Mosaic Company (MOS) — Q4 2021 Earnings Call Transcript

Thank you and welcome to our fourth quarter and full year 2021 earnings call. Opening comments will be provided by Joc O’Rourke, President and Chief Executive Officer, followed by a fireside chat as well as an open Q&A. Clint Freeland, Senior Vice President and Chief Financial Officer and Jenny Wang, Senior Vice President of Global Strategic Marketing, will also be available to answer your questions. We will be making forward-looking statements during this conference call. Statements include, but are not limited to, statements about future financial and operating results. They are based on management’s beliefs and expectations as of today’s date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release furnished yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now I’d like to turn the call over to Joc.

Good morning. Thank you for joining our fourth quarter and full year 2021 earnings discussion. I hope you’ve had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday. I will provide some additional context before we respond to questions we received last night and then we will conclude with a live Q&A session. Mosaic delivered excellent financial performance in 2021 with total EBITDA for the year of $3.6 billion, our highest total since Mosaic listed on the New York Stock Exchange. Adjusted earnings per share was $5.04, the highest since 2011. Our results were a reflection of strong performance across all of our segments. Phosphate segment adjusted EBITDA totaled $1.7 billion, over 200% higher than the segment’s total in 2020, reflecting strong pricing and growth in MicroEssentials, which more than offset the production impacts of Hurricane Ida. Potash segment adjusted EBITDA totaled $1.3 billion, up 78% from the prior year as pricing, increased output from K3 and the reset at Colonsay largely mitigated the closure at K1 and K2. In Brazil, Mosaic Fertilizantes generated adjusted EBITDA of $821 million, up 74% from the prior year as the team capitalized on strong demand, a trend that we expected and that drove our decision to acquire Fertilizantes 4 years ago. In 2021, Mosaic Fertilizantes was able to achieve its $200 million transformational EBITDA improvement target over a year ahead of schedule. These results highlight the decisions we have made over the last decade that have strengthened the business. Most significant has been the construction of K3, which at full capacity will be one of the largest, most efficient and automated potash mines in the world. Assuming a net investment consistent with what we discussed at our 2019 Analyst Day, at today’s prices, K3’s payback period can be measured in months rather than years. Also in potash, we successfully restarted Colonsay and reached our targeted annual run-rate of 1 million tons during the fourth quarter. Colonsay’s fourth quarter cash cost averaged $85 per ton, well below our pre-idled cost of $100 a ton despite higher price-driven taxes and royalties. In Brazil, our acquisition of Mosaic Fertilizantes in 2018 followed by the team’s transformational work to improve margins, has driven significant shareholder value. At the time of the transaction, pro forma EBITDA was less than $70 million. Our 2021 results show that we have been able to optimize that business through integration and transformational share gains and co-product sales. In our phosphate business, performance products, primarily higher margin MicroEssentials, now account for more than 40% of the segment’s finished product sales volumes. All of these decisions, combined with strong execution, put us in a position to benefit from 2021’s favorable market backdrop and improve Mosaic’s financial position. In 2021, Mosaic retired $450 million of long-term debt, raised the annual dividend by 50%, and repurchased nearly $0.5 billion in shares. Looking forward, we continue to see agricultural market strength extending through 2022. Global demand for grain and oilseeds remains high, while stock-to-use ratios are at the lowest point in more than a decade. Food security concerns and rising bio-fuel consumption are driving demand for corn and soybean as well as rice, wheat, coffee, palm oil and other agricultural commodities. These dynamics are sustaining agricultural commodity prices. It’s the strength in crop markets, combined with global industry supply constraints that have pushed fertilizer prices higher. Global supply disruptions from 2021 are expected to continue impacting the global market in 2022. In potash, sanctions against Belarus are beginning to have a profound impact on supply. Global buyers are beginning to acknowledge this, including India and China, which both signed contracts with Canpotex at $590 per ton to ensure they have adequate supply for 2022. In phosphates, the secular shift of Chinese supply away from exports towards domestic agriculture and industrial consumption is expected to outlast the short-term export ban currently in place. Over time, we believe domestic demand will drive China’s phosphate exports lower as secular demand trends continue to grow, especially on the industrial side from chemicals and electric vehicles, lithium-ion phosphate batteries. Globally, strong demand over the last 18 months resulted in many producers delaying maintenance downtime to meet customer needs, which will have to be addressed at some point. On the demand side, farmer economics in most global growing regions remain constructive. Inflation and input costs are impacting profitability, but recent increases in crop prices are improving farmer economics for 2022, even if that estimated profitability remains below the 2021 record levels. As we head into the North American spring planting season, we are seeing normal buyer behavior as demand continues to reflect strong underlying crop prices. In Brazil, fertilizer shipments in 2022 appear set to equal last year’s record-setting total. Grower economics are improving, thanks to rising crop prices, credit availability and a favorable exchange rate. In India, while farmer demand remains very strong, availability is still lagging. This month, the Indian government released its initial budget for nutrient subsidies, highlighting the Indian government’s willingness to respond to market conditions with revisions. Given depleted Indian inventories, we see India as a source of pent-up demand, which should see phosphate and potash consumption growth in 2022. As we look at our business in the context of today’s global markets, we remain very optimistic. In potash, K3’s ramp-up is expected to be completed by the end of the first quarter, meaning it will reach full capacity under budget and 2 years ahead of schedule. When combined