our production. At Bartow, we are upgrading our sulfuric acid production facilities following the recent production stops we saw after Hurricane Ian. And at Faustina, we have improved operations at our ammonia plant and saw a significant increase in the amount of ammonia produced from our plant during the fourth quarter. Florida production has returned to normal operating rates. During the first quarter, we expect total shipments of 1.7 million tons to 1.9 million tons with realized pricing of $625 per ton to $675 per ton. We expect stripping margins will remain relatively stable quarter-over-quarter as lower raw material prices offset lower finished product prices. In our potash business, slower demand led us to temporarily stop production at our Colonsay mine, but we think the current market situation is temporary and expect to restart operations at Colonsay within the first half of 2023. At Esterhazy, the 12th miner is being commissioned and the 13th miner is expected to be in service before the end of the year. When that’s done, it will add at least 1 million tons of additional annual capacity at one of the most efficient mines in the world. In the first quarter, we expect sales of 1.8 million tons to 2 million tons with realized MOP prices at the mine of $425 per ton to $475 per ton. Mosaic Fertilizantes had its best year since we purchased the business in 2018, with adjusted EBITDA of $1 billion in 2022, despite volatility in the second half of the year. Fourth quarter results reflect the sharp reversal of commodity prices from the highs of the first half of the year, which negatively impacted both the production and the distribution margins. But for the full year, our distribution margins averaged $36 per ton, which is right in the range of $30 per ton to $40 per ton that we would expect. First quarter distribution margins will be similar to fourth quarter as higher inventory is worked through. But for the full year, we do expect distribution margins to be back within our normal range. As we think about the evolution of our business, we continue to execute our high returning investments while returning capital to shareholders. In phosphates, we have begun expansion of our MicroEssentials offering by adding capacity at our Riverview facility. The project is expected to be completed by the end of the year. Upon completion, about 50% of our North American phosphate business will be sales of value-added performance products. This is not an expensive project. Total budget is less than $40 million with a payback period of less than two years. We are also building a test plan for purified phosphoric acid production in North America to verify final design plans for commercial operation. This is the next step in our shift away from commodity fertilizers and opens up new markets like food production and batteries. We are also exploring using the plant’s byproducts to produce NPKs. In Brazil, we continue to grow our distribution business. While our footprint is already large, there are still areas where we see opportunities to expand. We have begun construction of a 1 million ton blending and distribution facility at Palmeirante in the fast growing North with access to very attractive rail infrastructure. Returns of about 20% on an expected $80 million budget, make this another example of highly attractive modest investments. We are also monetizing past investments. In January, we sold our Streamsong Resort for $160 million, because we could realize appealing value for a noncore asset. Our joint venture in Saudi Arabia is also performing well. In 2022, Mosaic’s equity earnings from the joint venture totaled $195 million, which is about a quarter of our initial investment. This year, they plan to reduce debt by $800 million. They have also distributed $100 million in dividends to investors. Our proportional share of $25 million was received this month. Finally, I want to reiterate that we remain committed to our approach to balance sheet management and shareholder capital returns. In November, we retired $550 million in long-term debt and this allowed us to meet our commitment of reducing long-term debt by $1 billion. As we look at our balance sheet today, we believe we are well positioned for the long-term. Similar to last year, we plan to return substantially all of our free cash flow to shareholders in 2023 through a combination of share repurchases and dividends. Since September of 2021, we bought back $2.2 billion in shares and we continue to see great value in our shares. To emphasize that point, we plan to proceed with a $300 million accelerated share repurchase program in the first quarter. We have also grown our regular dividend to $0.80 per share and we are well positioned to consider further growth, especially with our reduced share count. In addition to the regular common dividend, our Board of Directors has approved a special dividend of $0.25 per share to be paid out on March 30th to shareholders of record on March 15th. Given our strong cash flow, combined with the proceeds of asset sales, our Board approved this payout as a supplement to our ongoing share repurchases. Before we go on to Q&A, allow me to summarize. Mosaic delivered record results in 2022 and we expect favorable dynamics to continue in 2023. The world is short global grains and oilseeds. So farmers are incented to maximize yields. We expect this to drive strong fertilizer demand and our business is well positioned to meet that demand through our existing assets and exciting new growth opportunities. With the strong cash flows that these provide, we are returning significant capital to shareholders through dividends and share repurchases. With that, I’d like to now move on to the Q&A portion of the call.

Joc O’Rourke:

Thanks, Paul. Let me start by saying, we have had a year of low potash usage, which means soil levels are depleted and farmers will need to add potash to the soil to ensure reasonable yields this year. So growers are seeing very attractive economics and they are acting on it. We are seeing things like our largest channel customer in North America has already got 60% of their farmer’s demand is committed for spring, which is higher than most normal years. So as we move into spring, our expectation is farmer demand is going to be good, but everybody is waiting for the last moment. They don’t want to live with the price risk. So why we expect a very good season in North America and we are already seeing a good season in Brazil, we do expect people to wait as long as they feel they can, but once it moves, we expect it to move fairly well. Overall, we do see the potash market as being limited by production. So while demand will be normal, we expect Russia will be exporting less than what they have in the past, probably, 1.5 million to plus 1 million tons and Belarus will probably export 6 million tons to 7 million tons, which is half of what they did pre-sanction. So we think this situation today the standoff is temporary and it will start moving, and when it starts moving, we expect we will have to run hard to supply the market. Jenny, do you want to just give us a little bit of a highlight of where the overall S&D is for potash right now?

Paul Massoud:

Joc, Mosaic Fertilizantes gross margin dropped significantly in the fourth quarter. What drove that margin compression and how should investors think about margins for the business in 2023?

Paul Massoud:

Joc, how should investors think about our production volumes over the next year and what types of capital projects is Mosaic initiating to support reliability?

Paul Massoud:

This concludes the prerecorded portion of our call. Let’s now move on to the live Q&A. Operator?

Steve Byrne:

Yeah. Thank you. Just kind of following up on that statistic that you provided, Jenny, where global consumption of potash down 16% in 2022 and your estimates for Russia and Belarus sound like down another 10% or down 10% from 2021 in this year. My question for you is, does the world really not need 70 million tons of potash or could there be an impact on global crop production this year as a result of this and/or do you think there could be maybe a bit of a panic to meet farmer demand this spring given the just in time purchasing mentality?

Jenny Wang:

Yeah. Sure. Thanks, Joc. Steve, to your question, what is the impact with a significant demand of shipment reduction last year, we believe that was over 11 million tons versus the previous year. We believe the impact to the yield in some of the markets might be reflected on the yield for that year and in some markets like North America and Brazil, where the farmers probably have invested in the potash application. In the previous year, they probably they were able to afford for reducing rate for a year, but in two years in a row to cut application rate, it is not really a good decision for the farmers to maximize their yield and production. Therefore, we believe the demand recovery of the demand for potash in this market are there. It’s just the farmers have the incentive to maximize their production. There are certain markets, as I mentioned in the prerecorded answer, government are really supporting the farmers to use potash in order to secure their food security and we believe that government support are going to continue as we are getting into 2023. Lastly on the spring demand, what we heard from our customers and also the growers on the ground, Steve, in North America, in particular, there’s a very clear desire based on the affordability and the farm economics that farmers to go back to apply potash, especially for those who skipped a season last year or cut the rate last year. We are at the stage that, the farmers need to engage with their retailers and then the retailers to cover the last part of the buying from us and we see that is happening. In fact, this week, we are seeing increasing inquiries in the south part of the U.S. as the season started. So we feel confident that demand is going to recover for potash we still believe with a significant constraint on supply and the price will stay at a healthy level, although, it is much more moderated from last year.

Operator:

The next question comes from P.J. Juvekar with Citi. Please go ahead.

Joc O’Rourke:

Yeah. Thanks, P.J. Just checking my numbers to make sure I have this right. But, so, yes, your equivalency is correct. We are seeing or we saw last year about 0.5 million tons of purified phosphoric acid be redirected from fertilizers to batteries. Now that is equivalent to about 1 million ton of DAP. And what we are seeing in that market, it was last year at least a growth of virtually doubling over one year. So we have gone from 500,000 equivalents to 1 million equivalents and even if that goes to1.5 million equivalent to 2 million equivalent, we are going to see a heck of a lot of displaced phosphates out -- not getting out of China. So that’s the reason we feel fairly confident that our expectation for exports is reasonable. In terms of our own, we are not supplying any of that market at this stage. We are in the process of doing a pilot study now. We have done the -- this tabletop work and we are now doing a pilot plant to get the design criteria and the costing for our own purified phosphoric acid and I would expect to be saying more about that in the next six months or so and we will be talking about making an economic decision after that.

Christopher Parkinson:

Great. Thank you so much. You have a helpful outline on slide 10, just given the sensitivities to DAP, MOP, so on and so forth. Can you speak to the potential year-on-year benefits from all three of your sources of ammonia, as well as the average sulfur price. The way you see that trending in the first half. Just any color on that as it pertains to DAP your margins? Thank you so much.

Operator:

The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Joc O’Rourke:

Yeah. Okay. So I will answer the first one here, which was, sorry, I just got to read. Oh! Yeah. Our volume. Yeah. Our volume, I think, is -- that’s not an unreasonable expectation for volume. The question was in respect to what our production capabilities were. So I will qualify that and say that our -- we always are driven by what is the on the ground demand for our product and not necessarily what our production capabilities are. So there could be a gap between what our production capabilities are in our sales, but that will depend. Likely, this year, we expect for both potash and phosphate demand will be good. So we expect to sell most of what we make. So that’s not an unreasonable assumption. In terms of the pricing, yeah, our expectation is that, as the season gets moving, both phosphates and potash prices should move up at least somewhat, and I think in the case of potash, it could move up a lot, but certainly in phosphates. But we expect that phosphates will kind of balance off with a relatively flat stripping margin, if you will. So that’s our basic prediction of where that would go. In terms of Brazil, I would say that, both the production business and the distribution business have been equally impacted. One, by rising raw material costs and the other by just the timing of sales versus purchases of third-party material. So, with that in mind, you can think of it as returning back to more normalized level after quarter one.

Richard Garchitorena:

Thanks. Just wanted to touch on the plans to restart Colonsay. I guess when you look at the outlook and where we were a year ago when you were planning to expand further, when you start up, I guess, how long will it take you to get back to that, I guess, 1.3 million run rate initially when it was shut. And then how are you thinking about moving forward in terms of expanding that capacity, is it probably going to be more of 2024 event, assuming we have demand recover or is that on hold intentionally for the market recovers?

Operator:

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

Joc O’Rourke:

Yeah. Thanks, Vincent. Look, I think that, right now with the volatility in front of people, people are very concerned with waiting very long, if you will. So everything is always just in time. But, of course, the dealers and our customers have to balance that with the need to make sure they get the product they need in time for season. So that’s always the balance. My expectation and what we -- Jenny and I were at the Fertilizer Institute meeting a week or two ago, and almost to every customer, we are still hearing we would like to have our position -- product in position for the start of the season. We are not going to refill until we need it and then we want to end the season empty. So that’s our expectation, that’s what they will do. But that also means that the summer fill program should be strong here in North America. In Brazil, I think the -- because of the long lead time for everything, it will be a little different than that and I think the Brazil market will be more stable throughout the year and we will see the normal pattern of third quarter being our strongest quarter and like we have said here, even the Safrinha season we are starting to see some pretty strong demand signals at least. So we think that will continue. We think third quarter will be pretty normal with the U.S. fill. And then the one you have got to consider is, at some point, we need to see and we expect to see Central America, China, India, Asia, the potash going to the Indonesia and Malaysia, we expect all that has to ramp up because they have got a year where they just haven’t used the products they need. So even if they are not refilling, they are going to have to buy.

Edlain Rodriguez:

Yeah. Thank you. Good morning, guys. So a quick question on farmers affordability. It has improved quite a bit as fertilizer prices declined over the past several months. So that’s good for the farmers. But what’s good for you is for fertilizer prices to start moving higher. But if they do, doesn’t that bring back your affordability issue again. So my question is like how do you try to balance that delicate line?

Operator:

The next question comes from Josh Spector with UBS. Please go ahead.

Joc O’Rourke:

Yeah. Thanks, Josh. I think, where -- as we look around the world, it really depends on where you are looking. Look, if you are buying fertilizers for -- and the vast majority of fertilizer is used for big crops and export crops. So if you are selling your crop into an international market where you can get the international price, then you are fine and the demand will be there. So if you think about North America, most of South America, Europe, et cetera. Yeah, that’s all fine. If you think about Africa, the problem in Africa and the reason, I would say, no, it’s not the case, they still can’t afford it in Africa is because they are buying for selling into an international market, they are buying for subsistence farming to feed themselves. So whether crop prices are high or not is almost irrelevant, because it’s how much they have to put into the crop [Technical Difficulty] and that’s where the supply gap ends up being most acute. And we have heard it from, for instance, the U.S. State Department, which says that parts of Africa are now moving from hunger into acute, what you call it, from hunger to starvation basically. So in Asia, yes, they will be able to afford it I think, but if you get to the poorest parts of the world, no. Now does that affect the overall market? Not really, because those are not big users in the first place, but that’s probably the most tragic part of this whole thing.

