Phosphate Outlook. TFI Outlook Conference Marriott Marriott Waterside Hotel and Marina Tampa, FL November 20, 2013

Transcription

1 Phosphate Outlook TFI Outlook Conference Marriott Marriott Waterside Hotel and Marina Tampa, FL November 20, 2013 Dr. Michael R. Rahm Vice President, Market and Strategic Analysis The Mosaic Company

2 Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements include, but are not limited to, statements about the proposed acquisition of the Florida phosphate assets and certain related liabilities of CF Industries, Inc. ( CF ) and the ammonia supply agreements with CF; the benefits of the transactions with CF; future strategic plans and other statements about future financial and operating results. Such statements are based upon the current beliefs and expectations of The Mosaic Company's management and are subject to significant risks and uncertainties. These risks and uncertainties include but are not limited to risks and uncertainties arising from the possibility that the closing of the proposed phosphate asset acquisition may be delayed or may not occur, including delays arising from any inability to obtain governmental approvals of the transaction on the proposed terms and schedule and the ability to satisfy other closing conditions; difficulties with realization of the benefits of the transactions with CF, including the risks that the acquired assets may not be integrated successfully or that the cost or capital savings from the transactions may not be fully realized or may take longer to realize than expected, regulatory agencies might not take, or might delay, actions with respect to permitting or regulatory enforcement matters that are necessary for Mosaic to fully realize the benefits of the transactions including replacement of CF s escrowed financial assurance funds, or the price of natural gas or ammonia changes to a level at which the natural gas based pricing under one of the long term ammonia supply agreements with CF becomes disadvantageous to Mosaic; customer defaults; the effects of our decisions to exit business operations or locations; the predictability and volatility of, and customer expectations about, agriculture, fertilizer, raw material, energy and transportation markets that are subject to competitive and other pressures and economic and credit market conditions; the level of inventories in the distribution channels for crop nutrients; changes in foreign currency and exchange rates; international trade risks; changes in government policy; changes in environmental and other governmental regulation, including greenhouse gas regulation, implementation of numeric water quality standards for the discharge of nutrients into Florida waterways or possible efforts to reduce the flow of excess nutrients into the Mississippi River basin or the Gulf of Mexico; further developments in judicial or administrative proceedings, or complaints that Mosaic's operations are adversely impacting nearby farms, business operations or properties; difficulties or delays in receiving, increased costs of or challenges to necessary governmental permits or approvals or increased financial assurance requirements; resolution of global tax audit activity; the effectiveness of the Company's processes for managing its strategic priorities; the ability of the Northern Promise joint venture among Mosaic, Ma'aden and SABIC to obtain project financing in acceptable amounts and upon acceptable terms, the future success of current plans for the joint venture and any future changes in those plans; adverse weather conditions affecting operations in Central Florida or the Mississippi River basin or the Gulf Coast of the United States, and including potential hurricanes, excess rainfall or drought; actual costs of various items differing from management's current estimates, including, among others, asset retirement, environmental remediation, reclamation or other environmental regulation, Canadian resources taxes and royalties, or the liabilities Mosaic is assuming in the proposed phosphate assets acquisition; brine inflows at Mosaic's Esterhazy, Saskatchewan, potash mine or other potash shaft mines; other accidents and disruptions involving Mosaic's operations, including potential mine fires, floods, explosions, seismic events or releases of hazardous or volatile chemicals, as well as other risks and uncertainties reported from time to time in The Mosaic Company's reports filed with the Securities and Exchange Commission. Actual results may differ from those set forth in the forward-looking statements. 2

3 Topics and Take Aways Current Situation: A Slow Burn (continues) Weaker Fundamentals Cautious Sentiment 2014 Outlook: Hitting Bottom and Beginning to Recover Record global shipments and a rebound in import demand Positive demand drivers Lower channel inventories worldwide: India DAP example Still a tale of two Hemispheres Americas vs. Asia Supply uncertainties or the when and how much questions Long Term Outlook: Balanced and Positive Strong demand outlook underpinned by the food story A new supply ballgame Stable global operating rates

4 Current Situation: A Slow Burn (continues)

5 Current Situation: A Slow Burn (continues) Weaker Fundamentals Collapse of Indian import demand Livin off the pipeline Additional capacity/supplies Cautious Sentiment Negative price expectations Lower agricultural commodity prices Spillover from high profile events in Russia/Belarus

6 A Slow Burn: Prices Down ~40% from 2011 Peaks $ MT Plant Nutrient Prices Source: Fertecon, CRU and ICIS Urea - fob Yuzhny DAP - fob Tampa MOP - c&f Brazil Urea 2011 Peak: $505 Current: $318 Change: -37% DAP 2011 Peak: $656 Current: $350 Change: -47% MOP 2011 Peak: $555 Current: $335 Change: -40% 6

