Mosaic FY 4Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“It was a tough spring planting season for farmers here in North America. Warm weather came very late and just six months after drought battered the 2012 crop, the spring of 2013 brought [thrashing] rains to most of the Corn Belt. Some of the same fields that our ploughed under for lack of rain last year were puddled and too wet for planting this year.”

“The Mississippi River, once so dry that navigation nearly came to a halt, was again difficult to navigate this time because of flooding.”

“we sold 2.6 million tons of potash, a record quarter for Mosaic. And 2.9 million tons of phosphates with a big finish in the last two weeks of May.”

“India continues to use significantly less potash than it has in recent history, offsetting demand growth elsewhere. As a result of the nation’s unbalanced subsidy program, Indian agricultural soil is suffering and at some point the subsidies will need to change to avoid increasing pressure on the food supply. India will come back, we are just not certain when.”

“the longer term outlook remains positive. Farmers still have strong incentive to maximize yield. And to maximize yield, they need fertilizer. Grain and oil seed prices have declined in anticipation of a big crop, which would be a welcome development for global food security. But prices remain high enough to deliver good farm profits, especially given the affordability of crop nutrition and other inputs. And let’s not forget that farmers balance sheets and cash flows remain exceptionally strong as a result of many years of compelling economics.”

“Farmers can make a good living even if corn prices drift down to $4.50 or even $4 per bushel, especially if they’re wringing more bushels out of each acre. Revenue per acre matters to farmers and there are a lot of ways to generate a profitable $900 of revenue per acre”

“As our guidance makes clear, we do not expect a significant recovery in potash and phosphate prices in the near term. Over the medium and longer term, we ultimately believe that economics will rule. The new supply of both nutrients that is coming to market now is likely to dampen prices and lower prices will lead to less future supply expansion. We have already seen a number of announcements deferring or canceling projects. New supply will continue to come in stair step fashion, resulting in short term periods of imbalance which we are seeing today. We are confident that over the next year or two, demand growth will ultimately absorb the new supply.”

“we are certainly seeing lower prices in all of our raw materials. Ammonia has come down about 20%, sulfur is down significantly and moving down as we speak, and rock costs are also moving down. However, the one thing we need to point out is there is about a quarter lag between when we see the change in prices and when it meets cost to goods sold. So what we expect to see is, despite the lowering price we should see our margins stay relatively flat because of the prices of raw materials.”

“we have seen a weakening, a slackening in demand, first of all in potash. And this has all been caught up in what’s happened in general crop nutrition market and P&K. We have seen a strong decline in urea pricing which has gotten the attention of dealers and farmers. We have seen the phosphate price cost components go down as well as the price of phosphates go down. Again, that has the attention of both farmers and dealers and potash is getting caught up in that. We have seen a slackening of demand and people just have become much more cautious about taking inventory price risk, putting product into position ahead of a season. And so they are just waiting to see when the bottom comes in.

I believe we are very near the bottom, certainly on the potash market and I think this is great value at these prices certainly relative to the crop prices.”

“This has been a very market distorting subsidy program that the Indian government has in place. You’re seeing — we’ve seen prices on both DAP and on potash nearly triple over the last 18, 24 months, while there has just been a couple of rupees increase in the price of urea. So the Indian farmers have looked at that and their thinking is, flawed as it may be, but their thinking is, we’ll just put on twice as much urea and reduce our potash and phosphate. This will catch up to them. This is not good for the crop production, the balance of nutrition that those plants need and it’s not good for the environment.”

“The Indian government to make this right will have to increase or decrease I should say the subsidy pay for nitrogen fertilizers and that means the price of nitrogen fertilizer will go up for the Indian farmers and no official in India that’s looking to be reelected is going to dare raise the price on urea which is domestically produced and a staple for the Indian farmer.”

“Right now we peg global MLP capacity in that 64 million to 65 million ton range. And based on our projected usage in the 55 million to 57 million ton range, you are looking at operating rates in the mid-80% range, 86% or so. Looking out to 2020, we are now putting expected capacity in the 81 million to 82 million ton range. We have knocked that down about 3 million tons. We had been around 84 million tons of the effective capacity. And our project demand in 2020 is around 70 million to 72 million tons. So that translates again into 85% to 87% operating rate more or less.”