Jacob Bout:

Good morning. I wanted to go back to that discussion on Colonsay and Esterhazy. If I am mistaken, Esterhazy is your lowest cost potash mine by far. Just why wouldn’t the next incremental ton be coming from Esterhazy. Is there anything that we should be thinking about from a mill or hoist perspective or bringing on incremental capacity?

Operator:

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

Joc O’Rourke:

So, thanks, Andrew. Let me say, we have been in the testing phase and I can tell you fairly definitively, that we are capable of making the grades of purified phosphoric acid required for batteries. And as you said, there is a number of LFP lithium iron phosphate plants being talked about in the U.S. here. And we are in discussion with some of those, and obviously, there’s nondisclosures for each of those sets of discussions. So I won’t talk about specifics. But I can tell you, there is a huge desire amongst those battery manufacturers to have one, a shorter supply chain, i.e., a more stable supply chain out of the U.S., and secondly, a lot of these subsidies and stuff require that the U.S. content to be there. So there’s a number of reasons why the market at least is very interested in that. And what we are doing now in conjunction with doing the pilot work on this, which is going to give us the design criteria, tell us help us define what the costs of both capital and operating will be. But at the same time, we are doing market studies to understand what the final size of this market could be here in North America in particular. But remember, as we think about purified phosphoric acid, there’s also the other industrial uses and food and everything else. So this could be quite a useful branch for us to de-commoditize to some extent.

Jeff Zekauskas:

Thanks very much. With fertilizer prices coming in, should working capital be roughly a source of $700 million in cash in 2023. And secondly, with all of the different ammonia facilities that are being proposed for the Gulf Coast, does it make sense in the future to buy more cost plus ammonia or are you happy with what you have got?

Jenny Wang:

Working capital.

Operator:

The last question comes from Joel Jackson with BMO Capital Markets. Please go ahead.

Joc O’Rourke:

Yeah. Thanks, Joel. So, let me say, historically, we were talking specifically about the distribution margins, and if we look at the distribution margins over time, they have really ended up somewhere in that $30 per ton to $40 per ton. Now the production business, obviously, much more price of phosphate and potash dependent. But if I look at the distribution business, that’s not a bad place to start. In terms of how we expect this to play out, we are now buying product at today’s price, but that product won’t be sold until the end of quarter one and into quarter two. So the product we are working our way through is the higher-priced product from quarter four that we were purchasing at that stage, because there’s that big lag in Brazil of, let’s call it, three months. So we do expect margins, particularly distribution margins to be similar to what they were in quarter four, but I may have been misunderstood when I said they were going to build over the year, over the average of the year, we still expect them to be in that same range of $30 to $40. So that means they have to rebound fairly quickly and we fully expect they will.

Joc O’Rourke:

So, thank you everyone for all your questions and your interest in us. To conclude our call, I’d just like to reiterate our key messages. Mosaic delivered record results in 2022 and we expect strong business conditions throughout 2023, farmers around the globe have strong incentives to maximize their yield and fertilizer is in short supply in many parts of the world. So we expect strong demand and Mosaic is well positioned to deliver this for our customers. We are also delivering for our shareholders by returning essentially all of our free cash flow through dividends and share repurchases. So, with that, thank you for joining our call and please have a safe and happy day.

Operator:

Good morning and welcome to The Mosaic Company’s Third Quarter 2022 Earnings Call. At this time, all participants have been in a listen-only mode. After the Company completes their prepared remarks, the lines will be open to take your questions. Your host for today’s call is Mr. Paul Massoud, Vice President of Investor Relations and Financial Planning and Analysis of The Mosaic Company. Mr. Massoud, you may begin.

Joc O’Rourke:

Good morning. Thank you for joining our third quarter 2022 earnings call. Mosaic delivered record third quarter revenues of $5.3 billion, which resulted in net income of $842 million or earnings per share of $2.42. Adjusted earnings per share was $3.22, and adjusted EBITDA was $1.7 billion. These results are driving significant cash flow generation, which is allowing us to return significant capital to shareholders while also continuing to invest in the business and strengthen the balance sheet. During the quarter, we returned roughly $670 million to shareholders, including $600 million of share buybacks. Now, before diving into our operations, I’d like to address current market dynamics. Food security remains a concern around the world. Global grain and oilseed stock-to-use ratios remain at 20-year lows, and early data continues to suggest there may be further downside to total production, once the fall harvest is complete. It is important to remember that the market was tight when the year began, well before the start of the war, and issues over the last several months have further exacerbated the situation. Ukraine’s production shortfall is significant, but weather issues like high temperatures and drought conditions in other major growing regions are having an even bigger impact on an already tight market. In the U.S., weather delayed spring planting, and the compressed planting window reduced nutrient applications. The growing season was further impacted by high temperatures and drought in some areas. Weather tends to be a significant factor in yield, but under-fertilization doesn’t help, and you can only mine the soil for so long. Both are contributing to an expectation of weaker-than-normal North American harvest. And this was reflected in the most recent USDA yield forecast. In Brazil, fertilizer shipments appear poised to have dropped around 10% year-over-year. And La Niña remains a threat despite the market counting on record-breaking corn and soybean production. Beyond grains and oilseeds, we’re seeing food security issues play out in other crops as well. Staples like rice are also seeing significant production shortages, driving some countries like India to restrict exports. Because of this, we see a tight market for global grains and oilseeds continuing into 2023 and beyond. The global fertilizer market remains tight with supply constraints in both potash and phosphate still unresolved. Global potash supply remains impacted by the significant reduction in Belarusian exports, which we think will be down 8 million tons in 2022. Of the 4 million tons they will export this year, we estimate about 2 million tons were shipped in the first quarter before the sanctions and Lithuania’s decision to prevent Belarus from using its ports. Belarus exports are down significantly from the first quarter, and we do not expect much recovery through the rest of the year or for most of 2023. This means the market will continue to be short of potash in 2023. The phosphate market is also impacted by supply constraints. China production is down because of environmental concerns, and exports are being restricted to ensure domestic availability and affordability. This year, we expect China’s phosphate exports will be down by up to 5 million tons. Those restrictions could extend through at least the first half of 2023 and possibly beyond as China prioritizes securing domestic food supply and meeting growing industrial demand. While global channel inventories of phosphate and potash remain below historic norms, certain regions, especially in the areas where we do most of our business, saw inventories build in the first half of the year. But prices have retreated back to levels low enough to entice growers to step back into the market. We expect inventories to continue working lower through the end of the year and into early 2023. U.S. fall application has been trending back towards normal levels. We believe we could end the season with inventory significantly depleted, especially for phosphates. The U.S. is also experiencing low water levels on the Mississippi River, which is delaying supply coming through New Orleans. In Brazil, the higher-priced inventory built during the first half of the year has slowed third quarter shipments, but sentiment is improving. Prices have retreated enough to encourage sales, and we expect inventories will end the year much the same as where they started. The barter ratio suggests we’re approaching a much more constructive environment for demand. In India, importers are taking advantage of the price pullback in phosphates. India’s phosphates inventory is still low, while farmer demand remains strong. Government subsidies remain at a level that is supportive of phosphate imports but are likely to leave the country short of adequate supply of potash. To summarize, the strength of crop prices and more affordable fertilizer prices suggest nutrient demand will recover from the summer lull we experienced during the third quarter. Given the constructive ag backdrop, we believe our business is well positioned to benefit. In our phosphates business, Hurricane Ian forced us to shut down operations late in the third quarter, which delayed shipments at the end of September. Our team performed admirably and was able to get our Florida operations back up and running quickly following the hurricane. We estimate the shortfall in production to be in the range of 200,000 tons. Looking forward, we now expect fourth quarter sales to be in the range of 1.7 million to 2 million tons. Our phosphate business is expected to benefit from lower raw material prices in the fourth quarter, particularly as low sulfur prices start flowing through our costs. We expect a fourth quarter benefit of $40 to $45 per ton from lower raw materials in our North American phosphate business over the cost in the third quarter. In our potash business, we are realizing the benefits of improved volumes from Esterhazy and from the addition of Colonsay. 11 of the 13 planned miners are now running at Esterhazy, and improved operating rates at Colonsay together are driving higher volumes. We anticipate some turnarounds during the fourth quarter that will impact total production but expect sales volumes to be 2 million to 2.2 million tons. Mosaic Fertilizantes continues to be a very good business, having earned $1.2 billion in EBITDA over the last 12 months. High inventories built during the second quarter led to slower than initially expected demand during the third quarter as shipments typically seen during quarter three didn’t materialize. But pricing trends towards the end of the third quarter reached a level that is beginning to drive shipments, and we’ve begun seeing that in our business. Some of the third quarter buyer hesitancy is impacting the fourth quarter, but we expect trends to begin normalizing as we finish out the year. Before moving on, I’d like to address the next iteration of our transformation process. Over the last three years, we’ve extracted significant cost efficiencies in Brazil, lowered our cost profile in the potash business with transition to Esterhazy K3 and benefited from the combination of support functions across North America. Our next area of focus is the realization of efficiencies through a digital transformation of how we manage our business. In our release last night, we introduced our global digital acceleration project, an initiative that will transform how we use data to manage a complex business across our global footprint. This effort will upgrade our core systems and allow for more seamless integration across sales, production, supply chain and global support functions. Over the next several years, the total cost will be about $200 million to $250 million, split roughly evenly between SG&A and capital expenditures. As a result of this transformation, we expect to realize significant benefits in our sales and production planning and our cost and capital management. Similar to our early transformation efforts, this initiative will continue the trend of adding shareholder value. We expect this investment will have a payback in the range of 3 to 4 years. Finally, I want to reiterate that we remain committed to our capital allocation strategy. Later this month, we expect to retire the remaining $550 million of long-term debt that completes our goal of $1 billion of long-term debt reduction. Our CapEx expenditures expectation this year remains unchanged at $1.3 billion, and all remaining free cash flow after these commitments will be returned to shareholders through dividends and share buybacks. During the quarter, we returned roughly $670 million to shareholders, which included $600 million of share repurchases. Over the last year, we have reduced our share count from approximately 380 million shares to 340 million shares. Putting all of this together, our outlook is quite strong. The global agriculture market continues to point to tight supply and demand for grains and oilseeds. We strengthened our balance sheet. Our team has recovered from Hurricane Ian in Florida. Our potash business continues to benefit from our low-cost position at Esterhazy, and the flexibility gained from restarting Colonsay. Our Brazil distribution business has a significant and growing footprint in an important agricultural market. We have positioned ourselves to maximize value across our business, and this has allowed us to return significant capital to shareholders. With that, let’s move on to the fireside chat portion of our call. Paul?

Joc O’Rourke:

Thanks, Paul. I’m going to hand this over to Jenny for some detail here, but let me summarize by saying we’re very positive on both markets as both remain supply-constrained. Ag fundamentals remain strong and fertilizer prices have moderated from the previous peak seen earlier this year, which is driving a return to more historic levels. So, Jenny, can you give us some detail?

Paul Massoud:

The next question is on channel inventories for both potash and phosphates. Can you provide some detail on recent channel inventory levels and what we expect for the balance of the year and early 2023?

Jenny Wang:

Sure, Joc. The inventory level in most parts of the world are pretty low. In some of the regions like in Europe, the inventory level is really, really low given the supply situation in 2022. I probably want to provide some color on the inventory situation in North America and Brazil, where we believe most of the question is about. In North America, for both phosphate and potash, the current channel inventory are about average relative to historical norm at the same time of this year. As of yesterday, our other country warehouse capacity for phosphate has come down to 30% used. And for potash, that has come down to 50% used. This level of the inventory are right at the same level as we see historically at this point of time. As we are seeing good norm fall application, the channel inventories are expected to come down further. I also want to remind ourself, logistics remain very challenging in North America, particularly on the river, which highlights the unique strength of Mosaic’s assets, which can serve North America by both rail and barges. Move over to Brazil. Since the war started in the first quarter, a lot of Brazilian customers rushed to buy products from all around the world in order to ensure their supply. As a result of this rush buying, we are seeing a very high inventory building at port in Brazil started in July. That inventory at port has gradually slowed down over the last few months. By end of October, we are saying that inventory export has come down by 35% versus the peak in end of July. The other thing that I want to mention is the import shipments to Brazil. In the mid of the year, the vessels coming to Brazil had to wait for over eight weeks to unload product because the ports warehouses are so full. Now, the waiting time has come down to less than two weeks. That’s a signal. And in the meantime, we are seeing re-export vessels for both potash and phosphate. With that, we believe the market reached to the bottom in Brazil.

