The Mosaic Company

Good morning, and welcome to the Mosaic Company's first quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Please note, this event is being recorded. And I'll now turn it over to Paul Massoud. Please go ahead.

Thank you, and welcome to our first quarter 2026 earnings call. Opening comments will be provided by Bruce Brodine, President and Chief Executive Officer. Luciano Ciani-Pierras, Executive Vice President and Chief Financial Officer, will review financial results. We will then welcome Jenny Wong, Executive Vice President, Commercial, to join Bruce and Luciano as we open the floor for questions. We will be making forward-looking statements during this conference call. Statements include but are not limited to statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published this morning and in our reports filed with the Securities and Exchange Commission. Please note in today's presentation and in our press release and performance data, we will refer to and provide various financial measures, including adjusted EBITDA, adjusted earnings per share, free cash flow, cost per ton, and adjusted effective tax rate, either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to comparable GAAP financial measures can be found in our earnings release. Now, I'd like to turn the call over to Bruce.

Good morning, and thank you for joining our call. Our message for today is straightforward. The business climate is challenging, but it is allowing Mosaic to differentiate itself by benefiting from our significant advantages and optimizing our capital. I'll touch on these topics to begin. First, the business environment was and continues to be very dynamic. Geopolitical events are driving volatility throughout the global phosphate supply chain. Many producers are struggling to secure raw materials, resulting in an already tight market becoming even tighter. Global phosphate prices reflect that shortage, and this has put additional pressure on farm economics. Second, the current environment has allowed Mosaic to differentiate itself. The investments we've made in our U.S. phosphate assets over the last two years are driving higher production rates, with three of our four facilities operating at targeted rates at the end of the first quarter. With a planned turnaround at our largest facility, New Wales, now behind us, our production capability has improved significantly. Mosaic maintains an advantage geographic position. as well as a greater diversity of sources relative to global peers when it comes to sulfur and ammonia supply. But we aren't without risk. Raw material prices and availability, especially for sulfur, are forcing us to revisit our production plan. We'll discuss this in more detail shortly, but our key message on this topic is that we are making tough but responsible decisions that maintain shareholder value through the current environment without sacrificing our ability to benefit when conditions improve. This leads into my third point, which is that Mosaic remains focused on a disciplined capital allocation and reallocation strategy. In addition to adjusting our operating plan, investing in our phosphate assets, and optimizing our strong potash business, we're also shifting capital away from underperforming assets toward better opportunities. Over the last few months, we sold three mines and idled production at underperforming assets, and we're continuing to invest in new opportunities. This is all happening as we manage through the current realities of our business with agility. We've reduced this year's capex and are adapting our production outlook to the current market environment and moving inventory built at the end of last year to improve our working capital position. Before we dive deeper into our business, I'd like to spend some time on the broader market. As all of you have seen, the conflict in the Persian Gulf has exacerbated an already stretched global fertilizer market. Roughly 20% of global phosphate, a third of urea, a quarter of ammonia, and half of seaborne sulfur volumes originate in the Middle East. When combined with the product that comes out of the Black Sea, Nearly half of all phosphate raw materials have been impacted by the conflicts in Ukraine and Iran. You can see these dynamics in current phosphate benchmark stripping margins, which are under severe pressure despite elevated finished product prices. Compressed margins and limited raw material availability have forced producers to curb production. For example, China has banned phosphate exports through August, and other competitors have significantly curtailed production primarily due to sulfur availability. To put it simply, there is not going to be enough phosphate to meet global demand. Demand for phosphate remains dynamic as well, with diverging trends around the world. In the U.S., farm economics remain challenging, leading to careful nutrient purchasing decisions that impacted spring demand. In Brazil, Farmer economics and access to credit remain significant headwinds, and availability of nutrients and raw materials is weighing further on Brazilian agriculture. In contrast, demand from key markets in Asia has been stronger. In India, for example, the government has signaled that it will continue to support phosphate imports at today's prices. For regions grappling with affordability, demand disruptions should be temporary. there are real agronomic consequences caused by persistent underapplication. There is no substitute for phosphate, and when application rates are reduced too far or for too long, soil nutrient balances drop and yields are impacted. While those effects may not appear immediately, they have historically been an important driver of demand normalization as growers respond. Shifting to potash, Last year's stability has continued in 2026. Market fundamentals remain balanced, with robust demand in all major markets consuming global supply. US growers see good value in potash at today's prices, and this is being reflected in spring demand. In Southeast Asia, attractive palm oil prices are driving strong application. In China, Imports set a record in the first quarter as the country replenishes low inventories. Last month, Campotex announced it was fully committed through June and on pace for a record 2026. As such, we expect inventories to be tight through the second quarter. With this market backdrop in mind, I'll shift our conversation to Mosaic's business performance and outlook. In phosphate, we sold 1.9 million tons in the first quarter as deferred demand from the end of 2025 returned. This was the highest quarterly sales volume total for the segment in five years and reflection of the broad market access that allows us to position product where it's needed. On the production side, our investments in our assets are yielding results as well. In the past, we've talked about