with Belle Plaine and a full year of production from Colonsay, we expect higher production in 2022 with production costs trending lower as the year progresses. In the first quarter, we expect sales volume of 1.8 million to 2 million tons, with average realized FOB prices more than $125 per ton higher than prices realized in the fourth quarter. In phosphates, we also expect a recovery in volume in 2022 following last year’s production curtailments related to sulfur shortage in the second quarter and Hurricane Ida in the third and fourth quarters. We expect to see input cost inflation in 2022, especially related to our open market purchases of sulfur and ammonia. But in ammonia, we continue to benefit from two-thirds of our needs being met by internal production and our supply agreement with CF Industries. In the first quarter, we expect phosphate sales volumes of 1.6 million to 1.8 million tons. Our expected sales volumes reflect supply chain constraints as well as low inventories at the start of the year because of Hurricane Ida. Average realized FOB prices are expected to be more than $60 per ton higher than prices realized in the fourth quarter, somewhat offset by higher input costs. For Mosaic Fertilizantes, we expect the business to continue reflecting the favorable market backdrop and our transformation efforts in 2022. Sustained grower demand and improved market positioning should continue to drive results. We are seeing inflation affect our cost structure, but believe our transformation initiatives should offset much of the impact. Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022. With that in mind, it is imperative that we allocate capital wisely across our three strategic focus areas of capital return to shareholders, balance sheet strength, and investing in the business. Returning capital to shareholders will be a key focus in 2022. Over the coming year, we anticipate returning most of our free cash flow, up to 75% to shareholders through a combination of share repurchases and dividends. At today’s price, we believe our shares represent compelling value given the dynamics we are seeing. To underscore this point, we will be initiating a $400 million accelerated share repurchase program in the coming days. After the ASR, we will have repurchased approximately $830 million against our $1 billion authorization established last August. We plan to exhaust the remaining portion of that authorization through open-market purchases. As a result, Mosaic’s Board has approved a new $1 billion repurchase authorization, which goes into effect after the current program is completed. The ASR and our new authorization together represent about 8% of our market capitalization. Combining both authorizations represents approximately 12% of our current market cap. In addition to share repurchases, Mosaic’s Board has also approved raising the regular annual dividend from $0.45 to $0.60 per share beginning in the second quarter. This is the third regular dividend hike in the last 12 months and reflects our confidence in the long-term strength of the business. In the area of balance sheet strength, we remain committed to reducing long-term debt by $1 billion. Last year, we retired $450 million, which we will use $550 million left towards our ultimate goal. This coincides with $550 million of long-term debt that matures later this year. It is also important to note that our working capital needs tend to grow as our end markets strengthen. Because of this, we have expanded our working capital lending facilities by $375 million to help us more efficiently manage our liquidity. Given our outlook for the year, we expect we’ll also be able to continue investing wisely and efficiently in our business, even as we return the majority of our capital to shareholders. Over the last 5 years, the value created by key investments, like accelerated construction of K3, the acquisition of Mosaic Fertilizantes, and the development and growth of MicroEssentials, speaks for itself. Looking forward, we will continue to seek out high-returning investments, but our focus is not on large-scale greenfield projects. Rather, we believe better returns can be realized in areas like enlarging our footprint in Brazil, expansion of MicroEssentials, and investment in soil health and biologics. In the last area, we are seeing very promising results. As an example, through our partnership with BioConsortia, field trials of the first-generation nitrogen-fixing formulation for corn have shown promising results that we believe are as good as anything available in the market today. We believe further development can result in a best-in-class nitrogen solution for growers in the next 2 years. We will have exclusive rights to that product when it comes to market in the Americas, China, and India, key growing regions that want to reduce their nitrogen costs. This is just one example of many partnerships as we continue to explore grower solutions across biologicals and soil health and continue to do this through small, efficient investments that establish exclusive rights partnerships like with BioConsortia or give us access to entire product portfolios as is the case with our recent investment in Plant Response, a small ag technology company that develops and commercializes plant and soil health products. In total, we have invested approximately $50 million over the last 2 years to build the foundation for an exciting future portfolio of value-add products that our customers are asking for. We anticipate having more to share on these investments over time. These moves emphasize our commitment to disciplined capital allocation. We will remain flexible in our approach, continuing to evaluate compelling opportunities that strengthen our business over the long term, optimize our balance sheet and return significant capital to shareholders. Finally, a discussion of the future of our business would be incomplete without including an update on some of the initiatives we have taken to make sure we continue to operate sustainably. Over the last year, we have made significant progress towards our ESG performance targets originally set in 2020, so much so that we have set even higher targets. In the area of carbon emissions, Mosaic has set a target of being net-zero at its Florida operations by 2030 and globally by 2040. For diversity and inclusion, we set new goals for 2030 around the issues of race, gender, and community support. Our global goals ensure that our actions are purposeful, sustainable, and measurable as we seek to operate our business while also helping to build a more inclusive culture where all of our employees can thrive. With that, let’s move on to the Q&A portion of the call.