Joc O’Rourke:

Thank you, Paul. And let me start by talking about Esterhazy. Esterhazy has been a 10-year plan. And in that plan, we not only brought out a new mine at K3 but fully intended to bring on an extra 1 million tons of production, which was aligned with the capacity of the K1 and K2 mills. So, as we talk about that, we’ve always looked at Esterhazy as being our most efficient, lowest-cost operations. So yes, we absolutely will expand the capacity of Esterhazy’s K3 mine to meet the capacity of the mill. In terms of Colonsay, we see an immediate need for those tons as the gap in supply from Belarus has meant there’s been an opportunity for us and through Canpotex exporting more product. That near-term need, we expect, will continue into 2023. So, we certainly see a need for Colonsay in the near term. Bringing that production on has been relatively inexpensive, likely in the range of $50 per capacity ton. So on that basis, that’s paid off over a matter of months. So, how will we look at it as we go forward? We will always be focused on working towards value, not volume. And as such, we will meet the needs of the market and no more.

Joc O’Rourke:

Thank you, Paul. Yes, inflation is showing up in our cost structure through the increased price of commodities, labor and inputs as well as our raw materials. We expect, overall, the impact on our cost structure to be around 15%. Our distribution business in Brazil benefited by matching low-cost inventory with high-priced sales in Q2. We saw a reversal of that in the third quarter. For distribution business, due to the timing of purchases, a step down in gross margin per tone is expected. However, even with that, we are still seeing gross margins above our historic norms. With that, operator, can we open the call to questions from the audience?

Steve Byrne:

Yes. Thank you. Joc, you were talking about lower pricing, kind of incentivizing farmers to start to purchase again. Is it -- is that what was delaying it, or were they just simply deferring purchases because prices were falling? And now that it’s showing some stabilization, there could be a bit of a flood of purchasing going on from here going forward? Is that reasonable?

Operator:

The next question will come from Adam Samuelson with Goldman Sachs. Please go ahead.

Joc O’Rourke:

Yes. Thanks, Adam. If I think about 2023, starting with potash, and we’ve been saying this, and with the lack of -- or the lack of sales coming out of Belarus, we do see that the market is going to have to ration supply, which does, as you mentioned, bring up an opportunity for us to potentially move more product. I will say that North America, we expect to stay relatively flat. It’s not a high-growth market. So, this is all an export opportunity, if you will. The challenges there are twofold. One is, do we get to the right markets that really need it? And then the other question is, can we even move it? So, those are the first points. The supply chain is at its limit right now, and we struggle to get the tons out, particularly say in the first quarter, which I think everyone sees problems getting product out of Canada in the first quarter with winter and all the rest. And then, it comes down to what’s the production capacity. We have, I think, developed real great flexibility there with Esterhazy now reaching what I would call its full capacity, bringing on Colonsay to augment that capacity and give us some flexibility so that we can hit the seasonality as well as the increased demand. So, I think we’re well positioned there. I can’t give you a specific number at this stage of what we think the year is going to bring for demand. But I mean we’re looking at a global market of 64 million tons next year in potash, up probably a little bit off this year. I think this year, we might have been as low as 62 million tons. So, we do see an improvement in the market. We see the rush of tons that came in the first quarter from Russia and Belarus are probably not coming, though a good opportunity for us in that first and second quarter, certainly of next year and then throughout the year. In terms of phosphates, we’re probably a little more production-limited in phosphates. I mean, we’re running those assets. But between the limitations of the resource base, whatnot, we don’t have an expansion opportunity really there. So, we expect that to stay similar in that sort of 8 million to -- maybe 8.5 million, 9 million tons of capacity. How well we utilize those will depend on the market. And so, our expectation is our utilization will be quite high next year. And in both those cases, we’re looking forward to being very well sold, if you will, and having high utilization of all our assets. And that would include our production assets in Brazil, of course, as well.

Josh Spector:

I guess just given consensus seems to be that the market will be short, something like 5 million to 8 million tons of potash next year, curious where you think support level is for pricing for potash in that environment. Just given your 4Q expectations of around $600 per ton, do you think pricing moves up from here as inventories come down, or is there a support level you would think about?

Operator:

The next question will come from John Roberts with Credit Suisse. Please go ahead.

Joc O’Rourke:

Yes. Thanks, Edlain. So yes, we don’t -- we love all our children, as you highlight. If I look at the market fundamentals, and they’re both strong, but clearly, today, potash has a very good position in that as the slightly smaller of the two markets, and it has the bigger supply disruption. The supply disruption in China, while we believe will continue through 2023 or the export restrictions out of China, we expect those to continue. But that’s 5 million-ish tons on a 70-something million ton market, where in potash, you’re talking about a 8 million-ton decline on a 70 million-ton market. So, as you think about it from that perspective, the problems in Belarus in terms of exports are, A, less likely to be resolved; and B, more significant to the overall market. So if I had to be asked, which of the two had higher resilience, you’d probably say at this stage, it would be the potash market.

Christopher Parkinson:

Joc, just taking a step back and looking at the various costs in both of your businesses. In potash, it seems like Esterhazy is running well and Colonsay is getting back on track. And on the phosphate side, you have relative stability right now in NH3, Faustina ops and then a decline in the sulfur price. So, just on any just preliminary basis, how should we, say, be thinking about the margins or the strip margins at phosphates? As we hit on ‘23, what are the big puts and takes in your team’s view?

Operator:

The next question will come from Jeff Zekauskas with JP Morgan.

Joc O’Rourke:

Okay. So first one first, special dividend. I think we’ve been consistent in saying that we would be -- look at both dividends -- regular dividends, share buybacks and special dividends. So far, we have definitely focused on the share buybacks, and one of the reasons for that is -- or one of the main reasons for that is exactly as you say. We believe our shares offer as good a value as anything we can think of. And so, that’s a good place to return money to shareholders. At the same time, we have to consider all of our shareholders. Some of the long-term shareholders would like to see income. I would say, as a shareholder myself, I don’t mind the idea of seeing some of it come back as stable income. And quite frankly, if I decide, as I think I would, that the value of that meant I could buy more shares, I’m free to do that as well. So, I don’t think the idea of a combination is bad. We certainly have focused more on share buybacks. But I think we want to make sure we look at all of our shareholders. And if a small portion of our return to shareholders is through a special dividend when we’re doing well, I think that’s fair, too. And obviously, on a yearly basis, we’ll look at our overall dividend and make sure that we give a fair but affordable dividend there, too. So, second question, p rock, I’m not sure I 100% understood the question, Jeff. But there’s no question from -- in general, that phosphate rock mining in China has been restricted greatly because of its proximity to the Yangtze River. And so for environmental reasons, they’ve done a lot of restrictions on mining in China. So, if anything, I would argue that China is probably somewhat resource-constrained from a phosphate rock process. And so, we don’t expect expansion there. And what we’ve seen as well in terms of finished fertilizers is they have dropped their capacity significantly and shut down plants, particularly again along the Yangtze River, and have not rebuilt them. So, I think their capacity is down about 25% now. And in terms of their exports, two things are going on there. More product is going to industrial and particularly purified phosphoric acid. I can’t help but mention the -- again, the growth of lithium-ion phosphate batteries in China is just incredible. And it seems like that may well be the future of batteries is the more economic lithium-ion phosphate rather than nickel iron -- or nickel lithium cobalt. So, putting all that together, we see Chinese government needing to make sure fertilizers stays affordable in China, and they’re doing that by restricting exports. And so, we think that will continue. I hope that answers the question you were asking. If you’re asking about potash, I think what we’ve seen is Qinghai Lake has actually decreased in capacity over time. And I suspect that’s just the quality of the resource and what they can extract on a year-by-year basis.

P.J. Juvekar:

Just a couple of quick questions. One, you kind of partially answered earlier. I had a question on raw materials, particularly sulfur impact on phosphates. I guess, my question there would be, you expect to keep that benefit, you said, straight to the bottom line. What gives you confidence that it falls to the bottom line and you don’t have to share that with your customers? And secondly, just on these LFP batteries that you just mentioned. My understanding is that the use of phosphate in LFP, it’s a very small part of phosphate that goes into LFP. Do you really think that LFP is going to have an impact on the phosphate markets? Thank you.

Operator:

The next question will come from Joel Jackson with BMO Capital Markets. Please go ahead.

Joc O’Rourke:

You know that. That’s three in a row.

Joc O’Rourke:

Sorry, Joel. I’m just kidding. Go ahead.

Joc O’Rourke:

Yes. Look, first of all, I can’t comment on anyone other than Mosaic, obviously. And I also don’t know the differences in selling strategies or rev rec and all that, so making any kind of comparison. What I will say is what we saw in North America in the third quarter was a pretty good slowdown. What we did also see, though, was a reduction of imports. I mean imports year-to-date are probably down by 50% or close to 1 million tons. I suspect we had a pretty good uptake of our summer fill program or considering how the markets played out, we had a pretty good uptake of our summer fill program. So we think our customers came to the table and again, saw good value and saw that they were willing to price. And that was a good thing. So, we rev reced what we think was reasonable considering the market. In terms of going forward, again, there’s just a high level of uncertainty of where that market is going to be. And I would argue that that pertains both to Canpotex and to the North American market. In the North American market, we expect a decent fall season. If we do better than that, hey, all the better. But the expectation is a decent or normal fall season, and that’s exactly what we’re seeing. We expect to see the inventory work its way down throughout the season, which is good. I think Jenny said earlier, we’re down to 50% of our in-market inventory. So, that’s been run down significantly to a normal level for middle of November. So, we’re seeing a very normal sort of play out, and that is what we would expect. Now we had a summer fill program. It -- we didn’t discount or anything. So I think that just says the fundamentals are there, and people are ready to buy.

Andrew Wong:

So, I just had actually a few questions on Fertilizantes. I find it a little bit difficult sometimes for us to get some good visibility there. In phosphate production, it looks like it’s kind of trended a little bit lower in the past few quarters now. Can you maybe shed some light on what’s going on there and what your expectations are on production going forward? And then on gross margins going into Q4, if I’m understanding the commentary correctly, it sounds like it will still be relatively quite high, but maybe sequentially down into Q3 even if you include the wholesale margins? Is that correct? And then just the last one is on...

Andrew Wong:

Well, just wondering like margins going into Q4, the commentary sounded like it will still be very strong historically, but maybe down sequentially versus Q3. It sounds like there’s some pressure on distribution. And then just wondering if you include the wholesale sales, which are typically higher margin, would the margins still be down sequentially? And then just on costs -- yes.

Andrew Wong:

Sure. And just like what you expect going forward, like should these costs this year that we’re seeing in Fertilizantes, is that what we should expect going forward? Thanks.

Operator:

The next question is a follow-up from Joel Jackson with BMO Capital Markets. Please go ahead.

Joc O’Rourke:

Yes. So, as you aptly mentioned, I can’t and won’t contemplate either my competitor or partner or whatever and what their plans are. I think you have to ask their new CEO. However, let me say how we view the market. Like I said, we see next year that that 8 million tons won’t come back, yes. I’m sure ICL will try and push out what they can. I’m sure EuroChem seems to be reasonably effective in getting to market. I will say that Uralkali seems to be not as active in the market this year as previous, and there’s been a couple of rumors and whatnot about why. But I can’t tell you that. That would be, again, a question for them. What -- and the Belarusians, as long as they can get product through the Lithuanian ports, they’re going to be restricted to either a long-rail haul to St. Petersburg, assuming they can get port capacity there or a long and complicated rail haul to China, which they have done relatively successfully. I think they’ve probably been able to move 1.5 million-ish tons to China through that rail link, so. But with all of that together, we see a supply side -- even with extra tons from Canpotex, we see a supply side of -- in the range of 64 million tons. And from our perspective, if -- the market will have to find a way to be at that 64 million tons. So in other words, we think there’s good need -- or there’s need for all the Colonsay tons next year. What happens beyond that? Who knows? Again, I will emphasize with Colonsay, it cost us virtually a couple of months’ production to restart it. So, we’re making a good margin at Colonsay right now, and the downside risk of restarting it was virtually zero, and the upside opportunity was large. So, to us, that’s a perfect value-adding decision.

