The Mosaic Co. reported net earnings of $297.7 million ($.67 per diluted share) for the first quarter ending Aug. 31, 2010, nearly triple those for the year-ago quarter of $100.6 million ($.23 per share). Sales were up 50 percent, to $2.19 billion from the year-ago $1.46 billion.
Phosphate operating earnings were $178 million on sales of $1.58 billion, up from the year-ago earnings of $46.5 million on sales of $1.19 billion. Total phosphate tons sold rose to 3 million from the year-ago 2.89 million. While phosphate crop nutrients shipments were up in North America by 25 percent to 854,000 mt from 683,000 mt, they were off 7 percent to the international market, to 1.08 million mt from 1.16 million mt. The average DAP price was $431/mt for the quarter, up from the year-ago $278/mt. Raw materials costs were up, with ammonia at $391/mt versus the year-ago $261/mt, and sulfur at $152/lt, up from $30/lt a year ago.
Phosphate crop nutrient blends were off 3 percent, to 699,000 mt from 702,000 mt a year ago, and the average price for this product was up slightly, at $408/mt from $401/mt.
Feed phosphate volumes were down 29 percent, to 121,000 mt from the year-ago 150,000 mt. Other products, which included SSP, urea, and potash sold primarily outside of North America, saw an uptick at 305,000 mt from 194,000 mt.
Potash operating earnings were $218 million on sales of $621.9 million, up from the year-ago $99.3 million on sales of $333.3 million. Total tons sold moved up to 1.68 million mt from 795,000 mt. Of these, North American potash shipments were up 521 percent at 677,000 mt, up from 109,000 mt a year ago, while international shipments were also stronger at 850,000 mt from 508,000 mt. Non-agricultural shipments were down, at 151,000 mt from 178,000 mt.
Mosaic said the average muriate of potash selling price was $331/mt, down from the year-ago $354/mt.
For the second quarter, Mosaic expects phosphate sales volumes to range from 3.3 to 3.6 million mt, with the realized DAP price, FOB plant, estimated to be $430-$460/mt. As for raw materials costs, Mosaic told analysts that it is still negotiating sulfur contracts, but it expects prices will increase to a level close to current spot values. The company noted that ammonia prices have gone up to $465/mt Tampa DEL for October, and it expects them to remain at high levels for the next couple of months.
Mosaic added that one of its new phosphate products, MicroEssentials, a premium product that includes sulfur and micronutrients, is expected to see sales top 1 million mt this fiscal year – more than double from two years ago.
Second-quarter sales volumes for the potash segment are expected to range from 1.6-1.9 million mt, with a realized MOP price of $310-$340/mt. Mosaic said the recent upward momentum in potash prices will begin to be realized in fiscal third-quarter results. Mosaic noted that a new shaft at the Esterhazy mine will add up to 1 million mt of capacity, bringing the total Esterhazy capacity up to 7 million mt. In other Esterhazy news, Mosaic said a lawsuit (GM Aug. 17, 2009) between PotashCorp and Mosaic over PotashCorp tolling tons from Esterhazy is not expected to go to trial until September 2011. Mosaic said it expects to spend $120-$130 million this year to mitigate brine inflow at Esterhazy. This cost was $37 million in the first quarter, up from $25 million in the prior quarter, but the company says nothing should be read into that, as the figure varies from quarter to quarter.
“We expect the market momentum of the past several quarters to continue as distributors replenish depleted inventories and farmers invest in crop nutrients to rebuild phosphate and potash levels in their soils,” said Jim Prokopanko, Mosaic president and CEO. “Global shipments of finished phosphate products are projected to surge to a record-shattering level this year and increase further in 2011.”
Mosaic expects global phosphate shipments to climb to record levels of 56-57 million mt in calendar year 2010 and to 57-59 million mt in 2011. It expects potash to climb to 48-49 million mt in calendar year 2010 and to 52-55 million mt in 2011.