Thanks, Joc. Before we open the lines to the live Q&A, we are going to address some of the most common questions we received last night after our materials were released. To speed things along, we won’t identify each individual analyst, because many submitted similar questions. Our first question is on the issue of the potash market in Belarus. How should investors think about the impact of sanctions on the global market?

Thank you. First, the potash market was already tight before any sanctions came into place. Higher crop prices and higher demand for fertilizer globally have led to a tightness in this market that was driving higher prices before the Belarusian sanctions. The Belarusian sanctions have simply exacerbated and made the tightness more serious. In terms of the length of the sanctions, we really don’t know and there is no obvious immediate resolution to that issue right now sort of maybe a regime change, I can’t see how that issue is going to be resolved. In terms of the shortfall, we believe it could be anywhere from a few million tons in the best-case scenario to as much as 8 million tons if the sanctions remain throughout the year. Our base case we are working on right now is that there will be about a 4 million ton deficit this year. Now, the best evidence for this from our perspective is not what we see, but what our buyers are saying. Our buyers are signaling that this issue could be longer-lasting than some of our producers have suggested. India and China both signed 2022 contracts of $590 for longer durations than the previous 6-month contracts. We are hearing similar sentiments from our other global customers. They cannot get the tonnage. And if they can, there is no method to pay for it with U.S. banks. So, it’s fair to assume that every producer is likely already evaluating every economic ton that they can get out to the market, including us. But remember, in addition to maximizing and increasing tonnage, we cannot forget about the supply chain constraints. To substantially increase our logistics capability, producers will need more railcars or port capacity and all of this takes time and capital to overcome.

