Mosaic Company (MOS) — Q1 2023 Earnings Call Transcript

Good morning, and welcome to the Mosaic Company's First Quarter 2023 Earnings Conference Call. Your host for today's call is Paul Massoud, Vice President of Investor Relations and FP&A of the Mosaic Company. Mr. Massoud, you may begin. Thank you, and welcome to our first quarter 2023 earnings call. Opening comments will be provided by Joc O'Rourke, President and Chief Executive Officer; followed by Q&A. Clint Freeland, Senior Vice President and Chief Financial Officer; and Jenny Wang, Senior Vice President, Global Strategic Marketing, will also be available to answer your questions. We will be making forward-looking statements during this conference call. The 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 published 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 first quarter 2023 earnings call. Mosaic delivered revenues of $3.6 billion, adjusted EBITDA of $777 million, and adjusted earnings of $1.14 per share. The fundamentals of the agriculture market remain quite attractive. Global stock-to-use ratios for grain and oilseeds are at 25-year lows. To put that in context, it would take 2 to 3 years of perfect weather and adequate fertilizer applications in every major growing region around the world just to get back to normal levels. With weather patterns shifting to an El Niño environment, the likelihood of that happening is low and would be exacerbated by under-fertilization. We are beginning to see the negative impacts on crop production. Yields in the European Union turned lower in 2022 because of poor weather and under-fertilization and will remain under pressure this year if fertilizer applications remain down. We're seeing a similar story in rice. The combination of El Niño and under-fertilization could further threaten yields in key growing regions. With reduced supply of sunflower seed oil because of the ongoing war in Ukraine, the global market needs alternative edible oils and is looking to palm oil as an important substitute. Lack of fertilization, particularly potash, will impact Southeast Asian production. All of these factors are expected to support global crop prices for the foreseeable future. Switching to fertilizer markets, farmer affordability for phosphates and potash globally is very good with prices that are much more sustainable than the levels we saw a year ago. This is bringing growers back into the market, though supply constraints are still a concern. In potash, Belarusian exports remain limited because of sanctions. We've seen volumes move by rail into China and, to a lesser extent, through excess Russian port capacity, but transportation costs are high, and total exports remain well below pre-sanctioned levels. This year, we expect total exports from Belarus to be roughly 7 million tonnes. In addition, we also continue to see indications of reduced Russian product as well. It is clear that today's potash market is tight and supply chain is under pressure, but this extends beyond just Belarus and Russia. This vulnerability is highlighted by the recent failure of the walkway on a conveyor at the Canpotex 4 million tonne per year Portland terminal. Canpotex is still assessing the total damage but expects to redirect much of the lost volume to other North American ports, albeit at some additional cost. In Phosphates, China remains committed to a structural shift away from exports. While it's possible to see a modest increase in exports over the 2022 total of 6.4 million tonnes, domestic fertilizer demand, rising industrial consumption, and environmental restrictions will cap China shipments to other markets. These supply constraints remain even as demand in our key customer markets is seeing a recovery. In North America, spring planting season is well underway, and farmers have returned to the market, though retailers have been slow to adjust their prices to global wholesale market prices. Despite that resistance, growers are still committing and taking tonnes. Retailers are replenishing their inventories. In April, Mosaic's volumes saw a significant rebound in the North American shipments for both potash and phosphate. Combined, Mosaic shipped over 1 million tonnes of potash and phosphates to North American customers in April alone. This is the highest total we've seen in the last 5 years. In Brazil, the demand is supportive, and we expect commitments for the third quarter to ramp up with prepays for fertilizer ahead of the softer season. We expect Brazil will see a 9% to 10% increase in fertilizer shipments in 2023 over last year. In India, inventories for potash remain depleted as all purchases are going straight to the ground. After a year of reduced potash applications, a potash contract was signed in April at a price of $422 per tonne. In addition to providing necessary supply to Indian farmers, the contract helps stabilize global pricing. In Southeast Asia, with the shortfall in edible oils globally, the palm market is driving strong demand. Globally, we're seeing good farmer economics, which suggest strong demand for phosphates and potash in 2023. Given this landscape, we believe our business is well positioned to benefit from today's market conditions. In Phosphates, after 2 years of production issues caused by multiple hurricanes, raw material shortages, and other issues, the segment's performance has improved. Volumes during the quarter were higher than any quarter in 2022, and our stripping margins also benefited from lower raw materials costs. We expect both of these trends to continue in 2023. In the second quarter, we anticipate total sales volumes of 1.8 million to 2 million tonnes with DAP FOB prices at the plant in the range of $550 to $600 per tonne. In Potash, volumes began to move over the last week of the first quarter, and that has continued into the second quarter, especially in North America. We expect demand to continue recovering throughout the year. Our operations at Esterhazy and Belle Plaine are performing well. Esterhazy is one of the most efficient mines in the world, and Belle Plaine should see benefits from lower natural gas costs in 2023. At Esterhazy, the last of the 13 miners is expected to come online later this year. In total, Esterhazy's annual operational run rate should increase from 5.5 million tonnes last year to well over 6 million tonnes by the end of 2023. We're committed to producing enough potash to meet market demand. With the incremental output from Esterhazy, we believe we're producing what the market needs, which means we'll only restart Colonsay when it's needed. We don't think this will be before the second half of the year. In the second quarter, we expect total sales volumes of 2 million to 2.2 million tonnes with MOP prices at the mine in the range of $325 to $375 per tonne. In Brazil, first quarter results reflected the impact of declining prices and inventory destocking. As we said in February, we expected our Q1 results to be impacted by destocking of high-priced inventory, and now that is largely behind us. Looking ahead, we expect distribution margins to trend back towards the range of $30 to $40 a tonne. In the second quarter, 90% of those tonnes are already committed and priced. Finally, I want to reiterate that we are committed to our capital allocation strategy of maintaining a strong balance sheet, investing in our business, and returning capital to shareholders. We've met our commitment of reducing long-term debt by $1 billion. As such, we expect to refinance the $900 million that matures later this year. Our CapEx spending expectation this year remains unchanged at $1.3 billion to $1.4 billion. We're focused on high returning modest spend projects like our distribution facility in expansion of MicroEssentials at Riverview and the exploration of purified phosphoric acid. Beyond that, all excess free cash flow will be returned to shareholders through dividends and share buybacks. During the quarter, we returned $608 million, which included $456 million of share repurchases and $152 million in special and regular dividends. Over the last 18 months, we've repurchased 15% of our float and still believe our shares represent very good value. Our regular dividend today is $0.80 per share, and our business positions us to consider further increases over time. Before we move to the Q&A, let me summarize. The global ag market remains constructive. Grain and oilseed supplies are tight, and growers are encouraged by favorable economics to apply nutrients. We are already seeing the recovery in shipments in North America and expect the rest of the world to follow. Our production operations are performing well. Phosphate production has recovered, and potash is benefiting from the most efficient mines in the world, with swing capacity available to meet demand growth. Our balance sheet is strong and sustainable over the long term, and we remain committed to returning significant capital to shareholders while continuing to invest efficiently in the business. With that, I'd like to move on to the Q&A portion of the call.

