The Mosaic Co. reported a 91.5 percent drop in net income for the first quarter ending Aug. 31, 2009, compared to the stellar performance of the year-ago quarter. Net income was $100.6 million ($.23 per diluted share) on sales of $1.46 billion, versus the year-ago $1.18 billion ($2.65 per diluted share) and $4.3 billion.
Mosaic cited lower phosphate prices and a drop in potash volumes. The average DAP price was off 73 percent in the first quarter, to $276/mt versus the year-ago $1,013/mt. However, overall phosphate sales volumes were off only 1 percent, to 2.06 million mt from the year-ago 2.09 million mt. Increased exports helped offset lower North American and feed volumes. Phosphate production was off 13 percent, to 1.82 million mt from the year-ago 2.1 million mt.
Phosphate operating earnings were off 94 percent, to $61.2 million from the year-ago $950.8 million, while sales dropped 69 percent, to $814.4 million from $2.59 billion.
Overall, potash volumes were off 58 percent, to 795,000 mt versus the year-ago 1.9 million mt. However, potash for crop nutrient use in North America was off 80 percent, to 109,000 mt from 546,000 mt. Average MOP prices FOB plant gate/mine were off 22 percent to $382/mt, compared to the year-ago $488/mt. Potash production was off 59 percent, to 816,000 mt from the year-ago 1.97 million mt.
Potash operating earnings were off 79 percent, to $99.3 million from the year-ago $477.8 million, while sales were off 66 percent, to $333.3 million from $976.4 million.
K-Mag sales, which are included in the potash total, were 103,000 mt in the first quarter, down from the year-ago 209,000 mt. Average K-Mag prices, however, were actually up 5 percent, to $301/mt from $288/mt.
Mosaic’s Offshore segment had a first-quarter operating loss of $8 million, down from the year-ago income of $159 million. Sales were down 55 percent, to $468.1 million from the year-ago $1.05 billion.
“Phosphate fundamentals have improved. The potash market is evolving and we expect strong demand in calendar year 2010 for both nutrients,” said Jim Prokopanko, Mosaic’s president and CEO. “Our long-term outlook for crop nutrients remains positive and we continue to execute our strategic plans designed to drive strong cash flow and shareholder value.
“Farmers around the world have reduced crop nutrient applications in their most recent growing season, drawing down the nutrient levels banked in their soils,” Prokopanko continued. “We believe farmers will increase application rates in response to high 2010 new crop prices and the need to replenish the large amount of nutrients withdrawn by the record crop this year.” He cited good demand from India and smaller harvests than expected in Argentina and Brazil.
Mosaic expects sales volumes for the phosphate segment to range from 1.8 to 2.2 million mt for the second quarter of fiscal 2010. Mosaic’s realized DAP price, FOB plant, for the second quarter of fiscal 2010 is estimated to be $265 to $305 per mt.
Mosaic is not providing financial guidance on potash sales volumes or MOP selling price until market conditions normalize.
“Phosphate sales volumes are returning to near normal levels,” said Prokopanko. “Gross margin has improved from the fourth quarter of fiscal 2009 and we look for further modest improvement in fiscal 2010.
“Even at current low selling volumes the potash segment generated a healthy gross margin and is poised to generate substantially improved profits when demand fully returns,” stated Prokopanko.
Prokopanko estimated that China has about 2 million mt of potash in inventory, and said shipments will need to start taking place no later than January for the country to have adequate supplies in April. He told analysts that this is the first year since 1993 that there has been a reduction in grain production in China. “It has to be very concerning for the leadership in China,” he said. He said farmers in China are currently paying in the mid-$300s/mt for potash.
As for North America, he said thoughts and efforts are focused on the harvest, and farmers and dealers really haven’t turned their mind to the potash price. He also added that it is unnatural in the minds of some farmers and dealers to see potash at a higher price than nitrogen and phosphate, and that they are not comfortable with that. “So it is wait and see. The markets will decide what the value of potash is, and we don’t think there is much room to see significant erosion from where it is today.” As a producer, he said Mosaic is waiting and holding on that China will buy and that will set the base.
In North America, Prokopanko said dealers stuck their necks out last year. “Prices dropped and they had to recalibrate to the farmers. This year, the dealers want to ensure they have a ready sale at hand before they bring the product in … People are very risk adverse given the past drop in commodity and financial markets.” That said, he believes in phosphate there is an acceptance that the prices are not likely to go down much lower. He said ammonia is at relatively low prices and sulfur is near zero, and that these input costs are not going to go down much more. “So, I think this explains part of the comfort with dealers being willing to put phosphate in their warehouses.”
In other news, Mosaic said its board of directors declared a quarterly dividend of $0.05 per share on the company’s common stock. The dividend will be paid on Nov. 19, 2009, to stockholders of record as of the close of business on Nov. 5, 2009.
| Phosphates Sales Volumes (000 mt) | Q1-09 | Q1-08 | Percent |
| Crop Nutrients: North America | 683 | 779 | (12) |
| International | 1,244 | 1,138 | 9 |
| Feed | 135 | 174 | (22) |
| Total | 2,062 | 2,091 | (1) |
| Potash Sales Volumes (000 mt) | Q1-09 | Q1-08 | Percent |
| Crop Nutrients: North America | 109 | 546 | (80) |
| International | 508 | 1,090 | (53) |
| Non-Agricultural | 178 | 261 | (32) |
| Total | 795 | 1,897 | (58) |
| Average Selling Prices ($/mt) | Q1-09 | Q1-08 | Percent |
| DAP | 276 | 1,013 | (73) |
| MOP | 382 | 488 | (22) |
| K-Mag | 301 | 288 | 5 |
| Average Price of raw materials($) | Q1-09 | Q1-08 | Percent |
| Ammonia C. Fla. mt | 233 | 572 | (59) |
| Sulfur lt | 43 | 573 | (92) |