Mosaic Company (The)

Good morning everyone and welcome to the Mosaic Company's third quarter 2024 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. If you need assistance, please signal conference specialist by pressing the star key followed by zero. To ask questions you may press star and then one using your touchtone telephones. To withdraw your questions you may press star and two. Please also note today's event is being recorded. I would now like to turn the floor over to Jason Tremblay. Please go ahead.

Thank you and welcome to our third quarter 2024 earnings call. Opening comments will be provided by Bruce Bodine, president and chief executive officer followed by a fireside chat and then open Q&A. Clint Freeland, executive vice president and chief financial officer and Jenny Wong, executive vice president commercial 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 today 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 would like to turn the call over to Bruce.

Good morning. Thank you for joining our call. I would like to start by acknowledging the great work done by so many of MOSAC's people to help us prepare for and recover from hurricanes Francine, Aline, and Milton. I am especially pleased that we made it through the storms with no safety incidents, no significant environmental events, and no material physical damage. Even as most of our people in Louisiana and Central Florida were dealing with storm impacts at home, they came together to ensure we could get back up and running as quickly as possible after the storms. Because of their dedication, our Florida operations were back at full operating rates just two weeks after Milton, with some locations returning to normal within days. I am extremely grateful to the team. Before we get into our results, I also want to address our announcement this morning that Clint Freeland plans to retire as MOSAC's executive vice president and chief financial officer at the end of this year. During his time with MOSAC, Clint has been an outstanding CFO for the company. MOSAC's financial profile and capital allocation program are much stronger than they were when Clint arrived six years ago. I want to extend my sincere thanks for his leadership, and we wish him all the best in his retirement. As part of this planned transition, Luciano Siane-Perez will join the company as CFO designate on November 18. Luciano was previously the CFO at Vale and later served as the company's EVP of strategy and business transformation. Luciano also served on MOSAC's board of directors following the Vale for Los Angeles acquisition in 2018, so we know him quite well. We look forward to welcoming him to MOSAC and we're confident that he'll be a worthy successor. Luciano assumes the role of CFO on January 1, 2025, and Clint will remain a senior advisor until July 1 of 2025. On to our third quarter results. The storms were part of a challenging third quarter for us. We also faced electrical issues at our Esther-Hazy and Kalanse-Padash mines that affected our production levels. All those challenges are now behind us. For the third quarter, MOSAC generated $2.8 billion of revenue resulting in net income of $122 million and adjusted EBITDA of $448 million. The lower adjusted EBITDA was driven by the aforementioned challenges, lower potash prices, and a delayed agriculture recovery in Brazil, partially offset by ongoing strength in phosphate stripping margins. That said, we have continued to focus and execute on the things that are within our control and these actions and initiatives are positioning us to benefit from the improving ag and fertilizer markets. We expect to achieve our targeted annualized phosphate production run rate of 7.8 to 8.2 million tons by year end once the ongoing turnaround activities are completed later this month. We are making good progress on our cost management front and on track to achieve our $150 million annual run rate cost savings target by the end of 2025. We are on track to achieve our targeted $200 million reduction in capex this year. MOSAC Biosciences growth is accelerating. In fact, our biological products are now being used on 9 million acres in key markets around the world this year. Due to our extensive market access and the strength of our brand, the Biosciences operating model is highly leverageable and positioned for long term growth, which is powered by new product launches using our internal R&D capabilities as well as leveraging external partnerships. MOSAC Biosciences is largely self-funding and does not require significant new capital to fuel its growth. Capital allocation remains a key focus for us. We are continuing to invest in our strengths. This year we completed the compaction project at our low cost Estrahezi mine and the micro essentials conversion project at Riverview. And next year we will complete the hydro float project at Estrahezi and the Pomeranchi blend plant in Brazil. We are also focused on capital reallocation for other assets in our portfolio, such as conversion of our MWSPC joint venture into modern shares, which are worth $1.5 to $1.6 billion at today's share price, and the strategic review of our Carlsbad, New Mexico potash mine. During the first nine months of the year, we returned $415 million to shareholders, including $210 million of share repurchases. Now let's spend a few moments to discuss the state of the market and outlook. Corn and soybean prices have improved from their August lows, while other commodity crops, including palm oil, sugar, and coffee, are quite strong. In North America, farmers are enjoying solid yields that offset the impact of strained commodity prices and an early harvest allowing more opportunity to complete fall fieldwork, which is good news for the near-term fertilizer demand outlook. In Brazil, barter ratios are healthy for corn and soybeans. In fact, the corn barter ratio is improving, an increasingly constructive setup for the sofrina crop in the coming months. We have also seen a