A follow-up question on this issue: how much can Mosaic raise volumes to help fill the gap? Specifically, what run-rates are you targeting and is there any potential upside in the near term?

Yes. Thank you. Before the sanctions, Mosaic’s targeted run-rate by the end of the first quarter was about 10.5 million tons. And let me just quickly give you the breakup of that. Esterhazy in its existing form, we believe can run a consistent, sustainable 5.5 million tons; Belle Plaine, around 3 million tons; Colonsay before the shutdown was running somewhere around 1 million to 1.5 million tons, and we will find the right spot for that this year. That gives us an MLP tonnage of around 9.5 million to 10 million tons available today and then K-Mag at just a little over 700,000 tons takes our total to about 10.5 million tons of sustainable production capability. So as we look forward, what can we do to push our capabilities? We know we have some latent capacity at Colonsay and we are looking right now on how we can do a little extra development to put some mining panels into place that were shut down a few years ago. In terms of K3, the run-rate of 5.5 million tons, we think we could run a little more than that and that will play out as we start getting more and more mining areas running and we get the 11th miner in position. The other issue at Esterhazy, we think there are some pretty good debottlenecking projects that we are already studying and we believe some of those will lead to a little better tonnage coming out of Esterhazy. In terms of Belle Plaine, we believe it’s running pretty much at its maximum right now. So the easy tonnages will come from debottlenecking, Colonsay getting more miners into higher production panels, and then pushing K3 and doing the small debottlenecking projects that come at the end of a long capital project.

Joc, the next issue is on the broader phosphate market in China, in particular. How much will China export this year? And could that export ban be lifted early?

Thank you. We think China exports could be down as much as 2.5 million tons this year to about 9 million tons. We do expect that the ban could be lifted as early as the end of the planting season. We have to expect that at today’s prices, it wouldn’t be surprising to see China’s producers try to benefit from that high-price environment. But we do think that annual exports are going to continue to trend lower over time. Secular domestic demand in China will pull increasingly large amounts of phosphates away from the export market. And we cannot ignore industrial uses. Battery growth and domestic fertilizers will take precedence over exports, and we expect the Chinese government will continue to force suppliers to prioritize domestic demand.

Our next question focuses on farmer economics. And I think this one’s for you, Jenny. Are grower economics now at the point where nutrient demand destruction is a real threat to the market?

At today’s crop prices around all major growing regions, we are seeing farmers’ economics and affordability are very constructive. It is probably lower than last year’s level, but it is far above the historical average. In North America, we are seeing customers and farmers' behavior are as normal as the pre-spring season. In Brazil, especially over the last few weeks as sodium prices rise, we are seeing very strong customer buying happening in the country. And in India, we expect the government is going to again readjust their subsidy level in order to support their farmers’ demand for phosphate and potash as they did last year. If there is any threat to the consumption of demand, it is probably because of lack of availability across both phosphate and potash. And the global demand is there if the tons are available.

Joc, we’ve received quite a few questions on phosphate first quarter guidance. 1.6 million to 1.8 million tons seems like compared to history. What’s happening there? Is the lower sales volume guidance due to operational issues or due to demand destruction and buyers blocking at current prices?

Well, thank you. In terms of our expected volumes for quarter one, I think there are really two big issues we have to consider when we look at our sales volume. The first of all is actually quarter four, where Hurricane Ida and subsequent repair events impacted at the beginning of the fourth quarter and left us with very, very low inventories entering this year, which, of course, tends to contribute to first quarter sales. In terms of the other issue from our perspective, it’s really the logistics. COVID and winter weather are having a major impact on the supply chain, including rail, ocean freight, ports and trucking logistics. The industry is seeing delays throughout the system, and that’s contributing to the lower-than-historical sales volume guidance. Just as an example, rail alone this year, we’re seeing about a 20% to 30% increase in cycle time for our trains. You can expect that to have a big impact on revenue recognition at the very end of the quarter. That said, we expect our annual sales to be in line with historic norms for phosphates. Delayed shipments due to supply chain issues will resolve themselves as we come out of the winter weather and get through this last wave of COVID. So we will see those come in the next quarter or two. The thing I would emphasize is we’re seeing normal buyer behavior. Yes, nutrient prices are up. The crop prices more than offset that and point to a very good year for grower profitability, even if it’s a small step back from the 2021 levels. We expect crop prices to continue to incentivize farmers to apply fertilizer as they normally would.