7 Collapse of Indian Import Demand INR / MT India Retail Plant Nutrient Prices 30,000 Source: FAI, Mosaic 25,000 20,000 15,000 10,000 5, Urea MOP DAP Mil Tonnes India Urea Imports 9.0 Source: FAI, Mosaic 8.0 Fertilizer Year Ending March Actual Forecast YTD Mil Tonnes India DAP Imports 8.0 Source: FAI, Mosaic 7.0 Fertilizer Year Ending March Mil Tonnes India MOP Imports 7.0 Source: FAI, Mosaic 6.0 Fertilizer Year Ending March Actual Forecast YTD YTD Actual Fo recast

8 Livin off the Pipeline: India DAP Example Million Tonnes DAP 2013/ /15 Producer/Importer Beginning Inventory Production Imports Producer/Importer Sales to Retailer Dealers Retail Dealer Sales to Farmers Retail Inventory Change Producer/Importer Ending Inventory Producer/Importer Inventory Change Total Pipeline Inventory Change Our Delhi team estimates that DAP demand by farmers remains strong due to an outstanding monsoon and profitable farm economics. The government has raised minimum support prices for major crops, retail urea prices remain stable at the extremely low level of $80-$85 per tonne, and retail P&K prices, while up sharply from prereform levels, have declined modestly in 2013/14. As a result, retail dealer DAP sales to farmers are projected to total 9.8 million tonnes this fertilizer year. Producer and importer sales, however, are projected to drop to 7.8 million tonnes, implying of retail inventory decline of 2.0 million tonnes. In addition, producer/importer inventories also are projected to decline 250,000 tonnes in 2013/14.

9 Lower Agricultural Commodity Prices 2012/13: How high to allocate the short crop to its highest valued uses? 2013/14: How low to unleash pent-up demand? $ BU Corn Daily Close of Nearby Futures Contract Source: CBOT 3.0 Jan-1 0 Jan-1 1 Jan-1 2 Jan-1 3 $ BU Soybean Price Daily Close of Nearby Futures Contract Source: CBOT 9.0 Jan-1 0 Jan-1 1 Jan-1 2 Jan-1 3 $ BU HRW Wheat Price Daily Close of Nearby Futures Contract Source: KCBOT 4.5 Jan-1 0 Jan-1 1 Jan-1 2 Jan-1 3 Corn 2012/13: $6.79 Current: $ /14:???? Soybeans 2012/13: $14.74 Current: $ /14:???? HRW Wheat 2012/13: $8.20 Current: $ /14:???? 9

10 Lower Agricultural Commodity Prices Bil Tonnes World Grain and Oilseed Production 3.0 Source: USDA E Production Use Mil Ha World Grain and Oilseed Area and Yields MT Ha Source: USDA E Harvested Area Yield Trend Mil Tonnes World Grain & Oilseed Stocks 650 Source: USDA E 10 Stocks Percent of Use Percent 30.0% 27.5% 25.0% 22.5% 20.0% 17.5% 15.0% The USDA projects that 2013/14 global grain and oilseed production will surge to a record-smashing 2.93 billion tonnes due to record harvested area and a record average yield. Global grain and oilseed use increased at a compound annual growth rate of 2.4% during the five years prior to Use increased just 0.4% in 2012 due to the short crop last year (but still the second largest ever produced!). USDA projects that global use will jump 3.5% in 2013 due to ample supplies and more moderate prices. If current supply and demand projections are on target, global grain and oilseed stocks will increase significantly this year and make up most of the declines during the last three years.

11 2014 Outlook: Hitting Bottom and Beginning to Recover

12 Hitting Bottom and Beginning to Recover Record Global Shipments and a Rebound in Import Demand Positive demand drivers Lower channel inventories worldwide India DAP example Still a tale of two Hemispheres Americas vs. Asia Supply Uncertainties or the When and How Much Questions How much will China export? When will Ma aden Phase I ramp up to capacity? How much will OCP produce and export? When will the first Jorf Phosphate Hub come online? How much will Tifert produce and when will Jifco start up?