continued uptick in Brazilian corn used for ethanol production, which has provided further corn price support there. Over the longer term, biofuels remain an attractive driver for grain and oilseed demand far beyond current levels, supporting a highly constructive picture of long-term ag fundamentals. The government in Indonesia reiterated that it would be moving forward with a B40 biodiesel program starting in January. In India, the latest ethanol mandate could lead to India becoming a net importer of corn. In Brazil, the approval of the new biofuel policy calls for a gradual increase in the mixture of soybean biodiesel and diesel fuel and changes in the ethanol content in gasoline and sustainable aviation fuel for airplanes. Fertilizer demand is running high around the world this year as nutrients remain affordable and growers are catching up after recent years of underapplication. Large crops and solid yields in many regions this year are drawing nutrients from the soil, with removal particularly pronounced in North America with an additional 4 to 5 percent compared to last year. So, we expect demand will remain solid in 2025 as nutrients are replenished. The potash market remains relatively balanced. We think potash prices have hit bottom as we've seen resistance to low offers in key markets and prices have begun to trend higher. We continue to expect near-record global shipments for 2024 and record-breaking shipments in 2025, driven by broad-based demand recovery, particularly in Southeast Asia where palm oil economics are solid. For the phosphate market, stripping margins are expected to remain elevated. Prices remain strong, driven by persisting global supply constraints and solid demand for fertilizer fuel and industrial uses. China has continued to restrict phosphate exports and we expect total Chinese exports to be around 7 million tons for 2024, down from 7.9 million tons last year and about 11 million tons at their recent peak. Domestic phosphoric acid production is increasingly consumed by industrial uses, resulting in reduced availability for production of phosphate fertilizers. This trend will likely continue well into the future. In addition, because of an unfavorable government subsidy environment, Indian phosphate demand is going unmet, leaving farmers short of a critical nutrient and setting up strong demand for 2025, assuming an improvement in importer economics. Now I'll move on to our segment results. The potash segment generated a -de-bidda of $180 million for the quarter, compared with $267 million a year ago, driven by lower prices and approximately 250,000 tons of lost production due to the electrical issues at Estrahezi and Kalanze, and were further impacted by the broad Canadian rail strike. These issues are now fully resolved. For the fourth quarter, we expect potash sales volumes in the range of 2.2 to 2.4 million tons and prices in the range of $200 to $220 per ton. Note that this outlook includes limited impact from the labor issues at the ports of Vancouver and Montreal. Campotex has contingency plans to mitigate the impacts from the strike as much as possible by diverting product flows via other ports. However, the longer the strike goes on, the higher the potential for volume impacts given the significance of the terminal to the Campotex network. Our phosphate segment generated a -de-bidda of $265 million for the quarter, compared with $201 million a year ago. The improved results are due to a combination of solid pre-hurricane production levels and strong stripping margins. Our sales volume came in at 1.5 million tons in the third quarter, driven by lower production volumes and shipping delays caused by weather events and related port closures. Our realized stripping margins remain strong, in part because of our advantageous ammonia economics. We produce about a third of what we consume, and we have a reliable supply of ammonia and sulfur from our partners. We have executed two new ammonia supply offtake agreements, with an additional one nearing completion to meet our needs in 2025 and beyond. Our balanced raw material sourcing approach reduces our risk exposure in varying market conditions and sustains our strategic advantage. Our phosphate conversion cash cost per ton was largely unchanged from the second quarter. As we continue to ramp up production to the target run rate, we expect to achieve a $20 to $30 per ton reduction in conversion costs from the high water mark at the end of 2023. Hurricane Milton resulted in a production loss of about 250,000 tons, which will be reflected in our fourth quarter volumes. For the fourth quarter, we expect phosphate sales volumes in the range of 1.6 to 1.8 million and prices in the range of $570 to $590 per ton. Mosaic for Luzonches generated $83 million in adjusted EBITDA, compared with $147 million a year ago. EBITDA was lower due to $32 million in bad debt reserves we booked in SG&A and $20 million of legal reserves. The bad debt reserve was a result of the Brazilian customer's bankruptcy filing. We expect to recover the majority of this amount through an insurance claim, which will be recorded in the quarter it is received. All in all, we are back on track. Our operations are restored to full capacity in all geographies, and we are optimistic as we look ahead to 2025. We expect constructive agriculture and fertilizer market fundamentals, and we believe that we will produce at levels that will allow us to meet robust demand from our customers around the world and generate good financial performance. Our strategy of refining our portfolio while pursuing exciting opportunities in Mosaic Biosciences will deliver meaningful shareholder value.

Thanks, Bruce. Before we move on to the live Q&A, as we have done in past quarters, we would like to address some of the most common investor questions that we have received throughout the quarter. First, what is the current state of agriculture and fertilizer markets, and what is your outlook for next year?