Clint, our last two questions are for you. The first set is on working capital. Can you add some color around working capital and what you anticipate needs to be in 2022?

Sure. Thanks, Paul. So I think, as everyone knows, our business is highly seasonal, and we can experience significant working capital changes throughout the year. Over the last couple of years, we have put in new working capital facilities to help us manage through – excuse me, some of that seasonal dynamic. And in the current pricing environment and the rate of change that we’ve seen, that just amplifies those seasonal working capital moves. More recently, we’ve upsized some of our working capital lines to better align our options and our tools to the needs of the business. Just to give you a sense, as we look at the second half of last year, our core working capital needs were up well over $1 billion, and the majority of that was in the fourth quarter. As we look forward to 2022, I think any incremental working capital needs are likely to be dictated by the pricing environment we see. To the extent that the pricing environment moderates and the rate of change moderates, then I think the working capital incremental needs will moderate. But if we do see a continuation of what we’ve seen in the last 6 months, I think we could expect to see increasing working capital requirements.

Clint, our final question is on our capital allocation strategy. We seem to be prioritizing share repurchases over other uses of capital. Is that correct? And what are those other uses? And is it possible to do it all, given our commitment to return up to 75% of our free cash flow to shareholders?

Thanks, Paul. As we look forward to the balance of 2022, we expect to generate a significant amount of earnings and cash flow. As we think about capital allocation for this year, we intend to continue strengthening both our business and our balance sheet by continuing to invest in high-return and opportunistic investments while paying down debt. But we think we can do those things and return a significant amount of capital to shareholders this year within the construct that we’ve outlined. Today, we announced an increase in our dividend for this year and going forward as well as a buyback using an accelerated share repurchase tool. As we go through the balance of the year, we intend to remain disciplined and nimble and look at different ways of returning capital to our shareholders. But our current priority is on buybacks. We look at our share price, where it is, and we think that it is compelling given the environment that we see. So that’s our priority today. But again, we intend to remain flexible as we go through the year.

Thanks, Clint. That wraps up the fireside chat portion of this call. I would now like to turn it over to the audience for your questions.

Thank you. I assume in Brazil that the competitor distributors are significantly exposed to Russian and Ukrainian potash. If they have to – if they have trouble sourcing potash, if your competition is trouble sourcing potash, does that also impact their ability to cross-sell other inputs, that is, if farmers have to turn to Fertilizantes for potash, are you likely to pick up the other inputs as well?

Yes. Thanks, John. Certainly, that would offer an opportunity to us, but I suspect what will happen is that actually the blends will probably be adjusted for less potash if there are actual potash shortages. We believe this will be a good market. So we do expect it’s going to be very tight for potash as the full impact of the sanctions really comes home to roost, if you will. So yes, we may pick up a little bit, but I don’t think it will be because of the blend opportunity versus others. I think it will just be because of people trying to get hold of potash.

Hi, good morning. If Nutrien decided that some of these issues around Belarus BPC are persistent and they wanted to really un-idle their millions of excess tons, hire a bunch of miners in Saskatchewan and really ramp up their volume, would you be supportive of that? What I mean is, in Canpotex, obviously, you would get your – you should get your pro-rata sales share, and Nutrien can add millions of tons to their production, and you cannot. You would not get – you would have to refuse the ability to produce pro-rata and give it to Nutrien. Would you be supportive of that? Or would you seek to renegotiate a little bit how Canpotex works?

