Potash and Phosphate Outlook a presentation for the AAAC Outlook Conference

Transcription

1 Potash and Phosphate Outlook a presentation for the Peter Cameron General Manager - Australia The Mosaic Company Perth, Australia November 28, 2014

2 Safe harbor statement This document 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 Northern Promise Joint Venture, the acquisition and assumption of certain related liabilities of the Florida phosphate assets of CF Industries, Inc. ( CF ) and Mosaic s ammonia supply agreements with CF; repurchases of stock; other proposed or pending future transactions or 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 ability of the Northern Promise Joint Venture to obtain additional planned funding in acceptable amounts and upon acceptable terms, the future success of current plans for the Northern Promise Joint Venture and any future changes in those plans; 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, 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 Mosaic s 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 and other risks associated with Mosaic s international operations and those of joint ventures in which Mosaic participates, including the risk that protests against natural resource companies in Peru extend to or impact the Miski Mayo mine; 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 efforts to reduce the flow of excess nutrients into the Mississippi River basin, the Gulf of Mexico or elsewhere; 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 Mosaic s processes for managing its strategic priorities; adverse weather conditions affecting operations in Central Florida, the Mississippi River basin, the Gulf Coast of the United States or Canada, and including potential hurricanes, excess heat, cold, snow, 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, the liabilities Mosaic assumed in the Florida phosphate assets acquisition, or the costs of the Northern Promise Joint Venture, its existing or future funding and Mosaic s commitments in support of such funding; reduction of Mosaic s available cash and liquidity, and increased leverage, due to its use of cash and/or available debt capacity to fund share repurchases, financial assurance requirements and strategic investments; 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 The Mosaic Company

4 The Mosaic Company Mosaic Leading Miner of Agricultural Minerals Mosaic helps the world grow the food it needs by mining phosphorus (P) and potassium (K) minerals and refining these ores into plant nutrient products that are essential for global agriculture. Our North American operations typically dig, pump, cut, convey and hoist nearly 95 million tonnes of raw P&K ores from the earth each year. We remove the sand, clay, salt and other elements to produce approximately 23 million tonnes of refined ores. We then process these refined ores into about 17 million tonnes of finished products using an additional five million tonnes of purchased or manufactured raw materials such as sulphur and anhydrous ammonia.

5 The Mosaic Company Mosaic s U.S. Phosphate Operations Mosaic PotashCorp Uralkali Belaruskali OCP Israel Chemical K+S Qinghai Salt Lake K2O P2O5 Vale PhosAgro Million Nutrient Tonnes Based on 2013 production Mosaic's P 2 O 5 production includes CF Industries' phosphate business P 2 O 5 production based on PACID and SSP production K 2 O production based on MOP, SOP, and KMS production Source: Company reports, IFA, CRU, Fertecon and Mosaic

6 The Mosaic Company Mosaic s NA Potash Operations DAP/MAP/MES/TSP Sales by Market MOP Sales by Market Offshore 56% North America 44% North America 51% Offshore 49% Total DAP/MAP/MES/TSP Sales: 61 Mil MT Total MOP Sales: 50 Mil MT Average for calendar yr '06 - '13 Average for calendar yr '06 - '13 Source: Mosaic Source: Mosaic

7 Agricultural Outlook

8 Lower ag commodity price environment $ BU Corn Prices Source: CME Daily Close of Front Month Futures Contract $ BU Source: CME Soybean Prices Daily Close of Front Month Futures Contract US$ BU 7.00 New Crop Corn Prices Daily Close of the New Crop Contract (Sep 1 - Aug 31) US$ BU 14.0 New Crop Soybean Prices Daily Close of the New Crop Contract (Sep 1- Aug 31) Source: CME S O N D J F M A M J J A Source: CME S O N D J F M A M J J A

9 Still the potential for a quick turnaround USDA forecasts a 7% build in global G&O stocks in 2014/15 (12% last year) We have a (slight) negative bias to the USDA s figure Wide range of outcomes in 2015/16 Just one severe drought away from a food crisis Just one bin-buster crop away from a farm crisis But it likely will take two or three years to pull down large global inventories The Game We Play Mil Tonnes World Grain & Oilseed Stocks 700 Source: USDA and Mosaic E 15F USDA Mosaic 2015/16 Range Mosaic Medium Scenarios 2015/16 Grain and Oilseed Scenario Assumptions Low Medium High Harvested Area Change -0.25% 0.00% 0.25% Yield Deviation from Trend * Largest Negative At Trend Largest Positive Demand Growth 2.00% 2.25% 2.50% * Trend yield for 2000/01 to 2013/14 crop years. 623 Farm Crisis Food Crisis

10 And the long term food story still intact The Food Story by the numbers Mil Tonnes World Grain and Oilseed Use 3,500 Source: USDA and Mosaic 3,000 Mil Ha World Harvested Area and Average Yield Source: USDA and Mosaic MT Ha , , , , Actual for Biofuels Actual Forecast for Biofuels Forecast Actual Area Forecast Area Actual Yield Required Yield Yield Trend 1.75 Increases in population and income produce predictable increases in grain and oilseed demand. The global harvest will need to increase 380 million tonnes during this decade to meet projected new demand, greater than the current combined harvests of Argentina, Brazil and Canada (the ABCs). Demand is projected to increase another 420 million tonnes during the next decade -- so world production again will need to increase by the current output of the ABCs plus Australia. Farmers around the world will need to plant record area and reap record yields, year after year, in order to meet the projected demand for agricultural commodities during this decade and beyond.

