Mosaic Company (MOS) — Q2 2025 Earnings Call Transcript

Thank you, and welcome to our second quarter 2025 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer; Jenny Wang, Executive Vice President, Commercial, will then cover the market update; and Luciano Siani Pires, Executive Vice President and Chief Financial Officer, who will review the financial results and capital allocation progress. We will then open the floor for 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 Bruce.

Good morning. Thank you for joining our call. I'll start with an overview of our performance and outlook, then Jenny will provide insight into the markets, and Luciano will discuss details of our earnings. Our key messages for today are: First, our hard work to improve operating performance is paying off. It's apparent in our Brazil results, and we expect to see improvements in our U.S. phosphate production business now that the vast majority of our work to enhance reliability is complete. Second, the market environment remains strong with tight supply leading to very strong phosphate margins and rising potash prices. In fact, we raised our full year potash production to capture strong demand. Third, the cost reduction efforts we've been pursuing in Brazil have led to a strong first half of the year, and we expect earnings growth to accelerate in the remainder of 2025. And fourth, our extensive market access continues to be a key competitive advantage for Mosaic. The current market situation demonstrates this point with some unevenness in the Americas; there is still more than enough demand around the world for all the tonnes we can produce. We have the agility to send tonnes to markets where demand is strongest. To cover our second quarter results, we generated net income of $411 million and adjusted EBITDA of $566 million compared with a net loss of $162 million and adjusted EBITDA of $584 million in the same quarter of 2024. The factors that drove earnings lower are behind us. And across the business, we are poised for a strong second half of 2025. Potash and phosphate markets are tight, and we are maximizing production to benefit fully. We see no signs of a second half price reset that has occurred in the past few years. The global phosphate market has been tight for 2 years now, and we do not expect that to change in the near to medium term even with the additional supply we expect to provide to the market. All of the supply and demand dynamics we've been discussing remain in effect. While China recently resumed exports at a low level, Chinese exports remain restricted as producers there meet domestic demand for agriculture and growing demand for industrial uses. Global farmer demand for phosphate fertilizers remains robust. As an example, Indian importers have come back to the market with increased government support and are now working to meet 2 years' worth of pent-up demand. Also remember, there is not much additional capacity that is expected to come to the market over the next few years, and announced projects take quite some time to come online. Put simply, there is not enough phosphate fertilizer available to meet demand, and we expect this dynamic to continue well into 2026. In our business, our work to fortify our U.S. phosphate assets to maximize future production took longer than we expected, but there is no more planned maintenance that would impede us from reaching our target run rate of 8 million tonnes per year. To provide more detail, our extraordinary level of work is complete at Riverview in Louisiana. Our Bartow plant has been operating at target rates for a couple of months. And in New Wales, where installation of our final new gypsum pumping station was delayed, all 3 new stations are complete. We are now returning to our normal cycle for turnarounds. Our third quarter sales volume guidance of 1.8 million to 2 million tonnes reflects our confidence in our strengthened assets. Our annual guidance for phosphate production is now 6.9 million to 7.2 million tonnes, reflecting the more extensive maintenance downtime we experienced in June and July. It's also important to note that as our volumes improve, so do our unit costs; we expect to reach our Analyst Day per tonne cost targets later this year. In potash, the market has evolved from balanced to tight. Maintenance activities at multiple producers around the world have reduced near-term supply, and demand remains strong, underpinned in part by continuing high palm oil prices in Southeast Asia. We are running hard to meet demand and benefit from the market conditions. The second quarter turnaround at Esterhazy is complete and we plan to run our Colonsay mine at least through the end of this year. As a result, and to meet very strong global demand, we have increased our annual potash production guidance to 9.3 million tonnes to 9.5 million tonnes. We're feeling very good about our business in Brazil, too. While credit issues are persisting, we expect fertilizer demand to remain strong and supply limited. As a result, we anticipate EBITDA from the Mosaic Fertilizantes segment to push higher from the strong levels we've seen in the past 2 quarters. Before Jenny provides more details on the markets, I'd like to highlight the important competitive advantage our market access brings to Mosaic. The new Palmeirante facility, which was inaugurated last month, adds 1 million tonnes of distribution capacity in the fast-growing northern region and reinforces our market-leading presence in the country. We also continue to leverage our market access to grow the Mosaic Biosciences business. First half revenues for Biosciences more than doubled compared with a year ago. We expect Mosaic Biosciences to contribute positively to adjusted EBITDA beginning in the fourth quarter. Finally, a note on capital allocation. We're continuing to make progress on our work to reclaim capital so that we can deploy it in pursuit of better returns. The hydrofloat project and the new Palmeirante facility are good examples of this. We hope to have news on the processes we've announced, including Carlsbad and Taquari in the near future. At the same time, we are expecting stronger free cash flow in the second half of the year, which would allow us to pay down debt and return capital to shareholders. All in all, we have made important and substantial progress this year and we are in an excellent position for a very strong second half of 2025. Now I'll pass the call to Jenny.