Thanks, Jason. Ag fundamentals are solid, and fertilizers are affordable, which bodes well for fertilizer demand. Significant changes to phosphate supply will keep the market tight into next year, and the potash market is balanced. Let me ask Jenny to provide you with her view.

Thank you, Bruce. Overall, ag fundamentals remain strong for many crops. We continue to remind investors that only one-third of phosphate and potash consumption goes to corn and soybean. Prices for other ag commodities, especially palm oil, sugar, coffee, continues to be very attractive, which supports significant demand of fertilizer growth in this year. For corn and soybean, fundamentals are improving. In Brazil, domestic prices of corn and soybean are actually traded at a premium over international future prices. This is due to the re-eye devaluation and also the growth of new demand, i.e. bioethanol. As of last Friday, the sales of corn and soybean have come back to the same pace of last year. So has the fertilizer purchases for Saffrona corn and the summer crop. Speaking about biofuel, I'd like to highlight another dynamic that will influence the market both in near-term and in long-term, which is increasing demand to corn and soybean for biofuel and bioethanol. In Brazil, the recent approved government fuel bill suggests biodiesel and bioethanol blending rate to increase by 5%. This increase of the blending rate implies significant increases of new demand for corn and soybean. Our estimation that would imply 2,4 million tons of NPK fertilizer demand if the rate are going to be realized by 2032. In India, the country has shifted to a -corn-input country this year as the government is corn ethanol investment plans to push use of corn for ethanol production in addition to sugar cane and rice. And this is even before they hate their E20 goal and the Indian government has a target to get to E25 by 2030. Now, let me move over to phosphate and potash market. Phosphate markets are tight this year and expected to stay constructive as we get into 2025 and beyond. Overall demand in this year are generally as par as 2023 with supply constraints holding back demand growth this year. Indian manso and the grower economics have driven demand outpace supply. We see reduced shipment in 2024 due to unfavorable importer economics which is related to the government subsidy program. This is setting up a pent-up demand for 2025. In North America, we are expecting a large crop. With the yield increase, the nutrient removal could be up to 4 to 5% from the soil compared to 2023. This nutrients must be replenished. While growers have been cautious as the headwind of corn soybean prices, the big yield and early harvest improved the sentiment. We've been hearing from our customers that they were surprised by growers' appetite to phosphate. In Brazil, phosphate inventory is very tight. The grower economics and butter ratio are improving. We expect Brazil further demand to continue to expand in 2025. Lastly, on the supply side, we are seeing limited new supply coming in in 2024. China exports are limited by their very strong domestic demand both in fertilizers and industrial use. Up to end of Q3, the production of LFP for electrical vehicles and the stationary batteries increased by 51% to 1.8 million tons. The dynamic of competition between ag use and industrial use have tightened the availability of PTO5. In fact, China has been stepping up to import phosphate rock in order to meet the demand. The dynamic is expected to continue next year and support very tight phosphate market. For potash, we've seen very broad base of demand recovery around the globe, especially in Southeast Asian market. The elevated palm oil price and constructive rice prices have really supported the demand recovery of potash. -to-date input growth in Malaysia and Indonesia was up by 57%, and we are seeing similar level for other countries in Southeast Asian region. We expect the global shipment of potash this year will be rebounded to the record year as we saw in 2021. On supply side, supply from Russia and Belarusia has largely returned to the historical level or pre-war level. Globally, we see the potash market as balanced with low price now prevailing to spur further demand growth in 2025.

Next question is on phosphate production levels. Assuming you achieve your target run rate in the fourth quarter, how should we think about production volumes moving forward?

We do expect to achieve the target run rate by the end of the quarter. Our turnaround schedule will be complete in the next couple of weeks, which will set us up for hitting the target. Our phosphate production level will be sustainable once we achieve the target, but please note that it will continue to vary on a -by-quarter basis depending on turnaround scope and schedule. For example, we have some turnaround activities scheduled for the first quarter next year, which will set us up well to produce at full rates for North American spring demand. This will result in lower than run rate production for the first quarter, which we expect to make up during the balance of the year. One other factor that affects the production volumes quarter to quarter is product mix. Our teams are continually monitoring the markets and working to optimize product mix to maximize profitability. Each of our products requires a different amount of P205, so the product mix decisions will dictate the finished product production rates and where we land within the target range each quarter.

Our next question is related to the credit situation in Brazil. You recorded 32 million of bad debt in the quarter. What is your exposure to future credit losses?

We have limited risk to further credit losses. While the market conditions remain challenging, not all industry participants are facing the same credit issues. In fact, a significant portion of our customers, which are grain traders and co-ops, are in good financial condition. During the onset of the credit crisis, we made a concerted effort to reduce our exposure to the retailers that are most impacted by credit problems. As we move into the Safrina and Saffra seasons next year, we have employed additional risk mitigation measures by requiring prepayments from our customers and continue to ensure sales contract integrity to prevent losses. In the event that credit losses are incurred, we use credit insurance programs to mitigate them. We believe our prudent risk approach will continue to reduce our exposure to future losses.

