The Mosaic Co. said Dec. 1 it may have to further cut DAP production due to market conditions. The company gave a preview of its fiscal 2009 second quarter ended Nov. 30, 2008.
Due to soft market conditions, phosphate sales volumes for the second quarter were approximately 1.3 million mt, or about 800,000 mt lower than the volume sold during the company’s first quarter in fiscal 2009. The average selling price for DAP during the quarter was within the company’s estimated guidance range of $1,020 to $1,080 per mt. However, phosphate gross margins are expected to be impacted due to high cost raw materials used to produce phosphates in the second quarter.
Potash sales volumes for the second quarter were approximately 1.7 million mt. The average MOP selling price was approximately $525 per mt compared to the company’s estimated guidance range of $560 to $620 per mt during the second quarter, primarily due to the mix of products sold internationally.
“Several factors have impacted worldwide crop nutrient demand, including lower grain and oilseed prices, a late North American harvest, congested distribution supply chains, and the unprecedented global economic and credit downturn which has seen business moderate in nearly all sectors,” stated Jim Prokopanko, Mosaic president and CEO. “We are confident in the long-term fundamentals for our business. The world’s growing population needs to eat, so although purchases of vital crop nutrients that increase grain and oilseed yields may be delayed, they can’t be avoided like most discretionary purchases.”
As announced in October, Mosaic is reducing phosphate production by approximately one million mt through December 2008. In addition, the company announced that it is prepared to further reduce phosphate production by up to an additional one million mt during the remainder of fiscal 2009 if market conditions continue slower than normal.
Mosaic advised that fiscal 2009 third-quarter sales volumes are expected to remain soft, followed by a strong recovery in the fourth quarter, and that it expects to record an operating loss for the second quarter in its Offshore business segment due to inventory valuation adjustments. Mosaic further indicated that due to uncertainties in the global economy, the company has withdrawn fiscal 2009 sales volume guidance for phosphates and potash. The company said that it will resume providing sales volume guidance when the market returns to a more normalized condition.
“Fortunately, the actions we have taken during the past two years, including our operating discipline and the dramatic improvement of our balance sheet, position us well for when this market rebounds,” said Prokopanko. Mosaic indicated that it remains in excellent financial condition, with more than $2.5 billion of cash on hand, no borrowings under its revolving credit facility, and only minimal short-term debt maturities as of November 30, 2008.
The company also noted that it expects to record an after-tax gain of approximately $1.00 per share during the second fiscal quarter resulting from the sale of its interest in Saskferco Products ULC in October 2008.
The company will provide more information in its second fiscal quarter earnings release, scheduled to be issued in early January 2009.