Mosaic Company (The)

Good morning and welcome to the Mosaic Company's third quarter 2023 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, today's event is being recorded. Your host for today's call is Paul Massoud. Mr. Massoud, you may begin.

Thank you, and welcome to our third quarter 2023 earnings call. Opening comments will be provided by Jock O'Rourke, Chief Executive Officer, followed by a fireside chat and then open Q&A. Bruce Bodine, President, Clint Freeland, Executive 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 published 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 Jacques.

Good morning. Thank you for joining our third quarter 2023 earnings call. Before we get to the normal part of our call, I'd like to take a moment to discuss the next step forward for our company. Last month, we announced that I plan to retire at the end of the year. It has been an honour to work at this outstanding organization and lead this incredibly talented team. We've accomplished a tremendous amount over the last eight years, But one of the areas I take most pride in is our focus on identifying talent and developing the next generation of leaders. As a result of those efforts, Mosaic's board of directors appointed Bruce Bodine president and selected him to be Mosaic's next CEO starting on January 1st, 2024. Bruce is a Mosaic veteran. who's been with the company for 24 years and led several functions across our business, including most recently as Senior Vice President of North America. As a member of Mosaic's senior leadership team for the last eight years, he's played a major role in establishing our current strategic priorities. The board takes succession seriously and has been planning for my retirement for some time. Bruce's selection follows an exhaustive evaluation of both internal and external candidates. Bruce's broad experience, strategic mindset, and leadership throughout the organization make him the ideal person to lead Mosaic into the future. Please join me in congratulating Bruce.

Thank you, Jacques. I'm excited to take the next step in January as CEO, and I'd like to take a moment to lay out my vision for the future. Mosaic is a global leader in the fertilizer industry. Over the last few years, we have grown our footprint in the world's most important agricultural regions expanded our portfolio of value-added specialty fertilizers, and built one of the world's most efficient potash production complexes. These investments were being made while we were reducing long-term debt by $1 billion and repurchasing 15% of our outstanding shares. Looking ahead, we will continue creating value for our shareholders. With the expansion of MicroEssential's capacity at Riverview and the investments we've made in Mosaic Biosciences, We're pushing further into non-commodity value-add ag products. We're also continuing to explore entering the purified phosphoric acid market for lithium iron phosphate battery production. We're engaged in discussions with auto and battery manufacturers, and our board has already approved engineering work on a commercial plant. In Brazil, Mosaic is already the country's largest supplier of fertilizer. And we're expanding our footprint even further with a 1 million ton distribution facility at Palmer Ranchi in the fast-growing northern region in Brazil. In Potash, we're further optimizing our Esterhazy facility by de-bottlenecking the mills and adding 400,000 tons of very low-cost production. Across our business, we're pursuing cost reduction initiatives, operational improvements, and our global digital acceleration program are expected to drive significant savings throughout the enterprise of at least $150 million, which you'll be able to see in our segment results in SG&A. These are all modest investments with very high returns, which means we expect 2023 to be a high watermark for capital spending. Next year, we expect total CapEx to be down by up to $200 million from 2023. This will allow us to continue returning all excess cash to shareholders through share repurchases and dividends. We believe our shares present very compelling value. I look forward to continuing this dialogue with all of you, but for now, I'll hand it back to Jacque for his final discussion on broader markets and our results.