Thanks, Bruce. With that, we'll now move on to the open question and answer session. Operator, please open the lines for follow-up questions.

Ladies and gentlemen, at this time, we'll begin that question and answer session. To ask a question, you may press star and then 1. You are using a speaker phone. When we do ask you, please pick up the handset before pressing the keys. To withdraw your questions, you may press star and 2. We do also ask that you please limit yourselves to a single question. At this time, we'll pause momentarily to assemble the roster. And our first question today comes from Richard Garcatoriana from Wells Fargo. Please go ahead with your question.

Great, thanks. Good morning and congratulations, Clint, on your retirement. Yeah, so I just wanted to first touch on the phosphate business. It looks like you put strong margins up despite the challenging weather events. I was wondering, given you're also on track on the cost savings of $150 million, what would your costs have looked like, I guess, if you didn't have the temporary shutdowns, and was there a cost impact from the shutdown during the quarter?

Hey, Richard, this is Bruce. Thanks for the question. We're pretty proud of the margins. It does show, to your point, the strength of our cost reduction program and how much improvement in production really has on our fixed cost absorption. Even though we did have, to your point, impacts from the various hurricanes in Louisiana and a little bit of Helene at the end of third quarter and Florida mostly on shipping ability out of the ports, we've kind of had production flat versus quarter two, which was about 100, 110,000 tons improved over kind of historic. So I believe we're seeing that coming through. I know it's hard when you have these interruptions with storms, we're taking things up and down, but we believe that underlying performance really is there, and definitely we're going to demonstrate that, and we'll talk more about that, I'm sure, going into fourth quarter as we get past our turnarounds. But we've always said that from our kind of high mark in 2023, which was quarter four, we'd expect $20 to $30 cost improvements due to absorption when we get a full run rate. We obviously weren't there because of the hurricanes and the other turnaround work that we had, so we should have expected another notch down on our costs and would have expanded a little bit more in margin as we go forward, and I think that's what investors should look forward to as we do demonstrate that run rate forward. And Clint, I'll just turn it over to you since he congratulated you. You can talk about that, and if you wanted to add anything to that.

Yeah, no,

I appreciate it, Bruce.

Richard, I

do appreciate

your congratulations. I think, Bruce, I think you really spoke to it well. I think as you look at the production levels in three and adjust for kind of the production shutdowns, I think you would have seen a lower cost per ton, and you would have seen improvement on those lines, and again, as we've seen on the right path on that, and again, if you just adjust for the close, I think you would see that improvement.

And our next question comes from Steve Byrne from Bank of America. Please go ahead with your question.

Yes, thank you. I'd like to drill in a little bit on the comments you made about biosciences. This 9 million acres, what are the functional products in here? Are these bio-stimulants or are these biologicals? Is this a blended product with fertilizer or seed treatment? How does it flow through your income statement? And more importantly, what's the pipeline look like in this group? Anything in there you'd call out as having some meaningful longer-term potential?

Hey, yes, thanks, Steve. I'm hoping we'd get a question and maybe you would be the one. So I appreciate that question on biosciences because it is something we're proud of. We're seeing really exciting acceleration on the acres covered in these products. I'm going to let Jenny talk about the specifics of your question. But we do feel that, you know, in the course of time, this really could be a growth engine for MOSAIC. So as I said, we're excited about it. But let me turn it over to Jenny to kind of get into the specifics of the products and then the pipeline.

Thanks, Bruce. Thanks for the question. The products that we are selling in the market, Steve, are basically nutrient use, nutrient efficiency enhancement products. So the two major products we're selling in North America and Central America called Parcode and BioPass. This product, what these products do, they basically improve nutrient use efficiency. We do have products that we were selling in Brazil, in China. They are third party products as of today. They are bio-stimulants. So how the products are used today, more than 70 products that we're selling are coated on fertilizer granulars. And the rest of the 30% are basically being mixed with liquid fertilizer or fungicide or insecticide. And the formulation strains, which is the strains of our product, have made our products very steady. So our products can be mixed with UAN, with ammonia, and let alone other crop protection products. Going forward, we will have products to be coated on seeds. So you asked the questions on pipeline. In the pipeline, we are looking for quite a wide range of the products. The most exciting ones, Steve, that I can mention, one is nitrogen fixation materials. And we are at the final stage for field trial and the registration. And we also have a range of products which improve phosphorus solubility. And that's in the pipeline. And that is one of the investments we made over the last few years. And this is in the development stage as well. So stay tuned. We will have more reports on the new product pipeline, as well as the accelerated growth that we're making with our market access in the market, major agricultural markets in North America, Brazil, China, and India.