Joc O’Rourke:

Thank you. Well, to conclude our call, I would like to emphasize the strength of Mosaic’s financial performance. We delivered excellent results, and our outlook remains strong. Global agricultural market conditions remain constructive, and tight supply of grain and oilseeds is very likely to continue for the foreseeable future. As a result, fertilizer demand remains strong and supply constraints persist. We’re using this opportunity to return significant capital to shareholders to invest in our business and to strengthen our balance sheet. Mosaic is in an excellent position to continue to benefit from compelling business conditions throughout 2023 and beyond. Thank you for joining the call. Have a good and safe day, and go out and vote. Thank you.

Operator:

Good morning, ladies and gentlemen, and welcome to The Mosaic Company Second Quarter 2022 Earnings Conference Call. At this time, all participants have been in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Your host for today's call is Paul Massoud, Vice President of Investor Relations and Financial Planning and Analysis of the company -- of The Mosaic Company. Mr. Massoud, you may begin.

Joc O'Rourke:

Good morning. Thank you for joining our second quarter 2022 earnings discussion. I hope you've had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday. I will provide more additional context before we respond to questions we received last night, and then we'll conclude with a live Q&A session. Mosaic delivered second quarter net income of $1 billion and earnings per share of $2.85. Adjusted earnings per share were $3.64 and adjusted EBITDA was $2 billion. Free cash flow totaled $794 million, allowing us to return $667 million to shareholders during the second quarter, including $612 million of share repurchases, bringing the year-to-date buyback total through June 30th to over $1 billion. We've continued to buy back shares aggressively through July because we believe our portfolio positions us to continue driving strong results and generating significant cash flow through the rest of the year and into 2023. As such, Mosaic's Board of Directors has approved a new $2 billion share repurchase authorization to begin once the current one is exhausted later this year. Before digging deeper into our business, let's discuss the broader agricultural markets. There are several issues threatening global food security. The war in Ukraine continues to create uncertainty around food supply from one of the world's most important crop producers. In addition, Europe and US have experienced very high temperatures, while Southern Brazil is showing signs of drought conditions. And all of this is happening at a time of lower overall nutrient applications because of constrained supply. Each of these issues alone can have a material effect on global crop production. But together, the risk to food security is significant. This suggests global stock-to-use ratios, which are already near 20-year lows, will remain under pressure. Because of this, we see a tight supply and demand scenario for global grains and oilseeds continuing through 2022 and into 2023. As we focus on the potash and phosphate fertilizer markets, the fundamentals remain quite strong. In potash, we continue to expect Belarusian exports to be down 8 million tonnes this year. Some of that will be mitigated by incremental supply from producers like Mosaic over the next 18 months. But that will not be enough to erase the deficit that we see lasting well into 2023 at least. In phosphates, China has continued to restrict exports as it prioritizes domestic industrial and agricultural demand. We now believe full year phosphate exports from China could be down as much as 5 million tonnes from the prior year total of 11.5 million tonnes. Shifting focus, we believe global fertilizer demand in the first half of 2022 was down about 10% from the same period last year, which aligns with the shortfall we've seen in supply. Grower sentiment has grown more cautious. But supply constraints are supporting global prices and margins well above historical levels, a situation we believe will continue at least through the rest of the year. North America and Brazil have been well supplied thus far in '22, but much of the rest of the world is continuing to see unfilled demand of both phosphates and potash as a result of limited supply. In North America, a compressed planting season, macroeconomic headwinds and volatile crop prices impact spring season consumption. First half applications were down from the record year in 2021, but remained in-line with historic levels. Looking forward, we expect normal demand leading up to fall application. In Brazil, we saw first half demand in-line with historic levels. Channel inventories were built in country by importers driven by concerns over supply availability stemming from geopolitical events. Significant customer prepays, though, indicate farmer demand will ramp up as the softer season gets underway. In India, we've begun to see importers enter the market and take advantage of the recent price pullback in phosphate. India's phosphate inventories are low and concerns over availability persist. Farmer demand for nutrients remains very strong and the government continues to indicate it will ensure adequate supply for domestic consumption. In China, port inventories of potash sit below 2 million tonnes and in Southeast Asia, shipments of potash appear below historic levels. We see these dynamics impacting demand beyond 2022 as reduced application this year will require a catch-up in future years when supply availability improves. As we look at our business in the context of today's global markets, we remain optimistic. The investments we've made over the last decade have positioned us well for today's environment. In Brazil, our 2018 acquisition of the Fertilizantes business has driven significant shareholder value. We've seen EBITDA grow from less than $70 million in proforma 2017 to $1.2 billion over the last 12 months. And we've completely recapitalized the business, having now bought back all of the shares issued and repaid all of the borrowing to fund that deal. Looking forward, Mosaic, Fertilizantes will continue to benefit from its market position as the country's largest producer and second-largest distributor. We are seeing inflation in our cost structure, but believe ongoing optimization should offset much of the impact. In potash, we are realizing the benefits of K3, one of the world's most efficient potash mines and we're actively working to optimize that asset. We've reached our initial operating run rate target of 5.5 million tonnes per year at the end of the first quarter and plan to continue our optimization of the complex with the addition of three new underground miners over the next year, resulting in an incremental 1 million tonnes of production capacity. At Colonsay, we've begun the process of restarting the second mill, which should expand output to 2 million tonnes per year by the second half of 2023. In phosphates, we continue to benefit from our advantaged position in ammonia and we're now seeing an improvement in sulfur costs that should begin to flow through to our production costs later this year. We've seen prices moderate down to levels we believe are sustainable for the rest of the year. As a result, we expect our stripping margins will remain well above historic levels. Given the outlook for our business and the free cash flow we expect to generate, capital allocation remains a key focus for us. First, we continue to invest in our business. For 2022, total capital expenditures remain unchanged at $1.3 billion. We remain open to modest, high-returning projects, and small bolt-on acquisitions, especially in Brazil, but we are not interested in large-scale greenfield projects. Second, we're committed to ensuring a strong balance sheet and plan to retire $550 million of long-term debt in the second half of 2022, after which, we see no need to further deleverage. The third pillar of our strategy is returning capital to shareholders. Year-to-date, we returned $1.1 billion to shareholders through buybacks and dividends and we expect that pace to continue, if not accelerate, as the year progresses. In total, we expect to return essentially 100% of our free cash flow after the commitments to the business and the balance sheet we've discussed. Because we're approaching the end of our current authorization, our Board of Directors approved a new authorization of $2 billion that begins once we've exhausted the current authorization. At today's valuation, buying back our own shares provides better economics than any other use of cash. So, we expect to take advantage of this as long as the opportunity remains. We may also consider supplementing share repurchases with special dividends over time depending on market conditions. As we've said in the past, we will not build cash on the balance sheet just for the sake of it. Before going into Q&A, allow me to summarize. Mosaic delivered very strong results in the second quarter and we expect favorable dynamics as we continue through the year and into 2023. We're continuing to help the world grow the food it needs by ensuring customer demands are met, and we're returning significant capital to shareholders, while still investing in the business and strengthening our balance sheet. Now, with that, I would like to move on to the Q&A portion of the call.

Joc O'Rourke:

Thank you, Paul. Let's start with potash. The Belarusian and Russian exports together we expect to be down by about 12 million tonnes this year due to the effect of sanctions. Now, we do expect recovery from both Russian and Belarusian exports as we move into 2023, but the world is going to need those tonnes if demand snaps back in any way over the next year. So, where do we see Russia? Probably easier to come back. They're finding ways into the market. We're seeing their tonnes, particularly in countries like Brazil, India, and Central America. Belarus has had very little comeback. They are probably moving 100,000 tonnes a month through to China by rail. But other than that, we're seeing very little of Belarusian product in the market. So we expect between the two of them, like I said at the start, 12 million tonnes. In phosphates, the biggest player, of course, is China in terms of export restrictions, and those have been extended into the second half of the year. Our projection for Chinese exports this year is down to seven-ish million tonnes from 11.5 million tonnes. So we're seeing a good five million tonne reduction of exports. And again, because of the structural changes in China, we really don't expect them to come back in a big way even after the restrictions end. So in 2023, we expect domestic ag and industrial demand to continue to restrict Chinese exports.

Joc O'Rourke:

Let me start by saying, because of the lack of supply in both phosphates and potash, demand had to be rationed. And what we saw was that rationing of demand meant lower use in different areas, but specifically lack of supply in some areas. So it's very regional how this played out. In North America particularly, a compressed season because of weather in the spring led to very late and very limited ability to add fertilizer to ground. So this, combined with growers being willing to mine their soil because of the higher prices, probably led to lower use in the United States and Canada. But remember, any of this missed or curtailed application will have to be made up in the next couple of seasons. So we do expect a very robust normal fall application. Now again, caveat there being, it will be late because the planting was late, so the harvest will be late. So it could cross quarters from the third quarter into the fourth quarter. But if I look at the overall second half of the year, we expect it to be very much in line with a normal year here in the and in Canada.

Joc O'Rourke:

Thank you. As we discuss Brazil, we have to start by understanding that 85% of fertilizer into Brazil is imported. And at the start of the year, there was a huge concern with the constrained supply over whether or not the country could get the fertilizer it needed for its planting. To put it to a point, the Minister of Agriculture and the President of the country both travel the world to ensure that imports would be available for Brazil. As such, Brazil led pricing in the first half of the year for around the world. Now because of that, imports were up about 30% year-over-year in the first half. So as we move into the second half of the year, inventories are high. And because inventories are high, farmers believe they can defer. But ultimately, solid economics for both soybeans and second crop corn are going to drive the farmer to apply fertilizer. And when they start applying, we believe the ramp-up of buying activity will consume the inventory, and we will end the year at a normal place. The best evidence from our perspective of this is the high prepay that we have seen in the last quarter, which indicates that the farmers are getting ready to buy, the farmers are getting ready to apply. They are just waiting for the right time.

Joc O'Rourke:

Yes. Thank you. Let me start by saying this is mostly a timing issue. In North America, the late spring and late planting is going to lead to a late harvest. Now that means that the second half demand, while it should be in line with expectation, could come in the fourth quarter rather than the third quarter due to this delayed harvest. So while we expect a very normal second half, where exactly it plays out in terms of the timing is yet to be seen. In Brazil, planting for the second crop corn or the soybeans won't happen until November, December. As such, there is time for them to delay their purchases until the last minute. Now again, in Brazil, just like North America, we expect normal application in the second half of the year. But as always, with higher prices, people are deferring the purchase as late as they can. However, good economics will mean that in both cases, we believe normal application will occur. If you do note the high range for the phosphate guidance does align with more typical sales historically, but again, we could see those slipping into the fourth quarter.

Clint Freeland:

Thanks, Paul, and good morning, everyone. As we look at working capital, there are a number of dynamics to keep in mind. First, the overall market pricing levels and seasonality that impact our income statement also impact our balance sheet, particularly around working capital. As we've seen the pricing levels and the overall market increase over the last couple of years, that has caused an increase in our core working capital accounts of receivables, inventories and payables. So those tend to follow directionally what's happening with the overall pricing environment. And again, over the last couple of years as a result of that, we've seen the overall working capital needs of the business increase. Now in addition to the impact of the pricing environment that we're operating in, we also have the seasonality of our business that plays out. And so you see some meaningful changes from quarter-to-quarter based on which season we're either in or entering into. First quarter, we tend to see preparation for the spring season. So we typically see inventory builds. We typically see our accruals and payables from the previous year get paid out. And then as we move into the second quarter, we tend to see receivables build. We tend to see other impacts of -- on working capital. So we can see as we move through the seasons it certainly will play out in our working capital accounts, particularly the seasons in the – in North America and Brazil. Two things, I think, are good to focus on or to recall, particularly as it relates to Brazil. One is our growing distribution business in Brazil does tend to hold quite a bit of inventory, particularly as it moves into the season, and then it tends to liquidate throughout the season. So that can be a driver of some of our overall working capital. The other element of the Brazil business is around prepayments. Prepayments tend to build in the first half of the year and then reverse out in the second half of the year. And just to give you a sense of order of magnitude, first half of this year, we saw prepayments in Brazil increase by about $830 million. Again, that's another factor that's influenced by the overall pricing environment. But again, we would expect to see the vast majority of that, if not all of it, reverse out in the back half of the year. And specifically, in the third quarter, I would expect somewhere between 50% to 75% of that number to reverse out of working capital. So again, just keep in mind, as you look at our working capital, overall pricing environment impacts it, but also the seasonality of our underlying business.

Operator:

[Operator Instructions] We will now take our first question. Your line is open. Please go ahead.

