Mosaic Company (The)

Good morning, ladies and gentlemen, and welcome to the Mosaic Company's first quarter 2022 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. Your host for today's call is Paul Mazud, Vice President of Investment Relations and Financial Planning and Analysis of the Mosaic Company. Mr. Mazud, you may begin.

Thank you and welcome to our first quarter 2022 earnings call. Opening comments will be provided by Jaco Roark, President and Chief Executive Officer, followed by a fireside chat, as well as open Q&A. Clint Freeland, Senior Vice President and Chief Financial Officer, and Jenny Wong, Senior Vice President, Global Strategic Marketing, will also be available to answer your questions. We will be making forward-looking statements during this conference call. The 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 furnished yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now I'd like to turn the call over to Jack.

Good morning. Thank you for joining our first quarter 2022 earnings discussion. I hope you've had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday. I will provide some additional context before we respond to questions we received last night, and then we'll conclude with a live Q&A session. Mosaic delivered first quarter net income of $1.2 billion and earnings per share of $3.19. Adjusted EPS was $2.41 and adjusted EBITDA was $1.45 billion. Our results continue to highlight the positive evolution of our business, which reflect the contribution from Brazil, the additional production from the restart of Colonze, and the transition to K3, one of the largest and most efficient potash mines in the world. Phosphate segment adjusted EBITDA totaled $632 million, reflecting the impact of strong pricing, which more than offset higher input costs. Potash also benefited from higher prices, as well as the transition to Esterhazy K3 and the elimination of brine inflow management costs. As a result, segment adjusted EBITDA totaled $651 million. In Brazil, Mosaic Fertilizantes generated first quarter adjusted EBITDA of $233 million as the team capitalized on a strong market environment and its inventory position, particularly towards the end of the quarter as seasonal demand began to pick up. Looking forward, we continue to see agricultural market strength extending well beyond 2022. The year began with a tight agricultural market and elevated prices, reflecting a 20-year low in global grain and oilseed stock-to-use ratios. The conflict between Russia and Ukraine has exacerbated the situation and pushed soft commodity prices even higher. Together, these two countries account for 16% of global grain and oilseed export market. With Ukraine's planting season now at risk in the coming year and Russian crop export potentially also being constrained, The market is grappling with the potential of reduced supply of a number of key crops, which includes wheat and corn, but also oilseeds like soybeans, sunflowers, and their respective oil. This situation has amplified food security concerns and is resulting in protectionist government policies that will likely drive commodity prices even higher. As an example, last week Indonesia placed a temporary ban on exports of palm oil, one of the most commonly used cooking oils in the world, to ensure domestic supply. All of this suggests elevated crop prices are likely to persist for the remainder of 2022 and beyond. The strength in crop prices combined with global fertilizer industry supply constraints have pushed nutrient prices higher. In potash, sanctions against Belarus and uncertainty over Russian exports are having an impact on supply. Global prices have pushed higher as buyers look to secure adequate volumes. The global phosphate market has also priced in uncertainty around Russian supply of both finished products and inputs like ammonia and sulfur, though we are seeing some movement of Russian phosphates today. In addition, China's export restrictions remain in place. While we expect an easing of China's restrictions, we believe phosphate exports will drift lower over time as secular demand trends continue to grow especially on the industrial side from chemicals and electric vehicle lithium iron phosphate batteries on the demand side we expect global shipments of potash and phosphates to be down from 2021 but the cause of this is availability not affordability consumption will be forced to adjust to available supply in north america weather is indicating the possibility of a compressed application season but growers remain incentivized to maximize yield today's crop prices more than offset input cost which suggests that farmer profitability in 2022 will be at the second highest level in more than a decade similarly Grower economics have also improved in Brazil thanks to rising soybean prices. In India, farmer demand for nutrients remains very strong thanks to another good monsoon season and strong global grain prices. But availability is still lagging. In response to stronger grower demand and historically low domestic inventories, last week the government increased fertilizer subsidies. We see this as a positive development that should help to meet some though likely not all of India's significant pent-up demand. As we look at our business in the context of today's global markets, we remain very optimistic. In potash, K3's ramp-up to the initially targeted 5.5 million tonnes per year is now complete. Logistical constraints and winter weather impacted first-quarter