Thank you, Bruce. Today's agriculture market is tight. Food security is a major concern around the world, but crop production is constrained. Global stock-to-use ratios for grain and oilseeds remains near historic lows, which highlights that crop supply is struggling to keep up with demand. Weather conditions around the world, particularly in developing markets, have impaired production. Today, El Nino weather patterns are having an impact across Southeast Asia and Australia. The situation is being exacerbated by persistent under fertilization. Over the last two years, we've begun to see a significant relationship between insufficient nutrient consumption and disappointing yields. And of course, key growing regions are being impacted by geopolitical flare-ups and all-out war, as is the case with the war in Ukraine. Over the last two years, Ukrainian grain and oilseed exports are down 32% from pre-invasion levels. It's difficult to see how other regions will be able to offset the shortfall, given poor weather and reduced fertilizer applications. Despite reduced production levels, demand around the world remains strong. China's import of soybeans, beef, and wheat are at record levels. India, which accounts for nearly 40% of global rice trade, has a limited ban on non-Basmati white rice exports and places duty on a portion of its remaining rice sales in order to ensure adequate domestic supply. Additionally, we're now seeing emerging demand from renewable diesel and sustainable aviation fuel. In the U.S., biofuels represent a quarter of soybean consumption. These dynamics mean elevated crop prices could persist through 2024 and beyond, and growers will want to maximize yields. This brings us to the fertilizer market. Supply of potash and phosphates is being impacted by sanctions, weather disruptions, and evolving producer behavior. In potash, sanctions and other disruptions continue to limit exports from the former Soviet Union. Belarus remains blocked from port access in Lithuania, forcing it to find other outlets for its shipments. Some of those exports have shipped via ports in Russia or by rail into China, though total shipments remain well below pre-sanctioned levels of 12 million tons. This year, we expect Belarus exports to be in the range of 8 to 8.5 million tons, and we expect limited increases from that range in 2024. In Canada, labor strikes... Rail congestion and terminal repairs have limited the West's ability to mitigate lost FSU tons. More recently, the conflict in the Middle East, in addition to the ongoing war in Ukraine, highlight the risk of further supply disruptions. In total, global potash shipments are expected to be in the range of 64 to 65 million tons, simply because the supply isn't there to meet additional demand. particularly in developing markets where crop supply is primarily made up of subsistence farming. In phosphates, over the last decade, China grew to be the largest exporter of finished phosphate fertilizers, supplying about 30% of the seaborne market in 2021. But over the last 18 months, export restrictions and a shift of production away from agriculture to industrial markets has significantly reduced phosphate fertilizer exports. This year, we estimate China's exports could be 3 to 4 million tons below the 2021 level of 11.4 million tons or roughly 7 to 8 million tons. On the demand side, we are seeing strong consumption returning. We saw this play out in the spring in North America. After a slow start to the season, favorable economics and depleted soil reserves brought farmers back to the market. Our phosphate and potash shipments in North America were the highest in the last five years. This was followed by a great summer fill program and a very strong fall application season. The last three months through October were a record for Mosaics North American potash shipments. We saw similar dynamics play out in Brazil. Thafra season fertilizer shipments ended up being very strong. the full year we expect total fertilizer shipments in brazil to be 43 to 44 million tons the second highest total in history with destocking of fertilizers in brazil complete inventories are quite low and will need to be replenished for 2024. in india we continue to see strong demand driving elevated imports phosphate inventory levels are near the low end of the most recent five-year range which suggests shipments are going straight to the ground. Potash inventories are also very low, and we're seeing indications of price acceptance that could drive higher shipments going forward. For several quarters now, we have discussed that once volumes begin to move, prices will follow. We're now seeing available volumes move, and pricing has stabilized and shown seasonal strength in many markets. These dynamics highlight the value of Mosaic's portfolio Our business is well positioned to meet customer needs and deliver value to shareholders. In potash, our third quarter results reflect the strong sales volumes in North America. To meet that demand and mitigate the impact of Esterhazy's planned turnaround, Colanzi was restarted at the beginning of the quarter. Looking ahead, we expect fourth quarter potash sales volumes of 2.4 to 2.6 million tons and net back MOP prices at the mine in the range of $235 to $260 per ton. Our pricing guidance reflects a product mix shift towards overseas sales as North American fall application season winds down. In phosphates, we recovered quickly from the impact of Hurricane Adalia and were able to restart operations in approximately three days, which really minimized the impact of the storm. Separately, we are working through the repairs at our Faustina facility in Louisiana following a power disruption by the local utility that occurred late in the third quarter. Those repairs should be completed in the fourth quarter. We expect fourth quarter sales volumes to be in the range of 1.6 to 1.8 million tons and VAP prices at the plant gate of $530 to $580 per ton. Moving to Brazil, our fertilizante segment reported strong third quarter results. Let me emphasize that we pushed to destock high-cost inventory in the first half of 2023, and this effort was completed early in the second quarter. Our distribution business is no longer experiencing the same pressures that others are, as you can see from our results this quarter. For the fourth quarter, over 90% of our sales volume is already committed and priced. With our order book and inventory position, we expect our fourth quarter distribution margin to be in the range of $40 to $50 per ton. Our approach to capital allocation has not changed. We remain committed to investing in our business, maintaining a strong balance sheet, and returning capital to shareholders. Our CapEx budget for 2023 is $1.3 to $1.4 billion. And as Bruce mentioned earlier, we expect to reduce total capital spending for 2024 by up to $200 million. Our balance sheet is strong, and our commitment to return capital to shareholders remains unchanged. All excess cash will be returned through dividends and share buybacks. Year to date, we have returned nearly $900 million to shareholders through buybacks and dividends, including $150 million of repurchases in the third quarter. Before we go to questions, let me summarize. The world needs more crop supply, and we won't get it without good fertilization. Farmers are seeing good economics and want to maximize yield with fertilizers, but supply is uncertain and channel inventories are low. Mosaic is well positioned to benefit while continuing to deliver value to shareholders, and we're returning significant capital while still investing in the business. I look forward to watching Bruce lead Mosaic into the future. Paul, let's move over to questions.