reaching finished product volumes of 1.8 to 2 million tons per quarter. But one of the most significant production hurdles for us over the last few years has been in our U.S. phosphoric acid rates. And this is where we're seeing real improvements. In the first quarter, Bartow, Riverview, and Faustina had phosphoric acid operating rates at or above 80 percent, which is in line with our targets. Our largest facility, New Wales, completed a very extensive planned turnaround in March. which should allow for higher phos acid rates from that plant in the future. Keep in mind that our finished product volumes will ultimately be driven by a combination of phos acid operating rates and the type of product our customers need, as some finished products like DAP and MAP require more acid than micro-essentials. The recovery in our U.S. operating rates combined with our structural advantages for raw materials have helped us thus far. Roughly 80% of our US ammonia needs are supplied by our own plant in Louisiana and below market domestic supply agreements, some of which are tied directly to natural gas. And roughly 80% of our sulfur needs come from the US Gulf oil refineries in molten form, which we've been able to source through the second quarter with no constraints. That said, we're not immune to the current environment as strong global sulfur demand competes for limited available supply, including product from our own backyard in the US. Today's spot sulfur prices imply compressed third quarter stripping margins that are well below our realizations in the first half of the year. Given this environment, we're reviewing our 2026 global production plan for phosphates and taking initial steps to curtail production. As part of these efforts, we're partially reducing production rates at Bartow and Louisiana and scaling back additional fertilizer production in Brazil. This is a temporary move that allows us to limit the need for incremental sulfur at today's prices and wait until the market normalizes. Our second quarter sales volume guidance reflects these actions, but we're prepared to restart operations quickly when conditions improve. We're committed to staying nimble and adapting as needed over the coming quarter. Fortunately, our potash business has been unaffected by recent geopolitical turmoil and continues to produce strong results. Our Belle Plaine solution mine benefited from low-cost natural gas, and volumes from Esterhazy trended higher from the fourth quarter. With the strength of global demand, we've continued to run Colance, which is a higher-cost mine that can have an impact on our per-ton production costs. That said, the ramp for hydroflow projects and other optimization projects at Esterhazy are expected to drive costs meaningfully lower as we move through the year, and this should offset the cost impact of Colance. In Brazil, we've managed the business to adapt to the difficult credit environment We've been selective in how we deploy capital, prioritize higher quality counterparties, and adjusted sales pace where appropriate, while continuing to support growers and maintain our market presence. In the short term, as we just discussed, raw material availability will have an impact on near-term operating rates. However, long-term fundamentals in Brazil remain promising, and we're positioned to respond as conditions improve. As we think about the enterprise as a whole, we remain committed to optimizing our portfolio, reallocating capital to our key assets, and investing in high return opportunities. Free cash flow remains a key focus for us as we manage through the industry seasonality and the global trends we just discussed. Deferred fourth quarter phosphate demand meant we started the year with elevated inventories that were now managing lower. Our phosphate finished goods inventory declined by roughly $120 million in the first quarter, although this was offset by product positioning in Brazil ahead of seasonal demand later this year. In addition to managing our working capital, we're taking a harder look at our CapEx profile and supporting costs. After a thorough review of our project plans, we've lowered our 2026 CapEx guidance by $250 million to $1.25 billion. Our new outlook optimizes our portfolio of projects and defers any less time sensitive projects to future periods. Our new plan will not have an impact on our longer term production targets. In addition, we are moving deliberately to streamline the organization's support functions. In April, we initiated a workforce reduction that is expected to generate annualized expense savings of $50 million. of which $15 million will be realized this year. This is in addition to the $100 million value capture program announced last year. We also continue to make significant progress in our efforts to address non-core assets as part of our capital reallocation strategy. Last month, we announced the idling and demobilizing of SSP production at Arishaw in Brazil, along with related mining activity at Patrocinio. We're assessing strategic alternatives for both sites, including a potential sale of the assets and the development of a niobium project at Patrocinio. In April, we completed the sale of our Carlsbad potash mine in New Mexico to International Minerals Carlsbad. These efforts to control costs and reduce future capital and ARO requirements create space for us to invest in new opportunities. Mosaic Biosciences continues to grow rapidly despite the financial pressure on farmers, a clear indication that our products are delivering on their value proposition. We expect to launch eight to 10 new products in 2026, including two new products that were launched during the first quarter. We expect Mosaic Biosciences revenues to double again in 2026. I also want to touch on our work on rare earth elements. which represents a long-term growth opportunity for Mosaic. In March, we announced a project development agreement with Rainbow Rare Earths following a positive economic assessment of the Ubaraba gypstack in Brazil. The project would recover rare earth elements from phosphogypsum rather than through traditional hard rock mining, leveraging existing byproducts from our operations. We are evaluating similar opportunities for rare earth extraction in the U.S., and early findings are encouraging. This is a long-term opportunity, and we are advancing it in a disciplined, phased manner consistent with our investment criteria. To conclude, clearly, we and the rest of the industry are operating in a challenging climate. Overall, we are managing with speed and agility, taking actions that are required by our current environment without sacrificing the long-term opportunities of our business. We believe we are well positioned to take advantage of the inevitable better market conditions when they arrive. Now, I'll ask Luciano to provide more details on our financials.

