Mosaic Company (MOS) — Q3 2024 Earnings Call Transcript

Thank you, and welcome to our Third Quarter 2024 Earnings Call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer, followed by a fireside chat and then open Q&A. Clint Freeland, Executive Vice President and Chief Financial Officer; and Jenny Wang, Executive Vice President, Commercial, 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 beyond 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 today, 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 Bruce.

Good morning. Thank you for joining our call. I would like to start by acknowledging the great work done by so many of Mosaic's people to help us prepare for and recover from Hurricanes Francine, Helene, and Milton. I'm especially pleased that we made it through the storms with no safety incidents, no significant environmental events, and no material physical damage. Even as most of our people in Louisiana and Central Florida were dealing with storm impacts at home, they came together to ensure we could get back up and running as quickly as possible after the storms. Because of their dedication, our Florida operations were back at full operating rates just two weeks after Milton, with some locations returning to normal within days. I'm extremely grateful to the team. Before we get into our results, I also want to address our announcement this morning that Clint Freeland plans to retire as Mosaic's Executive Vice President and Chief Financial Officer at the end of this year. During his time with Mosaic, Clint has been an outstanding CFO for the Company. Mosaic's financial profile and capital allocation program are much stronger than they were when Clint arrived six years ago. I want to extend my sincere thanks for his leadership, and we wish him all the best in his retirement. As part of this planned transition, Luciano Siani Pires will join the Company as CFO Designate on November 18. Luciano was previously the CFO at Vale and later served as the Company's EVP of Strategy and Business Transformation. Luciano also served on Mosaic's Board of Directors following the Vale Fertilizantes acquisition in 2018, so we know him quite well. We look forward to welcoming him to Mosaic, and we're confident that he will be a worthy successor. Luciano assumes the role of CFO on January 1, 2025, and Clint will remain a senior adviser until July 1, 2025. On to our third quarter results. The storms were part of a challenging third quarter for us. We also faced electrical issues at our Esterhazy and Colonsay potash mines that affected our production levels. All those challenges are now behind us. For the third quarter, Mosaic generated $2.8 billion of revenue, resulting in net income of $122 million and adjusted EBITDA of $448 million. The lower adjusted EBITDA was driven by the aforementioned challenges, lower potash prices, and a delayed agriculture recovery in Brazil, partially offset by ongoing strength in phosphate stripping margin. That said, we have continued to focus and execute on the things that are within our control, and these actions and initiatives are positioning us to benefit from the improving agriculture and fertilizer markets. We expect to achieve our targeted annualized phosphate production run rate of 7.8 million to 8.2 million tons by year-end once the ongoing turnaround activities are completed later this month. We are making good progress on our cost management front and are on track to achieve our $150 million annual run rate cost savings target by the end of 2025. We are on track to achieve our targeted $200 million reduction in CapEx this year. Mosaic Biosciences growth is accelerating, in fact, our biological products are now being used on 9 million acres in key markets around the world this year. Due to our extensive market access and the strength of our brand, the Biosciences operating model is highly leverageable and positioned for long-term growth, which is powered by new product launches using our internal R&D capabilities as well as leveraging external partnerships. Mosaic Biosciences is largely self-funding and does not require significant new capital to fuel its growth. Capital allocation remains a key focus for us. We are continuing to invest in our strengths. This year, we completed the compaction project at our low-cost Esterhazy mine and the MicroEssentials conversion project at Riverview. Next year, we will complete the Hydrofloat project at Esterhazy and the Palmeirante blend plant in Brazil. We're also focused on capital reallocation for other assets in our portfolio, such as the conversion of our MWSPC joint venture into Ma’aden shares, which are worth $1.5 billion to $1.6 billion at today's share price, and the strategic review of our Carlsbad, New Mexico potash mine. During the first nine months of the year, we returned $415 million to shareholders, including $210 million of share repurchases. Now let's spend a few moments to discuss the state of the market and outlook. Corn and soybean prices have improved from their August lows, while other commodity crops, including palm oil, sugar, and coffee are quite strong. In North America, farmers are enjoying solid yields that offset the impact of strained commodity prices with an early harvest allowing more opportunity to complete fall field work, which is good news for the near-term fertilizer demand outlook. In Brazil, barter ratios are healthy for corn and soybeans. In fact, the corn barter ratio is improving, creating an increasingly constructive setup for the safrinha crop in the coming months. We have also seen a continued uptick in Brazilian corn used for ethanol production, which