Before we move on to live Q&A, as we've done in past quarters, we'd like to address some of the most common questions we received after we published our earnings materials last night. Joc, the first question that we received was, how do we see ag markets evolving over the rest of 2023?

Thank you. While there has been recent volatility in the agricultural markets, the fundamentals remain strong. We're starting with a 25-year low stock-to-use ratio for grains and oilseeds. Now much has been made of Brazil's larger-than-expected crop, but offsetting that are problems in Argentina, Europe, Asia, and others who are suffering from lower yields due to weather and under-fertilization. Then as we look at going forward, this year's El Niño and under-fertilization brings up a real risk to the 2023 ag markets. Now weather is always a known uncertainty. But as we've seen in recent past, extreme weather events that negatively impact ag production seem to have become more commonplace. Longer term, we do continue to see great potential for demand growth from biofuels, including an increased call on oilseeds to feed renewable diesel production, as well as the enormous potential for sustainable aviation fuel. We also believe that biofuel use will continue to rise in the medium term even as cars transition towards electrification. To sum up, there is a rational basis for ag commodity prices to have eased off in recent weeks. However, there are strong fundamentals for ag bullishness.

Joc, a follow-on to the ag markets question. How do we see what you just said impacting fertilizer markets over the rest of this year?

Well, thank you. I'd like to start by saying what we're seeing in North America demonstrates just how strong the market could be this year. If we look at North America in the months of March and April, those were both very strong months and up about 20% from where we were last year. So if I look forward there, I expect that will carry over to a stronger season in Brazil once the application gets started, and then it will continue for Asia and other regions. Now I'm going to turn it over to Jenny to give a little more detail on the supply and demand of the fertilizer markets.