Before we move on to live Q&A, as we've done in past quarters, we'd like to address some of the most common questions we received after we published our earnings materials last night. For our first question, Jock, many have asked us to discuss recent rulings regarding our countervailing duty petitions.

Yes. Last week, the Department of Commerce raised duties on Russian product, but it lowered duties on Moroccan supply. The Department of Commerce reviews are done on a yearly basis and are based on their assessment of foreign subsidies. While we welcome fair competition, we expect to compete on a level playing field. Unfair foreign government subsidies disturb that dynamic, so we will continue to seek remedies when foreign players use aggressive marketing based on unfair subsidies that cause harm to our industry. In today's market, trade flows may shift as a result of these adjustments. But as we saw over the last two years, global supply and demand is unaffected. Pricing continues strong due to high demand and decreased supply, particularly from China. In a tight market, suppliers will seek out the highest return for their product. And as such, U.S. consumers will need to meet global pricing to ensure sufficient supply for their needs.

Jacques, others have been struggling with destocking in Brazil, but Mosaic Fairlazantes performed quite well in the third quarter. What differentiates Mosaic's business in Brazil from others and what is your outlook for the rest of the year and in 2024?

In 2022, we, like others in the Brazil agricultural industry, were carrying inventory to support the expected demand. When that demand slowed in the second half of the year, we were left with higher priced inventory. But unlike others in Brazil, who are reliant on third-party distributors and retailers, they have limited ability to directly destock their inventory. We, on the other hand, were able to effectively deal with the destocking in the first half of the year. And by the third quarter, prices had stabilized and the distribution margins had returned back to our expected range of $30 to $40 per tonne. And as I mentioned, with 90% of our product committed and priced in the fourth quarter, we expect margins to increase further to $40 to $50 per ton. Now, there is always some positional risk in a distribution business. However, I believe we have managed through this volatile market as effectively as possible, which really sets us apart from other ag input companies and emphasizes the value of the integration of our production and distribution businesses.

Jock, our next question is on the potash market. Pricing has been muted despite supply uncertainty. How do you see the potash market evolving over the next year?

Thank you. As you've seen from the slides we published last night, there's a clear relationship between under application of phosphate and potash and below trend yields. Now, farmers and retailers are recognizing this, and demand is rebounding. As we've said in the past, demand returns, volumes move, and prices follow. We saw this pattern play out this year with global volumes returning. Jenny, can you walk us through the volume rebounds and why we expect a higher potash volume in 2024?

Sure, Jack. We are seeing very strong broad-based demand recovery in 2023, which we are forecasting 5 million tons recovery to 65 million tons. It is laid by North America market. We have had a very strong spring application and then summer fuel to replenish the empty channel. And for this full application, we are seeing a very strong application again. We're still having customers buying tons for us for the in-season application. And for this new tons, we have realized $20 per ton price increases for Midwest warehouses in North America. Brazil, similarly to North America, we have seen very strong application for summer crop soybean application. The window for the delivery has planned for by two months, which gives farmers opportunity to put down more potash into the market. with strong safra application in Brazil that sets a very strong recovery in that market. And we believe there are a big buying to come for the safarina corn season, which is about to start soon. And across the world to China, we are seeing China has record imports of potash this year. And domestically, in terms of the consumption, There's probably 10% of the potash application increases in China. And that is driven by the concerns to the food security and also a very strong at commodity prices there as well. So with this major market demand growth in 2023, which set well into 2024, that we are going to continue to see broad-based demand recovery. Starting from Southeast Asia, which in Malaysia, Indonesia, they have been working through their high-priced inventory throughout 2023. And we are seeing customers re-engaging now to prepare for 2024 as they come out of our annual drought impact and a low inventory of the potash in the channel. And lastly, rice and palm oil prices are very constructive. for the farmers there to put down potash, which has been underapplied over the last two years. India's subsidy program is supportive to potash as well. With lowered farmer price, we should see a boost of the farmer usage of potash in that part of the market. And with improved affordability and stabilized price, we are going to see very broad range of the demand recovery across the world in 2024.

Thanks, Jenny. So Jenny has given a view of the demand side. From a supply side, we're modeling a recovery in Belarus from 70% to about 80% of pre-sanctioned shipments. We're expecting Eurocali to recover to pre-war levels and modest growth from Eurochem's Volca-Cali. In Laos, we also expect to see some modest growth. So overall, if any of these fall short, we will see lower shipments, not because of a demand problem, but because there is not enough supply.