has provided further corn price support there. Over the longer term, biofuels remain an attractive driver for grain and oilseed demand far beyond current levels, supporting a highly constructive picture of long-term agriculture fundamentals. The government in Indonesia reiterated that it would be moving forward with a B40 biodiesel program starting in January. In India, the latest ethanol mandate could lead to India becoming a net importer of corn. In Brazil, the approval of the new biofuel policy calls for a gradual increase in the mixture of soybean biodiesel and diesel fuel and changes in the ethanol content in gasoline and sustainable aviation fuel for airplanes. Fertilizer demand is running high around the world this year as nutrients remain affordable and growers are catching up after recent years of underapplication. Large crops and solid yields in many regions this year are drawing nutrients from the soil with removal particularly pronounced in North America with an additional 4% to 5% compared to last year. So, we expect demand will remain solid in 2025 as nutrients are replenished. The potash market remains relatively balanced. We think potash prices have hit bottom as we've seen resistance to low offers in key markets, and prices have begun to trend higher. We continue to expect near-record global shipments for 2024 and record-breaking shipments in 2025 driven by broad-based demand recovery, particularly in Southeast Asia, where palm oil economics are solid. For the phosphate market, stripping margins are expected to remain elevated. Prices remain strong, driven by persisting global supply constraints and solid demand for fertilizer fuel and industrial uses. China has continued to restrict phosphate exports, and we expect total Chinese exports to be around 7 million tons for 2024, down from 7.9 million tons last year and about 11 million tons at their recent peak. Domestic phosphoric acid production is increasingly consumed by industrial uses, resulting in reduced availability for the production of phosphate fertilizers. This trend will likely continue well into the future. Additionally, due to an unfavorable government subsidy environment, Indian phosphate demand is going unmet, leaving farmers short of a critical nutrient and setting up strong demand for 2025 assuming an improvement in importer economics. Now I'll move on to our segment results. The Potash segment generated adjusted EBITDA of $180 million for the quarter compared with $267 million a year ago, driven by lower prices and approximately 250,000 tons of lost production due to the electrical issues at Esterhazy and Colonsay which were further impacted by the broad Canadian rail strike. These issues are now fully resolved. For the fourth quarter, we expect potash sales volumes in the range of 2.2 million to 2.4 million tons and prices in the range of $200 to $220 per ton. Note that this outlook includes limited impact from labor issues at the ports of Vancouver and Montreal. Canpotex has contingency plans to mitigate the impacts from the strike as much as possible by diverting product flows via other ports. However, the longer the strike goes on, the higher the potential for volume impacts given the significance of the terminal to the Canpotex network. Our Phosphates segment generated adjusted EBITDA of $265 million for the quarter compared with $201 million a year ago. The improved results are due to a combination of solid pre-hurricane production levels and strong stripping margins. Our sales volume came in at 1.5 million tons in the third quarter, driven by lower production volumes and shipping delays caused by weather events and related port closures. Our realized stripping margins remained strong, in part because of our advantageous ammonia economics. We produce about 1/3 of what we consume, and we have a reliable supply of ammonia and sulfur from our partners. We have executed two new ammonia supply offtake agreements, with an additional one nearing completion to meet our needs in 2025 and beyond. Our balanced raw material sourcing approach reduces our risk exposure in varying market conditions and sustains our strategic advantage. Our phosphate conversion cash cost per ton was largely unchanged from the second quarter. As we continue to ramp up production to the target run rate, we expect to achieve a $20 to $30 per ton reduction in conversion costs from the high watermark at the end of 2023. Hurricane Milton resulted in a production loss of about 250,000 tons, which will be reflected in our fourth quarter volumes. For the fourth quarter, we expect phosphate sales volumes in the range of 1.6 million to 1.8 million tons and prices in the range of $570 to $590 per ton. Mosaic Fertilizantes generated $83 million in adjusted EBITDA compared with $147 million a year ago. EBITDA was lower due to $32 million in bad debt reserves we booked in SG&A and $20 million of legal reserves. The bad debt reserve was a result of the Brazilian customers' bankruptcy filing. We expect to recover the majority of this amount through an insurance claim, which will be recorded in the quarter it is received. All in all, we are back on track. Our operations are restored to full capacity in all geographies and we are optimistic as we look ahead to 2025. We expect constructive agriculture and fertilizer market fundamentals, and we believe that we will produce at levels that will allow us to meet robust demand from our customers around the world and generate good financial performance. Our strategy of refining our portfolio while pursuing exciting opportunities in Mosaic Biosciences will deliver meaningful shareholder value.