And our next question comes from Chris Parkinson from Wolf Research. Please go ahead with your question. And that gentleman dropped off. We'll move on to Joel Jackson from BMO Capital. Please go ahead with your question. Good morning.

Can we talk a bit about your outlook for potash for 2025? You're showing about a demand growth, I think, two or two and a half million tons of demand growth next year. Let's talk about what you also see for supply next year. And then, you know, in your base case, how much of that increments demand will Campotex and Mosaic be able to supply? How many more tons can Mosaic supply next year? You haven't really gone above 9 million tons, I think, for seven or eight years. What is the most you can do through K-3, Columns, a bell plane, et cetera?

Thanks. Yeah, Joel, you picked up on, obviously, in our materials, we do see the market growing anywhere from a million and a half to two million tons and somewhere in that range next year. I see Laos being part of the additional capacity. There's a little bit more out of Russia and Belarus that probably can be squeaked out as well. And then it's just going to be a remainder of supply, as you said, out of Canada in some form or fashion, depending on how that demand materializes. But I'm going to turn it over to Jenny and maybe get into the details of you know, what potentially could happen in sharing of supply on that demand.

Thanks, Bruce. Joel, probably want to give you a little bit more specifics on our base case assumptions. On the demand side, we believe the current price level or the affordability will have support to the further demand growth and some market as a demand recovery, for example, in Indonesia and Malaysia. And on the supply side, our base case assumptions are assuming further ramp up of Uruk-Halli's project and some of the final push of Uruk-Halli's production, which is going to make the product out of Russia. We are estimating roughly half a million tons more than this year. And we assume BPC probably already reached to their plateau by using the alternative route to get the product to the market and knowing it is very expensive to serve the market through this alternative route. Lastly, as Bruce mentioned, we have big assumptions on the expansion in Laos. So the expansion of the capacity, including Asia Potash and also partially including YT Edge as well. And Asia Potash, their capacity expansion in 2024 was very slow due to well-known management change and also the water inflow issues. We baked our assumption from next year that they will be back to the pace for their expansion of the capacity. So as you can see, as we forecast the supply increases in 2025, the two major growth drivers are from Russia and also from Laos. And as we all know, this expansion are also with some significant uncertainties. So in the case, the supply is not coming online as what we suggested. There is a potential that the market is going to be tightened.

Joe, just the other part of your question is what could we produce? And we've announced and we talked about in the opening comments the investment at Esther-Hazy, which in our hydro float project, which is a high return, low, modestly expensive investment, will generate another 400,000 tons when that comes online mid-year next year. At that point, Esther-Hazy and Belpling combined should be able to produce in that 9 million ton range. And then based on what we need above and beyond that for Campotex participation and our market share in North America, we'll continue to use Kalanze hopefully more sparingly once that comes on, but to cover things like major turnarounds at Esther-Hazy, something unforeseen, or if there happens to be a slow in timing and some of the things we've baked in for other supply around the globe, then for sure we'll be prepared to ramp Kalanze back up if it happens to be idle at the time.

Our next question comes from Chris Parkinson from Wolf Research. Please go ahead with your question.

Okay, I promised to ask a nice question. All right, so I want to go back on some of the FOSA commentary in terms of getting to the run rate and then obviously factoring in some downtime. We just take a step back and kind of consider everything that your asset base has gone through for the last several years, inclusive of the third quarter. How should the street ultimately be thinking about what's the average run rate of FOSA rock procurement in terms of the concept of normalized earnings? Same question for processing costs. So when we just sit back and compartmentalize how much your assets should be earning in a normalized environment in 25, hopefully or presumably into 26, what kind of broad framework should we ultimately be using? Thank you.

Yeah, Chris, I appreciate the question. As we've talked multiple times, the way I'll answer that is more like we have is I think, yes, we are recovering. There's evidence of that on a run rate. As we've said and been consistent, just to put it in context, we won't achieve kind of that 7-8 to 8-2 run rate until largely end of the year after we finish turnarounds. Our turnarounds will finish this year in the next couple weeks. So December will be wide open. Unfortunately, we do have a turnaround of bar tow scheduled in the first quarter of next year. Pretty major sulfuric turnaround. So there'll be some lumpiness to that. But look out beyond that at that 7-8 to 8.2. Conversion costs should come down, as I said earlier, from kind of that high water mark in 2023 by $20 to $30 per ton. That should be sustained on an annualized type basis. Rock costs, we were about 55 kind of flat to where we had been this quarter in Florida. I think there's some upside to that when we get better lined out because there was some impact due to the hurricanes on fixed cost absorption there. So minor upside on rock cost. And then it's just going to be a matter on blended rock, how much miscemeyer was being consumed at any given time in the mix as that is a little higher cost on a blended rock side. So you put all that together and seeing around that $50, $55 rock cost, -95-ish on conversion cost. And that's probably, I think, the numbers that you're hoping that you're looking for the way I understand it.

