By Rod Nickel
July 16 Falling prices of phosphate and potash
dragged down quarterly profits for Mosaic Co, and the
U.S. fertilizer producer said it expects a further drop amid
soft demand from Indian buyers and a lapsed contract with China.
Depreciation of the Indian currency as well as reduced
subsidies by the government there have made imported phosphate
and potash fertilizer more expensive for manufacturers and
farmers in the biggest phosphate importing country, which relies
completely on foreign potash supplies.
The unfavorable conditions in India could last up to a year,
or until after the next general election when it may be easier
for the government to re-balance fertilizer subsidies, said
Mosaic Chief Executive Officer Jim Prokopanko, who sees them
likely contributing more for potash and phosphate and less for
nitrogen, which is produced domestically.
"That's my understanding of Indian politics," he said. "They
know they've got a deficit that has to be tamed, and they've
chosen, if ham-handedly, to reduce payments for potash and
Mosaic estimated current-quarter potash prices at $330 to
$360 per tonne, compared with an average of $368 last quarter.
It expects realized phosphate prices of $430 to $465 a
tonne. In the just-ended quarter, the average price for
diammonium phosphate was $483 per tonne.
Prokopanko also said he expects overall demand to be strong
for the rest of this year, especially in North America and
A supply contract between Canpotex Ltd - the offshore
selling agency for Mosaic, Potash Corp of Saskatchewan
and Agrium Inc - and a subsidiary of China's Sinofert
Holdings Ltd expired recently, and Mosaic expects to
see a second-half contract in place by the end of the current
Canpotex is hoping to at least maintain prices at the last
contract's level, estimated at $400 per tonne, but Prokopanko
hinted China may be seeking a further discount.
"Chinese buyers will be sorely tempted to pull the trigger
if we go below anything where we're at today. Potash is cheap,"
A lengthy holdout by both China and India in last year's
contract talks hurt the miners' profits, swelled supplies and
eventually led to potash price discounts.
Mosaic said it would operate at less than 75 percent
capacity at its Canadian potash mines for the third quarter,
slightly lower than a year ago, due to maintenance, but would
expand curtailments if demand is too soft.
Potash Corp has already announced similar steps.
Shares of Mosaic dropped 3.75 percent in midday trading in
New York to $54.02, outpacing the session's losses by Potash
Corp and Agrium.
Plymouth, Minnesota-based Mosaic is the world's largest
producer of finished phosphate products and the second-largest
rock phosphate producer. It is also a major potash miner in the
Canadian province of Saskatchewan.
Net earnings for the fiscal fourth quarter ended on May 31
fell to $486 million, or $1.14 per share, from $507 million, or
$1.19 per share, a year earlier.
Analysts on average expected a profit of $1.13 a share,
according to Thomson Reuters I/B/E/S.
Net sales declined 4.5 percent to $2.69 billion, roughly in
line with analysts' estimates.
Sales volumes hit the top end of Mosaic's forecast for the
quarter, while prices fell within the company's range, despite
challenging U.S. weather.
The company intends to buy back stock later this year when
restrictions expire on shares held by various trusts and family
shareholders of agribusiness giant Cargill Inc.
Cargill declined last month to amend an agreement to allow for
Mosaic to buy the shares earlier.
About 129 million Class A restricted shares - representing
30 percent of Mosaic - could be up for grabs starting in late
But Cargill's refusal to give Mosaic an earlier chance at
buying back shares does not necessarily suggest that suitors are
lining up to buy them, Prokopanko said.
"It's my speculation that Cargill is not being driven by
market factors, but rather by this being a deal that was a very
complex transaction with considerable tax ramifications that
they did not want to tinker with," the Mosaic CEO said.
For the current calendar third quarter, Mosaic said it
expected to sell 1.8 million to 2.1 million tonnes of potash,
compared with 1.8 million a year earlier and 2.6 million tonnes
in the prior quarter.
The company forecast phosphate sales of 2.9 million to 3.3
million tonnes this quarter, compared with 2.9 million a year
earlier and in the last quarter.