Thanks, Bruce. Before we move on to the live Q&A, as we have done in past quarters, we would like to address some of the most common investor questions that we have received throughout the quarter. First, what is the current state of agriculture and fertilizer markets? And what is your outlook for next year?

Thanks, Jason. Ag fundamentals are solid and fertilizers are affordable, which bodes well for fertilizer demand. Significant changes to phosphate supply will keep the market tight into next year, and the potash market is balanced. Now let me ask Jenny to provide you with her view.

Thank you, Bruce. Overall ag fundamentals remain strong for many crops. We continue to remind investors that only 1/3 of phosphate and potash consumption goes to corn and soybean. Prices for other ag commodities, especially palm oil, sugar, coffee, continue to be very attractive, which supports significant demand for fertilizer growth this year. For corn and soybean, fundamentals are improving. In Brazil, domestic prices of corn and soybean are actually traded at a premium over international future prices. This is due to the real devaluation and also the growth of new demand, i.e., bioethanol. As of last Friday, the sales of corn and soybean have come back to the same pace of last year, so as the fertilizer purchases, both safrinha corn and the summer crop. Speaking about biofuel, I'd like to highlight another dynamic that will influence the market both in the near term and in long term, which is increasing demand for corn and soybeans for biofuel and bioethanol. In Brazil, the recently approved government fuel bill suggests about diesel and bioethanol blending rates to increase by 5%. The increases in blending rates imply significant increases in new demand for corn and soybean. Our estimation suggests that this would imply 4 million tons of NPK fertilizer demand if the rates are going to be realized by 2032. In India, the country has shifted to a net corn importing country this year as the government corn ethanol investment plans to push the use of corn for ethanol production, in addition to sugar cane and rice. This is even before they hit their E20 goal, and the leading government has a target to get to E25 by 2030. Now let me move over to the phosphate and potash market. Phosphate markets are tight this year and expected to stay constructive as we get into 2025 and beyond. Overall demand this year is generally at par with 2023, with supply constraints holding back demand growth. The Indian monsoon and the grower economics have driven demand outpacing supply. We see reduced shipments in 2024 due to unfavorable import economics, which is related to the government subsidy program. This is setting up pent-up demand for 2025. In North America, we are expecting a large crop with yield increases, and nutrient removal could be up to 4% to 5% from the soil compared to 2023. These nutrients must be replenished while growers have been cautious due to the headwind of corn and soybean prices, but the big yield and early harvest have improved sentiment. We've been hearing from customers that they were surprised by growers’ appetite for phosphate. In Brazil, phosphate inventories are very tight. The grower economics and barter ratio are improving. We expect Brazil's fertilizer demand to continue to expand in 2025. Lastly, on the supply side, we are seeing limited new supply coming in 2024. China's exports are restricted by their very strong domestic demand, both in fertilizers and industrial use. Up to the end of Q3, the production of LFP for electric vehicles and stationary batteries increased by 51% to 1.8 million tons. The dynamic of competition between ag use and industrial use has tightened the availability of P2O5. In fact, China has been stepping up to import phosphate rock in order to meet the demand. This dynamic is expected to continue next year and support a very tight phosphate market. For potash, we've seen a broad base of demand recovery around the globe, especially in the Southeast Asia market. The elevated palm oil price and the constructive rice prices have really supported the demand recovery of potash. Year-to-date input growth in Malaysia and Indonesia has been up by 57%, and we’re seeing similar levels for other countries in the Southeast Asian region. We expect the global shipment of potash this year will rebound to a record year, as we saw in 2021.