shipments and production, but these issues appear to be largely behind us. In addition, Kalonze, which was down in March as rail constraints forced temporary curtailment, is now back online and operating at an expanded run rate of 1.3 million tons over our initial target of 1 million tons. In the second quarter, we expect sales volumes of 2.4 to 2.6 million tons. Realized prices in the second quarter are expected to be $40 to $60 per ton higher than realized prices in the first quarter. In phosphates, we expect a recovery in volumes in 2022. Raw material costs have escalated, but we are well supplied to meet our production targets. In ammonia, we continue to benefit from a significant cost advantage thanks to our internal production at Faustina and our supply agreement with CF Industries. In the first quarter, 80% of our ammonia needs were met by tons linked directly to Henry Hub now and shielded from the price swings in the global ammonia market. As a result, our first quarter ammonia costs were roughly half of the benchmark prices. In the second quarter, we expect phosphate sales volumes of 1.9 to 2.1 million tons. Our expected sales volumes reflect an improvement in logistics delays, somewhat offset by inventories well below historic levels. Second quarter phosphate prices on an FOB basis are expected to be $140 to $160 per ton higher than first quarter prices. Price increases in the quarter are expected to significantly outpace the impact of higher raw material prices on our cost structure. For mosaic fertilizantes, we expect the business to continue reflecting the favorable market backdrop and our transformational efforts over the last two years. Seasonal demand began picking up late in the first quarter and should continue through the sophomore season. We expect to benefit as potash inventories, which were built during the fourth quarter, begin shipping to customers. We are seeing inflation affect our cost structure, but believe ongoing optimization should offset much of the impact. Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022. Returning capital to shareholders remains a key part of our strategy. We continue to expect returning up to 75% of our free cash flow to shareholders through a combination of share repurchases and dividends, including the $463 million returned in the first quarter of 2022. We completed the $400 million accelerated share repurchase program announced last quarter and continue to repurchase shares through our existing authorization. As a reminder, last quarter our board also approved a new $1 billion authorization. In the area of balance sheet strength, we remain committed to reducing long-term debt by $1 billion. Part of that target was met with the retirement of $450 million last year, and we expect to reach the finish line later this year when another $550 million of long-term debt reaches maturity. Given our outlook for the year, We expect we'll also be able to continue investing wisely and efficiently in our business. We seek out high returning, modest investments in areas like enlarging our footprint in Brazil, expansion of micro essentials, and investments in soil health and biologics. With recent disruptions to global fertilizer supply, a situation we believe could extend for some time, we are also actively exploring de-bottlenecking opportunities to increase our fertilizer production as quickly as possible. In Potash, we've already raised Kalonze's annual run rate to 1.3 million tons, up from our initial restart target of 1 million tons, and we see a path to reach 1.8 to 2 million tons in the second half of 2023 through the restart of Kalonze's second mill. At Esterhazy, we are exploring the de-bottlenecking of the mills, which could add several hundred thousand tons by the second half of next year. In total, these initiatives could add roughly 1.5 million tons of potash production by the end of 2023. The cost for all these projects is expected to be less than $100 million. In North American phosphates, we expect production to be roughly 1 million tons higher than the 2021 production total of 7.3 million tons. As headwinds experienced last year are addressed and our assets run at more normal rates. In Brazil, we are pushing for improved recovery from our phosphate mines, and we're exploring the expansion of our Taquari mine that increases production and extends its life. In total, when one considers our footprint in North America, our production in Brazil, and our allocation of modern finished product, by the end of 2023, we have the potential to see operating rates close to 25 million tons of total finished product well above our 2021 production total of 19.7 million tons. We take our mission of helping the world grow the food it needs very seriously. We believe the geopolitical issues that have impacted global supply during the first quarter will not be reversed anytime soon. As a result, we are pulling every lever we have to efficiently raise our production rates to help offset the supply shortages from other sources in ways that also creates value for shareholders. With that, let's move on to the Q&A portion of the call.

Thanks, Jock. Before we open lines for the live Q&A, we're going to address some of the most common questions we received last night after our materials were released. Our first question is on the issue of the potash market and the geopolitical issues that are impacting supply. What is Mosaic assuming for global supply and where replacement tons might be coming from?