Our next question comes from Ben Thier from Barkley. Please go ahead with your question.

Good morning and thanks for taking my question. Just wanted to dig a little bit deeper into the Brazilian business, into Fertilizantes, if you don't mind. Could you elaborate on what you're seeing in terms of just farmer activity right now in Brazil, buying behavior, and just like how transactions are going through because we're getting so many different signals out of Brazil. Would love to see what the business is for you right now in Brazil in particular. Thank you.

Yeah, Ben, thanks. I'm going to just go ahead and turn that one right over to Jenny and talk about what's going on in Brazil as she's headed that commercial side and has a good pulse of that. So Jenny?

Sure. Thanks, Bruce. Hey, Ben, I'm not surprised to hear that you say mixed message out Brazil. I would start to say Brazil has been facing some challenges throughout the year, partially because of the headwind on the commodity prices and partially also due to the credit or liquidity constraints at the farmer level. What we are saying most recently is that some things changed. A, it's really on the commodity prices. We see the prices started to climb up from the middle of the year and especially at the local level. The prices on REI are actually higher than the US dollar traded in Chicago market. Partially, it is because of the valuation of REI. Partially, it is because of the new demand, local demand, especially the newly added bioethanol plants in the middle of the corn growing states. With that new demand, we're saying the farmers are selling at a higher price and to the local demand. That has largely improved their economics. So we are tracking very closely on A, how much grains the farmers have sold for their next crops and B, how much purchases they have made for their next season. As of last Friday, for the coming Sofina corn, farmers have sold 67% of their crops, which is 7% higher than the same time of last year. And close to the historical average, as a part of the progress as the farmers are selling corns and they are buying fertilizers. So for the coming Sofina corn season, they have purchased over 60% of their fertilizers, which is ahead of the same time of last year. It's a similar situation for the summer soybean season. It is early, I know, but usually at this point in time, farmers started to sell their next soybean crops already. As of last Friday, the farmers have sold 28% of the soybean, which they are going to plant next summer. And this is 4% higher than the same time of last year and 7% higher than the year before. It's similarly to the purchases of the fertilizers. Last week, we saw a big step up. They have purchased 5% of their fertilizer for their next summer season, which is at par as the last two years. So what I want to conclude is that as challenging as it is, at the grower level, we are saying improving sentiment, improving economics, and improving activities.

Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead with your question.

Hi, this is Justin Pellegrino on Provincing. I just had a quick question. You mentioned the unmet demand in India for phosphate because of the unfavorable government subsidy environment. Can you just give some commentary around how you're seeing those subsidies shifting on the ground and then maybe how much product was missed out on 2024 that you could see shifting to 2025? Thank you.

Yeah, Justin, thanks. Definitely saw a significant amount missed versus what trend demand would be in India. And I'm going to turn it over to Jenny to give the details. But whether it's a shift in the MRP or something on the subsidy itself, definitely see that that's necessary in order to incentivize growers to actually put the demand that they need on the crops. So with that, let me turn it over to Jenny and kind of get into the detailed statistics.

Sure, Bruce. So the farmer demand in India this year to DAP, and for the same reason, MLP as well, are very strong, which is A, supported by very good monsoon, and B, supported by very good commodity prices. But on DAP itself, the demand has been so strong, supply was not able to catch up. The economics that you mentioned on importers, the importer's economics are actually defined by two things, right? One is really the subsidy from the government. B is the differences between international price, CFR price, and the farmer price. This year, farmer price are very low at $360 per ton. If you think about international market price is at 640-ish level. So there's such a big gap, the government has not been able to catch up on the subsidies. So therefore, the importers were reluctant to import from international market, and that has caused a shortage to the farmers. We estimate the DAP shipment reduction this year due to this dynamic might be around 2 million tons. Farmers still need this 2 million tons. The shipment is partially from reduced consumption and partially coming from this fully depleted inventory. So as we get into next year, things likely going to be changed, we assume. A is the farmer price likely going to be adjusted. 360 is just probably too low. And how that price is going to be adjusted, we assume that will be adjusted to the level farmers still have good economics to support it. But partially, the government subsidy will need to be adjusted as well. So however that dynamics are going to be played out, we know the Indian farmers will need to put down DAP on the ground. And we know that were short this year already, there were a lot of publicity in country for the shortage of phosphate. So that laid a good foundation as the government get into their consideration for the subsidy into 2025.