Next question is on phosphate production levels. Assuming you achieve your target run rate in the fourth quarter, how should we think about production volumes moving forward?

We do expect to achieve the target run rate by the end of the quarter. Our turnaround schedule will be complete in the next couple of weeks, which will set us up for hitting the target. Our phosphate production level will be sustainable once we achieve the target. But please note that it will continue to vary on a quarter-by-quarter basis depending on turnaround scope and schedule. For example, we have some turnaround activities scheduled for the first quarter next year, which will set us up well to produce at full rates for North American spring demand. This will result in lower than run rate production for the first quarter, which we expect to make up during the balance of the year. One other factor that affects the production volumes quarter-to-quarter is product mix. Our teams are continually monitoring the markets and working to optimize product mix to maximize profitability. Each of our products requires a different amount of P2O5, so the product mix decisions will dictate the finished product production rates and where we land within the target range each quarter.

Our next question is related to the credit situation in Brazil. You recorded $32 million of bad debt in the quarter. What is your exposure to future credit losses?

We have limited risk to further credit losses. While the market conditions remain challenging, not all industry participants are facing the same credit issues. In fact, a significant portion of our customers, which are grain traders and co-ops, are in good financial condition. During the onset of the credit crisis, we made a concerted effort to reduce our exposure to the retailers that are most impacted by credit problems. As we move into the safrinha season next year, we have employed additional risk mitigation measures by requiring prepayments from our customers and continue to ensure sales contract integrity to prevent losses. In the event that credit losses are incurred, we use credit insurance programs to mitigate them. We believe our prudent risk approach will continue to reduce our exposure to future losses.

Thanks, Bruce. With that, we'll now move on to the open question-and-answer session. Operator, please open the lines for follow-up questions.

Congratulations, Clint, on your retirement. Yes. So, I just wanted to first touch on the phosphate business. It looks like you put strong margins up despite the challenging weather events. I was wondering, given you're also on track on the cost savings of $150 million, what would your costs have looked like, I guess, if you didn't have the temporary shutdowns? And was there a cost impact from the shutdown during the quarter?

Richard, this is Bruce. Thanks for the question. We're pretty proud of the margins. It does show to your point, the strength of our cost reduction program and how much improvement in production really has on our fixed cost absorption. Even though we did have, to your point, impacts from the various hurricanes in Louisiana and a little bit of Helene at the end of the third quarter and Florida, mostly on shipping ability out of the ports. We've kind of had production flat versus quarter two, which was about 100,000, 110,000 tons improved over kind of historic. So, I believe we're seeing that coming through. I know it's hard when you have these interruptions with storms, we're taking things up and down. But we believe that underlying performance really is there. And definitely, we could demonstrate that. We'll talk more about that, I'm sure, going into the fourth quarter as we get past our turnarounds. But we've always said that from our high mark in 2023, which was quarter four, we'd expect $20 to $30 cost improvements due to absorption when we get to full run rate. We obviously weren't there because of the hurricanes and the other turnaround work that we had. So we should have expected another notch down on our costs and would have expanded a little bit more in margin as we go forward. And I think that's what investors should look forward to as we do demonstrate that run rate forward. And Clint, I'll just turn it over to you since you congratulated you. You can talk about that and if you wanted to add anything to that.

Yes. No, I appreciate it, Bruce. And Richard, I do appreciate your congratulations. Bruce, you spoke to it well. I think as you look at the production levels and adjust for kind of the production shutdowns, I think you would have seen a lower cost per ton and you would see an improvement on those lines. We are on the right path on that. And again, if you just adjust for the costs, I think you would see that improving.

I'd like to drill in a little bit on the comments you made about Biosciences. The 9 million acres, what are the functional products in here? Are these biostimulants or biologicals? Is this a blended product with fertilizer or seed treatment? How does it flow through your income statement? And more importantly, what's the pipeline look like in this group? Is there anything in there you'd call out as having some meaningful longer-term potential?