I don’t want to be in any way evasive, Joel, but I cannot answer a question about confidential negotiations that would happen within Canpotex. So I think you can only wait to see what happens this year to know. Now having said that, I will say one thing. We have been flexible in the past, as you’re well aware, including last year when we had an inability to produce. We asked and allowed Nutrien to produce the gap, which they helped fill. So obviously, we are all very concerned and interested in supporting our customers globally. And so to do that, there will be an element of flexibility. But I can’t speak specifically about Canpotex.

Great. Thank you very much. You’ve done a pretty solid job of over the past few years completing Esterhazy and eliminating brine inflow costs. And now it appears Colonsay has had a nice gap down in cash costs post the issues you were facing in last year. So when we all kind of take a look at this year under the context of current contract spot pricing, higher operating rates, transportation costs and even the Canadian resource tax, can we just take a step back and just look at where you ultimately think the gross margins should be for this year? And perhaps just any additional considerations we should also have for 2023? Thank you.

Okay. Thank you, Chris. I guess you’ve got to look at this in two ways: what’s the cash margin and what’s the gross margin after depreciation. Let me just talk about cash for a moment. And I’m going to be pretty general here. But if you look at – right now for standard, we have contract through Canpotex for $590 a ton. I think you can pretty much make estimates. We’ve announced Colonsay being $85 a ton. The others are significantly lower than that. And put a round number on transport, which is easy to do. I think you come up with a gross margin – a cash margin that is at least 50% plus.

Hi. Yes. Thank you. Good morning. I was hoping you could give a little more color on the phosphate operating cost environment. Obviously, inputs have risen here, the way you frame DAP to margins and they have declined as a result of the market outlook, Joc. You didn’t provide any specific cost guidance in phosphate for the first quarter that you sometimes do or have done in the past. Any color there? And just as a quick follow-up to that last question, Joc, on the cash margin for potash. That’s at 3% before or after the resource tax?

Well, we call resource taxes and royalties part of our cash cost. So we’re – or sorry, Clint, do you want to correct that if I’m...?

Yes. So in calculating our cash cost per ton, we do include royalties in there but do not include the resource tax.

Right. I think our other Canadian producer does not include royalties either. Is that correct? I think they call them both taxes. But there is some inconsistency between the two of those.

But I would say that both of those are in our EBITDA calculation.

Yes. And do recognize the resource tax is quite significant right now. So in terms of Florida cost, if you will, for phosphates, the way you can look at it is, first of all, our average ammonia cost, which if – we pay 20% of – sorry, 20% of the cost per ton of ammonia goes into – so if ammonia costs $600, you can – times that by 0.2, and that’s the cost inside that. But right now, market ammonia is probably in the range of, Jenny, $1,100. So that adds about $200 plus per ton to the cost of making phosphates. Now recognize our costs are significantly lower than that because two-thirds of ours is on a natural gas basis. So for our competitors, call it, $250 per ton. For us, probably more than half of that range would be the right number. In terms of sulfur, sulfur at 40%. So if the sulfur price is $300, then your cost in making DAP is probably $120-ish per ton. So you could look at that for our competitors being a total cost of up to $300 extra ton and for us, probably $220 or something in that range.

Yes. Joc, I want to ask you maybe a two-part question on Fertilizantes. And the first one being these co-product sales. Is that the gypsum or – I know you have some titanium and overburden there. What’s driving that, the co-product sales? And then maybe a higher-level question on Fertilizantes is, where do you think you can take that business from here? Is the opportunity in expanding your domestic production there? Or being able to increase more imports with port expansions? Where do you see the most opportunity in Fertilizantes?

Okay. So first, co-product sales, I think you’re absolutely right. The majority of the co-product sales is likely the sale of gypsum, but there is a number of co-products whether they be produced from some of our wastewater streams or whatever. We sold last year, I think, over $400 million of co-products with pretty healthy margins because the cost of these, of course, is very low. So we feel that’s a pretty attractive place. A big piece of the long-term business improvement will be those sales of co-products and particularly the sale of gypsum. In terms of moving this business forward, you’re right, there are a number of opportunities. I think there are a number of new opportunities for co-products and particularly when you look at titanium, niobium, and whatnot that is naturally in our ore and is made by our neighbors, at least our neighbors at Catalao. The other area is distribution. Distribution, particularly as you go to the Northwest part of the country, so Northwest part of Montegrosso and heading into what we call the Montapito states, which are the northern states south of the Amazon but on the western side of the country. We believe the distribution opportunity there is high. We are looking very seriously about how we can get a bigger piece of that and how we can participate more in that. So distribution, one area; co-products, new products. If we can debottleneck or improve our existing operations, that’s another great area for taking advantage of what is a great market.