11 Phosphate Situation and Outlook

12 Nutrient affordability improving of late amid falling nutrient prices Plant Nutrient Affordability Plant Nutrient Price Index / Crop Price Index Source: Weekly Price Publications, CME, USDA, AAPFCO, Mosaic Less Affordable More Affordable Affordability Metric Average Our homemade Plant Nutrient Affordability metric is the 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 2005.

13 Record demand in 2014, and expect another record next year despite weaker ag prices Record crops in 2013 and 2014 drain record amounts of nutrients from soils Expected changes in crop mix but no large decline in total planted area Profit maximizing application rates do not change much (do not buy feeder pigs and not feed them) Farm income and farm balance sheets still generally in good shape Lean channel inventories worldwide Potential rebound in Indian shipments offsets a potential slowdown in Brazil MMT Product Global Phosphate Shipments DAP/MAP/MES/TSP 70 Source: CRU and Mosaic Mil Tonnes Source: CRU/FRC and Mosaic Global Phosphate Import Demand Likely Scenario excluding China E 15F E 15F Asia and Oceania Latin America Europe Mideast Africa North America FSU

14 Positive long term demand outlook Demand forecasts : Continued steady growth is a key feature (and risk) of our analysis Assumes more moderate prices and an eventual recovery in crop prices Lower but more stable operating rate Strong recovery in India with meaningful subsidy reforms Global shipment forecasts (DAP/MAP/MES/TSP) Mosaic Likely Scenario: 3.0% CAGR or ~10 million tonne increase CRU: 1.4% CAGR and ~5 million tonne increase Another steady gain in 2014 to million tonnes MMT Global Phosphate Shipments DAP/MAP/MES/TSP E 14F 15F 18F Actual High Forecast Low Forecast Likely Forecast CRU - July 2014

15 Supply and demand generally look balanced Supply forecasts : Capacity increases in line with projected demand growth but near-term imbalance Continued strong demand growth required to absorb new supply Global phosphoric acid operating rates Mosaic forecast: Rates relatively stable at ~85% of effective capacity MMT Global Phosphate Capacity, Production and Oper Rate Likely Scenario Op Rate % 90 Source: CRU/FRC and Mosaic 95% 80 90% 70 85% 60 80% 50 75% 40 70% 30 65% 20 60% 10 55% 0 50% Capacity Production Acid Op Rate

16 Potash Situation and Outlook

17 Tight supply/demand balance has lifted prices Prices have moved up in 2014 after trending downward since mid-2011 Strong rebound in global demand/shipments Especially tight blend-grade market due to strong demand in the Americas Supply losses in Canada and second-half turnarounds in the former Soviet Union (and now a mine shutdown due to brine inflow) Situation exacerbated by North American rail constraints & bottlenecks $ ST fob Midwest Terminal Blend Grade Muriate of Potash Prices 200 Source: Green Markets and FMB fob U.S. Midwest Warehouse c&f Brazil $ MT c&f Brazil

18 Solid rebound in global shipments MOP shipments projected to rebound 9% or 4.7 million tonnes in 2014 Record Brazilian imports and shipments Solid gains in China and India and further growth in Indonesia/Malaysia Continued recovery in Europe/FSU Large and steady North American shipments Continued positive demand prospects in 2015 Led by China and India (less sensitive to lower commodity prices) But likely slowdowns in the Americas Mil Tonnes KCl Global Potash Shipments 60 Source: CRU and Mosaic Mil Tonnes KCl Source: Fertecon and Mosaic Global Potash Import Demand Likely Scenario excluding Canada => U.S E 15F E 15F Asia/Oceania Latin America Europe/FSU North America Other

19 Positive long term demand outlook MMT MOP 80 Global Potash Shipments Demand forecasts : Strong growth is a key feature (and risk) of our analysis Global shipment forecasts (MOP) Mosaic Likely Scenario: 4.1% CAGR or ~15 million tonne increase CRU & Fertecon: ~5.0% CAGR and ~17-19 million tonne increase A robust gain in 2014 to million tonnes Demand forecasts : Growth led by the Big Five (Nearly three-quarters of the projected increase coming from China, India, Brazil and Malaysia/Indonesia) E 14E 15F 19F Actual High Forecast Low Forecast Likely Forecast Fertecon - Mar 2014 CRU - Aug 2014 China India Europe/FSU Brazil Indonesia/Malaysia Other Asia Other Latin Am Other North America Mil Tonnes KCl (Percentage is CAGR) 0.0% Change in Potash Shipments 2019 vs Likely Scenario 4.6% 6.8% 3.2% 2.9% 3.5% 6.4% 4.7% 12.7%

20 Key Takeaways & Factors to Watch

21 Key Takeaways & Factors to Watch Takeaways Near term ag headwinds but the long term food story still intact Lower agricultural commodity price environment in the near term Still the potential for a quick turnaround In general, plant nutrients have become more affordable in recent weeks with softening nitrogen and phosphate markets We are expecting global upticks in both P&K usage in 2015, led by India and China Longer term outlook is also positive as demand largely looks to keep pace with P&K capacity expansions Factors to Watch Impact of lower crop prices on farmer demand Southern Hemisphere crop developments India Phosphate and Potash import appetite banking on a strong recovery in 2015 Extremely low channel inventories Supply developments New phosphate supplies (e.g. Jorf Phosphate Hub start-ups). Potash production situation in Russia (impact of brine inflow on Uralkali s Solikamsk-2, and potentially Solikamsk-1, mines)