Bruce highlighted strong fertilizer market fundamentals. Before I dive deeper into the phosphate and potash market, I'd like to address the recent pressure on ag commodities and why we are still upbeat on global agriculture. Commodity markets have been pressured by both trade and macro uncertainties as well as the record safrinha harvest in Brazil and the potential for a record U.S. crop this fall. However, as we mentioned before, ag fundamentals remain positive across much of the world, including in many of the key geographies where we operate. The global ag market continues to be supported by strong demand including support of new biofuel policies in India, Brazil, Indonesia, and the U.S., which supports ag market in the long run. The headwinds we see in certain geographies related to fertilizer affordability will necessarily trim some demand, for example, in the Americas, but this provides a tailwind to demand in the future as growers will need to replenish their soil nutrients. Specifically on phosphate, prices have steadily climbed this year with a strong demand that is constrained by supply, and despite higher prices and the lack of available supply that may result in some demand deferral, global shipments are expected to approach a new record. The most notable factor on the supply side remains China, which has returned seasonally to the export market, though we anticipate a further reduction in high-analysis phosphate export this year, as the country limits export quotas in support of the domestic market and industrial phosphate production. On the demand side, government financial support has energized Indian buying at higher prices. While we expect growth in India shipments this year, supply constraints will likely leave India facing another year of pent-up demand that bodes well as we move towards 2026. In North America, summer fuel was earlier than expected, given the empty pipeline and fewer imports; we were largely sold out for the quarter and at higher values than the spring season. Import supply is down around 20% year-over-year, given tariffs on most of the origins, and these volumes are expected to stay subdued. This means that even if there is meaningful demand deferral at the grower level this fall, there should be ample demand for Mosaic's products. While in Brazil, we are expecting another fertilizer shipment record this year, with inputs up sharply in the first half to meet the demand. With no significant price reset expected in the near term, we expect stripping margins to remain elevated as sulfur prices appear to have stabilized and ammonia looks like it could soften through the balance of the year. Longer-term, we anticipate elevated stripping margins will continue as solid fundamentals carry into next year. As I mentioned, we like to again see pent-up demand as we enter 2026 driven by demand deferral this year and limited channel inventories. On the supply side, new capacity takes time to build and won't feature meaningfully until at least 2027. On top of this, we expect China to continue to reduce export availability as independent projections for LFP demand through 2030 exceed even our own projections. In the case of potash, the market shifted from balanced to tight in the first half of this year, and we anticipate prices to hold around current levels, driven by what could again be a record global shipment. Global supply is now feeling the effects of the announced maintenance in Russia and Belarus, the slowdown in Laos expansion, and lower production from China and Chile. Regarding demand, U.S. customers indicate it will be about normal for the full season despite prices that are higher than last year, given they still find good value at these levels. Like phosphate, offshore potash imports are also trading lower than last year, further tightening the domestic market. Brazilian demand has also proved resilient in this higher-priced environment, with inventories near normal despite higher input costs so far this year. Finally, annual contracts in China and India were signed about $65 per tonne higher than last year. With this expected healthy baseload of contract market offtake, plus a continued strong pull from Southeast Asia, where solid grower economics are supported by elevated palm oil prices, we believe that supply and demand will remain tight in the near term, limiting any late-year seasonal price resets that usually we experience. Let me pass things over to Luciano, where he will dive deeper into financial results, our strategies and the capital allocation.