Joc O'Rourke:

Okay. Thanks, Steve. Look, let me start by saying, probably as we look at Brazil, the Northwest or Northeast kind of section of Brazil, as you go towards, but not into the Amazon, obviously. It seems to be the area that’s growing the fastest. It's growing probably at 10% plus per year. We have plans to build a hub that would allow us to be more participative in that region. So as that market grows, that's one area where we would expect to expand our distribution business. And then in the areas of production, we've got plans for optimizing our existing operations. We're looking at plans to expand and extend the life of our potash facility down there because we think it's a niche area where it can supply. So, there's a number of opportunities we're looking at down there that we think are going to have very quick paybacks and relatively limited capital requirements. In terms of the margins, clearly producer margins are better at this type of market than distribution margins. But on the other hand, the benefit of our distribution business is that the margins stay very constant year-on-year. Where we – what I'll say, though, not to be too explicit about our actual margin split is that, our best margins are seen for things like MicroEssentials, where we pick up the production margin in the US and then both the distribution and retail margin down in Brazil. So those margins are pretty fantastic and then the other place where the margins are really good is our production B2B business, where we sell it through our own distribution and we capture both of those margins. So -- but overall, I think our -- right now, our -- two-thirds of our earnings are probably being driven by the production business.

Joel Jackson:

Hi. Joel Jackson from BMO. Just following up on the Brazil margin question or Fertilizantes margin question. Obviously, margins have been all over the place the last bunch of quarters in a rising fertilizer price environment. I mean, how should we see margins there? I'm assuming some of the peak margins we're seeing right now have to go down. You guys see inventory gains. Commodity prices can't stay here forever. So how do you see the next couple of quarters? And then, what would be kind of a mid-cycle margin guidance to think about?

Operator:

We can take our next question now. Caller your line is open. Please, go ahead.

Joc O'Rourke:

So, I guess, I got my mic backwards. Thanks, Vincent. Yes. As we think about capital allocation, really, our thoughts on that have been reasonably consistent, which we've made a commitment a long time to go to pay the $550 million down to make the $1 billion of payments. But once that's done, we believe that's done. We've got a very strong balance sheet. We're comfortable. Obviously, we have to do our capital. And that brings us down to the question you're asking, which is how are we going to distribute the rest. And as I said just earlier, we expect to give that all back to shareholders. We don't see anything more enticing than our own business right now. So we expect that certainly at these types of share prices and our types of EBITDA-to-enterprise value ratios, we think our shares are very compelling, and we'll continue to buy those. Now, if that -- if the price of our shares changes or the business changes, then we may make a decision to move towards some level of special dividends. But recognize that just says that we originally intended to have more of a balance. The special dividend would support or be in favor of the long-term holders who don't intend to sell their shares. So, in some respects, I want to serve all of our shareholders. And so that might be something they would like. So, that would be the reason for that. In terms of regular dividends, we've made the decision that we would look at the regular dividend basically annually. And so our thought was we would leave that till the end of the year. But look, our share count is lower, our debt level is lower. So, we have less money going out for -- on a total on a dividend basis today than we had a year ago. And obviously, we have less debt repayment to make so -- or less interest payments to make. So, I think all of that would go into our dividend increases on our regular dividend plus to make sure that we're paying out what we think is reasonable for the long-term shareholder.

Lucas Beaumont:

Hi, this is Lucas Beaumont from UBS. I also had a question on Fertilizantes. So, I just wanted to talk about the purchased nutrient volumes there. So, it was up kind of modestly in the second quarter but down a bit over 10% in the first half from last year. So, just given how strong demand has been in Brazil, just wondering if you could sort of tell me why the purchased nutrient volumes there weren't higher and if you could give us your thoughts on how the second half is likely to shape up from a volume perspective?

Lucas Beaumont:

So, just the purchased nutrient volumes in the second half in Fertilizantes please?

Lucas Beaumont:

Yes, I can hear you. Can you guys hear me?

Lucas Beaumont:

Probably my accent. The -- so in Fertilizantes, with the purchased nutrient volumes, they were down about 10% year-on-year in the first half. So, I was just wondering why it wasn't stronger given how strong Brazil has been and what you're thinking for an outlook in the second half on purchased nutrient volumes? Thanks

Operator:

And our next question now. Caller, your line is open. Please go ahead.

Joc O'Rourke:

Yeah. Thanks. Sorry, I didn't pick up the name. Can you repeat your name?

Joc O'Rourke:

Oh, hi John. Okay, I think I got your question. Yeah. So I think there's no question there will be a big deficit in some markets, particularly like you say, potash will be underutilized in a lot of markets, including Asia, West Africa, Europe, probably, et cetera. And likewise, so will nitrogen. I don't know if that would stop people from using or make people use less phosphate. I suspect you would still try to use the right amount of the fertilizers. I know that, obviously, the optimum ratio is best, but -- I guess it's like vitamins. Not having enough vitamin D wouldn't mean you wouldn't want to have enough vitamin C, if you will. So it's probably beyond my agronomic understanding to know if that would have a thing. But we're not looking at any kind of restricted sales because of others. The one thing I will acknowledge on that, though, is if the price of nitrogen gets so high that it takes up a lot of the budget that has historically been a problem for the other nutrients in countries like India, where they tend to over-apply nitrogen. And if it takes up a disproportionate amount of their budget, they could restrict the other uses.

Adam Samuelson:

It's Adam Samuelson with Goldman Sachs. Joc, I was hoping to maybe come back to the phosphate business a little bit. And I know you talked a bit earlier about the volumes improving in the back half. But more holistically, just what would it take for you -- the operating rates in your US phosphate business to get back over 85%? They haven't been there in some time. Just trying to -- is it just demand? Is it logistics issues in Florida? I'm just trying to get a sense of -- it seems like there's a lot of under-absorbed overhead and idled and turnaround costs that you're absorbing here that are maybe leading to cost and margins not as robust as they could be?

Operator:

And we'll take our next question now. Caller, your line is open. Please go ahead.

Joc O'Rourke:

Yes. Thanks, Michael. In terms of Ma'aden, our second quarter equity earnings were about $34 million. Our sales attributed to the business was 413,000 tonnes. So while not quite up to what it is ultimately going to hit, it's actually making a positive contribution to us, which is good; and helping us supply our Indian customers, which is also a good thing. We want to see that going to our customers around the world. So overall, I mean, they continue to have a ramp-up plan. It's certainly been slower than we would have loved to see, but that is what it is. Having said all that, though, Ma'aden continues -- in this market, particularly, Ma'aden continues to be highly advantaged with natural gas price and they're paying in the Kingdom of [indiscernible]. That represents an unbelievable sort of structural advantage to that operation. And then the other one is a very low sulfur cost. So one would expect that Ma'aden right now would have a very low actual cost per tonne compared to the rest of the world and probably is now taking its place as the low-cost producer. In terms of ammonia availability, our ammonia availability, I think that was the second part of your question, has been actually unrestricted. We have basically two-thirds to 75% produced between ourselves and our contract with CF and then the rest that we're buying on the open market, which we have long-term agreements and contracts that tend to make that work quite well. And I think if I look back to it, our price for ammonia was in the high-$500 range compared to a $1,200-plus on the market. So we're not only getting the ammonia we need, but we're getting it at a very advantaged price.

Andrew Wong:

Hi. Andrew Wong from RBC. So a similar question to Adam's, but on Fertilizantes phosphate production. I recall that business was impacted by some extended turnarounds last year, but it looks like in Q2, production was down versus Q1. And are there still any constraints in that part of the business? And are we setting up for a Q3 seasonal strength which is typically what happens in Brazil? And then, just one follow-up on some of the corporate line items. There was a negative charge there in Q2. Can you talk about that? Was it mostly intersegment sales? And does that reverse in subsequent quarters? Thanks.

Clint Freeland:

And Andrew, this is Clint. I think to the second part of your question about what you're seeing in the corporate segment, I think the driver of that is intercompany sales. It's profit and inventory, and that typically happens when one business unit makes sales to another business unit, but the final tonnes haven't gone to a third party yet. And we had about 300,000 tonnes move -- in June move from phosphates down to Fertilizantes. And so I think that's what you're seeing in the corporate segment. We do that so that as the results of the individual segments come together for the consolidated number, we need that offset to get all the numbers right. So I think what you're seeing is an internal shipment that occurred in June. And again, that should clear out as Fertilizantes makes that sale.

Jeff Zekauskas:

Hi. This is Jeff Zekauskas from JPMorgan. Two questions. I didn't fully understand your phosphate price guidance for the third quarter. You gave an explicit number for potash. And secondly, in your cash flows from financing activities, if you exclude what you did in terms of debt paydown and share repurchase and dividends, you had a negative $672 million outflow. And the number isn't as negative for the year. But I was wondering, when you net out all of those numbers for 2022, what should they be? And why aren't those numbers in cash flow from operations? So, I guess those are the two questions.

Clint Freeland:

Yes, Jeff, I think what you're seeing are some of the entries associated with some of the short-term financings that we have – we have not only inventory financing facilities that we use seasonally to finance some of our working capital, but I think some of the other entries that you may be seeing are related to some of the account receivable securitization facilities. And those are some of our working capital funding mechanisms that we use, again, through the seasons and one of the things, in particular in the second quarter is, as we look at the increase in customer prepayments, particularly down in Brazil, year-to-date, as I mentioned a little bit earlier, year-to-date, that's up about $830 million. And when we look at that, that is a source of working capital financing to us. And so, as that cash comes in and that typically lands in your cash from operations line. We use that cash to actually replace other sources of working capital financing, like our inventory financing and our AR financing. And so, as we use that basically cost – the interest-free working capital financing from customer prepays to pay off some of those lines that were drawn earlier in the year, what you'll see is a disconnect because the free payments are intact from operations, pen down [ph] short-term lines are down in financing. And so, what you'll see also though in the back half of the year, as those prepayments reverse out, I think you'll probably start to drawn off of some of those lines and probably see a reversal of what you're seeing through the second quarter. So happy to spend some more time with you and go through that in more detail off-line. But I think that's what you're seeing is some of the -- replacing external third-party financing with customer prepays as those dollars come in and that I would expect kind of those dynamics to reverse out in the back half of the year.

Operator:

[Operator Instructions] We can take our next question. Caller, your line is open, please go ahead.

Joc O'Rourke:

Yes. Thanks Chris. Certainly, we're making sure in this stage that we're looking at those reliability projects. I mean, I think we just put in a new reformer in Louisiana for the ammonia plant. Those over time will make a big difference in terms of the reliability, capacity of that plant. We mentioned in Colonsay, we're going to start up the second mill, which has been idled for a couple of years. But these are all $50 million projects. I think in potash, we've got a -- well, as part of our K3 -- the final part of our K3, we'll be building a -- finishing off a compaction unit for that plant, which aligns the production with the needs for compacted product. But beyond that -- so that's sort of where our needs have stayed basically constant despite the K3 number coming down is because we are taking the opportunity to do some of these high-return projects, particularly when at these kind of margins, the payback is so short. So, whether you look at the CTV project where we're going to extend the life of the -- or intending to extend the life and increase the production of our potash unit down there or increasing production at Colonsay, improving reliability at Louisiana, all of those things we're doing, but we expect with these prices, they'll have a very good payback, and it doesn't compromise our intention to give back 100% of what remains to the shareholders.

Joel Jackson:

Hey, it's Joel from BMO again. Maybe a bit of a tricky sensitive question, but I found interesting with the UAN duties investigation the other week, indicating that there was any damage to the US in UAN industry from subsidized Russian gas. But that wasn't what the determination was in your own DAP/MAP phosphate case. Could there be any future ramifications on your own phosphate duty situation in the States from that?

Operator:

There are no further questions. I would like to turn the call back to Joc O'Rourke for closing remarks.

Operator:

This concludes today's call. Thank you for your participation. You may now disconnect.

Operator:

Good morning, ladies and gentlemen, and welcome to the Mosaic Company's First Quarter 2022 Earnings Conference Call. At this time, all participants have been in a listen-only mode. After the company completes their prepared remarks the lines will be open to take your questions. Your host for today's call is Paul Massoud, Vice President of Investor Relations and Financial Planning and Analysis of the Mosaic Company. Mr. Massoud you may begin.