Thanks, Chuck. Operator, please open the lines for follow-up questions.

Thank you. If you would like to ask a question, please press star then 1. To remove yourself from queue, please press star then 2. Each caller will be limited to one question during today's Q&A session. Today's first question comes from Steve Byrne with BOA. Please go ahead.

Well, thank you, and it's been a pleasure working with you, Jock. Wanted to drill into fertilizantes a little bit here. Are we right that roughly 20% of the fertilizer volumes that you distribute come from your own phosphate production in the country, but we would assume the EBITDA contribution is from that in-country production is is much greater than that 20 percent is that is that right and what are what's your prospects for either expanding that production or maybe switching it to more tsp and reducing your your ammonia purchasing costs down there oops sorry thanks steve um yeah so in brazil

One of the benefits of the integration, of course, is we can move our own production through our distribution system. And while we sell a good chunk of it as a B2B business to other players in the market, about 20% is not a bad number to estimate of what goes through our own system. That product we transfer at market price. So we try to keep as clean a... based between the two as possible. That said, now we would expect under general market conditions that your margins for the production business would be better than distribution, or at least they would be for products such as TSP or DAP. As you say, probably our least profitable product that we make down there would be the SSP for good reason. And so we're constantly looking at how we make that product mix better, how we make it more profitable, and we can't ignore dicalcium phosphate or animal feed as well in there, which is, again, one of our highest return products. So that whole area of mix we're looking at, we've got a strong plan down there to reduce costs but also to optimize production rates So all of that is in works, and all of that will be something that Bruce and with Karen Swagger and her team will be working hard to accomplish.

Thank you. And our next question today comes from Richard Garciatorino with Wells Fargo. Please go ahead.

Great. Thanks, and congrats, Chuck. So my first question, just on the outlook for potash, obviously strong growth next year, 5 million tons. uh i was wondering how do you think about your operations heading into next year uh looks like with the 4q guidance you're going to come in around 8.7 8.9 million tons of production so do you expect to keep those production levels next year grow them to grow with the market how are you thinking about that thank you yeah thanks richard

And let me follow that with also a little bit of a discussion on how we look at Colanzi. For the first part of the question, I think, yes, we would expect the same sort of level next year, maybe a slight uptick because of increasing demand. But we're looking at somewhere in that same range of production, like I say, maybe a couple hundred thousand tons higher, depending on Campotex in particular. But in terms of the strategy for it, you know, over the last few years, Colonse has been our swing plant. And, you know, we've been able to ramp it up and down efficiently, giving us the ability to run our lower-cost ester, hazy, and bell plain at full rates while being able to flex production to meet demand. So as we look forward to next year, that is really going to be the question. What is demand going to look like? And we certainly have the ability to go either up or down from the approximately, as you say, 8.9, which is about where we think we'll spend end this year, if you include KMAG. So we always prioritize esterhazy and Belle Plaine, and we focus that on the North American granular grade market where we see our best netbacks. And then our next focus is meeting the international sales program of Campotex. This year, strong North Americans demand, coupled with lower imports, meant we needed Colanzi, both to offset Esterhazy's turnaround and to meet that increased demand. In the fourth quarter, we're expecting strong international shipments through Campotex as global markets continue to rebound. So at this stage, we expect to need Colanzi to meet that demand and replenish our granular grade inventory in preparation for the North American spring season. And then So that would put us about, probably about the same level. But as we move into the second half of 2024 and beyond, Esterhazy K3 will be fully ramped up, and the addition of our Hydroflow project will optimize their capacity there. And so at this stage, we'll have to reassess the longer-term role for Colonze. And as always, we're focused on running our assets in a manner that maximizes value, taking into account the need for flexibility, and to deal with the seasonality and market variability in our business. So just to summarize that in terms of your original question, we expect to run in that same sort of range, maybe growing with the market, which is growing at about 2% or 3% a year, but next year will grow even more. And if we find good value-adding sales for that kind of volumes, will run up, and if we don't, we'll probably hold where we are today, with Colanzi being the variability in that.

Thank you. And our next question today comes from Joel Jackson with BMO Capital Markets. Please go ahead.