Yes. Thanks, Steve, hoping we get a question, and maybe you would be the one. So, I appreciate that question on Biosciences because it is something we're proud of. We're seeing really exciting acceleration on the acreage covered in these products. I'm going to let Jenny talk about the specifics of your question. But we do feel that in the course of time, this really could be a growth engine for Mosaic. So, as I said, we're excited about it. Let me turn it over to Jenny to kind of get into the specifics of the products and then the pipeline.

Thanks, Bruce. Thanks for the question. The products we are selling in the market, Steve, are basically nutrient use efficiency enhancement products. The two major products we're selling in North America and Central America are called PowerCoat and BioPath, which improve nutrient use efficiency. We do have products that we are selling in Brazil and China, they are third-party products. As of today, they are biostimulants. So, how are the products used today? More than 70 products that we're selling are coated on fertilizer granules. The rest of 30% are being mixed with liquid fertilizer or fungicide or insecticide. The formulation strength, which is the strength of our product, has made our products very steady. Our products can be mixed with UAN, with ammonia, and along with other crop protection products. Going forward, we will have products coated on seeds. You asked the questions on pipeline. In the pipeline, we are looking for a wide range of products. The most exciting ones, Steve, I can mention are nitrogen fixation materials. We are at the final stage for our field trial and registration. We also have a range of products which improve phosphorus solubility and that's in the pipeline, and that is one of the investments we made over the last few years. This is also in the development stage. So, stay tuned, we will have more reports on the new product pipeline as well as the accelerated growth that we're making with our market access in the major agriculture markets, North America, Brazil, China, and India.

Can we talk a bit about your outlook for potash for '25? You're showing about a demand growth, I think, 2 million or 2.5 million tons of demand growth next year. Just talk about what you see for supply next year. In your base case, how much of that incremental demand will Canpotex and Mosaic be able to supply? How many more tons can Mosaic supply next year? You haven't really gone above 9 million tons, I think, for seven or eight years. What is the most you can do through K3?

Yes, Joel, you picked up on, obviously, in our materials, we do see the market growing anywhere from 1 million to 2 million tons and somewhere in that range next year. See Laos being part of the additional capacity. There's a little bit more out of Russia and Belarus that probably can be squeezed out as well. It's just going to be a remainder, probably supplied, as you said, out of Canada in some form, depending on how that demand materializes. I'm going to turn it over to Jenny and maybe get into the details of what potentially could happen in sharing of supply on that demand.

Thanks, Bruce. Joel, let me give you a little bit more specifics on our base case assumptions. On the demand side, we believe the current price level of affordability will support further demand growth in some markets, as the demand recovery. For example, in Indonesia and Malaysia. On the supply side, our base case assumptions are assuming further ramp-up of EuroChem’s VolgaKaliy project and some final push of EuroKaliy’s production. Which is going to make the product out of Russia, we estimate roughly 0.5 million tons more than this year. We assume BPC probably already reached their plateau by using alternative routes to get the product to the market. It is very expensive to serve the market through this alternative route. Lastly, as Bruce mentioned, we have big assumptions on the expansion in Laos. The expansion of the capacity, including Asia potash and also partially including other projects. The Asia potash capacity expansion in 2024 was very slow due to well-known management changes and also the water inflow issues. Our assumption for next year is that they will be back to the pace for the expansion of capacity. As you can see, our forecast for supply increases in 2025, the two major growth drivers are from Russia and Laos. As we all know, this expansion also has some significant uncertainty. In the case that supply is not coming online as we suggested, the market is going to be tightened.

Joel, just the other part of your question is what could we produce? We've announced and talked about in the opening comments, the investment at Esterhazy, which in our Hydrofloat project, is a high return, modestly expensive investment. We'll generate another 400,000 tons when that comes online midyear next year. At that point in time, Esterhazy and Belle Plaine combined should be able to produce in that 9 million ton range. Based on what we need above and beyond that for Canpotex's participation in our market share in North America, we'll continue to use Colonsay hopefully more sparingly once that comes online, to cover things like major turnarounds at Esterhazy or something unforeseen. For sure, we'll be prepared to ramp Colonsay back up if it happens to be idle at the time.