Sure, Joc. Let me start from phosphate. The export control out of China is going to continue as the country is going through a phosphate industry shift from production on fertilizers to industrial products. The Chinese government is going to continue to ensure their farmers have affordable and available fertilizers in the country for their own production. The export restriction is going to continue to be in place. We believe this year, exports out of China will be somewhere between 7 million to 8 million tonnes. With the tight supply of phosphate and the rebounding demand, we believe this is a very constructive margin environment for phosphate. Turning over to potash. Exports out of Belarus last year had significantly reduced from 12 million tonnes to 5 million tonnes. This year, despite multiple export corridors being utilized by Belarus, we still don't believe that they will have the opportunity to export over 8 million tonnes. And the production out of Russia is continuously under risk. On the demand side, as Joc mentioned, we are seeing a very strong spring season in North America. In the market when spring application has started, we're seeing a bigger volume, and we have seen price appreciation in the market. And in the market in Northern plants, where the spring season is still ongoing, we have started to get inquiries from our customers for their summer fuel demand. This demand for summer fuel and applications is indicating a strong and robust demand for the full season in North America. We believe what is happening in North America is going to happen in a market like Brazil, where they are going to prepare for their incoming seasons, and we believe they will engage soon. With strong demand in Asia, we believe the buyers will reengage and the price and volumes will respond positively.

Thank you, Jenny. The next question is a follow-on to what we just talked about. Given this constructive outlook on the fertilizer markets, can you explain your thinking behind the guidance for pricing and volume, particularly for Potash?

Thank you. In Potash, we guided to a normal quarter in North America and a conservative view of the export market. Early quarter demand in North America is stronger than we would have expected and certainly stronger than normal. And history would say that the strong North American market will be followed in other markets such as Brazil and Asia. If this occurs, there is certainly upside to both potash volume and price. We have seen over and over again that once volumes move, price follows.

Joc, our next question is on Mosaic results. Could you provide more color on the quarter and how you see the performance of the segment evolving over the rest of the year?

Thank you. In the distribution business, the lead time to position products is quite long. As such, when the second half volumes were lower than we expected, we ended the year with high-priced inventory. Now we have sold most of this higher-cost inventory down and expect the rest of the year to be much more normal. Transitioning between cycles can temporarily expand or contract margins, but true cycle margins remain unchanged. For example, in quarter 4 of 2022 and quarter 1 of 2023, distribution margins were below historic levels, but they will return as market stability is achieved. Distribution margins in the second quarter to the fourth quarter will be in the $30 to $40 range when averaged together.

Joc, one other thing that I would note that I think is important in this discussion is that we use average cost accounting for the cost of inventory in Brazil. And what that means is that as sales prices are moving either up or down, the average cost of inventory that we're recognizing in our results is moving a little slower than that market price. And as a result, during an increasing price environment, you'll see expanding margins. During a declining price environment, you'll see declining margins. But that's why over the course of the year, we will see margins in the target range that we've talked about. But quarter-to-quarter, as market prices are moving, you can see a level of volatility in results.

Thank you, Joc, Clint, and Jenny. Operator, let's move on to the live portion of the call.

Could you just give us a real quick update on how we should be thinking about your phosphate strip margins just across Florida rock cost, processing where sulfur is trending relative to last year as well as your ammonia mix? Just any insights on how that should affect phosphate margins throughout the balance of the year would be incredibly helpful?

Chris, regarding our projections for stripping margins for the remainder of the year, we have observed a decline in raw material prices recently. As I mentioned previously, it takes 0.4 tonnes of sulfur to produce a tonne of DAP and about 0.2 tonnes of ammonia. The significant changes in these prices have enabled us to maintain relatively stable margins despite a decrease in phosphate prices over time. We expect these margins to continue to be stable for the rest of the year. However, our rock costs increased this quarter due to lower volume, primarily influenced by the grade of the mining area. Conversion costs have also risen due to higher variable and fixed expenses, including electricity and processing chemicals. For the rest of 2023, we believe the investments we've made in maintenance and capital assets will significantly enhance both volumes and costs moving forward.