Thank you, Bruce. So I will focus on what moved the numbers this quarter and the actions we took in response. In phosphates, prices have continued to rise as a result of tight supply and the growing incremental consumption in industrial markets. On the raw material side, our dedicated sulfur supply chain in the Gulf, on one hand, and some delay in the flow of higher-priced sulfur through inventories, on another, enabled us to realize an average cost of sulfur of $379 per ton, which allowed us to realize tripping margins near $400 per ton for the quarter. On the cost side, as Bruce mentioned, customer demand resulted in a product mix toward a higher percentage of sales represented by MAP and DAP, and this had an impact on all lines in our cost of goods sold. To put this in perspective, on a per-ten basis, micro-essentials are comprised of 33 to 40% phosphoric acid, depending on which micro-essentials product we're talking about. However, MAP is comprised of 52% phosphoric acid. Higher acid content per ton of finished product we sell will have an impact on unit COGS, including conversion cost per ton and raw cost per ton. This dynamic will become less visible when our production volumes and product mix normalize. Specifically with regard to raw costs, during the first quarter, we moved all three of our South Fort Mead drag lines to the new eastern extension and we performed a turnaround at the mine's beneficiation plan. As we have said in the past, transition to this new area defers the need to construct a new mine and beneficiation plan well into the future, as a result of our ability to pump slurry much longer distances to existing plans. However, we're seeing increased overburden in the new area, which resulted in somewhat higher Florida cash mining costs of $63 per ton but we expect some improvement as the year progresses. Finally, in raw materials, we do expect to see further increases in sulfur and ammonia costs in our second quarter financials. Historically, we have stayed away from guiding towards sulfur and ammonia costs, but given today's dynamic market, we thought some guidance would be helpful. For the second quarter in our phosphate segment, we anticipate realized sulfur costs of roughly $540 per ton, and ammonia costs roughly $610 per ton. When combined with our DAP pricing guidance for the segment of $760 to $780 per ton, this suggests that second quarter realized shipping margins will be in excess of $400 per ton for our sales book, 60% of which has already been committed and priced. Shifting to Brazil. In Brazil, we managed through similar software cost dynamics alongside a challenging credit environment, with performance for the quarter coming in better than expected. Our distribution business continues to differentiate itself through careful risk management. Per ton, distribution margins improved sequentially, despite a challenging environment for customer credit availability. And we expect further improvements in the second quarter. In production, as we previously reported, we made the decision to idle operations at Araxá and Patrocínio. Of the $442 million in charges associated with these actions, $328 million was non-cash. While the former idling of FOSPAR in December was directly related to the current sulfur environment, our decision on Araxá and Patrocínio had been contemplated long before the recent disruptions. This is very important. Sulfur prices have exacerbated the situation, but Arashat's returns have struggled to meet our internal hurdle rates for some time. Remember, that facility was exclusively focused on SSP production, a product whose margins have historically been challenged by significant import competition. Looking ahead, we believe this decision will result in improved operating margins for the segment, with annual maintenance capex savings of $20 to $30 million helping cash flows. Also on the positive side, our Fertigliosanches production business benefited from sequentially lower turnaround and repair costs. Finally, as Bruce mentioned, we're very focused on cash flows. Our updated CAPEX guidance follows a thorough review of our project portfolio and a deferral of less time-sensitive projects to future periods. On working capital, We delivered on our promise to sell 1.9 million tons of phosphate products above production, and thus we were able to release $120 million of inventories tied to finished goods in the phosphate segment. This release was mostly offset by purchases and increases in finished good inventories in Mosaic Fertilizantes in preparation for seasonal demand in the coming quarters. If you look straight into the balance sheet, Total working capital was modestly higher in Q1 compared to an increase of roughly $400 million in the first quarter of 2025. So what's the outlook for cash flow generation to the remainder of the year? 2026 cash flow generation will be influenced by higher raw materials prices as higher sulfur and ammonia costs continue to pressure working capital, both in the raw materials inventory line and in finished goods inventory as well. Also, our production plan will influence cash flow generation, which we will continue to evaluate as market conditions evolve through the balance of the year. In the meantime, we will be diligent on things that we can control, as we've shown through our cost savings initiatives and our lower CapEx budget in 2026. To close, we have taken decisive actions to face an uncertain environment, curtailing operations, reducing support function costs, cutting CapEx, and managing working capital. All these actions reflect our resilience and position us to benefit over the longer term. I'll stop here and turn the call back to the operator for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. please limit yourself to one question. Our first question today is from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi, good morning. This is Justin Pellegrino on for Vincent. I was just hoping you could help us a little bit on the working capital side. You had previously mentioned the $300 million to $500 million of working capital release. Understanding the world has changed since that was provided, but any sort of directional range, including your change in production guidance or Any other changes in raw materials would be helpful to directly understand what's going on there. Thank you.