13 Record Shipments and a Rebound in Import Demand MMT Product Global Phosphate Shipments DAP/ MAP/ MES/TSP Likely Scenario 70 Source: Fertecon & Mosaic MMT Source: CRU/ FRC and Mosaic Global Phosphate Import Demand Likely Scenario excluding China F 14F F 14F Asia and Oceania Latin America Europe Mideast Africa North America FSU 13

14 Positive Demand Drivers US$ BU New Crop Corn Prices Daily Close of the New Crop Option Jul 1 to Jun 30 Source: CME J A S O N D J F M A M J New Crop Hard Red Winter Wheat Prices US$ BU Daily Close of the New Crop Option Jul 1 to Jun Source: CME J A S O N D J F M A M J US$ BU New Crop Soybean Prices Daily Close of the New Crop Option Jul 1 to Jun 30 Source: CME J A S O N D J F M A M J S/C Ratio 11/15/13: 2.51 Lower but still relatively high 2014 new crop prices

15 Positive Demand Drivers Plant Nutrient Affordability Plant Nutrient Price Index / Crop Price Index Source: Green Markets, CME, USDA, AAPFCO, Mosaic 1.25 Affordable plant nutrients Affordability Metric Average Our homemade Plant Nutrient Affordability metric is a ratio of a plant nutrient price index and a crop price index. The plant nutrient price index is a weighted average of indices for urea, DAP and MOP prices. These indices are calculated using weekly published spot prices at key U.S. pricing points. Weights are N, P, and K percentages of total U.S. nutrient use from 2005 to The crop price index is a weighted average of indices for corn, soybeans and wheat. These indices are calculated using the weekly average of the daily closing price of the front month futures contract. Weights are the shares of total U.S. production of these three crops from 2005 to The base year for all indices is

16 Positive Demand Drivers Bil $ Source: USDA U.S. Net Cash Income F Government Payments Market Near Record U.S. Net Cash Farm Income 16

17 Lower Channel Inventories: India DAP Example Million Tonnes DAP 2013/ /15 Producer/Importer Beginning Inventory Production Imports Producer/Importer Sales to Retailer Dealers Retail Dealer Sales to Farmers Retail Inventory Change Producer/Importer Ending Inventory Producer/Importer Inventory Change Total Pipeline Inventory Change Our Delhi team estimates that DAP demand by farmers remains strong due to an outstanding monsoon and profitable farm economics. The government has raised minimum support prices for major crops, retail urea prices remain stable at the extremely low level of $80-$85 per tonne, and retail P&K prices, while up sharply from prereform levels, have declined modestly in 2013/14. As a result, retail dealer DAP sales to farmers are projected to total 9.8 million tonnes this fertilizer year. Producer and importer sales, however, areprojectedtodroptolessthan7.8million tonnes, implying of retail inventory change of 2.0 million tonnes. In addition, producer/importer inventories also are projected to decline 250,000 tonnes in 2013/14.

18 Still a Tale of Two Hemispheres Americas Outstanding Demand Prospects Mil Tons NA Phosphate Use and Mil Tons P 2 O 5 DAP/ MAP/ MES/ TSP Shipments Product Source: AAPFCO, TFI, IFA and Mosaic Fertilizer Year Ending June Phosphate Use Phosphate Product Shipments Mil Tons U.S. DAP and MAP/ MES Shipments 1.2 Source: TFI and Mosaic 1.0 Mil Tons U.S. DAP and MAP/ MES Shipments 1.2 Source: TFI and Mosaic Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun MIN MAX Range (05/ 06-11/ 12) 2012/13 7-Yr Olympic Avg 0.0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun MIN MAX Range (06/ 07-12/ 13) 2013/14 7-Yr Olympic Avg

19 Still a Tale of Two Hemispheres Americas Outstanding Demand Prospects MMT Brazil DAP/ MAP/ TSP Imports 5.0 Souce: Fertecon, ANDA, Mosaic Tonnes Brazil DAP/ MAP/ MES/ TSP Imports 800 Min/Max Range ( ) Source: Brazil Mosaic, ANDA Fcst Yr Olympic Average F 14F DAP MAP/ MES TSP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 19

20 Still a Tale of Two Hemispheres India The Beginning of a Recovery Mil Tonnes India DAP Imports Kariff (Apr 1-Sep 30) Rabi (Oct 1-Mar 31) Source: FAI and Mosaic India Tonnes India DAP Imports 1,600 Min/Max Range (07/08-11/12) 1, Fcst 1,200 7-Yr Olympic Average 1,000 Source: FAI and India Mosaic Fertilizer Year Ending March 31 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 20

21 Supply Uncertainties How Much phosphate will China export?... phosphate will Saudi Arabia export? MMT Products DAP/ MAP/ TSP Source: CRU October 2013 China Phosphate Exports MMT Product DAP/ MAP/ TSP Source: CRU October 2013 Exports Saudi Arabia Phosphate Exports Production Capacity F 14F F 14F Key Issues Key Issues 2014 export tax (potentially less restrictive) Mine and plant ramp-up to capacity Production economics Indian import demand Domestic off-take Indian import demand 21