Your price for potash for the second quarter looks like it's roughly $75 a tonne more than historical levels and yet it sounds like Jenny's comments would suggest that potash is the one that is going to be more curtailed in supply in 2023 as opposed to your FOB DAP forecast is a couple of hundred dollars higher than historical prices. So my question is, what is fundamentally different here between P and K that would lead potash pricing to be generally weaker? Is it a reflection of second-tier pricing coming out of Russia?

Thanks, Steve. Let me address a few points. What I mentioned earlier still holds true. When we were preparing for this quarter a couple of weeks ago, we hadn't fully recognized the impact we would encounter in March and April, but it's turning out better than we anticipated. From a volume standpoint, we are quite confident that our guidance is at least realistic, and there may be potential for upside. Regarding pricing, it's all about the market dynamics, including product mix and logistics. For example, selling standard-grade products to foreign markets with lower prices and higher transport costs versus the robust North American market, which offers good pricing and comparatively lower transport costs. Additionally, Brazil has yet to come into play. As we transition from the North American spring, we're curious whether Brazil will offset the higher-priced North American product or if we'll see a better balance in other exports. This uncertainty makes it challenging to predict pricing accurately. However, your observation is indeed valid; there is a noticeable tightness in the potash market, particularly strong in North Africa and Europe, and we expect to see similar impacts in Asia. Our perspective is that buyers in those regions will need to increase their purchases soon, and prices will subsequently rise.

Actually, a good follow-up just on the price development and like long-term versus short-term. So if you think about all the comments you made around the structural challenges and obviously, the tightness potash, you just reiterated, but still prices are not coming up that much. So maybe help us understand a little bit that in context prices being soft, but then at the same time, you do consider some capacity increases towards the back half of the year. So just to understand a little bit the rationale behind the volume you plan to put in additionally, given where prices are?

Yes, of course. Regarding potash, we're primarily focusing on North America first, where we haven't seen a strong market, especially in Europe, even though we don’t sell there. However, we will soon turn our attention to Brazil and Latin America, as we expect that market to begin moving shortly. The softer season typically starts at the beginning of the third quarter, so products need to start moving towards the end of this quarter. By June, we should see progress to ensure products are ready in time. As we move into the year, it's important to note that there was a significant overshoot last year where prices peaked and usage dropped considerably. Currently, we're experiencing a downward overshoot, which is not aligned with fundamentals, but it should correct itself in the long run. Brazil and the rest of Latin America will start to gain momentum. China is experiencing a similar seasonal trend as North America. Although they are receiving more potash from Belarus and Russia via rail, they will still need to purchase potash. Overall, we believe the market remains constrained. Short-term sentiment influences immediate trends, whereas fundamentals will ultimately dictate the longer-term outlook. Currently, the market is driven more by sentiment.

Just a couple of questions on phosphate for me. What are your expectations for Phosphate segment production run rate? Can we get back to what historically we've seen kind of 2 million, 2.2 million tonnes per quarter coming out of that segment? And then just a question on the Q2 pricing guidance. Yesterday, we kind of saw U.S. NOLA DAP prices drop down to kind of like the low 500s. How does that factor into the price guidance for Q2?

I'll let Jenny discuss summer fill and related topics. Starting with the run rate, I believe our run rate has been closer to 8.5 million tonnes per year since we ceased operations at Plant City. So, 2.2 million is likely at the high end. A strong quarter for us would probably see us running between 2 to 2.1 million tonnes, and we expect to average in that range moving forward if everything operates smoothly. As I noted earlier, we faced weather-related challenges, specifically Hurricane Ian, which caused significant disruptions. Therefore, we believe that 8.5 million is a more realistic run rate compared to the 9 to 9.5 million estimate, assuming all conditions are stable. Now, I'll have Jenny address summer fill pricing for phosphate.

Sure. Andrew, I believe the numbers that you talked about was DAP NOLA barge price. We noticed that as well. And as some of the trade publications reported, the lower prices may be driven by the incoming import vessels the traders play on the index setting. So that's what we learned, and that happened many times in the past. It does not necessarily represent the real market value. As we go through this index setting, we will see the real value to be reflected for summer fill. Having said that, it is very normal for the market like North America, after the spring season, we may see a price reset. It happened usually every year, but the price eventually is going to be supported by fundamentals, as we discussed earlier. Lastly, we want to remind ourselves, when we say phosphate market, it is a very constructive margin environment. As the raw material prices come down, there are some pull-through to the phosphate prices as well.