Thank you and good morning, everyone. Joc, I was wondering if you could talk a bit about regional phosphate prices and just the gap that exists between India and the rest of the world basically and how you envision that evolving through the course of the year, whether – how it will converge or if it will converge. Thank you.

Yes. Okay. Thanks, Vincent. I’m going to start off, but I’m going to hand it over to Jenny. But I think what you’d be fair to say is when the demand started picking up this year, India was the first to respond. In the typical winter lull, North American prices probably lagged, but those are quickly catching up as we get closer to the North American spring. But let me let Jenny talk a little bit about price disparity around the world and what that means.

Sure, Joc. Yes, you mentioned due to the very low input in India last year, we saw the pent-up demand. For sure, that was realized in the first two months of the year. The Indians basically paid DAP prices up to $920. Vincent, I think probably you referred to the gap between India and the rest of the world. And with the crop prices rallying in Brazil, over the last few weeks, we saw the Brazilian buyers also stepped into the market. After yesterday, the gap between Brazil in phosphate to India is already very close. We saw the price of MAP in Brazil already reached over $900 per ton. Similarly to NOLA, we saw some seasonal price lows. Over the last two weeks, prices rebounded, and we saw the shrinking of the price gap between NOLA and India as well. Overall, we see a pretty much strong demand supported by the farmer economics and also pent-up demand in India and in the case of China as well. We see the fundamentals of the phosphate market continuing to be tight and the price level is going to stay at an elevated level.

Let me just highlight that in North America, we don’t participate in those fluctuations of price that occur when the traders start trading at the Gulf. We kept our price list constant through that. Very quickly, once the pricing windows ended, prices came up to our price list.

Yes. Good morning. Just wanted to get a sense in terms of your longer-term expectations for India’s ability to continue to afford fertilizer. I know that they have raised their subsidies, but it seems like prices are going up at a pretty fast rate. How do you sort of see India’s demand evolving over the next several years, not just in 2022 where they need to restock? Thanks.

Yes. Thanks, Michael. Look, I think India – this becomes more than a simple problem for a country like India with 700 million people living in basic poverty and relying on the agricultural economy. The Modi government needs to be responsive to those people. They have a tight balance to keep food security and affordability for their population and also keep their farmers able to be profitable so that they keep farming. Our expectation is that India will continue to walk that tightrope as best they can. They will have to respond to global pricing. They will have to make sure they get the fertilizer they need. We are seeing that right now. I mean with the fast settlement of their potash and at $590, they were the first to settle with Canpotex quite early, and I think that reflects the pent-up demand that they need to make sure it gets out to their farmers. They just talked about the willingness to pay $930 or $920 for phosphates. We are seeing the buyer response. We know the government will have to either help with food subsidies or fertilizer subsidies to keep that balance. That’s long-term and short-term.

Okay. Good morning. Just a couple of questions here. First one, Fertilizantes. Can you just talk about why the phosphate rock and conversion costs continue to move up through the year? Is that mostly due to local inflation? And what’s the expected run rate of the current FX rates for this year and going forward? And then maybe a second question, probably more for Clint. Mosaic is a very complicated business. It’s across multiple geographies and product lines. And I mean it can be difficult sometimes to model out some of the variabilities around the quarters and even maybe for the year. Is there any thought on providing some more specific guidance, such as maybe including Fertilizantes in the kind of quarterly outlook guidance or maybe even cutting to like a specific EBITDA line? Thanks.