Thank you. Together, Belarus and Russia represent close to 40% of the global potash market. Their absence is nearly impossible to replace, and today's prices reflect that. Belarus remains sanctioned, and our previous assumption of those tons coming back midyear appears optimistic, as most or all of their exports will be curtailed due to logistics. Russia is another factor following the invasion of Ukraine. While some tons are making it to market, The Swiss system expulsion makes shipment and transactions difficult. We expect that some buyers, especially in Asia and South America, will try to work around the hurdles, but they can't all be overcome. Remaining producers will struggle to make up those tons in the near term. That's why we're pushing ahead with our de-bottlenecking plans and expect others to do the same. We're expecting a tight potash market to extend well beyond 2022.

A follow-up question on this issue. How much can Mosaic raise volumes to help fill the gap? Specifically, what is Mosaic doing to add those incremental 1.5 million tons?

Thanks, Paul. We are actively increasing productive capacity in our potash business. We're already running assets at a 10.8 million ton run rate with the ramp-up of K3 and running Colonse at 1.3 million tons per annum. As we move forward, we have project teams actively working on two additional miners for Esterhazy, the de-bottlenecking of the Esterhazy mills, and the restart of the second Colonze mill.

Jock, some have asked about the potash price guidance for the second quarter. Can you elaborate on what is reflected in those figures?

Our price guidance of $40 to $60 per ton increase over Q1 does include some conservatism. First, we are seeing today's market prices. But our realization timing will depend on our railway's ability to return to normal rates. We believe the sooner rail returns to normal, the sooner our price realization will reflect a shorter lag to market pricing.

Let's shift focus to nutrient affordability. Are growers beginning to hesitate given the level of fertilizer prices?

Thank you, Paul. If there's anything that's inhibiting grower demand, it's availability of nutrients, not affordability. With near-term corn at $8.20 a bushel, near-term soybeans at 16 plus a bushel, and palm oil at 7,000 to 8,000 ringgits per ton, global growers are seeing solid profitability levels. In North America, buyer behavior is focused on near-term applications. Weather has forced a compressed planting season, but today's crop prices suggest growers will continue seeking maximum yields. In Brazil, Grower appetite for fertilizers is quite strong, especially with recent crop price moves and a slightly weakening Brazilian REI. In India, a good monsoon is predicted, and the government has just raised importer subsidies last week. If there's a threat to consumption, it's the lack of supply across both P and K, but global demand is there if the tons are available.

Clint, this last question is for you. Can you discuss our capital allocation priorities for 2022? Sure.

Thanks, Paul. So as we think about 2022, I don't think our capital allocation priorities have changed. I think we continue to look for ways to strengthen our business through prudently investing, as well as strengthening our balance sheet, as we've spoken about in the past. And I think as we look toward the balance of the year and our expectations around earnings and cash flow, I think there's an opportunity to return a significant amount of cash to shareholders as we've spoken about in the past. I think as we look at our capital investment program, I think we're finding opportunities to improve reliability, to find opportunities for de-bottlenecking, to again be able to produce at elevated levels given the market environment that we're in today. Also think we have an opportunity to hit our debt target later this year with the maturity of another $550 million in debt. That would get us to the billion dollar debt reduction target. And again, as we look at the balance of the year and our expectations for the amount of free cash flow that we should generate, we should also be able to return a significant amount of cash to shareholders in line with what we've spoken about earlier.

Well, thank you, everyone. And with that, I want to open it up to live Q&A.

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Please limit your question to one question only. And your first question comes from the line of Steve Byrne from Bank of America. Your line is open. Please go ahead.

Yes, thank you. I'm curious to hear your view on any potential shifts in the global phosphate industry with respect to the production of DAP versus MAP versus TSP, and maybe that's really more applicable to some of your competitors that don't have your ammonia cost advantage. Could this lead to more applications of TSP? Does that satisfy grower needs? And could this lead to maybe a premium price for DAP that could be to your advantage?

