US fertilizer producer Mosaic seeing ag market fundamentals remain very constructive

HOUSTON (ICIS)–US fertilizer producer Mosaic said agriculture market fundamentals remain very constructive and reflect ongoing global food-security concerns that do not appear to be easing soon.

During its quarterly earnings call, the producer said US crop prices are looking positive for the upcoming season but there are concerns that global stocks-to-use ratios are at 25 year lows and are remaining under pressure because of risks that are again threatening output in the coming year.

“The world continues to watch the war in Ukraine. We have consulted with top military and foreign policy leaders who share our concern that the conflict seems unlikely to be resolved in the near-term and will have long-lasting impacts, particularly in the production of key crops like wheat and sunflowers, which is a source of significant amount of the world’s edible oils,” said Joc O’Rourke, Mosaic CEO.

“Around the world, we still see fertilizer shortages in many key agricultural markets, despite some major markets being well-supplied. However, the overall shortage still threatens total production and this will underpin global crop prices for some time.”

In terms of the fertilizer market, O’Rourke said the sharp spike in prices in the first half of last year resulted in growers aggressively mining their soils but now entering this season, phosphate and potash prices are half of what they were at their peak in 2022.

“With crop prices still very strong, farmer affordability for nutrients has improved significantly and is now back to the levels seen in 2020 and 2021. This suggests a strong rebound in demand as growers seek to maximise yields with sufficient fertilization,” O’Rourke said.

In terms of potash, the producer still sees a world that is short of the nutrient and that it only expects a modest recovery this year in exports out of Belarus.

“The limited product Belarus has been able to get out of the country has been aggressively marketed over the seasonally slow winter and we have seen similar actions from some Russian producers. This is driving recent weakness in prices, but we believe the phenomena is temporary and will reverse as spring demand ramps up,” O’Rourke said.

Mosaic said lower demand led to the temporary stop of production at Colonsay mine, but it expects to restart operations within the first half of 2023.

At Esterhazy, with equipment commissioning underway, the producer expects before the end of the year to add at least 1m short tons of additional annual capacity.

For phosphates, Mosaic said China remains committed to the structural shift which is impacting where it sends its phosphoric acid. In addition, a significant portion of volumes are now directed to industrial uses, including the battery market.

“Roughly 1 million tons of finished fertilizer equivalent was diverted to the battery market in 2022 and we think that will continue to grow rapidly over the next few years as additional battery capacity is added. This suggests China’s exports of phosphate fertilizers will continue to be down significantly as restrictions extend into 2023,” O’Rourke said.

Mosaic noted that inventory levels in key markets for both phosphates and potash have declined considerably from the elevated levels observed in the second half of last year.

O’Rourke said lingering issues from Hurricane Ian impacted operations during the fourth quarter for longer than originally expected, but Florida operations have returned to normal operating levels starting earlier this month.

“We now believe we have moved past the operational issues that impacted output and are dedicating resources to fixing key components in our production,” O’Rourke said.

The producer said US demand has been very strong because of better affordability but that retailers have been hesitant to replenish inventories, because of the volatility in global prices, especially in potash.

“US spring demand is ramping up over the next coming weeks and we believe we have reached a bottom in potash prices,” said O’Rourke.

In an update on ammonia, Mosaic said at Faustina it has improved operations at the plant and saw a significant increase in the amount of ammonia produced during the fourth quarter.

It also announced it has begun expansion of their MicroEssentials offering by adding capacity at the Riverview facility. The approximately $40m project is expected to be completed by the end of the year.

Upon completion, about 50% of their North American phosphate business will become sales of value-added performance products.

“We are also building a test plant for purified phosphoric acid production in North America to verify final design plans for commercial operation. This is the next step in our shift away from commodity fertilizers and opens up new markets like food production and batteries. We are also exploring using the plant’s byproducts to produce NPKs,” O’Rourke said.