Hi, Jock, and congratulations as well. I've got to follow up on that last question, your answer, because I'm confused. You are saying, Mosaic is saying today that you think demand for potash globally is going to grow 5 million tons next year from 65 to 70. Your Capitex partner says from 66 to 69, 3 million tons, 5 million tons, whatever, that's great growth. Your answer says that you're going to produce about the same in potash, you Mosaic, next year. Then you said, but you might grow with the market, which grows 2% or 3%, but next year grows more. So explain to me this question. If the market's going to grow 3 million tons, 4 million tons, 5 million tons next year, and you, Mosaic, can't supply more, and you're tied offshore with Nutrien under Campotex, who's going to supply the extra 3, 4, 5 million tons?

Well, I think that's exactly what I said in the prepared questions. Joel, thank you, by the way, for the questions, and thank you for the comments. Yeah, so if you look at this, we expect to see Belarus bring out about another million tons. We expect your colleague to bring out probably another million tons. And then Eurochem with their Volga-Cali mine, which is ramping up now, and recognize that's been a pretty slow ramp up. But if we got a half a million to 700,000 tons between Yasolski and Volga-Cali, now you're at 2.7 million tons, add another million tons from Laos, and you're pretty much at that gap. And that's what I was saying. If those players, and then probably likely up to, you know, maybe, and I say maybe, a million tons for Campotex, which would mean that that is satisfied, that difference between 65 and 70 million tons. So our share of a Campotex of that would be 300,000 or 400,000 tons, at which point we would need Colonse for 2024, Otherwise, Colons, they wouldn't be needed. But, again, those are based on expectations that these other players bring up those tons. If it plays out different, if they do better, last year I think Belarus did better than what we expected. Will they continue that ramp? We think that's unlikely, but, you know... We'll see how it plays out. So I don't think there's any inconsistency in how we're looking at it. We see tonnage being similar to what it is this year, with the exception of maybe 300,000, 400,000 tons for Campotex. And North America's had a very good year, and that probably will continue. And then the one thing I will say on all of it is, you know, Campotex has never done those levels of tonnage, and not because the mines can't supply it, but the logistics and the market haven't, the market hasn't needed or the logistics haven't supported it. Last year, well, the year before last, we had floods, we had rail problems, we had fires. This year, we've had port strikes, we've had failures at ports, more port strikes. It just isn't, thinking that we're going to jump up by two or three million tons, I just don't think is realistic. So I don't know how you put that in your model, Joel, but you're going to have to try.

Thank you. And our next question today comes from Ben Thayer with Barclays. Please go ahead.

Yeah, good morning, and as well from my side, Chuck. All the best for retirement. Enjoy that piece. Now, on my question, I wanted to go back to some of the phosphate comments you made and the project looking into PPA for LFP and those investments, clearly something that's come up more frequently as a solution to the electrification of some light vehicles. So if we think about how you're positioned and maybe the CapEx needs, Can you help us put that into perspective, just what you think this might cost you to build this out and what's like the expected return profile of that business? That would be much appreciated. Thank you.

Okay. Thanks, Ben. Yeah. So at this stage, we're at the I would say early feasibility stage, moving into the design phase to get to a final, let's call it a bankable feasibility to do all this. So the numbers are pretty preliminary. What we've looked at so far, though, has been for purified phosphoric acid and potentially building a powder plant, which would be the precursor to a lithium iron phosphate cathode. So at this stage, we're probably looking at 100,000 tons of purified phosphoric acid at our Louisiana facility. And our expectation of cost is probably in the range of half a billion dollars to build that. Now, obviously, we have to look at the long-term demand profile and what we can expect for pricing. But what we've seen so far is first phase has got a strong, higher than well over cost of capital return. And then if we go future phases, obviously the capital per ton decreases and that return gets better as we go forward. We're going to do it in a modular way. By doing it in a modular way, we will reduce the long-term risk, market risk, et cetera, et cetera. And what we're seeing, though, from a qualitative perspective is due to the expense of nickel, cobalt, et cetera, there is a strong trend towards lithium iron phosphate batteries not only for electric vehicles but also for stationary power and particularly you know our view is that while electric vehicles will be the early growth engine long-term you will need these stationary batteries to make up for the variability of of both solar and wind. They don't tend to come at exactly the same time as demand, so you have to have some level of buffering.

Thank you. And our next question today comes from John Roberts at Mizuho. Please go ahead.

Thanks, and best wishes, Jock, and congrats, Bruce. I'm looking at slide seven in the hand deck on under-application versus yield. Obviously, the bottom line is that most of the world is in the left quadrant, but are there any other key takeaways from those slides?