Yeah, thank you, Steve. Good morning. Absolutely, we expect that with the ammonia shortage globally, there will be a shift in some situations to TSP. We understand that our Moroccan competitor is already shifting some of their production towards TSP. Again, the idea there being that we they maximize the amount of phosphate fertilizer that gets to market with this exact issue of a decrease in ammonia supply. This doesn't really impact us, of course, because of our very solid supply of ammonia. What I would also say, I guess your second part of your question was, does this mean a premium for DAPT? I wouldn't really expect a premium, but it probably will mean that it will be the first to sell right now. At this stage, any fertilizer is probably pretty easy to sell, so I suspect there will be a pretty good price for TSP right now, as we've seen in the market.

Thank you. And your next question comes from the line of Chris Parkinson from Mizzou Securities. Your line is open. Please go ahead.

Great. Thank you. Just given all the debate pertaining to the longevity of the potash shortfall, what are your team's latest thoughts in terms of the potential shortfall from Russian producers, Eurocali and Eurochem, just given, you know, obviously your assumptions for domestic demand, rail capacity in China, as well as, you know, Baltic ports, and then also probably more importantly, Belarus, Cali. So just how is your team basically balancing those shortfalls, not only for 2022, but What are your expectations within a reasonable range for 23 and 24? Thank you very much.

Yeah. Thanks, Chris. I think in my prepared remarks, I mentioned that our original expectation was that the Belarusian sanctions might come off towards the middle of the year and past. As we look at it now, we don't see how that will be resolved, especially now with Belarus working with the Russians in terms of the invasion of Ukraine and that being a starting point for some of their invasions. As we look forward, we see a fairly large gap this year. I think we've talked about 8 million tonnes of exports being lost from Belarus and around 2 million tonnes from Russia. we think the Russians will find ways to get things out by probably next year. And so in 2023, we still expect Belarusian sanctions, but we think at least the Russians will find more ways to get their product to market. So maybe it'll be a two-year problem, and then even then, it probably will take two to four years after that for the deficit to catch up.

Thank you. And your next question comes from the line of Jeff Sikowskis from JP Morgan. Your line is open. Please go ahead.

Thanks very much. My first question is, are there any Belarusian tons that are now traveling by ocean freight? And if there are, out of which Russian port are they moving from? And secondly, for Clint, Accounts payable, I think, went down 400 million sequentially. Why is that? And where should payables be?

Okay, thanks, Jeff. Well, let me start. I just mentioned we expect BPC will reduce their exports by about 8 million tons. And that means that probably what they're going to ship this year has already been shipped, or at least the vast majority of it. We have not seen or heard or been able to track down any BPC tons on ocean-borne freight. The only tons we've heard that have been exported is early in the piece there was some export by rail through a very circuitous route through to China. But I think even that has dried up now completely. And, Clint, I'll leave it to you.

Yeah, thanks, Chuck, and thanks, Jeff. You know, Jeff, I think what you're seeing is you know a combination of a couple things typically in our first quarter you know we have kind of a seasonal dynamic where we have payables and accrued liabilities from the previous year things like Canadian taxes payable things like compensation payables we also have as an example in the fourth quarter as a Brazil distribution business is building up its inventory and in advance of season a lot of those payables come due in the first quarter. So I think there's a seasonal dynamic to our working capital that you're seeing, and I would expect that to normalize as we go through the year.

Thank you. And your next question comes from the line of Vincent Andrews. Please state your firm name. Your line is open. Please go ahead.

Thank you. Vincent Andrews from Morgan Stanley. Wanted to get your guys' sense of how summer fill is going to play out this year and just sort of in terms of where do your customers in North America, what's their desire to hold inventory and to build inventory over the summer? And do you think they'll have to be incentivized with price or some type of indexation? Or is the demand there that they're just going to be confident that the price will stay elevated all the way through the summer and into fall? And then, Clint, if I could just ask a follow-up on the working capital. Can you remind us how these higher ammonia prices flow through your working capital? Thanks.

Okay, thanks, Vincent. Let me start by giving you just a quick update on what we think is going to happen in the summer fill program and working capital. I'll hand some of that over to Jenny as well, and then working capital, probably Clint can address that. First of all, the summer fill program. We're already seeing probably good confidence in the potash market that our buyers are coming to the table and looking for product for summer fill. I think there, with the high level of uncertainty of supply through Belarus and Russia, that there really is an understanding that there will be a very strong demand demand and probably tough to get products. So we're seeing people come to the market quickly for that. In phosphates, I think there's a little more hesitation because there's a little more uncertainty whether the Russian tons will get to markets and whether we'll be able to supply all of their needs. But in general, we don't see a huge discounting coming through in the summer for either product. Matter of fact, we expect that there will be pretty strong demand and it will be pretty tight in the U.S. going into summer and then through into fall. Jenny, any comments from you?

