Fresh off its stellar earnings report (GM April 7, p. 1), The Mosaic Co. provided analysts with a very positive outlook for the future regardless of how the corn crop goes. Some have nattered over the 86 million projected corn crop by the U.S. Department of Agriculture in its 2008 Prospective Plantings Report, since it is significantly down from 2007’s 93.7 million acres.
Mosaic Vice President, Market Analysis and Strategic Planning Dr. Michael Rahm explained the outlook is good even at 86 million. “But if as the report indicated, corn acreage declines to 86 million acres this year, and if yields are at or even slightly above trend, corn stocks are expected to decline to dangerously low levels by the end of 2008-2009 crop year.” As a result, Rahm said corn acreage would need to rebound into the mid-90 million acre range in 2009 in order to meet projected demand. “Farmers will begin fertilizing those acres next fall and some retail dealers will begin to position product for the fall season in a matter of weeks.”
Rahm also noted that the Prospective Plantings report was conducted around March 1, at a time when soybean prices were near their peaks. By April 4, he noted that soybean prices had come off significantly while new crop corn prices had gone up.
Rahm also noted that it is not just corn, soybeans, and wheat in the mix, that commodity prices across the board are up, including crops such as rice, palm oil, sugar, coffee, cocoa, and cotton. In addition, the Prospective Plantings report also said planted acreages for 22 crops are expected to go up by 3.5 million acres in 2008.
“The bottom line is markets are asking farmers to step on the accelerator and rev up the engines of production agriculture worldwide. Farmers pressed on the accelerator last year but they need to step harder on the gas in the future. Our assessment is there are plenty of RPMs and plenty of horsepower left in these engines to meet accelerating demand. In some regions, such as the Americas and Africa, farmers can bring more land into production without jeopardizing the environment.”
In addition to growing biofuel demand, Rahm said a recent McKinsey & Co. estimate is that almost 1.1 billion people will be joining the middle class income groups in China and India alone between 2005-2025.
Rahm noted that global phosphate and potash use is projected to increase 13 and 18 percent from 2006-2008. He noted that price momentum was caused in part due to the fertilizer industry not being prepared for such a surge. “Thin margins and poor earnings during the first part of this decade forced many companies to cut back on capital expenditures and to idle or permanently close unprofitable facilities.”
While Rahm added that Mosaic is looking at debottlenecking projects, Mosaic President and CEO Jim Prokopanko added that the company has no intentions of bringing back any high-cost mining operations or chemical plants right now.
Non-integrated phosphate producers who have to buy rock or phosphoric acid are the highest-cost producers today, noted Rahm. Ironically, they are in a position to underpin the market as they represent about one-third of global supply. “As a result, the high costs incurred by non-integrated producers are a key determinant of market price and integrated producers such as Mosaic possess a significant cost advantage.”
All the wet weather across the country has some concerned, fearing it will give farmers too narrow of a window this year. But not Prokopanko. “…this is much too early to get too fussed about wet conditions, yes I agree it’s wetter than normal, but it’s wet, it’s not drought. I’d rather have slightly wet conditions than drought conditions. May 5th is the ideal corn planting date. You want your corn in before then and we’ve got a good bit of time to get it done. North American farmers are extraordinarily well equipped to get the crop in and we’ve seen the entire North American crop get planted within two weeks, so we’re in good shape.”
Rahm also said the company has not seen much evidence of demand destruction as farmers around the globe are in good shape due to record-smashing crop prices.