I think the key takeaway there, from my perspective, John, and again, thanks for the question. Intuitively, we've been saying for a long time that fertilization is what drives plant growth. If you don't feed any organism, they don't grow. What we haven't been able to do in the past, I guess, is really show the relationship in a clear way. Now, what we've seen here is under application and probably mining of the soil, even with both of those, we're seeing a clear relationship between the yields and particularly phosphate and potash usage. Now, you see the nitrogen, which is more likely to be used first, and you see particularly when you look at Asia, which includes India, where the over-application of nitrogen actually isn't helping yields at all, whereas the under-application of phosphate and potash really is hurting yields. And if you do the math on those things, if you take phosphate and potash application into account, and then you look at the yield loss, it's about a two to one price of fertilizer to yield loss. So in other words, if you're saving $10 on fertilizer, you're losing $20 on yield. So, you know, the point here is farmers are incented to properly fertilize their field and they cannot afford to continue to mine the soil.

Thank you.

And our next question today comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you. And let me echo the comments, Jock. Congratulations on retirement and a pleasure working with you all these years. In terms of my question, I wanted to ask a bit more on the Brazilian market and some of the comments that were made in terms of the Soprinha season. And it sounds like you're pretty optimistic about application rates there. And I just Maybe you're getting good intelligence from your fertilized on taste business versus some of the other comments that are out there, but there is commentary and some data suggesting that planted acreage is going to be down on corn. Maybe some of us can go to cover crops and some of the growers associations are talking about or advising their growers to maybe back off on inputs, but Are you seeing on the ground that the demand and the shipments and so forth is quite strong ahead for that season, or what's giving you the confidence about this?

Yeah, thanks, Vincent. I'll try to unpack that one a little bit. Yeah, so as we head into Safrina, I think the concern that's out there, if you will, and I'm not saying it's an unfounded concern, is when you look at the basis for corn that we're starting to see in the market. It's not the global market price. It's the idea that the basis, the in-country basis, the availability of transport and etc. to get it out of the country has been challenging and it's probably hurt the economics of some of the farmers. That being said, if we look at the general in-country price to the price of fertilizer and what we call the barter ratio down in Brazil, it still shows a fairly profitable corn yield and corn market. So our view is that probably is early stage and probably a little overstated. It's like what we saw this year in safra season where earlier projections, people were looking at 40 million tons, now we're looking a lot closer to 43 million tons of total fertilizer to Brazil, which is starting to get back to the peak of 46 million tons. Historically, Brazil has grown at about 4 or 5 percent a year, so we expect, in general, Brazil to continue to grow both acreage and yields. Fertilizer demand has to follow that.

Thank you. And our next question today comes from Jacob Boot with CIBC. Please go ahead.

Good morning and congratulations on jockeying your retirement. Maybe just going back to the potash industry, last week there was the announcement of the second phase of Janssen and just curious on getting your thoughts and what the impact of of Janssen will be on the potash industry, both in North America and also globally. And, you know, do you think about changing your market strategy, you know, as this ramps?

Yeah, thanks, Jacob. You know, let me first of all say, you know, by their own announcements, and I have had conversations that would tell me that while they will start up first phase at the end of 2026, they won't be ramped up to 4 million tons on their own estimates until 2030. At 2030, they would start their second phase, and that would probably ramp up similarly over four, five years. So, you know, in our five-year forecast, we have little or no significant production from BHP. As we look out 10-ish years, which is what we're talking about here, if we see the market growing at the rate from, you know, as I said to Joel, and maybe the point here is growing from the 72 million tons we were pre-war, not from the 65 million tons. But if we see the market growing at that 2% a year, you know, that's a million plus tons a year. So in 10 years, you could easily be in a position where that could be absorbed reasonably. How it will work from a trade flow perspective is absolutely yet to be seen. We assume that they would go into the North American market, but the best analogy probably is the K plus S Bethune mine, where for all the worry about the disruption, it really came on and it came on slowly. They focused on the export market, and it really was absorbed in quite reasonably. So who knows what it will do. I guess if it comes on faster, that could change people's strategies. But for now, I think I would say just hold the course, and I don't see it as a big threat for a long time.

Thank you. And our next question comes from Joshua Spector with UBS. Please go ahead.

Good morning. This is Lucas for Josh. Just switching to phosphates. So your shipment forecast there is calling for an increase of two to three million tons next year. So just wondering, could you kind of walk us through how you see your production outlook compared to this year and how much of that shipping uplift would you expect to capture from this year's base? Thanks.