Yeah, I think probably, Jacques, I just want to add one point related to the phosphate. Like you said, the customers are being cautious on phosphate. They are also watching when the Chinese government is going to lose control on export, which will define their ability to step into the market. I fully agree with you that the demand is going to be very strong, and we have seen the signals from the customers already.

And then in terms of the working capital in Armonia, I'm going to hand that straight to Clint, but obviously it does play an important finished product inventory as well as raw materials that we hold.

Yeah, that's right, Jock. It actually moves through our working capital in a few different spots over kind of the evolution of buying raw materials through actually delivering and receiving payment from customers. So, you know, our raw materials globally, in total, when you look at our inventory balances, You know, depending on price environment, it can be anywhere from $200 to $400 million. I think it tends to be a little bit on the high end of that right now, given the pricey environment that we're in. But then as we use those raw materials, it'll go into inventory, but it'll go into inventory finished product at cost. And so it'll migrate, obviously, into that account. When we sell it, though, and that's, again, at cost, and so it's still a relatively small number. you know, that'll really be driven by volume of finished product. But once we sell and deliver it to customers, then it goes into our receivables. And that's where you see the full price of the finished good. And that's where, you know, you will tend to see the receivables, you know, grow pretty materially because embedded in there is also our margin on top of the cost. So I would say, you know, it travels really through our raw material inventory, then into finished product at a full costing and then into a receivables balance at kind of full sale price to our customer.

Thank you. Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open. Please go ahead.

Yes, thank you. Good morning, everyone. I was hoping to maybe dig a little bit more on capital allocation and I think the comments on 2022. and the desire to return cash are pretty clear. Small step up in growth investments. And I guess I'm just trying to think on a multi-year basis, if high prices, high levels of profitability and cash flow persisted, kind of where that desire for growth investment and the capacity for growth investments would be just in terms of things that have been in progress or things on the drawing board, long weed equipment that you might have been looking at. Just trying to think about if this is the beginning of the next fertilizer cycle, just how Mosaics can be participating from an investment perspective in that growth.

Sorry. Turned it the wrong way.

Sorry. Thanks, Adam. In terms of this year, let's start there. Our capital allocation strategy hasn't changed this year at all. Our goals remain the same. Strong balance sheet. We want to make sure we do take down the $1 billion of debt. We want to continue to invest in our business, and we've got some really good, attractive short-term investments that we can make to increase production on the short term and of course, because of that increased sales. And then the majority, of course, we expect this year we're going to return to shareholders. In terms of looking at this from a multi-year perspective, at this stage we don't see anything in the large investment range that we think is going to give our shareholders, our stakeholders, superior value. we're focusing on those minor capital, high return, brownfield type projects, de-bottlenecking of ester, hazy mills, increasing the number of mining machines that are K3 mine, restarting the Colanzi second mill, et cetera, and growing our footprint in Brazil. We think those are a much better way to add significant value to our shareholders over the over the midterm.

Thank you. Your next question comes from the line of PJ . Please state your firm name. Your line is open. Please go ahead.

Yes, hi. Good morning. Quick question on your reserve additions in phosphate at Fort Meade. Does that only increase reserves or is it also production? And then I have a question for Jenny about uh the china phosphates and you mentioned lfp battery for a couple of quarters is lfp a big uh that bigger is it that bigger part of the phosphorus market in china i mean i'm wondering if you have any numbers around that thank you okay thank you pj uh let me start with the reserves the the fort meade reserves i i think you're referring to as our south fort meade uh eastern extension

And this is a normal part of the ongoing development of our phosphate business. So we're constantly buying new land, bringing in new reserves to our system. And what that does is that allows this business to run sustainably for a long, long time. I'd like to say I came to the company and I think we had 35 to 40 years of reserves, and we have 35 to 40 years of reserves 15 years later. So you can see where every year we're adding new reserves. So this is a big new area, but it's not expected to increase production per se, but to extend the life of our operations and our quality rock for many years to come. In terms of lithium iron phosphate batteries, Jenny is right up on the supply and demand and what China's been doing particularly on that front. So I'm going to hand it over to Jenny directly.