And just don't forget the ever-never-ending logistics issues. I'm not convinced that product coming in through NOLA certainly isn't going to get there in time for most of spring. So it is about summer fill, not about spring demand. And as you know, the flooding in the Upper Mississippi has meant that's actually been shut down for a while or was.

I reviewed some of your presentations from November 2020 where you discussed the outlook for various segments. Focusing on the Fertilizantes segment, you mentioned transformation initiatives that could potentially add $200 million to $300 million in earnings for Brazil through various synergies. At that time, you were already achieving margins of $30 to $40 per tonne in 2019 and 2020, which is the guidance you are now providing as a stable expectation. My question is, what has happened to those opportunities that now lead you to project a $35 per tonne margin, the same margins you achieved in 2019 and 2020 prior to launching these initiatives?

Let me start by saying that we are referring to the distribution margin. It's important to consider this in the overall context. Last year, we sold approximately 6.5 million tonnes of distribution at about $60 on average, contributing $200 million to the overall $1 billion. I understand that this may complicate the picture of what to expect in Brazil. However, the distribution business is a relatively small segment. We earn about $100 million annually from co-product sales, while the majority comes from our production business, including MAP and feed, TSP, and SSP. Those are the key areas, and currently, the market is moving slowly as we are in an off-season. Consequently, we're seeing an unusual impact on margins from the distribution business. I believe this is consistent with what we stated in 2020.

Just wanted to touch on the guidance for pricing in the second quarter. The range reflecting a higher percent of lower-priced export sales. Any reason for that in terms of why more lower-cost sales if demand is picking up in April and you're seeing it as well in May?

Yes. Thank you, Richard. Do you want to take that, Jenny?

Yes. I would like to reiterate what Joc mentioned. The guidance for the second quarter's potash prices reflects various markets, including North America and the export market. In the export market, there are different grades for different destinations. For instance, the price for Brazil can significantly differ from the price for India due to variations in freight costs and grade differences. As we project for the second quarter, this incorporates a mix of various prices, product grades, and market conditions. We expect a strong price in North America to carry over into our second quarter, though the market mix will influence the guidance.

Yes. Let me clarify. Someone mentioned the aggressive actions of the Russians and Belarusians. In a less robust market, which we experienced early in the quarter, their impact is more significant. Currently, they are quite aggressive in the export market and are having a larger effect. However, keep in mind that they won't be able to maintain production levels to affect the markets significantly once they start scaling up.

I mean, Joc, a quick question on philosophy. In the past 12, 18 months, I mean, potash prices have peaked and have come down really hard. Like is there anything that Mosaic or Canpotex or the industry could have done to mitigate that volatility? I mean this is something that has happened before where potash prices get to those high levels only to come down really hard very quickly. Like is there a better way to 'manage the pricing?' I mean, yes, potash is a commodity, but it doesn't really have the same cost push aspect like nitrogen does with natural gas. I mean, potash is supposed to be different. Any insight you can provide in there like what's going on there?

Thank you, Edlain. From our standpoint, the drastic price spike followed by a rapid decline is certainly not the preferred market behavior. We mentioned this last year, and I still hold that view. If we recall the early days of the Russian invasion of Ukraine, there was a notable demand for potash; for example, President Bolsonaro of Brazil sought more product in Canada and even spoke with Putin in Russia about potash. There was almost a panic surge in demand to secure enough supplies for the season, leading to prices that felt unaffordable from a psychological standpoint. This sparked discussions about a potash holiday. Now, however, we observe the opposite situation, where some markets and retailers are reluctant to lower prices on their high-priced products, resulting in an overshoot to the downside. Unfortunately, it seems like the highs were excessively high, and now the lows might be excessively low. We expect things to stabilize again, similar to what occurred in 2009, but we need to navigate through the initial phase first. What could we have done differently? We were aware of the associated risks, and we have discussed these risks in our meetings. What can be done? We attempted to ensure sufficient supply in those markets, but inevitably, when demand slowed, we faced challenges. I doubt any actions taken by suppliers could have significantly altered the overall outcome. This year, we are again focused on supplying the market, and as purchases increase, balance should start to return.

This is Lucas Beaumont for Josh. I just have two quick ones. Firstly, so on your potash volume guide for the second quarter, you're talking it sounds like you think North America is going to be up year-on-year. So if that's the case, and I kind of split out like what Canpotex is doing then in the second quarter, what's applied it's implying that's kind of down 15% to 20% year-on-year. So I guess, is that right? Why would it be down that much taking less allocation there? And secondly, just wanted to follow on from Joe's question on Fertilizantes. So maybe how do you kind of see the normalized mid-cycle EBITDA in Fertilizantes now? And could you split that between distribution EBITDA and production EBITDA for us, please?