Joc O'Rourke:

Good morning. Thank you for joining our first quarter 2022 earnings discussion. I hope you've had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday. I will provide some additional context before we respond to questions we received last night, and then we'll conclude with a live Q&A Session. Mosaic delivered first quarter net income of $1.2 billion and earnings per share of $3.19. Adjusted EPS was $2.41. And adjusted EBITDA was $1.45 billion. Our results continue to highlight the positive evolution of our business, which reflect the contribution from Brazil. The additional production from the restart of Colonsay and the transition to K3, one of the largest and most efficient potash mines in the world. Phosphate segment adjusted EBITDA totalled $632 million, reflecting the impact of strong pricing, which more than offset higher input costs. Potash also benefited from higher prices, as well as the transition to Esterhazy K3, and the elimination of brine inflow management costs. As a result, segment adjusted EBITDA totalled $651 million. In Brazil, Mosaic Fertilizantes generated first quarter adjusted EBITDA of $233 million, as the team capitalized on a strong market environment and its inventory position, particularly towards the end of the quarter, as seasonal demand began to pick up. Looking forward, we continue to see agricultural market strength extending well beyond 2022. The year began with a tight agricultural market and elevated prices reflecting at 20-year low in global grain and oil seed stock to use ratios. The conflict between Russia and Ukraine has exacerbated the situation and pushed soft commodity prices, even higher. Together, these two countries account for 16% of global grain and oil seed export market. With Ukraine's planting season now at risk in the coming year and Russian crop export potentially also being constrained, the market is grappling with the potential of reduced supply of a number of key crops, which includes wheat and corn, but also oil seeds like soybeans, sunflowers and their respective oil. This situation has amplified food security concerns and is resulting in protectionist government policies that will likely drive commodity prices even higher. As an example, last week, Indonesia placed a temporary ban on exports of palm oil, one of the most commonly used cooking oils in the world to ensure domestic supply. All of this suggests elevated crop prices are likely to persist for the remainder of 2022 and beyond. The strength in crop prices, combined with global fertilizer industry supply constraints, have pushed nutrient prices higher. In potash sanctions against Belarus and uncertainty over Russian exports are having an impact on supply. Global prices have pushed higher as buyers look to secure adequate volumes. The global phosphate market has also priced an uncertainty around Russian supply of both finished products and inputs like ammonia and sulfur. But we are seeing some movement of Russian phosphates today. In addition, China's export restrictions remain in place. While we expect an easing of China's restrictions, we believe phosphate exports will drift lower over time as secular demand trends continue to grow, especially on the industrial side from chemicals and electric vehicle, lithium iron phosphate batteries. On the demand side, we expect global shipments of potash and phosphate to be down from 2021. But the cause of this is availability, not affordability. Consumption will be forced to adjust to available supply. In North America, whether is indicating the possibility of a compressed application season, but growers remain incentivized to maximize yield. Today's crop prices more than offset input cost, which suggests that farmer profitability in 2022 will be at the second highest level in more than a decade. Similarly grower economics have also improved in Brazil, thanks to rising soybean prices. In India farmer demand for nutrients remains very strong, thanks to another good monsoon season and strong global grain prices, but availability is still lagging. In response to stronger grower demand and historically low domestic inventories last week, the government increased fertilizer subsidies. We see this as a positive development that should help to meet some, though likely not all of India's significant pent-up demand. As we look at our business in the context of today's global markets, we remain very optimistic. In potash K3s ramp-up to the initially targeted 5.5 million tonnes per year is now complete. Logistical constraints and winter weather impacted first quarter shipments and production, but these issues appear to be largely behind us. In addition Colonsay, which was down in March as rail constraints forced temporary curtailment is now back online and operating at an expanded run rate of 1.3 million tonnes over our initial target of 1 million tonnes. In the second quarter, we expect sales volumes of 2.4 million to 2.6 million tonnes. Realized prices in the second quarter are expected to be $40 to $60 per tonne higher than realized prices in the first quarter. In phosphates, we expect a recovery in volumes in 2022. Raw material costs have escalated, but we are well supplied to meet our production targets. In ammonia, we continue to benefit from a significant cost advantage thanks to our internal production at Faustina, and our supply agreement with CF Industries. In the first quarter 80% of our ammonia needs were met by tonnes linked directly to Henry Hub [indiscernible] and shielded from the price swings in the global ammonia market. As a result, our first quarter ammonia costs were roughly half of the benchmark prices. In the second quarter, we expect phosphate sales volumes of 1.9 million to 2.1 million tonnes. Our expected sale volumes reflect an improvement in logistics plays somewhat offset by inventories well below historic levels. Second quarter phosphate prices on an fob basis are expected to be $140 to $160 per tonne higher than first quarter prices. Price increases in the quarter are expected to significantly outpace the impact of higher raw material prices on our cost structure. For Mosaic Fertilizantes we expect the business to continue reflecting the favorable market backdrop and our transformational efforts over the last two years. Seasonal demand began picking up late in the first quarter and should continue through the software season. We expect to benefit as potash inventories, which were built during the fourth quarter begin shipping to customers. We are seeing inflation affect our cost structure, but believe ongoing optimization should offset much of the impact. Given the direction of our business we anticipate generating significant earnings and free cash flow in 2022, returning capital to shareholders remains a key part of our strategy. We continue to expect returning up to 75% of our free cash to shareholders through a combination of share repurchases and dividends, including the $463 million returned in the first quarter of 2022. We completed the $400 million accelerated share repurchase program announced last quarter and continued to repurchase shares through our existing authorization. As a reminder, last quarter our Board also approved a new $1 billion authorization. In the area of balance sheet strength we remain committed to reducing long-term debt by $1 billion. Part of that target was met with the retirement of $450 million last year, and we expect to reach the finish line later this year when another $550 million of long-term debt reaches maturity. Given our look for the year, we expect will also be able to continue investing wisely and efficiently in our business. We seek out high return, modest investments in areas like enlarging our footprint in Brazil, expansion of MicroEssentials, and investments in soil health and biologics. With recent disruptions to fertilizer supply, a situation we believe could extend for some time. We are also actively exploring de-bottlenecking opportunities to increase our fertilizer production as quickly as possible. In potash, we've already raised Colonsay's annual run rate to 1.3 million tonnes, up from our initial restart target of 1 million tonnes, and we see a path to reach 1.8 to 2 million tonnes in the second half of 2023 through the restart of Colonsay's second mill. At Esterhazy, we are exploring the de-bottlenecking of the mills, which could add several hundred thousand tonnes by the second half of next year. In total, these initiatives could add roughly 1.5 million tonnes of potash production by the end of 2023. The cost for all these projects is expected to be less than $100 million. In North American phosphates we expect production to be roughly 1 million tonnes higher than the 2021 production total of 7.3 million tonnes. As headwinds experience last year addressed, and our assets run at more normal rates. In Brazil we are pushing for improved recovery from our phosphate mines, and we're exploring the expansion of our Taquari mine that increases production and extends its life. In total when one considers our footprint in North America, our production in Brazil and our allocation of [indiscernible] finished product. By the end of 2023, we have the potential to see operating rates close to 25 million tonnes of total finished product well above our 2021 production total of 19.7 million tonnes. We take our mission of helping the world grow the food it needs very seriously. We believe that geopolitical issues that have impacted global supply during the first quarter will not be reversed any time soon. As a result, we are pulling every lever we have to efficiently raise our production rates to help offset the supply shortages from other sources in ways that also creates value for shareholders. With that let's move on to the Q&A portion of the call.

Joc O'Rourke:

Thank you. Together Belarus and Russia represent close to 40% of the global potash market. Their absence is nearly impossible to replace and today's prices reflect that. Belarus remains sanctioned and our previous assumption of those tonnes coming back midyear appears optimistic as most or all of their exports will be curtailed due to logistics. Russia is another factor following the invasion of Ukraine, while some tonnes are making it to market the Swiss system expulsion makes shipment and transactions difficult. We expect that some buyers especially in Asia and South America will try to work around the hurdles, but they can't all be overcome. Remaining producers will struggle to make up those tonnes in your term. That's why we are pushing ahead with our de-bottlenecking plan and expect others to do the same. We are expecting a tight potash market to extend well beyond 2022.

Joc O'Rourke:

Thanks, Paul. We are actively increasing productive capacity in our potash business. We're already running assets at a 10.8 million tonne run rate with the ramp-up of K3 and running Colonsay at 1.3 million tonnes per annum. As we move forward, we have project teams actively working on two additional miners for Esterhazy, the de-bottlenecking of the Esterhazy mill and the restart of the second Colonsay mill.

Joc O'Rourke:

Our price guidance of $40 to $60 per tonne increase over Q1 does include some conservatism. First, we are seeing today's market prices, but our realization timing will depend on our railways ability to return to normal rates. We believe the sooner rail returns to normal, the sooner our price realization will reflect a shorter lag to market pricing.

Joc O'Rourke:

Thank you, Paul. If there's anything that's inhibiting grower demand its availability of nutrients, not affordability. With near-term corn at $8.20 a bushel, near term soybeans at $16 plus a bushel and palm oil at MYR 7,000 to MYR 8,000 per tonne, global growers are seeing solid profitability levels. In North America, buyer behavior is focused on near-term applications. Weather has forced a compressed planting season but today's crop prices suggest growers will continue seeking maximum yields. In Brazil, grower appetite for fertilizers is quite strong especially with recent crop price moves and a slightly weakening Brazilian real. In India, a good monsoon is predicted and the government has just raised importer subsidies last week. If there's a threat to consumption, it's the lack of supply across both PNK, but global demand is there if the tonnes are available.

Clint Freeland:

Sure. Thanks Paul. So as we think about 2022, I don't think our capital allocation priorities have changed. I think we continue to look for ways to strengthen our business through prudently investing, as well as strengthening our balance sheet as we've spoken about in the past. And I think as we look toward the balance of the year and our expectations around earnings and cash flow, I think there's an opportunity to return a significant amount of cash to shareholders as we've spoken about in the past. I think as we look at our capital investment program, I think we're finding opportunities to improve reliability, to find opportunities for de-bottlenecking, to again be able to produce at elevated levels given the market environment that we're in today. Also I think we have an opportunity to hit our debt target later this year with the maturity of another $550 million in debt that would get us to the $1 billion debt reduction target. And again as we look at the balance of the year and our expectations for the amount of free cash flow that we should generate, we should also be able to return a significant amount of cash to shareholders in line with what we've spoken about earlier.

Operator:

[Operator Instructions] And your first question comes from the line of Steve Byrne from Bank of America. Your line is open. Please go ahead.

Joc O'Rourke:

Yes. Thank you, Steve. Good morning. Absolutely we expect that with the ammonia shortage globally there will be a shift in some situations to TSP, and we understand that our Moroccan competitor is already shifting some of their production towards TSP. Again, the idea there being that we – they maximize the amount of phosphate fertilizer that gets to market with this exact issue of decrease in ammonia supply. This doesn't really impact us, of course, because of our very solid supply of ammonia. What I would also say, I guess your second part of your question was, is this mean a premium for DAP? I wouldn't really expect a premium, but it probably will mean that it will be the first to sell right now at this stage; any fertilizer is probably pretty easy to sell. So I suspect there will be a pretty good price for TSP right now as we've seen in the market.

Chris Parkinson:

Great. Thank you. Just given all the debate pertaining to the longevity of the potash shortfall, what are your team's latest thoughts in terms of the potential shortfall from Russian producers you are calling Euro Chem just given obviously you're assumption for domestic demand, rail capacity at China as well as Baltic ports? And then also probably more importantly Belarus and Calais. So just how is your team basically balancing those shortfalls? Not only for 2022 but what are your expectations within a reasonable range for 2023 and 2024? Thank you very much.

Operator:

Thank you. And your next question comes from the line of Jeff Zekauskas from JPMorgan. Your line is open. Please go ahead.

Joc O'Rourke:

Okay. Thanks Jeff. Well, let me start. I just mentioned that we expect BPC will reduce their exports by about 8 million tonnes, and that means that probably what they're going to ship this year has already been shipped or at least the vast majority of it. We have not seen or heard or been able to track down any BPC tonnes on ocean-born freight. The only tonnes we've heard that have been exported is early in the piece there was some export by rail through a very circuitous route through to China, but I think even that is dried up now completely. And Clint I’ll leave it there.

Operator:

Thank you. And your next question comes from the line of Vincent Andrews [Morgan Stanley]. Please state your firm name. Your lines open. Please go ahead.

Joc O'Rourke:

Okay. Thanks, Vincent. Let me start by giving you just a quick update on what we think is going to happen in the summer fill program, and working capital. I'll hand some of that over to Jenny as well, and then working capital probably Clint can address that. First of all the summer fill program, we're already seeing probably good confidence in the potash market that our buyers are coming to the table and looking for product for summer fill. I think they're with the high level of uncertainty of supply through Belarus and Russia that there really is an understanding that there will be a very strong demand and probably tough to get products. So we're seeing people come to the market quickly for that. In phosphates, I think there's a little more hesitation because there's a little more uncertainty, whether the Russian tonnes will get two markets and whether we'll be able to supply all of their needs. But in general we don't see a huge discounting coming through in the summer for either product. As a matter of fact we expect that there'll be pretty strong demand and it'll be pretty tight in the U.S. going into summer and then through into fall. Jenny, any comments from you?

Joc O'Rourke:

And then in terms of the working capital in our ammonia, I'm going to hand that straight to Clint, but obviously it does play in our finished products inventory, as well as raw materials that we hold.

Operator:

Thank you. Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open. Please go ahead.

