On Monday, Mosaic Company (MOS) took the opportunity to dump the kitchen sink on an already dreary day. After seeing shares fall 16% in the day's trading session, the phosphate and potash producer pre-announced volumes for its Fiscal Q209, ending November 30.
Noting the “unprecedented global economic and credit downturn,” Mosaic reported phosphate volumes of just 1.3 million tonnes, down 800k sequentially. This is tracking much lower than the reduced estimate Mosaic put out just one month ago, when the company told us of planned production cuts of 1 million tonnes by the end of 2008. On the potash side, production was 1.7 million tonnes, down from 1.9m in the prior quarter.
Monday’s press release calls for a further 1m cut in 2009 phosphate production, depending on market conditions. Sales guidance for the current fiscal year has been completely taken off the table, for both phosphates and potash. At this point, a production level anywhere between 4m and 8m tonnes for phosphate seems plausible, but the company is still forecasting a strong spring planting season to boost results on the back end of the fiscal year.
Pricing Deceptive
Mosaic reported ASPs for its core phosphate grade (DAP) within the prior guidance range of $1,020 - $1,080 per tonne. Potash average prices were below estimates at $525 (vs. $560-$620 guidance).
I’m frankly shocked that the phosphate pricing held up that well during the quarter, as my checks have current spot prices for DAP plummeting 50% and more in just the past three weeks. I expect to see Mosaic really shut down DAP production through the end of the year (Mosaic noted congested supply chains around the world), and wouldn’t be surprised to see Q3 production go as low as 500k.
Implications for Potash Corp.
The downside miss in potash pricing was good for a 5% clipping of POT shares in the after-hours session, with Mosaic pacing lower with an 8.6% drop. Phosphates only contribute about 30% to Potash Corp’s gross margins, and even at current spot prices DAP is still selling for more than it was a year ago. You can’t say the same thing about many other global commodities.
In another note of relative strength, potash prices were up just over 7% sequentially from the $488 Mosaic reported in the second quarter. Recent Canpotex contracts notwithstanding, potash pricing could be weak for the next 6-8 weeks, but global supplies remain low. India and China should be big customers once again in early 2009. Potash Corp. (POT) continues to be a top holding in the Secular Trends Portfolio, a reflection of the powerful trends in global agriculture and food production.
Parting Thoughts
MOS shares are barely above the closing low of $22.31 set on November 20….I would like to think that the market has discounted numbers as poor as we saw from Mosaic yesterday, and for better or worse we’ll likely know the answer in the next couple of days. The company’s balance sheet is still high quality, and no real liquidity concerns are present.
Disclosure: Author does not hold a position in the companies mentioned.
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This article has 2 comments:
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chistletoe
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47 Comments
My Website
Dec 02 09:12 AMmeans less food next year
(this is not rocket science, folks)
There was not enough last year to feed everyone.
So there will be widespread famine.
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LJBinvestor
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5 Comments
Dec 02 09:51 AM