Our next question comes from Andrew Wong from RBC Capital Markets. Please go ahead with your question.

Good morning. Just a few questions on phosphates again. So can we just clarify on the million ton phosphate run rate? Is that annualizing a monthly or quarterly production level when there's no turnarounds? And if so, what would be considered a realistic total annual production going forward when you just kind of account for all of that? And then just on phosphate demand, what is what are your assumptions assume for next year based on pricing and affordability? Because that's obviously had a big impact on phosphate demand this year, as you've highlighted. So do prices need to come down a little bit to kind of support that phosphate demand growth? Just kind of wondering how you think about that.

Thanks. Hey, Andrew. Yeah, on phosphates, all of that 7.8 to 8.2 million ton annualized range has what we would consider normal interruptions due to historically normal turnarounds at historically normal scope, as well as historically normal weather disruptions. What we've seen over the last couple years and getting back to that run rate is abnormally large turnaround time and turnaround scope. And then, of course, this year, more abnormally weather related and issues during the hurricane. So based on history, you know, that now weather history repeats itself on hurricanes, that's, you know, a whole different question. If we do see this type of weather pattern going forward, we probably have some downside on the range. But that 8 million, you want to pick a single point between the 7.8 and 8.2, it's something that we'd expect on an annualized basis. The lumpiness may be month to month, quarter to quarter, depending on how many turnarounds are in any given quarter or, you know, in any given month, obviously, but that we would make that up, as we said, in the back half of the year or in the first half of the year, depending on when that turnaround fell. So the 8 million is an average realized number, not, and need to handicap that more. As far as demand growth, for sure, prices in phosphate have been high, but prices overall, I think you've got to look at affordability on all of the input costs at the farm gate. Obviously, potash, very affordable right now, but what's going on with land rent, what's going on with other input costs have to go into account, as well as, you know, what we've seen this year is pretty large yields on given acres, and, you know, that will turn out to be a little better on farmer economics as well. We have seen in Brazil, as an example, barter ratios, as Jenny talked about, starting to rise. So the constructiveness is always a function of what's going on in the geography, obviously, but we believe overall affordability will still be there for the farmer when you add everything together, and the amount of nutrients being taken off of this crop, particularly in North America, are quite large. I think Jenny talked about that earlier, and the need to replenish that's going to be high without suffering some type of yield impact. And I'll turn it over to Jenny and see if you want to add any more.

Jenny Wang Yeah, thanks, Bruce. I think, Andrew, I would say next year, the demand grows, probably not likely going to say because price comes down and the demand grow. I would turn that to say the demand might only grow if supply can be really improved. Our current forecast on supply side of assumption for 2025, there's no major increases, but more on the improvement like ourselves on the production. So if the supply can be improved next year, the demand will get to grow. The price, like Bruce mentioned, it's probably not necessarily going to be the factor to define the size of the demand. Thanks.

Andy B

I appreciate the

question. Right now, it obviously appears to be, well, it is high as a nutrient on its own. I talked about the aggregate, but I know that's not the nature of your question. What would things that we would be looking for to be more concerned or more confident would be the announcement of significant new capacity, right? As Jenny said, in our view, the constructiveness of the phosphate market on its own is unique because it is limited on supply. That is what's driving prices. It isn't the fact that anyone is trying to manipulate or do anything on prices one way or the other. It just is that is based on the limited supply intersecting demand. That is the fair price for phosphate. If somebody were to announce new capacity, historically, if you look back in time, when things have trended for this long, whether it be an OCP or a modern new supply would have been announced. That just simply hasn't happened to significance that we believe is going to change anything in our forecast or the way we look at that price, at least in the near term. Going into 2025, still feel that realized tripping margins for Mosaic are going to be quite good. Until we see something change on the supply side fundamentally, that is going to stay, I don't think we have great concerns that there is an obvious catalyst for something to change on the pricing side. Jenny, anything that I may have missed?

Yeah, I guess the only one thing, Bruce, I would add the high prices of phosphate today are also supported by high raw material prices. If you look at the price of ammonia and sulfur, they stay at their elevated level as well. If anything changes next year on the S&D side of ammonia, for example, or sulfur, that might adjust to the price for phosphate, although the stripping margin of phosphate really depends on the S&D, as Bruce mentioned earlier. So just want to add that one point.

Our next question comes from Josh Respector from UBS. Go ahead with your question.

Good morning, this is Lucas Salmon. I'm for Josh. I just want to go back to Fertilizantes. So you guys have your updated shipment outlook there on slide 10. You're putting 2025, that's going to be the fifth year in a row with relatively range-bound shipments. I know we've had a lot of interruptions of different phases over that period. I guess just going back further, we used to get 5% a year in growth there in the prior decade. So just be curious to get your thoughts there now on how you see the outlook for that market going forward. Do you expect a return to higher growth rates there, or have we reached a more stable kind of lower growth phase now? Thank you.