Thanks, Jack. Yes, PJ, we started to talk about the LFP production in China last year in the background of increases of electrical vehicles. and also the increases of the adoption of LFP in the EV battery. And this year, for the first quarter, we are seeing more than doubled EV penetration to start with. The second thing, we are seeing more than doubled adoption of LFP battery in the EV adoption. Therefore, the total LFP production in the first quarter this year has been more than doubled than the same time of last year. and it is reaching to the half of the total production in 2021. So we are seeing significant increases of LFP production, which are taking away of P205 from the fertilizer MAP, DAP production. And lastly, I want to say from the latest issued Chinese policy, which was issued on the 7th of April, the government has strictly controlled the new addition of MAP, DAP, and the yellow phosphorus production capacity. So with that new restriction, we are going to foresee further reduction of fertilizer, MAP, DAP, with the shift of the P205 to other industrial use, especially on LFP.

And let me remind you, PJ, that while electric vehicles have been the focus, stationary batteries for wind and solar power are becoming more and more important because of the variability of those power sources. And while the nickel, cad, lithium, nickel, cobalt batteries are probably smaller and lighter than If you've got a non-restricted area, these lithium iron phosphates may be the long-term solution.

Thank you. Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is open. Please go ahead.

Hi. Good morning. I have two questions. First is on potash run rate and production. Now that Colonsia and K3 have been fully ramped up, should we expect operating rates to get back closer to 90%? Or maybe said another way, like what's the potential production from the 11 million ton run rate on operational capacity? And then my second question is on Modin. Now that we've seen phosphate and ammonia prices moving up, pretty significantly. What's the profit generating potential out of Modin? And then do you have any thoughts on participating in Modin 3? Thanks.

Okay. Thanks, Andrew. Potash run rate, as you say, 10.8 million tons per annum, which is a 1.3 million tons out of Colonse now. In terms of ester hazy it's running at its 5.5 million ton uh basic capacity we're we will be adding another two mining machines to ester hazy so you know that'll go up a little bit from that as we not only um complete but optimize the run rate at at bear um so overall you know if you took a 90 or 85% operating factor, you're probably in that 9 million to 9.5 million tons of potash capacity right now and looking to move up from there as we look at increasing the Colonsic capacity to almost 2 million tons and Esterhazy probably from the 5.5 up to the 6.5 million tons. In terms of Modern's profitability, I'm going to have to hand that over to Clint because I don't know the exact number, but I will tell you that Modern is now profitable and they are contributing to our bottom line. However, you also need to note that Modern's results are one quarter delayed. We only see one quarter behind. So there's a little bit of a lag there from the overall. But Clint, do you want to talk about that?

Yeah, no, happy to. So as you said, remember that it is on a one-quarter delay, but this quarter, for the first quarter, which is representative of Q4 last year, equity earnings for Modden was about $30 to $31 million. So as Jock said, it is now profitable. I think you also keep in mind that because there's no cash to Mosaic associated with it at this point, maybe a year or two ago, we removed that from our EBITDA calculation. So that's something to keep in mind as well as we go forward. All right, good point.

Operator, next question.

Yes, and our next question is from Anya Isaacson from Scotiabank. Your line is open.

Anja Isaacson, your line is open.

I believe that's Ben Isaacson, operator.

And our next question is from Michael Paiken from Cleveland Research. Your line is open.

Yeah, good morning. Just wanted to talk a little bit about your retail operations down in Brazil.

There's been some talk that potentially consumption for the country might be off 20% or as much. And how is your retail business down there handling it? And what does it mean also for your wholesale business in terms of the type of margin opportunities that are there if there's trouble attracting or getting the imports in for whatever reasons?

Yeah, thanks, Michael. Well, let me say, yes, in fact, Brazil probably will be one of the areas that will have some trouble getting all of the fertilizer they may want or need. We have seen record fertilizer demand in Brazil year over year for a number of years now. Likely that growth will probably stop or at least slow down a lot this year because of availability, not because of demand. However, when you look at our business, with our extremely good link into ourselves through our phosphate business and our link to Campotex for our potash, we expect that we will actually have a pretty good opportunity because we'll be one of the one of the retail slash distribution businesses that's very well supplied through this, and we've probably already seen some of that in that we had a very good inventory going into the start of the year, and now as the demand is picking up, we're there to take advantage of that. Overall, however, there will be probably some people in Brazil that won't get the product they need or want.