Mosaic expects the operating rate at its North American phosphate operations to range between 85-90 percent for the second quarter. Phosphate rock production will remain low until the South Fort Meade, Fla. mine resumes production. The company does not expect any impact on finished phosphate production in the second quarter due to lower phosphate rock production. The second-quarter operating rate in the potash segment is expected to range between 80-85 percent.
“It is a great time to be the leading producer of phosphate and potash in the world,” said Prokopanko. “Agricultural commodity markets have tightened, bolstering prices and farm economics worldwide. This is driving strong demand for crop nutrients at a time when producer inventories are low and concerns are growing about crop nutrient supplies, creating a positive outlook for Mosaic.”
Mosaic Vice President, Market and Strategic Analysis Dr. Michael Rahm noted that the U.S. Department of Agriculture lowered its estimate of corn bushels per acre to 162.5 in September, and that most analysts expect another downward adjustment from USDA Oct. 8. He said stocks could drop to about 1.1 billion bushels at the end of the 2010-11 crop year. “We estimate that the corn market will need to bid for more than 90 million aces of corn next year in order to keep inventories at secure levels.”
Rahm noted that the commodity rally extends beyond wheat, corn, and soybeans to several other products, such as cocoa, coffee, cotton, palm oil, and sugar, with some of those seeing their highest levels in more than 10 years.
He also noted that net cash farm income is projected to rebound 23 percent to more than $85 billion in 2010, the third highest on record. Rahm said that farm incomes in China and India are also at record or near-record levels.
Mosaic now downplays impact of mine outage
Earlier, Mosaic estimated that the outage at the South Fort Meade mine could lead to its losing some 1 million mt of finished phosphate products in the second half of fiscal year 2011 (GM Aug. 9, p. 15), with a $250-$300 million impact to operating income. The company now says it can mitigate the loss using existing rock inventories; purchasing rock from third parties, including rock from Peru and Morocco; maximizing production at other existing mines, and drawing down finished goods inventories.
“Assuming successful mitigation efforts … we believe there will be no material impact to finished product sales in fiscal 2011,” said Prokopanko. “However, our margins will be negatively impacted by using purchased phosphate rock.” Cost of purchased rock is put at $100-$120/mt FOB.
Mosaic did say that the closure of the mine cost it $30 million in the first quarter, and it expects the cost to be $20 million per quarter going forward.
No update on mediation
Mosaic said last week there was nothing new to report on its court-ordered mediation with the Sierra Club over the outage at the South Fort Meade mine.
Mosaic is still hoping for a positive ruling from the U.S. District Court for the Middle District of Florida that will allow it to mine in Hardee County for four-to-six months on land where the wetlands have already been disturbed. This would be while the U.S. Court of Appeals for the Eleventh Circuit hears Mosaic’s appeal of the preliminary injunction against the mining. Mosaic noted that the appellate court has agreed to an expedited appeal. Mosaic is hoping oral arguments will occur by the end of the calendar year, and that it will receive an expedited ruling shortly thereafter.
Five factors overhanging phosphate market
Dr. Rahm detailed five factors currently overhanging the global phosphate market.
- Anticipated startup of the Ma’aden facility in Saudi Arabia, with the market trying to figure out how much this facility will produce in 2011 and 2012.
- A loss of up to 750,000 mt of phosphate when the Agrifos facility stops producing in 2011.
- Uncertainty regarding the availability of purchased raw materials, particularly sulfur. Rahm said U.S. phosphate producers likely will scramble in order to find enough sulfur to keep plants operating at consistently high rates during the next several months.
- Uncertainty over Chinese exports. He noted that the Chinese exported record-shattering volumes of DAP and MAP in July and August, leaving their domestic market short of product. “We believe officials will take whatever measures are necessary, including more restrictive export policies, to ensure adequate supplies of competitively priced phosphate for domestic farmers,” added Rahm.
- Uncertainty regarding how long Mosaic’s South Fort Meade mine will remain idled.