January 6, 2012
Mosaic recovers from fertiliser prices and demand drop
Following a recent temporary slump in fertiliser prices and demand, conditions are seen getting better, Mosaic Co. (MOS) executives said Wednesday (Jan 4).
After several strong quarters for the industry during a broad agricultural boom, fertiliser companies have hit tougher times recently, as worries about Europe''s debt crisis helped pressure grain prices and prompted dealers to take a cautious stance on purchases.
The global economic uncertainty made for what Chief Executive Jim Prokopanko called "a pretty gloomy December." The company acknowledged the pressure last week in announcing it was cutting phosphate production by 250,000 tonnes through March. But Prokopanko said Wednesday fertiliser conditions are starting to improve, and will continue to do so as US farmers prepare to plant a large crop this spring.
"We''re in a dip, but I think those conditions are starting to abate already," Prokopanko said in an interview after reporting the company''s second-quarter earnings fell 39%.
Mosaic,the world''s largest phosphate producer, doesn''t expect any further production cuts, nor does it plan to join competitors in cutting back on potash output. Potash and phosphate, along with nitrogen, are key fertiliser ingredients that have come into increasing demand in recent years as emerging-market food demand has risen and crop prices have soared.
The company expects US farmers will plant about 94 million acres of corn this year, up from an estimated 91.9 million in 2011, which will mean increased fertiliser demand.
Phosphate prices in the US have rebounded 10% in the last week to US$475 per tonne, Mosaic Chief Economist Mike Rahm added.
Mosaic officials added that the phosphate industry should be able to absorb additional capacity coming online, including an estimated two million tonnes in 2012 from a Saudi Arabia mine project.
Phosphate shipments in 2012 should hit a record 62 million to 64 million tonnes, Rahm said, up from 60 million this year and 51 million in 2007. With that record demand, China phosphate exports are likely to drop this year, and domestic unrest in key Arab nations could also limit supplies, he said.
The company expects crop prices will remain strong throughout 2012. Prokopanko noted South America''s crop is facing drought conditions, while a lack of snowfall across the Midwest is already a worry for the US crop to be planted this spring. Some analysts have said the lack of snow could leave soils dangerously dry to start the season.
"You have to be concerned about the North American crop, and what we''re going to have," Prokopanko said.
Smaller crops ultimately support fertiliser demand, as crop prices rise and farmers plant more acres to capitalise.
Still, Prokopanko forecast weaker third-quarter earnings due to "near-term macroeconomic uncertainty and cautious distributor-purchasing behavior."
The company''s stock has struggled this year following a split with Cargill Inc., which previously owned a majority stake in the company. In November, Mosaic agreed to repurchase 21.3 million shares from the Margaret A. Cargill trusts for about US$1.2 billion, completing the disposition of 157 million shares designated to finance a major charitable trust established by the granddaughter of the company founder.
For the quarter ended Nov. 30, Mosaic reported a profit of US$623.6 million, or US$1.40/share, down from US$1.03 billion, or US$2.29/share, a year earlier. The year-earlier period included a US$1.27 per-share gain from the sale of the company''s Fosfertil business. Net sales climbed 13% to US$3.01 billion.
Analysts polled by Thomson Reuters expected earnings of US$1.28 a share on revenue of US$3.2 billion.
The stock, which is down 30% from a year ago, closed at US$52.30 Wednesday. It was up slightly in after-hours trading.