Thank you. Your next question comes from the line of Joshua Spechtel from UBS. Your line is open. Please go ahead.

Good morning. This is Lucas Bowman. I'm for Josh. So I just wanted to go back to sort of what you're seeing from customers currently, if you could a bit. So in terms of sort of them being willing to kind of contract with Russia and Belarusian producers since the onset of the conflict, So, I mean, the contract's still being concluded or is that sort of completely dried up? And if it's in the process of drying up, is that kind of you think the volumes are going to kind of slow further there? And then just sort of as a second part kind of that, I was trying to think about, like, what's your incentive to kind of push tons at the moment into China and India where, you know, the pricing is sort of $5.50 there? versus the sort of much higher net back pricing you can get in Brazil or sort of in North America. So as you kind of get any more incremental tons available, is there anything you can do to kind of push that into the more profitable markets, given the tight supply situation? And could we sort of see a two-tier market there develop between sort of what's split between going to Asia, as you mentioned earlier, and sort of the higher, more profitable markets? Thanks.

Okay. I'm not sure I fully understood your first question. Are you asking about the China and India contracts with Russia? On the first part of your question, on will those contracts dry up? If you've been muted, I'm going to assume that was your question, Lucas. Okay, so thank you, Lucas. On the first part of the question, which is Are the contracts with Russia and China, China-India, likely to dry up? Certainly in China, we have not seen the Chinese renew contracts with Belarus or Russia. So other than the product coming by rail over the Ural Mountain Range, which is limited in volume to about a million and a half tons a year, we're not seeing Russian or Belarusian tonnage come to China. In terms of India, we have seen phosphates make its way to India from Russia. So one would assume that the Russians will also try to move potash to India if they're looking for places where they can sell that product. In terms of the second piece of your question, You really only need to look at last year when the price to China and India was significantly lower than the market. And what we did was exactly what you said. We certainly made all of our commitments to those markets, but beyond our basic commitments to the markets, any extra tons, we moved to more profitable, higher-priced markets. And there are significant opportunities for that this year. Last year, India actually renegotiated some of its pricing because of that, and you could see that happening again this year in both China and India if the prices as they are persist.

Thank you, sir. Your next question comes from the line of Adrian Tamanyo from Beringburg. Your line is open. Please go ahead.

Hello. Good morning. I have a question on ammonia. Can you remind us what is beyond the ECF agreement? I believe it could be extended until 2032, but if you can remind us what needs to happen for this agreement to extend until then, that would be helpful. And in addition, do you have any option to increase your captive ammonia production more meaningfully? Thank you.

Yeah, thanks, Adrian. Well, let me start with the CF contract. The CF contract was written as an eight-year contract and with the option to extend at mutual agreement. So whether we would extend or not really depends on what the market looks like at the time. I would expect, though, because from a physical perspective, this is a good partnership. It's good for them and it's good for us. and I suspect we'll find a way to extend that beyond the original eight years. In terms of our captive production of ammonia at Faustina, we have looked at de-bottlenecking that a few times in the past, and I guess at these prices it's probably... We're re-looking at that, but it's an older plant, and we're not sure that that might necessarily be the best place to be investing money right now.

Thank you, presenters. There are no further questions at this time. I'd like to turn it back over to Jacques for any closing remarks.

Okay. Well, thank you all for all your questions. To conclude our call, I would like to reinforce some of our key points. First, this was a very good quarter for Mosaic, and our outlook for the remainder of 2022 remains strongly positive. We expect fertilizer supply to remain extremely tight for the foreseeable future as global crop prices support demand, and with these geopolitical situations restricting both fertilizer production and trade flows, we expect this to continue for some time. At Mosaic, our mission to help the world grow the food it needs has never been more important than it is today. And we are working to produce every possible ton of fertilizer so that we can help farmers around the world to maximize their production. And in that, we are confident that we can do our part while creating significant value for all of you, our shareholders. Thank you for joining our call. Have a good and safe day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now