Hey, Justin, thanks for the question. We have been saying that $300 million to $500 million release of working capital, we saw a good chunk of that, all else being equal as we came out of Q4 into Q1, materialized with that 300,000 tons of additional sales and phosphates overproduction. As Luciano talked about, it was about $120 million of cash. But we did see some offsets in that with working capital build, which is seasonal, by the way, in Brazil. But with these higher input costs, that helped offset that as well. But given the production plan that we have talked about, and I'll turn it over to Luciano in a minute, we do see release of more working capital in second quarter and throughout the year. Luciano?

Yeah. Okay. Sorry. Just to understand the dynamics, if we were not to curtail production, actually the increase in the price of sulfur and ammonia would actually reduce that $300 to $500 million of release. Just for you to understand, we do have about 30 days of inventory of sulfur. That equates to approximately 400,000 tons of sulfur. And there's another 400,000 tons of sulfur in our finished goods inventory usually, give or take. So 800,000 tons of sulfur, if sulfur prices increase, for example, from $500 to $800, $900 per ton, you can see $400 times 800,000 tons, it gives you a headwind of about $300 million of working capital additional bill. However, because of the curtailments, you should expect a more accelerated release of working capital, kind of offsetting a little bit the effect of sulfur. Of course, because this curtailment will be temporary, it's a little bit difficult to anticipate now what is going to be the actual release of working capital, but we see two opposing forces now. Increased raw material prices reducing the release, which was mentioned in Q1, But the curtailment is actually increasing the release. So the 300 to 500 pretty much continues to be our estimate for release.

The next question is from Chris Parkinson with Wolf Research. Please go ahead.

Great. Thank you. Can you just talk a little bit about the U.S. versus international dynamics? I mean, even with rising ammonia and sulfur prices. I mean, the prices of the international market continue to strengthen even as of this morning in India. And obviously, that hasn't been a huge focus over the last few years. But can you just talk about how you're thinking about, you know, the two and probably perhaps more so the 3Q order book and whether or not your production guidance for the second quarter is assumes that sulfur is going to rise even further for the 3Q contract in terms of how you're thinking about second half dynamics as it relates to projected stripping margins. Thank you.

Yeah, Chris, thanks. I think we're seeing it pretty similar to the way you've kind of framed the question. International prices are garnering a premium over domestic North American prices. But Besides that, we're just seeing demand not as active in the Americas as in international. We've positioned product trying to be cognizant of the North American farmer needs, but until buying actually happens, we've been forced to pivot the international markets. And to your point, prices have been pretty good. But at today's input costs... on sulfur and ammonia, even at the international prices going into Q3 and Q4, given an anticipated rise in sulfur price. We see stripping margins being in a place that may not make as much sense for us. So taking action today, even though demand continues to be Active in certain parts of Asia and Jenny can talk more about that in just a minute. We've been forced because we can't get raw material in some jurisdictions and then the price of that that we can get another jurisdictions simply have stripping margins beyond the place that we feel that we can reliably run. So we are making the decisions today. to preserve more Q2 sulfur for longer, as Luciana was saying, and we'll have to make decisions in the future on what happens on the raw material front, and we'll have to watch what happens with net stripping margins worldwide. But we only have so much sulfur that we feel comfortable with to meet the needs of where we do see active production or active demand in any jurisdiction. Jenny, you want to talk a little bit about that? dynamics in the world?

Yeah, probably just very quickly, Chris. The international demand is very strong, partially because of a very low inventory as we end at 2025, and that is the effect of continuous strong demand and the restricted supply. And in the first quarter and also into the second quarter, it is particularly obvious in the market like India and also some other markets like Pakistan you will see it in some of the African countries like Ethiopia those governments they provide support and the subsidies to their farmers therefore you can see that the demand is much more active even with the price that we're talking about as of today and the latest Indian tender basically confirmed what we have assumed in the demand.