Joc O'Rourke:

Sorry, go into the wrong way. Sorry. Thanks, Adam. In terms of this year, let's start there. Our capital allocation strategy hasn't changed this year at all. Our goals remain the same. Strong balance sheet, we want to make sure we do take down the $1 billion of debt. We want to continue to invest in our business and we've got some really good, attractive, short term investments that we can make to increase production on the short term. And of course, because of that increased sales. And then the majority, of course, we expect this year, we're going to return to shareholders. In terms of looking at this from a multiyear perspective at this stage, we don't see anything in the large investment range that we think is going to give our shareholders, our stakeholders superior value. So we're focusing on those minor capital, high return, brownfield type projects, debottlenecking investor Hazy Mills, increasing the number of mining machines at are K3 mine, restarting the Colonsay second mill et cetera, and growing our footprint in Brazil. We think those are a much better way to add significant value to our shareholders over the midterm.

P.J. Juvekar:

Yes. Hi, good morning. Quick question on your reserve additions in phosphate at Fort Mead. Does that only increase reserves or is it also production? And then I have a question for Jenny about the China phosphate. And you mentioned LFP battery for a couple of orders. Is LFP that big part of the phosphorous market in China? I mean, I'm wondering if you have any numbers around that. Thank you.

Jenny Wang:

Thanks Joc. Yes, P.J., we started to talk about the LFP production in China last year. In the background of increases of electrical vehicle, and also the increases of the adoption of LFP in the EV battery. And this year for the first quarter, we are seeing more than doubled EV penetration to start with. And second thing we are seeing more than doubled adoption of LFP battery in the EV adoption. Therefore the total LFP production in the first quarter this year has been more than doubled than the same time of last year. And it is reaching to the half of the total production in 2021. So we are seeing significant increases of LFP production, which are taking away of P205 from the fertilizer MAP, DAP production. And lastly, I want to say, from the latest issue with Chinese policy, which was issued on the 7 of April, the government has strictly controlled the new addition of MAP, DAP and the yellow phosphorus production capacity. So, with that new restriction, we are going to foresee further reduction of fertilizer, MAP, DAP, with the shift of the P205 to other industrial use, especially LFP.

Operator:

Thank you. Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is open. Please go ahead.

Joc O'Rourke:

Okay. Thanks, Andrew. Potash run rate, as you say, 10.8 million tonnes per annum, which is 1.3 million tonnes out of Colonsay now. In terms of Esterhazy, it's running at its 5.5 million tonne, basic capacity, where we will be adding another two mining machines to Esterhazy. So, that will go up a little bit from that as we not only complete, but optimize the run rate at there. So overall, if you took a 90% or 85% operating factor, you're probably in that 9 million to 9.5 million tonnes of potash capacity right now. And looking to move up from there as we look at increasing the Colonsay capacity to almost two million tonnes and Esterhazy, probably from the 5.5 million tonnes up to the 6.5 million tonnes. In terms of [indiscernible] profitability, I'm going to have to hand that over to Clint, because I don't know the exact number, but I will tell you that [indiscernible] is now profitable and they are contributing to our bottom line. However, you also need to note that [indiscernible], results are one quarter delayed. We only see one quarter behind. So there is a little bit of a lag there from the overall. But what Clint, do you want to talk about that?

Joc O'Rourke:

Right. Good point. Operator next question

Joc O'Rourke:

I believe that's Ben Isaacson operator.

Michael Piken:

Yes, good morning. Just wondering if you can talk a little bit about your retail operations down in Brazil. There's been some talk potentially consumption for the country might be off 20% or as much. How is your retail business down there handling it? And what does it mean also for your wholesale business in terms of the type of margin opportunities that are there, if there's trouble attracting getting the import in for whatever reason?

Operator:

Thank you. Your next question comes from the line of Josh Spector from UBS. Your line is open, please go ahead.

Joc O'Rourke:

Okay. I'm not sure I fully understood your first question. Are you asking about the China and India contracts with Russia? On the first part of your question on, will those contracts dry up? If you've been muted, I'm going to assume that was your question, Luca. Okay. So thank you, Luca. On the first part of the question, which is, are the contracts with Russia and China, China-India, likely to dry up? Certainly in China, we have not seen the Chinese renew contracts with Bela-Russia or Russia. So other than the product coming by rail over the Euro mountain range, which is limited in volume to about a 1.5 million tonnes a year, we're not seeing, Russian or Bela-Russian tonnage come to China. In terms of India, we have seen phosphates make its way to India from Russia. So one would assume that the Russians will also try to move potash to India if they are looking for places where they can sell that product. In terms of the second piece of your question, you really only need to look at last year when the price to China and India was significantly lower than the market. And what we did was exactly what you said. We certainly made all of our commitments to those markets, but beyond our basic commitments to the markets any extra tonnes we move to to more profitable, higher priced markets. And there are significant opportunities for that this year. Last year, India actually renegotiated some of its pricing because of that. And you could see that happening again this year in both China and India if the prices as they are persist.

Adrien Tamagno:

Hello. Good morning. I have a question on ammonia. Can you remind us what is beyond the CF Agreement? I believe it could be extended until 2032, but if you can remind us what needs to happen for this agreement to extend until then that will be helpful. And in addition, do you have any options to increase your captive ammonia production more meaningfully. Thank you.

Operator:

Thank you, presenters. There are no further question at this time. I'd like to turn it back over to Joc for any closing remarks.

Operator:

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation, you may now disconnect.

Operator:

Good morning, ladies and gentlemen and welcome to The Mosaic Company’s Full Year 2021 Earnings Conference Call. [Operator Instructions] Your host for today’s call is Paul Massoud, Vice President, Investor Relations of The Mosaic Company. Mr. Massoud, you may begin.

Joc O’Rourke:

Good morning. Thank you for joining our fourth quarter and full year 2021 earnings discussion. I hope you’ve had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday. I will provide some additional context before we respond to questions we received last night and then we will conclude with a live Q&A session. Mosaic delivered excellent financial performance in 2021 with total EBITDA for the year of $3.6 billion, our highest total since Mosaic listed on the New York Stock Exchange. Adjusted earnings per share, was $5.04, the highest since 2011. Our results were a reflection of strong performance across all of our segments. Phosphate segment adjusted EBITDA totaled $1.7 billion, over 200% higher than the segment’s total in 2020, reflecting strong pricing and growth in MicroEssentials, which more than offset the production impacts of Hurricane Ida. Potash segment adjusted EBITDA totaled $1.3 billion, up 78% from the prior year as pricing, increased output from K3 and the reset at Colonsay largely mitigated the closure at K1 and K2. In Brazil, Mosaic Fertilizantes generated adjusted EBITDA of $821 million, up 74% from the prior year as the team capitalized on strong demand, a trend that we expected and drove our decision to acquire Fertilizantes 4 years ago. In 2021, Mosaic Fertilizantes was able to achieve its $200 million transformational EBITDA improvement target over a year ahead of schedule. These results highlight the decisions we have made over the last decade that has strengthened the business. Most significant has been the construction of K3, which at full capacity will be one of the largest, most efficient and automated potash mines in the world. Assuming a net investment consistent with what we discussed at our 2019 Analyst Day, at today’s prices, K3’s payback period can be measured in months rather than years. Also in potash, we successfully restarted Colonsay and reached our targeted annual run-rate of 1 million tons during the fourth quarter. Colonsay’s fourth quarter cash cost averaged $85 per ton, well below our pre-idled cost of $100 a ton despite higher price-driven taxes and royalties. In Brazil, our acquisition of Mosaic Fertilizantes in 2018 followed by the team’s transformational work to improve margins, has driven significant shareholder value. At the time of the transaction, pro forma EBITDA was less than $70 million. Our 2021 results show that we have been able to optimize that business through integration and transformational share gains and co-product sales. In our phosphate business, performance products, primarily higher margin MicroEssentials, now account for more than 40% of the segment’s finished product sales volumes. All of these decisions, combined with strong execution, put us in a position to benefit from 2021’s favorable market backdrop and improve Mosaic’s financial position. In 2021, Mosaic retired $450 million of long-term debt, raised the annual dividend by 50%, and repurchased nearly $0.5 billion in shares. Looking forward, we continue to see agricultural market strength extending through 2022. Global demand for grain and oilseeds remains high, while stock-to-use ratios are at the lowest point in more than a decade. Food security concerns and rising bio-fuel consumption are driving demand for corn and soybean as well as rice, wheat, coffee, palm oil and other agricultural commodities. These dynamics are sustaining agricultural commodity prices. It’s the strength in crop markets, combined with global industry supply constraints that have pushed fertilizer prices higher. Global supply disruptions from 2021 are expected to continue impacting the global market in 2022. In potash, sanctions against Belarus are beginning to have a profound impact on supply. Global buyers are beginning to acknowledge this, including India and China, which both signed contracts with Canpotex at $590 per ton to ensure they have adequate supply for 2022. In phosphates, the secular shift of Chinese supply away from exports towards domestic agriculture and industrial consumption is expected to outlast the short-term export ban currently in place. Over time, we believe domestic demand will drive China’s phosphate exports lower as secular demand trends continue to grow, especially on the industrial side from chemicals and electric vehicles, lithium-ion phosphate batteries. Globally, strong demand over the last 18 months resulted in many producers delaying maintenance downtime to meet customer needs, which will have to be addressed at some point. On the demand side, farmer economics in most global growing regions remains constructive. Inflation and input costs are impacting profitability, but recent increases in crop prices are improving farmer economics for 2022, even if that estimated profitability remains below the 2021 record levels. As we head into North American spring planting season, we are seeing normal buyer behavior as demand continues to reflect strong underlying crop prices. In Brazil, fertilizer shipments in 2022, appears set to equal last year’s record-setting total. Grower economics are improving, thanks to rising crop prices, credit availability and a favorable exchange rate. In India, while farmer demand remains very strong, availability is still lagging. This month, the Indian government released its initial budget for nutrient subsidies, highlighting the Indian government’s willingness to respond to market condition with revisions. Given depleted Indian inventories, we see India as a source of pent-up demand, which should see phosphate and potash consumption growth in 2022. As we look at our business in the context of today’s global markets, we remain very optimistic. In potash, K3’s ramp up is expected to be completed by the end of the first quarter, meaning it will reach full capacity under budget and 2 years ahead of schedule. When combined with Belle Plaine and a full year of production from Colonsay, we expect higher production in 2022 with production costs trending lower as the year progresses. In the first quarter, we expect sales volume of 1.8 million to 2 million tons, with average realized FOB prices more than $125 per ton higher than prices realized in the fourth quarter. In phosphates, we also expect a recovery in volume in 2022 following last year’s production curtailments related to sulfur shortage in the second quarter and Hurricane Ida in the third and fourth quarters. We expect to see input cost inflation in 2022, especially related to our open market purchases of sulfur and ammonia. But in ammonia, we continue to benefit from two-thirds of our needs being met by internal production and our supply agreement with CF Industries. In the first quarter, we expect phosphate sales volumes of 1.6 million to 1.8 million tons. Our expected sales volumes reflect supply chain constraints as well as low inventories at the start of the year because of Hurricane Ida. Average realized FOB prices are expected to be more than $60 per ton higher than prices realized in the fourth quarter somewhat offset by higher input costs. For Mosaic Fertilizantes, we expect the business to continue reflecting the favorable market backdrop and our transformation efforts in 2022. Sustained grower demand and improved market positioning should continue to drive results. We are seeing inflation affect our cost structure, but believe our transformation initiatives should offset much of the impact. Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022. With that in mind, it is imperative that we allocate capital wisely across our three strategic focus areas of capital return to shareholders, balance sheet strength and investing in the business. Returning capital to shareholders will be a key focus in 2022. Over the coming year, we anticipate returning most of our free cash flow, up to 75% to shareholders through a combination of share repurchases and dividends. At today’s price, we believe our shares represent compelling value given the dynamics we are seeing. To underscore this point, we will be initiating a $400 million accelerated share repurchase program in the coming days. After the ASR, we will have repurchased approximately $830 million against our $1 billion authorization established last August. We plan to exhaust the remaining portion of that authorization through open-market purchases. As a result, Mosaic’s Board has approved a new $1 billion repurchase authorization, which goes into effect after the current program is completed. The ASR and our new authorization together represent about 8% of our market capitalization. Combining both authorizations represents approximately 12% of our current market cap. In addition to share repurchases, Mosaic’s Board has also approved raising the regular annual dividend from $0.45 to $0.60 per share beginning in the second quarter. This is the third regular dividend hike in the last 12 months and reflects our confidence in the long-term strength of the business. In the area of balance sheet strength, we remain committed to reducing long-term debt by $1 billion. Last year, we retired $450 million, which will use $550 million left towards our ultimate goal. This coincides with $550 million of long-term debt that matures later this year. It is also important to note that our working capital needs tend to grow as our end markets strengthen. Because of this, we have expanded our working capital lending facilities by $375 million to help us more efficiently manage our liquidity. Given our outlook for the year, we expect we’ll also be able to continue investing wisely and efficiently in our business, even as we return the majority of our capital to shareholders. Over the last 5 years, the value created by key investments, like accelerated construction of K3, the acquisition of Mosaic Fertilizantes and the development and growth of MicroEssentials, speaks for itself. Looking forward, we will continue to seek out high returning investments, but our focus is not on large scale greenfield projects. Rather, we believe better return can be realized in areas like enlarging our footprint in Brazil, expansion of MicroEssentials and investment in soil health and biologics. In the last area, we are seeing very promising results. As an example, through our partnership with BioConsortia, field trials of the first-generation nitrogen fixing formulation for corn has shown promising results that we believe are as good as anything available in the market today. And we believe further development can result in a best-in-class nitrogen solution for growers in the next 2 years. We will have exclusive rights to that product when it comes to market in the Americas, China and India, key growing regions that want to reduce their nitrogen cost. This is just one example of many partnerships as we continue to explore grower solutions across biologicals and soil health and we continue to do this through small, efficient investments that establish exclusive rights partnerships like with BioConsortia or give us access to entire product portfolios as is the case with our recent investment in Plant Response, a small ag technology company that develops and commercializes plant and soil health products. In total, we have invested approximately $50 million over the last 2 years to build the foundation for an exciting future portfolio of value-add products that our customers are asking for. We anticipate having more to share on these investments over time. These moves emphasize our commitment to disciplined capital allocation. We will remain flexible in our approach, continuing to evaluate compelling opportunities that strengthen our business over the long-term, optimize our balance sheet and return significant capital to shareholders. Finally, a discussion of the future of our business would be incomplete without including an update on some of the initiatives we have taken to make sure we continue to operate sustainably. Over the last year, we have made significant progress towards our ESG performance targets originally set in 2020, so much so that we have set even higher targets. In the area of carbon emissions, Mosaic has set a target of being net zero at its Florida operations by 2030 and globally by 2040. For diversity and inclusion, we set new goals for 2030 around the issues of race, gender and community support. Our global goals ensure that our actions are purposeful, sustainable and measurable as we seek to operate our business, while also helping to build a more inclusive culture where all of our employees can thrive. With that, let’s move on to the Q&A portion of the call.