22 2014/15: Wide Range of Potential Scenarios Mil Tonnes World Grain & Oilseed Stocks Source: USDA and Mosaic MT HA World Grain & Oilseed Average Yield 3.30 Source: USDA and Mosaic Historical / 14 Range / 15 Medium Scenario 2.93 Trend USDA E 14F Historical 2014/15 Range 2014/ 15 Medium Scenario USDA E 14F 2013/14 Rebuilds the drawdown of the last three years 2014/15 Wide range of potential scenarios Most likely scenario results in a significant drawdown Low scenario depletes stocks to food-crisis levels High scenario builds stocks to 2000/01 levels 2014/15 Grain and Oilseed Scenario Assum ptions Low M edium High Harvested Area Change -0.50% 0.00% 0.50% Yield Deviation from Trend * LargestNegative 0.00 LargestPositive Dem and Grow th 2.0% 2.5% 3.0% * Trend yield for 2000/01 to 2012/13 crop years. 22

23 Long Term Outlook: Balanced and Positive

24 Solid Demand Drivers Mil Tonnes World Grain and Oilseed Use 3,500 Source: USDA and Mosaic 3,000 2,500 2,000 1,500 1, Actual for Biofuels Actual Forecast for Biofuels Forecast Mil Ha World Harvested Area and Average Yield 975 Source: USDA and Mosaic MT Ha Actual Area Forecast Area Actual Yield Required Yield Yield Trend 1.75 Available on Mosaicco.com

25 Strong Demand Prospects Mil Tonnes World Processed Phosphate Shipments 80 Source: Fertecon and Mosaic Key Assumptions Agricultural commodity prices continue to trade at elevated levels Farm economics remain profitable worldwide More moderate and less volatile phosphate prices More balanced nutrient use in China and India Continued strong growth of phosphate intensive crops such as soybeans and palm oil. Actual Low Forecast High Forecast Likely Forecast CRU/ FRC - Aug 2013 GlobalPhosphate Shipm ents Forecast Mosaic CRU/FRS MMT D AP/M AP/TSP Low Likely High P 2 O 5 D/M /T P 2 O Shipm ents Forecast Change CAGR % 2.8% 3.0% 2.3% 1.9% 2.0% Source: CRU /Fertecon Research Centre Data File August

26 Balanced and Positive Outlook Global Phosphate Capacity, Production and Oper Rate MMT Likely Scenario Op Rate % Source: CRU/ FRC and Mosaic 90 95% 80 90% 70 85% 60 80% 50 75% 40 70% 30 65% 20 60% 10 55% 0 50% Capacity Production Acid Op Rate Based on our likely demand scenario and capacity estimates, global phosphoric acid operating rates are projected to remain relatively stable at about 85% of capacity from 2014 through This is in line with the average since 2000, but projected rates do not exhibit as much volatility as during the last decade. 26

27 Phosphate Outlook Key Features 1. New Supply Ballgame: China s Expansion Program Expected to End On the supply side of the ledger, a key feature of our analysis is the expectation that China s massive 15-year expansion program will come to an end and that new low cost capacity planned or under construction, mostly in Morocco and Saudi Arabia, will supply the bulk of projected demand growth during the last half of this decade and beyond. 2. Brazil Remains a Key Growth Market and Still Largely Dependent on Imports Brazil shipments are forecast to climb 5.7% per year or 3.4 million tonnes from 4.5 million in 2010 to 7.9 million in Increases in domestic production are projected to meet roughly one-third of this growth with imports capturing the remaining two-thirds. Brazil s imports are forecast to climb from 2.5 million tonnes in 2010 to 4.8 million in Demand Growth Gets Back on Track in India In India, a combination of expected subsidy changes and more stable and moderate prices is projected to put phosphate demand back on a growth trajectory during the last half of the decade. Shipments are projected to grow 2.3% per year or 3.0 million tonnes from 11.1 million in 2010 to 13.8 million in Domestic DAP fabrication is expected to remain at about 4.0 million tonnes, so imports of high analysis solid products are forecast to increase to around 10.0 million tonnes by the end of the decade. Imports peaked at 8.1 million tonnes in Generally Positive Demand Prospects Elsewhere MMT China DAP/ MAP/ TSP Production 70 Source: Fertecon, IFA and Mosaic F Rest of World China MMT Brazil Phosphate Shipments and Imports 8.0 Source: Fertecon Research Centre/ CRU and Mosaic Shipments Imports MMT India Phosphate Shipments and Imports 14 Source: Fertecon Research Centre/ CRU and Mosaic Shipments Imports

28 Thank You! Phosphate Outlook TFI Outlook Conference Marriott Marriott Waterside Hotel and Marina Tampa, FL November 20, 2013 Dr. Michael R. Rahm Vice President, Market and Strategic Analysis The Mosaic Company