The next question is from Kristen Owen with Oppenheimer. Please go ahead.

Good morning. Thank you for the question. Similar type of question. Appreciate the Q2 visibility that you provided and understanding that the world is very dynamic, maybe don't have as much visibility into the back half of the year. But maybe you could help us walk through the milestones that you are watching for the second half. What are the scenarios as you see them playing out today? And maybe ask you to emphasize particularly how you're viewing the market in Brazil here going into the second half of the year. Thank you.

Yeah, thanks, Kristen. No doubt things are murky on clarity of what's going to happen. So the things we are watching, obviously, as everyone's watching, is what's happening on fluidity out of the Straits of Hormuz. Every day there's a reaction, it seems like. So we're watching that. But what we'll be watching, assuming the conflict comes to some resolution in a near-term scenario, is how quickly that fluidity gets back to normal, particularly for us, on sulfur flows. Make no mistake, sulfur availability and subsequent affordability are the biggest things driving our view from a Mosaic standpoint on where we can participate and what we can produce to participate. That is the biggest driver of everything that we have done and continue to watch So how quickly sulfur starts to get to more normalized levels from a cost standpoint and a fluidity standpoint are things we're going to watch. But I think in the big scheme, no matter how frustrating and dynamic the current situation is, these are temporary issues. And we've got to look beyond this Persian Gulf unrest. Things will get back to normal at some point in time. The underapplication of fertilizer, particularly on phosphate, and in Brazil, just difficulty getting all nutrients, particularly nitrogen and phosphate, is going to have a yield impact on the future crops. Yes, global grain and oilseed stock-to-use ratios sit in a – not crisis mode today, but it doesn't take much to upset that two to three percent. And we see ag commodity prices actually being pressured in a good way on the upside, where affordability concerns will get better for farmers in time, and that with the fluidity that will ultimately come for sulfur and other commodities in the fertilizer space coming out of the Straits over Moose, things will return. And We're making decisions on production curtailments today that we can quickly unwind and be flexible to come back with production when things, A, get more clear on what's going to happen with the raw materials and where will demand actually go, and, B, as all of that starts to unwind, we know that tailwinds will exist for nutrient demand, giving the underapplication of phosphate that's going on particularly in the Americas.

The next question is from Jeff Zakoskas with JPMorgan. Please go ahead.

Thanks. I have a two-part question on raw materials. Your average ammonia prices were, I think, $6.26 a ton in your phosphate segment. You say in your script that 80 to 85% of your needs are met through production from Faustina. I thought Faustina was maybe, you know, a third or a fourth. And the 620, you know, call it 626 number, like that's very close to prices for ammonia. I mean, those were higher prices than what CF or Nutrien realized. Why are the ammonia values as high as they are? And then secondly, in sulfur, do we know how much sulfur are on ships that are behind, that are currently blocked, that would be released if the straits opened?

Hey, Jeff, thanks. Let's just go back through on our ammonia just to set the table. 80% of our ammonia is either internally supplied or market advantaged strategic contracts. That puts us at 20% exposed to spot. But going into Q2, we did see sulfur ammonia prices rising. on settled monthly contracts. And I think probably in quarter four we had, or quarter one we had Faustina and some turnarounds. So that affected the mix of sulfur. But on a normalized basis, roughly 30% comes from Faustina supply. Again, depending on turnarounds and what's going on, in any given quarter, and then the remaining up to 80% is better than market, much of which is natural gas-tied contracts with producers, and then we're exposed to 20% on spot. As far as sulfur goes and what is pent up on ships behind the Straits of Hormuz, I don't think there is good visibility into that, Jeff. That definitely is something that we're going to have to watch intently as things more normalize or resume to whatever new normal is going to be. But make no mistake, there has been refinery damage due to the conflict in different parts of the Arab Gulf and how fast that's able to return, to resume, to kind of normalize levels of supply. are yet to be determined as well. So we know there will be some disruption, but getting fluidity back is key to seeing what we believe is a recovery and better participation. Luciano has something to say.

Jeff, and for all, there's a big difference between the marginal cost of sulfur and ammonia for the marginal cargo, which drives our decisions at the margin, and the average cost across our portfolio, and even the average cost across time, because it takes time for prices to flow, portfolio prices to flow through inventories. And so every decision that you're seeing us taking today is driven by the marginal cost of sulfur, which today is at $1,200 per ton, and the marginal cost of ammonia, give or take, let's say $800 per ton. So if you apply these marginal costs, for example, to the stripping margins, that we realize in Q1, very quickly you're going to see that the marginal sweeping margin is below variable costs. It doesn't even cover variable costs. So very important not to separate marginal costs to average costs, which is going to be much more favorable, even in Q2, because of our portfolio, because it takes time for our materials to flow through inventories. So I just wanted to make that distinction.

