The Mosaic Co. cuts its guidance Sept. 16, noting that the domestic and international crop nutrient markets have softened, in part as a result of the distributors’ cautiousness caused by the Belarusian Potash Co. (BPC) break-up.
"The long-term positive outlook for crop nutrient demand has not changed; high commodity prices are driving record farm returns and making our products more affordable than ever before. These strong fundamentals are expected to drive near-record global phosphate and potash shipments in calendar 2013," said Jim Prokopanko, president and CEO. "In the short term, however, dealers are cautious and are deferring purchases. As a result, we have lowered our price and volume guidance for both the Potash and Phosphates segments for the third calendar quarter of 2013."
In Potash, the revised quarterly guidance range of 1.45- 1.65 million mt reflects lower near-term demand. Previous guidance had been 1.8-2.1 million mt. The company’s realized price expectations are now in the range of $330-$340 per mt, net of transportation and other distribution costs. This had been $330-$360/mt. The Potash gross margin rate is now expected to be in the low-to-mid 30 percent range. This had been in the mid-to-high 30 percent range.
In Phosphates, Mosaic said distributors’ cautious sentiment with respect to potash is spilling over as buyers are in a wait-and-see mode. The company has lowered third-calendar-quarter 2013 volume guidance to 2.6-2.8 million mt, down from 2.9-3.3 million mt. Also, third-quarter realized prices are now expected to be in the range of $430-$440 per mt net of transportation and other distribution costs, down from $430-$465/mt. The Phosphates gross margin percentage rate is expected to be in the mid-teens. It had been expected to be flat with the prior quarter.
Additionally, the company now expects its effective tax rate for the seven-month transition period to be in the low-20 percent range; it had expected the mid-20 percent range. All other guidance is unchanged.
As for the BPC break-up, Prokopanko told attendees of the Credit Suisse Annual Chemical and Ag Science Conference Sept. 17 that fertilizer has become a “headline-rich industry these days.”
“The subsequent high drama still dominates industry news today and continues to provide intriguing theatre, but our assessment is that the market is over-reacting to these developments.”
That said, Prokopanko said there is no denying that fundamentals for all three major nutrients have weakened recently due to a combination of factors. He noted that prices for all major crop nutrients had declined significantly during the past two years, and long before the July 30 OAO Uralkali announcement about its exit from BPC.
On the demand side, Prokopanko says Indian subsidy reductions have resulted in sharp increases in retail prices and significant decreases in phosphate and potash use. Also, add to this the devaluation of the Indian rupee, which has put additional pressure on dollar-denominated delivered prices for fertilizer. He sees little chance for subsidy changes in India until after national elections in 2014.
Prokopanko also cited agricultural commodity prices, that while still elevated, have retreated from record highs last year due to the prospect of a larger global harvest this year.
“On the supply side, several brownfield and greenfield projects are beginning to deliver new supplies to the market,” he added. “And as we have noted before, supply grows in lumpy increments. A couple of years of demand growth may be needed to fully absorb the new capacity. Finally, lower cost from some raw materials such as natural gas and sulfur are helping to reduce the finished product prices.”
Prokopanko said that the uncertainty caused by the BPC break-up has frozen the global potash market and spilled o