Thanks, Lucas. I think we're still very optimistic in Brazil on overall fertilizer demand growth. If I understood the nature of your question, because it was a little bit static. But let me turn it over to Jenny to kind of talk more about the details on what we see there going into next year.

Sure, Bruce. I think for Brazil next year, we do expect the market is going to continue to grow and expand. As we mentioned earlier, the farm economics are improving and barter ratios are improving. So the sign that we're saying today support our forecast for next year on overall market expansion. For ourselves, you mentioned, if I heard you correctly, you mentioned our own sales volume. I would say we've been very consistent as we operate in the market like Brazil, especially for our distribution business. We are always pursuing for margin of value than the volume, especially in this year and with the credit risk environment. We are very surgical and selective on who we sell to and what kind of credit risk that we're taking. As a result of it, our volume probably not growing as much as the market growth, but again, we are pursuing value over volume.

And then Lucas, again, now that Jenny was talking about it, we do have our Pomeranian investment as well, which will add another million tons of distribution capability, which right now we're at kind of that 9 million mark of distribution capability for blended fertilizer. So Pomeranian will add another million in the north of Brazil where we don't have owned footprint today. That will come online middle of next year. So that's another point where we'll be able to grow, again, to Jenny's point, as long as it makes economic sense and risk-adjusted sense for us based on what's going on with credit and other things like that. But that will be the flexibility that we'll have to continue to grow in Brazil, which we still believe is one of the key agricultural markets to be in in the world.

And our next question comes from Jeff Zoukakis from JP Morgan. Please go ahead with your question.

Thanks very much. Two-part question. President Lukashenko of Belarus suggested that Russia might curtail its Padaf shipments. Have you seen any signs that either Belarus or Uralcali or Eurochem are curtailing in any way? And second, in China, if you look at overall phosphate production in China, inclusive of what's shipped to the local markets and exports, has that total volume risen or fallen relative to the year when China exported at very, very high rates, at 11 million pounds?

Yeah, no, Jeff, thanks. I think between Jenny and I, we got the gist of the question. But to my knowledge, I have not seen any evidence that Belarus or Russia have done anything either collaboratively or independently to reduce rates. Yes, we saw that article from President Lukashenko as well, but there's no evidence. In fact, I think the shipments, at least in the data that we have access to out of Belarus anyways, has been pretty consistent, Jenny, hasn't it, over the last quarter? Yes. Yeah. Yeah, so no evidence, Jeff. I mean, obviously they're going to do what they do. And as a market participant in this space, we'll look forward to whatever that is one way or the other and then make our adjustments on our strategy. But that's the beauty of the resilient supply chain that we have, both with Campotex and then ourselves with Kalanse as our flex. And we'll react appropriately if something were to change in the overall S&D based on what has been said by Belarus. On the China thing, I think I'm just turn it directly over to Jenny to talk about that because she and the team have a lot of boots on the ground information. So Jenny.

Sure. Jeff, to your question on phosphate production out of China, at the P205 level, this year we are forecasting they're going to produce more phosphate related products than last year or the year before. This increases of production, including the increases of LFP, as we mentioned earlier, but also increases of P4, which is yellow phosphorus, which used to be coming from other route and now to produce herbicide like glyphosate. Now more and more glyphosate are shifting production coming from the wet process, which is P205 that we're in the same space to compete the P205 molecule. So the increases of LFP, PPA, and also the raw material for glyphosate is one of the drivers driving higher production of P205. On DAP, MAP, TSP, SSP level, we are seeing a increase of the production as well. While you really see it from export with this increased production, but that is mostly driven by increases of local consumption. So we are seeing significant step up of overall MPK consumption. Well, I take it back, phosphate and potash consumption in China. Partially, I believe it is driven by the overall economics of the crops. The other thing that we're keeping very close eye is the adoption of GMO. This is the first year they started to grow GMO corn and GMO soybean, which will require more intensified fertilizer management to maximize the yield. So that is the other driver we will continue to report going forward.

So with that, I think the operator, we're going to stop taking questions and I will go ahead and conclude the call. So thank you, everyone. And to conclude our call, I want to emphasize our key points. We've overcome three hurricanes and other challenges. And today, Mosaic is in excellent position to benefit from improving business conditions. We're investing in our strengths while acknowledging areas where we need to improve returns. We're reducing costs and capital expenditures. Our Mosaic Biosciences business is growing fast and our plants and mines are hard and safely to help us meet the strong demand for our products. We're energized for the future and our outlook for the remainder of this year and 2025 is positive. So thank you for joining our call and everyone have a great and safe day.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your line.