The next question is from Matthew Deyo with Bank of America. Please go ahead.

Good morning. I wanted to ask on potash a bit. I know mix changes a little bit, but we're kind of running the third potential quarter here of FOB mine potash prices with a 260 kind of on the low end would imply maybe on the lower end, just flat potash realizations for three quarters. why isn't that lower end improving at all, just given what we've seen as it relates to kind of market prices moving up? And then the 2Q potash shipments guidance may be a little bit weaker than I would have thought, particularly in the general framework of 9 million tons, I guess, overall produced. Is that just maybe a difference between production and shipments? Because it would seem like it implies a fairly strong 2H impact kind of shipment guidance, you know, not crazy, but maybe considering the backdrop for the economics of the farmer in 2-H, maybe a little bit heavier lift than we would have thought.

Thanks, Matthew. I'm going to turn it over to Jenny to answer the first part of your question, but let me, while I'm on, take the second part. I think one thing that perhaps people are missing in our guidance is that KMAG is no longer in our potash guidance, which, depending on the quarter, could be around 150, 175,000 tons. So I think if you add that back in historically to the guidance that we gave, we're seeing pretty normal uptake rates in demand in our guidance number within North America and internationally. In fact, Amputex sold out through June. on pace to set a new record potentially this year. And to your point, Matthew, that does mean a record second half shipments internationally out of Campotex, if that were to materialize. And then we see pretty much normalized North American shipments. So it is a heavier second half for potash shipments. But the guidance in Q2 is, fairly normal without KMAG in there, which I think would appear that it's lower than what usually is because that math is not in there. Jenny, you want to talk about ASPs?

Yes. Matthew, let's start with the potash market. It's a stable and balanced market. The demand has been pretty strong and the supply was keeping up. The price, that's why you're not seeing a major change on the bottom end of the guidance. One factor that I probably want to remind you is Campitex is selling potash A in a pretty big contract market, which is the same price for the full year. The second part is they're selling very far ahead of the delivery time, meaning Q2, most likely most of the sales was made in probably in Q4 and into Q1. Since February 28, we have seen very strong price appreciation in the major spot market, including Brazil. And also, so that will reflect the selling price and the net back for Capitex in the following quarters. And lastly, I would say North America, over the spring in-season sales, we have seen very nice price bump due to this very strong demand by the U.S. farmers. So that will be reflected in Q2 and also into Q3 in terms of the sales.

The next question is from Lucas Beaumont with UBS. Please go ahead.

Thanks. Good morning. Just going back to kind of the phosphate volumes. I mean, the production there has been pretty steady since sort of three quarters at about 1.65 million tonnes. I mean, you called out kind of the further improvements in the underlying asset base sort of during the quarter. So I guess, can you kind of just frame for us exactly how much are you curtailing production into 2Q? I guess, what would have the production been otherwise? And then as we look forward into the second half, I guess one, if raw materials continue to kind of be constrained how they are now, would you need to take production down further as we go into the third quarter? And is this helping or hurting your ability to kind of get to that sort of 8 million ton target? Is there any extra work you're going to do while things are down, or is this going to sort of slow things down that way and maybe make the improvements slower over time? Thanks.

Lucas, appreciate the question. Let me just start by we're disappointed that we have to make these actions because we are seeing great progress in quarter one. In fact, three of the four facilities were at kind of our target rate. With the fourth, New Wales, our biggest facility was in turnaround. In fact, it was one of the longest and largest turnarounds that's been done in several years at New Wales, just by nature of the scope of things that were up for scheduled turnaround timing. So we were very optimistic coming out of that that we would have seen further improved rates. How much is this going to affect? It's impossible to answer precisely, but let me give you a little color of the magnitude of what the announcements are that we did make today. So Louisiana partial curtailment is about half of its production capacity at 1.4-ish million tons of finished product capability. about half of bartow's capacity at 2 million tons of annualized capacity as i said and as we said in the prepared remarks these are temporary matters that can be quickly unwound and if we see things change on raw materials we will quickly undo that as far as doing more work during this down period We were happy with where we were performing, and we're anxious to see coming out of this New Wales turnaround how all four facilities were going to perform. Unfortunately, this situation is going to mute our ability to prove that and demonstrate that in the short term. So we're going to continue to invest in the things that we need to invest in, but with the production curtailments coming, We have made some decisions on postponing some capex, more probably around waste due to the lack of production on gypsum stacks and clay settling areas that we can get away with, mostly gypsum stacks, and other time-sensitive things that this creates an opportunity on. So we've been diligent in looking at how to do that to match up with our current thoughts on production plans. This situation becomes protracted and we don't see relief in sulfur price or net improvement in what we see as future realized stripping margins. We have more options that we are looking at and will execute on for further production curtailments. At the end of the day, if we don't see relief in stripping margins, however you want to calculate getting there, whether it's sulfur price finished product price or some other way, we don't feel good about the margins that we have in this business to be a reliable supplier to what the world needs. So these are the difficult decisions that we are looking at day to day and watching what happens in the Middle East and the Persian Gulf specifically to see how we go from here.