I promised to ask a nice question. All right. So, I want to go back on some of the phosphate commentary in terms of getting to the run rate. When we consider everything that your asset base has been through for the last several years, inclusive of the third quarter, how should the Street ultimately just be thinking about what's the average run rate of phosphate rock procurement in terms of the concept of normalized earnings? Same question for processing costs. When we compartmentalize how much your assets should be earning in a normalized environment in '25, what kind of broad framework should we ultimately be using?

Yes, Chris, I appreciate the question. As we've talked multiple times, the way I'll answer that is more like we have is I think, yes, we are recovering and there's evidence of that on a run rate. As we've said and been consistent just to put it in context, we won't achieve kind of that 7.8 to 8.2 run rate until largely the end of the year after we finish turnarounds. Our turnarounds will finish this year in the next couple of weeks. In December, we will be wide open. Unfortunately, we do have a turnaround of Bartow scheduled in the first quarter of next year, a major sulfuric turnaround. So, there'll be some lumpiness to that, but look out beyond that at that 7.8 to 8.2. Conversion costs should come down, as I said earlier, from that high watermark in '23 by $20 to $30 per ton, and that should be sustained on an annualized basis. Rock costs remain around $55, kind of flat to where we had been this quarter. I think there's some upside to that when we get better lined out because there was some impact due to the hurricanes on fixed cost absorption there. Minor upside on rock cost will depend on the product mix. So, putting all that together, I see around that $50, $55 rock cost and sub $95 on conversion cost, which is probably, I think, the numbers you should be looking for.

Just wanted to dig a little bit deeper into the Brazilian business in Fertilizantes. If you don't mind, could you elaborate on what you're seeing in terms of farmer activity right now in Brazil, buying behavior and just how transactions are going through because we're getting so many different signals out of Brazil. I would love to see what the business is for you right now in Brazil in particular.

Yes, Ben, thanks. I'm going to just go ahead and turn that one right over to Jenny and talk about what's going on in Brazil as she's head of that commercial side and has a good pulse of that. So, Jenny?

Sure. Thanks, Bruce. Ben, I'm not surprised to hear that you say mixed messages out of Brazil. I would start to say Brazil has been facing challenges throughout the year, partially because of headwind on the commodity prices, and partially also due to the credit or liquidity constraints at the farmer level. What we are seeing most recently is that things have changed really on the ag commodity prices. We see prices started to climb up from the middle of the year, especially at the local level. The prices on the res are actually higher than the U.S. dollar traded in the Chicago market, partially because of the devaluation of the real. Partially due to the new demand, local demand, especially the newly added ethanol plants in the middle of the corn-growing states. With this new demand, we're saying the farmers are selling at a higher price to the local demand, which has largely improved their economics. We are tracking very closely on how much grain farmers have sold for their next crops, and how much purchases they have made for their next season. As of last Friday, for the coming safrinha corn, farmers have sold 67% of their crops, which is 7% higher than the same time last year and close to the historical average. As part of the progress, as the farmers are selling corn and they are buying fertilizers, for the Company's safrinha corn season, they have purchased over 60% of their fertilizers, which is ahead of the same time last year. It's a similar situation for the summer soybean season. It is early, but usually at this point in time, farmers started to sell their next soybean crops already. As of last Friday, the farmers have sold 28% of the soybean they are going to plant next summer, which is 4% higher than the same time last year and 7% higher than the year before. Similarly, we saw a big step up in purchases of fertilizers. They have purchased 5% of their fertilizer for their next summer season, which is on par with the last two years. So, what I want to conclude is that as challenging as it is, at the grower level, we are seeing improving sentiment, improving economics, and improving activities.

This is Justin Pellegrino on for Vincent. I just had a quick question. You mentioned the unmet demand in India for phosphate because of the unfavorable government subsidy environment. Can you just give some commentary around how you're seeing those subsidies shifting on the ground? And then maybe how much product was missed out on 2024 that you could see shifting into 2025?

Justin, thanks. We definitely saw a significant amount missed versus what trend demand would be in India. I'm going to turn it over to Jenny to give the details. It's a shift in the MRP or something on the subsidy itself; we definitely see that that's necessary in order to incentivize growers to actually meet the demand for their crops. So, with that, let me turn it over to Jenny to kind of get into the detailed statistics.