Okay. Thank you. Yeah, so we are expecting growth in the range of 2 to 3 million tons next year as the market continues to recover. There will be some recovery by us, and probably our Moroccan competitor will have some increased production. We expect a small increase again from China's exports, not back to where they were, but about flat to... where they were last year, or this year, sorry. In all cases, the demand, like I say, will be met by all of those, and then some of the Middle East producers will also be ramping up, and Fossagro, I think, has a small ramp up that they're looking at. So it will be met. But what we see there is probably a phosphate market that continues to be tight and maybe even tightening a bit next year. So it actually looks pretty good from a perspective of our future.

Thank you. And our next question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my questions. So just in the phosphate segment, kind of as we work through this more recent issue and operations are set to return to normal, can you just talk about what normal looks like on a quarter-to-quarter basis? I mean, it's been kind of difficult with the different impacts over the past couple of years to just kind of get a good sense on what's a normal production run rate, what are normal costs, what do they look like today, kind of relative to where we've been historically, I think.

Yeah, thanks, Andrew. I'm going to hand this over to Bruce, because Bruce will be obviously responsible, along with Karen and her team, for the future of the phosphate here. And I think, yeah, fair question, because we have had a lot of issues with respect to big hurricanes, pandemics, and some mechanical faults. So worth a... bit of a detailed answer. Bruce, can I give it to you?

Yeah, thanks, Jock, and thanks, Andrew. Just to start with the question, I think historical levels that we've proven, about 2 million tons a quarter is what we would expect out of Florida once we get back to kind of normal operation. But I think it's worth, to Jock's point, kind of walking through some of the history here in the last two years with our phosphate production because it has been below those historical levels for sure. Some of it has been a function of some of the new rock reserves that we're now mining here in Florida. We are becoming a lot more familiar with the kind of chemistry of the rock and should see some of those incremental impacts start to subside in the future as we move forward. But really the larger issue is kind of two. One has been Louisiana this year. We've experienced some unexpected operational and maintenance issues with two of our larger sulfuric acid plants, which has restricted ultimately finished product production on the back half of this year. A large chunk of that production was just returned to service this week. And then the remaining work that needs to be done there will be completed by the end of the year. So going into 2024, those issues should be largely behind us in Louisiana. And then the last that Jacque kind of alluded to is the lingering effects of the pandemic and the various hurricanes these past few years in both Florida and Louisiana have proven more difficult than I think we otherwise would have expected. And I think that's not uncommon, not only for us, but in other industries that we've heard as well. We are investing a significant part of our sustaining capital to restore some of the historical proven turnaround cycles that have been disrupted through the pandemic and some of these hurricanes. And we are aggressively, in addition to that, replacing some of our aging assets throughout North America. When we couple all of that from an asset base with the better technology that our global digital acceleration investments that we've talked about, are coming to bear, as well as some other internal organization realignment that we've done. We should see even better proactive managing of maintenance of our equipment and onboarding and training of some of our key personnel, all of that leading to improved reliability and productivity. So to close and get to your point, we expect to see production volumes significantly improve next year from the last two years. and return to historical run rate levels at that $2 million a quarter in the back half of 2024.

Thank you. And our next question today comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, thank you. Good morning, everyone. I want to come back to Potash and Mosaic's own kind of production outlook. And I just want to be clear on this year, the company – has, especially in the third quarter, you've taken out, your sales have exceeded your own production by about 575,000 tons. Now, last year you sold more than, you produced more than you sold, but you've worked down a pretty healthy amount of your own inventories. You're calling for a sequential uplift in sales volumes in the fourth quarter, which would be at a level that really the companies really never hit on a quarterly basis. I know Esterhazy has been expanded, but I guess going back to some earlier lines of questioning, rather than, Jacque, you alluded to logistics constraints being a real challenge for Mosaic to operate at higher volumes. Why wouldn't the natural investment for Campitex be to increase its logistics capability and alternative port infrastructure maybe away from the west coast that could kind of provide some risk mitigation to winter weather that would allow the company and your Camputex partner to produce more consistently and reliably at higher rates because Kalonze might be your higher cost mine, but it's not high cost really in the context of the global market.

Thanks, Adam. You make great points there. Let me start by saying I Campitex has greatly improved their logistics capabilities through rail infrastructure, improvements in our facility in Vancouver, our facility in Portland has been expanded. We have maximized or optimized their use, I say their because it is an independent entity, their use of the St. John's port, and the use of Thunder Bay. So we are sending, as Campotex, significant volumes both to the East Coast and the West Coast, and that allows us to deal with things like the port strikes and whatnot. My only point there is there is a limit to what you can move and how fast you can grow. We've probably grown Campotex over the years from, let's say, 10, 10.5 million tons to 13 to 14 million tons. So if you look at it from that perspective, Campotex has actually done a pretty darn good job. And I can tell you that under the leadership of Ken Seitz and continued under the leadership of Gord McKenzie, Campotex has taken some real strides to solidify their markets, to improve their logistic capability. My point there is not to say that we haven't been doing a lot on that end. It's to say that we can't ignore those as real limitations to how fast you can possibly grow and how fast you can respond to step changes or disruptions in the international market. And then, you know, finally, of course, you're relying on Canadian National and Canadian Pacific Railways, who from time to time have issues as well.