The next question is from Elaine Rodriguez with Mizuho. Please go ahead.

Thank you. Good morning, everyone. I mean, this is for both in general. So I think this is about affordability in fast trade. If prices go up too high, you might see demand defer or demand disruption. But at the same time, the industry needs to raise prices to recover margins. What do you do?

Yeah, Elaine, this is an unsustainable situation that we're in, and I think you highlight that well. Rarely, if ever, have we seen where stripping margins on the phosphate producer side are this compressed and farmer affordability at the same time being this stressed. Something has to give, and I think at $1,200 sulfur price, As an example, much if not all of the producer cost curve is underwater, and we're not immune to that. So that's why I believe you're seeing curtailments happen throughout the globe. That's why it's happening within Mosaic is because this sulfur price is unsustainable given the other costs of raw materials and given the net stripping margins. that we see boxed in by probably farmer affordability given current ag commodity prices. As I said, what gives in the future and why we remain optimistic that this is a temporary issue and things will revert. At some point in time, the straits of Hormuz will open up. At some point in time, the fluidity of sulfur will get better and improve. The nutrient removal Last year, the lack of application in fall and spring, this year net-net per crop year, is going to be significant. And yield response will show up. We're already seeing commodity prices in whole since the beginning of the year rise. Jenny can talk more about that. Corn and soybeans, not as fast as some of the others. But this is likely what's going to happen in the future. It will improve farmer affordability. Hopefully you see improvements on raw material costs that go into phosphate. Net of net, a much more healthy environment at whatever new sustained level that is. But we see stripping margins actually getting back to something much more healthy once we get beyond this temporary issue. And remember, even before this Persian Gulf conflict, phosphate was tight. It was driving demand destruction just because there wasn't enough supply. It's only been further exacerbated by this with a boxed-in barrier of farmer affordability, and that's mostly in the Americas. But we are seeing, to Jenny's point, participation in other areas, particularly in Asia, where government policy and subsidies and things like that help keep things moving. But again, eventually things will revert back. More likely, ag commodity prices will be better given the need for nutrient replenishment and the fact that yields will be impacted due to lack of fertilizer application over this past six months. And we remain optimistic that the fundamentals will return. And we're going to be positioned in a good place to capitalize on that. With our production that's returning and the raw material supply and agreements that we have, we think in the long run still advantage us more than others.

The next question is from Joel Jackson with BMO Capital Markets. Please go ahead.

Hi, good morning. It's Evan on for Joel. I just wanted to ask about Fertilizantes. Obviously, you pulled the guidance for Q2, and usually Q2 is much higher earnings than Q1. If you wouldn't mind outlining the puts and takes in Brazil for Q2, please.

Thanks, Evan. I'll probably turn it over to Luciano and Jenny to provide some commentary. But no doubt there's uncertainty, hence why we pulled kind of our – recent practice of providing some type of indication on EBITDA for the segment. But with a lack of ability to get sulfur into our production facilities, that's one contributing factor. But Brazil in general has to import much of their nutrient needs for fertilizer blends that go to the farm. Lack of nitrogen, lack of phosphate, And the uncertainty of when those things resume to more normal levels is why we kind of pulled that guidance. Not why we kind of, it's why we pulled that guidance. Because there is just lack of certainty. Now, before they get into the details, we're still very bullish on long-term outlook in Brazil. Again, Mosaic has positioned ourselves, our strategy we still believe in, that we will be there with our assets, particularly on the blending side. to grow as that market grows. But 2026 is likely going to be a contraction in fertilizer use in Brazil, just due to the sheer fact that nutrient availability is not there. Jenny, Luciano?

A few reasons why Q1 performance was a little better. First, distribution margins surprised on the upside. And I'd say they tend to continue to improve because with actually less volume to sell, you can actually target your better customers. So distribution margins tend to increase. A little bit of pricing better than we expected in Q1. And also the appreciation of the Brazilian Real has a short-term impact on some of our payables, especially the distribution payables. In equal parts, these three things explain price. the surprise and the upside for results. Looking forward to Q2, we do have parts of our portfolio of sales that are profitable in, I would say, in any environment. So part of sulfuric acid that we produce, it's tied into cost plus contracts. We also produce DCP, which is a product that goes into animal nutrition, which has a much higher, I would say, willingness to pay. It's a much smaller percentage of the cost structure of these customers. But the commodity products, SSP, is in a very bad place right now. And even the MAP and DAP products, as I indicated, with marginal sweeping margins are in a bad place. So put all of this together. Very hard to predict where we're going to land in Q2.