Joc O’Rourke:

Thank you. First, the potash market was already tight before any sanctions came into place. Higher crop prices, higher demand for fertilizer globally has led to a tightness in this market that was driving higher prices before the Belarusian sanctions. The Belarusian sanctions have simply exacerbated and made the tightness more serious. In terms of the length of the sanctions, we really don’t know and there is no obvious immediate resolution to that issue right now sort of maybe a regime change, I can’t see how that issue is going to be resolved. In terms of the shortfall, we believe it could be anywhere from a few million tons in the best case scenario to as much as 8 million tons if the sanctions remain all through the year. Our base case we are working on right now is that there will be about a 4 million ton deficit this year. Now, the best evidence for this from our perspective is not what we see, but what our buyers are saying. Our buyers are signaling that this issue could be longer lasting than some of our producers have suggested. India and China both signed 2022 contracts of $590 for longer durations than the previous 6-month contracts. And we are hearing similar sentiment from our other global customers. They cannot get the tonnage. And if they can, there is no method to pay for with U.S. banks. So, it’s fair to assume that every producer is likely already evaluating every economic ton that they can get out to the market, including us. But remember, in addition to maximizing and increasing tonnage, we cannot forget about the supply chain constraints. To substantially increase our logistics capability, producers will need more railcars or port capacity and all of this takes time and capital to overcome.

A - Joc O’Rourke:

Yes. Thank you. Before the sanctions, Mosaic’s targeted run-rate by the end of the first quarter was about 10.5 million tons. And let me just quickly give you the breakup of that. Esterhazy in its existing form, we believe can run a consistent, sustainable 5.5 million tons; Belle Plaine, around 3 million tons; Colonsay before the shutdown was running somewhere around 1 million to 1.5 million tons, and we will find the right spot for that this year. That gives us an MLP tonnage of around 9.5 million to 10 million tons available today and then K-Mag at just a little over 700,000 tons takes our total to about 10.5 million tons of sustainable production capability. So as we look forward, what can we do to push our capabilities? We know we have some latent capacity at Colonsay and we are looking right now on how we can do a little extra development to put some mining panels into place that were shutdown a few years ago. In terms of K3, the run-rate of 5.5 million tons, we think we could run a little more than that and that will play out as we start getting more and more mining areas running and we get the 11th miner in position. The other issue at Esterhazy, we think, we think there is some pretty good debottlenecking projects that we are already studying and we believe some of those will lead to a little better tonnage coming out of Esterhazy. In terms of Belle Plaine, we believe it’s running pretty much at its maximum right now. So the easy tonnages will come from debottlenecking, Colonsay getting more miners into higher production panels and then pushing K3 and doing the small debottlenecking projects that come at the end of a long capital project.

Joc O’Rourke:

Thank you. We think China exports could be down as much as 2.5 million tons this year to about 9 million tons. We do expect that the ban could be lifted as early as the ending of the planting season. And we have to expect that at today’s prices, it wouldn’t be surprising to see China’s producers try to benefit from that high-price environment. But we do think that annual exports are going to continue to trend lower over time. Secular domestic demand in China will pull increasingly large amounts of phosphates away from the export market. And we cannot ignore industrial uses. Battery growth and domestic fertilizers will take precedence over exports, and we expect the Chinese government will continue to force suppliers to prioritize domestic demand.

Jenny Wang:

At today’s crop prices around all major growing regions, we are seeing farmers’ economics and affordability are very constructive. In the – it is probably lower than last year’s level, but it is far above the historical average. In North America, we are seeing customers and farmers behavior are as normal as the pre-spring season. In Brazil, especially over the last few weeks as sodium price rise, we are seeing very strong customer buying happening in the country. And in India, we expect the government is going to do, again, readjust their subsidy level in order to support their farmers’ demand to phosphate and potash as they did last year. If there is any threat to the consumption of demand, it is probably because of lack of availability across both phosphate and potash. And the global demand is there if the tons are available.

Joc O’Rourke:

Well, thank you. In terms of our expected volumes for quarter one, I think there is really two big issues we have to consider when we look at our sales volume. The first of all is actually quarter four, where Hurricane Ida and subsequent repair events impacted at the beginning of the fourth quarter and left us with very, very low inventories entering this year, which, of course, tends to contribute to first quarter sales. In terms of the other issue from our perspective, it’s really the logistics. COVID and winter weather are having a major impact on the supply chain, including rail, ocean freight, ports and trucking logistics. The industry is seeing delays throughout the system, and that’s contributing to the lower-than-historical sales volume guidance. Just as an example, rail alone this year, we’re seeing about a 20% to 30% increase in cycle time for our trains. And you can expect that to have a big impact on rev rec at the very end of the quarter. That said, we expect our annual sales to be in line with historic norms for phosphates. Delayed shipments due to supply chain issues will resolve themselves as we come out of the winter weather and we get through this last wave of COVID. So we will see those come in the next quarter or two. The thing I would emphasize is we’re seeing normal buyer behavior. Yes, nutrient prices are up. The crop prices more than offset that and point to a very good year for grower profitability, even if it’s a small step back from the 2021 levels. We expect crop prices to continue to incentivize farmers to apply fertilizer as they normally would.

Clint Freeland:

Sure. Thanks, Paul. So I think, as everyone knows, our business is highly seasonal, and we can experience pretty significant working capital changes throughout the year. And over the last couple of years, we have put in new working capital facilities to help us manage through – excuse me, some of that seasonal dynamic. And in the current pricing environment and the environment that we’ve been in and the rate of change that we’ve seen, that just amplifies those seasonal working capital moves. And so more recently, we’ve upsized some of our working capital lines to better align our options and our tools to the needs of the business. Just to give you a sense, as we look at the second half of last year, our core working capital needs were up well over $1 billion, and majority of that was in the fourth quarter. And as we look forward to 2022, I think any incremental working capital needs are likely to be dictated by the pricing environment that we see to the extent that the pricing environment moderates and the rate of change moderates, then I think the working capital incremental needs will moderate. But if we do see a continuation of what we’ve seen in the last 6 months, I think we could expect to see increasing working capital requirements.

Clint Freeland:

Thanks, Paul. As we look forward to the balance of 2022, we expect to generate a significant amount of earnings and cash flow. And as we think about capital allocation for this year, we intend to continue strengthening both our business and our balance sheet by continuing to invest in high-return and opportunistic investments and paying down debt. But we think we can do those things and return a significant amount of capital to shareholders this year within the construct that we’ve outlined. Today, we announced an increase in our dividend for this year and going forward as well as a buyback using an ASR tool. As we go through the balance of the year, we intend to remain disciplined and nimble and look at different ways of returning capital to our shareholders. But our current priority is on buybacks. We look at our share price, where it is, and we think that it is compelling given the environment that we see. So that’s our priority today. But again, we intend to remain flexible as we go through the year.

Operator:

Thank you. [Operator Instructions] Your first question comes from the line of John Roberts from UBS. Your line is now open.

Joc O’Rourke:

Yes. Thanks, John. Certainly, that would offer an opportunity to us, but I suspect what will happen is that actually the blends will probably be adjusted for less potash if there is actual potash shortages. And we do believe there will be a real risk of potash shortages. The Brazil market should be fairly good. They have been delayed by rain and etcetera, so far. But we believe this will be a good market. So we do expect it’s going to be very tight for potash as the full impact of the sanctions really comes home to roost, if you will. So yes, we may pick up a little bit, but I don’t think it will be because of the blend opportunity versus others. I think it will just be because of people trying to get hold of potash.

Joel Jackson:

Hi, good morning. If Nutrien decided that some of these issues around Belarus BPC are persistent and they wanted to really un-idle their millions of excess tons, hire a bunch of miners in Saskatchewan and really ramp up their volume, would you be supportive of that? What I mean is, in Canpotex, obviously, you would get your – you should get your pro rata sales share and Nutrien can add millions of tons to their production, and you cannot. You would not get – you would have to refuse the ability to produce pro rata and give it to Nutrien. Would you be supportive of that? Or would you seek to renegotiate a little bit how Canpotex works?

Operator:

Your next question comes from the line of Chris Parkinson from Mizuho.

Joc O’Rourke:

Okay. Thank you, Chris. I guess you’ve got to look at this in two ways

Adam Samuelson:

Hi. Yes. Thank you. Good morning. I was hoping you could give a little more color on the phosphate operating cost environment. Obviously, inputs have risen here, the way you frame DAP to margins and they have declined as a result of the market outlook, Joc. You didn’t provide any specific cost guidance in phosphate for the first quarter that you sometimes do or have done in the past. Any color there? And just as a quick follow-up to that last question, Joc, on the cash margin for potash. That’s at 3% before or after the resource tax?

Clint Freeland:

Yes. So in calculating our cash cost per ton, we do include royalties in there but do not include CRT.

Clint Freeland:

But I would say that both of those are in our EBITDA calculation.

Operator:

Your next question comes from the line of Steve Byrne from Bank of America. Your line is now open.

Joc O’Rourke:

Okay. So first, co-product sales, I think you’re absolutely right. The majority of the co-product sales is likely the sale of gypsum, but there is a number of co-products whether they be produced from some of our wastewater streams or whatever. But we sold last year, I think, over $400 million of co-products with pretty healthy margin because the cost of these, of course, is very low. So we feel that’s a pretty attractive place. And of course, when you sell gypsum, that’s chips actually you don’t have to make in the future. So again, a big piece of the long-term business improvement will be those sales of co-products and particularly the sale of gypsum. In terms of moving this business forward, you’re right, there is a number of opportunities. I think there is a number of new opportunities for co-products and particularly when you look at titanium, niobium and whatnot that is naturally in our ore and is made by our neighbors, at least our neighbors at Catalao. The other area is distribution. And distribution, particularly as you go to the Northwest part of the country, so Northwest part of Montegrosso and heading into what we call the Montapito states, which are the northern states south of the Amazon but in the western side of the country. We believe the distribution opportunity there is high. We are looking very seriously about how we can get a bigger piece of that, how we can participate more in that. So distribution, one area; co-products, new products. And of course, if we can debottleneck or improve our existing operations, that’s another great area for taking advantage of what is a great market.

Vincent Andrews:

Thank you and good morning, everyone. Joc, I was wondering if you could talk a bit about regional phosphate prices and just the gap that exists between India and the rest of the world basically and how you envision that evolving through the course of the year, whether – how it will converge or if it will converge. Thank you.