Thank you. And our next question today comes from Aaron Descarelli with Barenburg.

Please go ahead.

Hi, good morning. Thanks for taking my question. I would like to go back to Potash. Despite your strong says volume for Outlook for Q4, Your pricing outlook is relatively muted, as you said. At the same time, Newton has flagged that Russia is possibly coming back a little bit faster than originally anticipated. There's a contract with China and Campotex expiring, if I'm correct, at the end of the year. My question is, what could really prevent us to see a contract with China next year with Campotex, so between Campotex and China, to be below $307 per tonne? Thank you.

OK, Aaron, thank you. Look, as we look forward on this, if we are back at the 70 million tons, which we expect the demand to be, there will be room for the Russians. The Russians will continue to export across the Urals by rail. Belarus will continue to export by rail into China. the seaborne product will have to continue because China is actually buying record amounts of pot ashes they need for their growth of their market. So I've always said, and even our Chinese customers fully agree, that the Chinese customers need Campotex and Campotex needs our Chinese customers. So it's It is one of those situations where, yes, there's always tension as you try to get to the final contract, and it matters what the level of inventory sitting on the ground is in China, what their demand is at the time, and there's always a holdout to the last possible moment, but in the end, you come up with a contract which is as close as we can to the market, and that's a... They're very informed buyers, and our Campitex marketers are very informed marketers, so you normally come up with a pretty good balance. In terms of whether we can repeat the $307 contract really depends on how things look as you move into 2024. The relevance of the seaborne trade is lower today than it was before because of these rail at these rail imports and because of the Qinghai Lake production, which is taking up a good chunk of their production. But the point I make there is the issue will not be Russian's new production coming on or anything like that. It'll be how does the global market look? What is the price comparators for Brazil, for Indonesia, Malaysia? China possibly, and again, what's their inventory position and when are they ready to come to the table? So it's pretty early days, but that market will always have a fairly complicated dynamic.

Thank you. And our next question today comes from Jeff Stachowskis with JPMorgan. Please go ahead.

Thanks very much. I think Belarus Kali over the past two months has been shipping at a little bit more than 900,000 tons per month, which means that they're shipping at an annualized rate now of about 11 million tons. And so I was wondering why you thought next year they might be 3 million tons below their normal output.

Yeah, thanks, Jeff. I think the simple thing there is We don't know where exactly that is coming from. Is that product that's been built up at a port waiting to go out? I think you can't look at three months, particularly three months of summer, and compare it to a whole year. We know that those ports have issues in the winter with respect to... freezing and unavailability, etc., etc. So as we look at, whether we look at Belarus, Belarus Gali, or whether we look at the Russian producers, their seasonal shipments are never as high as their summer shipments. So our expectation is that's what they'll do. And again, not unlike Canada, it gets pretty darn cold in the winter around that area. And Shipping by rail, that kind of distance, can be pretty challenging. You're going to get all kinds of issues. And so our expectation is, yes, they may be able to do it in the summer, but we would discount that or at least risk adjust that for the winter months.

Thank you. This concludes today's question and answer session. I'd like to turn the conference back over to the management team for any closing remarks.

Okay, so to conclude our call, before I reiterate our key messages, let me just say I've dealt with many of you now for 15 years. It has been a pleasure. I was hoping you'd be a little easier on me on my last day, but you clearly weren't going to do that, so I thank you for your honesty anyway. In terms of Mosaic and the business as it goes forward, I continue to believe that that we are a well-positioned company at a great time in a great market, and I think Bruce and team will do very well going forward. But let me just conclude at least this quarter. The ag fundamentals continue to be compelling. Growing demand for grains and oil seeds just bodes really well for the future. Farmers around the world continue to have the incentive to maximize production. And that, in turn, leads to strong fertilizer demand. And we expect tight supply and demand dynamics for both of our products for the foreseeable future. Now, Mosaic as a company is in excellent position to benefit from these market dynamics. Our balance sheet is strong. We're investing in the business and returning capital to shareholders. And with that, I'm going to sign off, pass the baton to Bruce, and wish them the best in the future and for their earnings calls. Thank you all very much.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.