At a data point for Brazil market, Bruce mentioned we're likely going to see a decline of the shipment in Brazil. A big part of the reason is the availability of the nutrients. Brazil needs to import 85% of NPK that the country needs. And the first four months, especially April, we saw reduction of the input, especially on nitrogen and phosphate. The in-country inventory is extremely low for all the nutrients, and the nitrogen phosphate unlikely going to be, the shipment unlikely going to be catching up given the low availability in the international market. So that is also the reason that we are not really giving guidance given so much uncertainties.

The next question is from Duffy Fisher with Goldman Sachs. Please go ahead.

Good morning. Just two quick questions. One, what's going to be the cost impact of running the phosphate segment at the lower operating rates in Q2, either absolute or on a per unit basis? And then the second one is I just want to double check. Your base expectation is still that working capital generates at least $300 million of positive cash flow with the puts and takes. Did I hear that right?

Yeah, Delphi, I'm going to just turn it over to Luciano to address that.

Starting by the second question, yes, the expectation continues to be there. As I laid out, two opposing forces, raw materials, tending to push this down, but curtailment is tending to push this up. On the cost impact, we actually were aiming at getting close to $105 per ton conversion costs in phosphates before the curtailments. I'm sorry, $90 per ton before the curtailments, which is actually significant. It's below, actually, the range we gave in Investor Day last year. But with the curtailments, if they continue, it's probably going to land at $105, $110. So it's not going to be much lower than $110. And it's going to be driven mostly by better performance at new wells. Again, most of the tons come from there after turnarounds, operating rates going up. So even with the curtailments, we see cost per ton coming down.

I mean, it is hard to predict what's going to happen beyond Q2. And I know your question was more on the Q2 side. But that's why we're doing everything we can to control the things we can control with looking at CapEx. looking at another round of cost savings, the $50 million we talked around, for support function costs. That adds to an already $100 million target. So controlling the things we can control or the things we're going to focus on, to continue to remain as cash positive as we can given this difficult time.

The next question is from Mike Sison with Wells Fargo. Please go ahead.

Hey, good morning. Just when you think about phosphate volumes and 2Q, you gave us guidance for that. If nothing really changes, is that sort of the level-based case we should think about for the third quarter? And then I guess similar with Ferzolante, you didn't give us specific volume guidance, but whatever you end up doing in the second quarter, does that Is that kind of a base case heading into the 3rd? Until everything gets better like this.

Sorry, we had a problem here. What was your first part of your question? Not ash.

Mr Sison, did you meet your phone?

no yeah i i my question was for phosphate and if if the the 2q volumes come in as is um is that the base case for the third quarter and and similarly for for zelantes is that it you know whatever volumes you come in into the second is that the base case into the third until um conditions improve yeah mike uh thanks uh really that's why we not we pulled guidance is

We don't feel comfortable being able to give you a forecast on that. I could say it could go either way, to be quite honest, depending on if somebody could say this conflict ends in the Persian Gulf and fluidity gets back to normal within 60 days. I'm just picking a scenario. That would probably improve things for us. If it became protracted beyond Memorial Day, what's that? Labor Day, sorry, and went on further, we're going to be struggling with this for longer. And it could actually be even more dramatic as sulfur availability is even more curtailed than what we currently may be thinking about. So, again, it comes down to affordability of sulfur that if you can find it, what's its affordability going to be? But more specifically, is it even available?

That's a correction. I mentioned 110 to 105. This is more a second half cost profile than a Q2. Q2 is going to be somewhere in between what you saw this quarter and the second half numbers.

This concludes our question and answer session. I would like to turn the conference back over to Bruce Boding for any closing remarks.

Thanks, everyone. To conclude our call, I'd like to take the long view, as we've talked about today. Yes, the current environment is challenging for the phosphate industry. At Mosaic, we're doing everything we can to weather the storm without sacrificing our ability to benefit when business conditions improve, and they will improve. Raw material prices are at unsustainable levels, and they will come down once global trade flows resume. But more importantly, the long-term phosphate supply and demand picture has not changed. Phosphate supply is very tight now and will remain tight when more normal economic conditions resume. We've built Mosaic to be resilient, and we're demonstrating that resilience now. Our improved asset reliability, extensive market access, diversified business, and strong financial foundation will allow Mosaic to thrive in better markets. So thank you for joining our call, and have a great day.

The conference is now concluded. Thank you for attending today's presentations. you may now disconnect.