Okay. Thanks, Andrew. I will leave the tougher guidance question to Clint because that’s only fair. Let me start with Fertilizantes and the cost structure of Fertilizantes. There is a lot of factors, I think that are impacting Fertilizantes right now. The first of it, as you mentioned, is inflation. If you look at U.S. dollars, it’s probably easier to see where that’s been not as severe as what it might look like. But Brazil is probably seeing industrial inflation, somewhere in that 15% to 20% this year. That’s having a real impact on cost structures. COVID has made it a lot more difficult to do mechanical or maintenance turnarounds and getting supply chain people in place, etcetera, etcetera. Maintenance takes longer, just a lot of little niggling things come with the people problems and the COVID problems. Supply chain issues, getting materials, and when you get materials are more expensive. So, all of those things are impacting. We think that long-term, U.S. dollar and U.S. dollar to Brazilian reais will be offset with the inflation rates. In other words, if the inflation keeps higher than the U.S., it will probably be equalized by exchange rates. The other issues should go away with COVID and whatnot as things sort of return to more normal.

Operator, we still have the second part of that question.

Yes. Hi Andrew, this is Clint. And thanks for your question on guidance. I think as we have spoken about before, one of the challenging things about providing specific earnings guidance is just how quickly and materially prices can change, and that can obviously change our expectations and outlook for the year. What we have tried to do is to provide a framework, provide areas of our cost structure of our spend and so forth, that can be helpful in modeling the company. I know that Paul and I have been speaking particularly about Fertilizantes. Is there some more information and detail we can provide around that business to help investors understand and model that business better? I think that is an ongoing conversation internally. I would expect us to put a little bit more focus on that as time goes on. If there are other areas that you would find particularly helpful in understanding some of the complexity, certainly, we are open to those discussions and good feedback on that.

Thanks. Operator, can we move to the next?

Good morning. I have a question regarding the technical difficulties. You mentioned that you believe you can achieve a normal volume level for the entire year of 2022. I'm wondering if there are specific actions planned to address the impact of supply chain bottlenecks or if you expect the market to normalize at some point. It may be easier to move forward with the pro forma. Thank you.

I am sorry, I have got such a static line here. I didn’t catch most of that. Can you try repeating that, Adrien?

Yes. Sure. This question is the full year volume guidance for phosphate. You have been guiding that just the normalization of the market in terms of supply chain or is it company-specific actions to your co-product?

I sort of got phosphate in market, but that’s about all I really got. Okay. Maybe, Adrien, we can let Paul talk to you after this. I am sorry, we didn’t hear that well at all. So maybe, Paul, you can contact Adrien and we can talk. Thank you. Sorry.

Thanks very much. Do you expect the global phosphate market to tighten in 2023 or to loosen, or you can’t tell?

Yes. Thanks, Jeff. I am going to let Jenny talk a little bit about this, but let me start off by saying as we look at this over the next, let’s say, 3 years to 5 years and even short-term, short-term, we expect China’s exports to be lower, which should lead to a tightness in the next little while. As we look forward from that, assuming the market continues to grow at the normal rates, we don’t have any big projects coming forward that we think are going to fill that gap. So, we see it tight this year. Assuming our Chinese estimates are correct, it should continue to be tight for the next 4 years or 5 years even. As we look at the evolution of industrial uses for phosphates, particularly in China, we expect long-term that Chinese exports will continue to decline and that new projects that haven’t been called yet and take 4 years or 5 years will have to fill that gap. Jenny, anything else? Okay. So Jenny is fine. Okay. Look, with that, I will conclude our call here by reiterating some of our key messages. Mosaic delivered excellent financial performance in 2021 driven by very strong agricultural and fertilizer markets. By leveraging the value we have created through major investments and cost restructuring, we look forward to returning much of that value that we created to our shareholders through the accelerated share repurchase, our new repurchase authorization, and an increased dividend target. With continued high levels of global fertilizer demand and ongoing tight supplies in both potash and phosphates, we expect another year of very strong value creation in 2022. Thank you for your call – for the call, and have a great day.