Yes, regarding potash volume, we've adopted a cautious approach to international sales, resulting in our export share being slightly lower. Currently, if North America continues to perform as it has, we expect to be at the higher end of our guidance. Likewise, if the international market improves, we anticipate being at that higher end as well. At this stage, we believe there may be more upside potential than downside risk, although supply chain issues could pose a challenge since there is a limit to how much product we can move. As for Brazil, about 50% of their earnings are attributed to production economics, which must consider the market dynamics. We see this division as primarily driven by production. Approximately 30% of earnings come from the distribution business, with the remaining portion derived from various other sources such as co-products. That's how we are analyzing and representing that business.

A couple of questions about potash. India signed a contract for 6 months instead of a year this time in potash. Why do you think they did that? Why signed a short-term contract? Normally, China quickly follows suit after India signs a contract and maybe gets a $20 a tonne better price. And as you said, the Indian signed at $422 a tonne down from $590. But the Chinese didn't sign a contract down $20 a tonne. What do you make of that? And do you have an expectation for when the Chinese might sign a potash contract?

Thanks, Jeff. Let me start with India. The reason for the 6-month contract was not India itself but the suppliers, including Canpotex. I typically don't speak on behalf of Canpotex, but we don't believe the fundamentals will keep the price at $422 for the next 6 months; rather, we see good upside potential. That's why the contract was for 6 months instead of a year. Regarding India, it hasn't really ramped up in terms of tonnage because they haven't set up the subsidy program. So, while there is a contract price, importers remain cautious due to the lack of a subsidy guarantee, causing NPK plants to take only what they need, leading to a problematic situation that's more rooted in political and subsidy issues than actual demand. As for China, there are a few reasons they haven’t followed suit. First, they have the necessary inventory for the short term and are assessing when they will actually need more product. There have been changes in China’s supply situation, with 2 million tonnes arriving via rail from Kazakhstan and Belarus, another 2 million tonnes from Uralkali and Russian sources, and 6 million tonnes from Qinghai Lake. This means that while their seaborne needs still exist, they have diminished compared to before. We may need to reevaluate what 2 million tonnes in inventory really signifies, as it could last longer than expected since they are meeting their basic needs. Nonetheless, I believe that by midyear, they will still require seaborne shipments, suggesting there is still a market for that. However, I must emphasize that the significance of the Chinese contract has been declining as they become less reliant on seaborne supplies.

Joc, I'm trying to summarize all the comments made today regarding the market and price expectations in potash. What thresholds are you expecting to cross in the second half of the year that would prompt you to activate Colonsay? Are you looking for a specific price increase or waiting for China to reenter the seaborne market? What factors are you monitoring to decide on that?

Thank you, Vincent. Regarding Colonsay, I understand there are questions about why we're considering restarting it. The timing has been critical; each month, Esterhazy's capacity increases, and we expect it to exceed 6 million tonnes in the second half of the year, while Belle Plaine will reach 3 million tonnes. Altogether, that gives us 9 million tonnes of capacity without including Colonsay. The potential for Colonsay's operation depends on the export market. If demand picks up from China, India, Indonesia, Malaysia, Brazil, and Latin America, we may see a need to deplete our current inventory, which might push us beyond the 9.5 million tonnes. If the market remains weak, we likely won't operate Colonsay. The profitability of Colonsay is acceptable at this level; however, I want to avoid flooding the market without buyers, which could harm our business, similar to the situation when BPC dissolved. Therefore, we need to be cautious about how we ramp up production. While we may have some excess capacity and the cost of holding it is high, the current uncertainties make me hesitate to take it offline if there's a chance the market will rebound strongly.

Okay. Thank you, everyone. Let me conclude our call by reinforcing a couple of our key messages. The agricultural commodity prices are still elevated. This gives farmers a strong incentive to maximize their yield and use fertilizers. So fertilizer demand is robust and volumes are starting to move quite strongly. Our operations are running well, and our strong earnings and cash flow are allowing us to return significant capital to shareholders. 2023 is off to a good start for Mosaic, and we have a positive outlook for the remainder of the year. So with that, thank you for joining our call. Have a great and safe day.