Sure, Bruce. The farmer demand in India for DAP and for MRP is very strong, supported by good months and good commodity prices. But on DAP, the demand has been so strong that supply was not able to catch up. The economics that you mentioned on importers is defined by two things: one is really the subsidy from the government, and the other is the difference between international price and the farmer price. This year, the farmer price is very low at $360 per ton. If you think about the international market price being at around $640, there is such a big gap, that the government has not been able to catch up on the subsidies. Therefore, importers were reluctant to import from the international market, and that has caused the shortage for the farmers. We estimate that the DAP shipment reduction this year due to this dynamic might be around 2 million tons. Farmers still need this 2 million tons to meet their crop requirements, and the shipments are partially from reduced consumption and partially from fully depleted inventory. As we get into next year, things are likely going to change. We assume the farmer price is likely going to be adjusted. $350 is just probably too low, and we expect that price to be adjusted to a level where farmers retain good economics to support it. The government subsidy will also need to be adjusted. But the dynamics are going to be played out, and we know that Indian farmers will need to apply DAP, and we know that they are short this year already. There has been a lot of publicity in the country about the shortage of phosphate, laying a good foundation for the government to consider adjustments for the subsidy into 2025.

Just a few questions on phosphates. So, can you just clarify on the 8 million-ton phosphate run rate? Is that annualizing a monthly or quarterly production level when there's no turnarounds? And if so, what would be considered a realistic total annual production going forward when you account for all of that? Also, on phosphate demand, what are your assumptions for next year based on pricing and affordability because that's obviously had a big impact on phosphate demand this year.

Andrew, yes, on phosphates: all of that 7.8 million to 8.2 million ton annualized range has what we would consider normal interruptions, due to historically normal turnarounds at historically normal scope, as well as historically normal weather disruptions. What we've seen over the last couple of years and getting back to that run rate is abnormally large turnaround time and turnaround scope. Of course, this year, more abnormally weather-related issues due to the hurricane have also impacted production. So based on history, whether history repeats itself on hurricanes, that's a whole different question. If we do see this type of weather pattern going forward, we probably have some downside on the range. The 8 million, if you want to pick a single point between the 7.8 and 8.2 is something we expect on an annualized basis. The lumpiness may be month-to-month, quarter-to-quarter. The overall affordability will still be there for the farmer when you add everything together, and the amount of nutrients taken off this crop is quite large. I think Jenny talked about that earlier, and the need to replenish that is high without suffering yield impacts.

Just a follow-up to the phosphate question. So, Bruce, when you look at all the data and charts show in phosphate affordability being such an outlier compared to the other nutrients, what goes through your mind? Is it that phosphate is the best and hardest nutrient right now in DAP? Or is there some apprehension being such an outlier?

Yes, Edlain, I appreciate the question. Right now, it obviously appears to be high as a nutrient on its own. What we would be looking for to be concerned or more confident would be the announcement of significant new capacity. The phosphate market on its own is unique because it is limited on supply. That is what's driving prices. It isn't the fact that anyone is trying to manipulate prices one way or the other. It just is based on the limited supply intersecting with demand, establishing a fair price for phosphate. If somebody were to announce new capacity, historically, when things trend for this long, whether it be an OCP or a modern project, typically significant new supply announcements have occurred. That simply hasn't happened here. So going into 2025, we still feel that realized stripping margins for Mosaic are going to be quite good.

So, with that, I think, operator, we're going to stop taking questions, and I will go ahead and conclude the call. Thank you, everyone. To conclude our call, I want to emphasize our key points. We've overcome three hurricanes and other challenges. Today, Mosaic is in an excellent position to benefit from improving business conditions. We're investing in our strengths while acknowledging areas where we need to improve returns. We're reducing costs and capital expenditures. Our Mosaic Biosciences business is growing fast, and our plants and mines are running hard and safely to help us meet the strong demand for our products. We're energized for the future, and our outlook for the remainder of this year and 2025 is positive. Thank you for joining our call, and everyone have a great and safe day.