Good morning. This was a very unusual quarter in terms of results with a lot of noise. We encourage you to see the underlying performance of the business through the numbers and also see why we believe Q3 performance will be amongst the strongest in many, many quarters. First, on net income. The notables were actually on the positive side. The U.S. dollar lost value compared to most currencies, including the Brazilian real and the Canadian dollar. So there was a reversal of the foreign exchange effects experienced in previous quarters, a total of $220 million. In addition to that, we had a gain of $216 million in the market value of our modern shares, and with these 2 main effects, net income was $411 million compared to a net loss of $162 million a year before. Second, on EBITDA. Well, you saw we had these larger-than-usual provisions that amounted to more than $60 million on a net basis. Most of these do not have any cash effect in the quarter. And some also will not have cash effects going forward, such as, for example, the bad debt expense, the inventory adjustments, one asset write-off, but some will; some will have a cash component. For example, we recorded $8 million in environmental reserves for future remediation at our Taquari potash mine. We recorded $4 million for legal reserves. So we had a number of net unfavorable items that all came together this quarter. And while we always have some level of this kind of activity, it was quite large. We don't expect to repeat this level in Q3 and Q4. Just a note on bad debt. The $30 million bad debt expense in Mosaic Fertilizantes we had with a single customer is 90% backed by insurance, so we expect recoveries going forward. Indeed, for example, this quarter, we collected $50 million related to a bad debt expense booked in Q3 last year. Also on EBITDA, you can see that all the work of turnarounds that we talked extensively cost us money, a lot of money. We have been speaking about $100 million overall aggregate investment to increase reliability, but part of that you can see in these elevated idle and turnaround expenditures. Some of the work just can't be capitalized, it has to be expensed. Not a surprise, a significant part of the increase in idle and turnaround expenses came from phosphates. And why is that? We not only extended the duration of our turnarounds, which impacted our production volumes, which impacted our fixed cost absorption, but we also spent more actual dollars in repairs and maintenance. These works, another reminder, are all with the goal to derisk not just our second-half performance but well into the future as we return to a sustained and more normal production output level. So therefore, we also expect Q3 idle and turnaround expenses to decline from Q2 to get to a more normalized level because the work has been completed to improve asset reliability. So now the bright part. Phosphates, for example. You know that everything hinges upon the volumes. As we said, 85% of our cash cost of conversion is fixed. So given the low production volumes, the unit cost metric of $126 per tonne in Q2 behaved exactly as it should. It is above our Investor Day target of $95 to $100 per ton, but only because of low production volumes. On a positive note, cash mined rock costs in Florida are the lowest in 10 quarters, $51 per tonne against an average of $55 per tonne in 2024. You're not seeing it yet because of the low volumes of finished product. But these results will flow into the blended rock costs once finished product volumes come back. In potash, the cash production cost per tonne was $75, up from the same quarter last year, again due to less fixed cost absorption and lower yield, but it was down from $78 in the first quarter. And we conducted a turnaround at Esterhazy in Q2 this year versus Q3 last year, and the shift in timing impacted a lot of metrics year-over-year when you compare Q2 '25 to Q2 '24. It impacted production volumes, unit costs, turnaround, and idle expenses. So again, as in phosphates, you should expect potash Q3 turnaround and idle expenses to decline from Q2. Mosaic Fertilizantes, so far, the nicest story. There, we have achieved $106 million of our $150 million cost reduction target. These cost reductions and the higher realized prices are behind the $150 million in EBITDA despite the bad debt expense of $18 million, net of recoveries. In Q3, with increased volumes, no further bad debt expenses, and a recovery in distribution margins, we're bound to have an excellent quarter. The question is if we're going to be above the $200 million mark or well above the $200 million mark. This will depend on management of sales volumes given the credit environment. And finally, for you to better model Mosaic Fertilizantes. This quarter, we added disclosure on production sales volumes in the result and outlook tables in the press release. We provide margins that are earned by these tonnes, and we provide further breakdown of these tonnes in the performance data sheet. All this new disclosure, hopefully, will add some transparency to this segment. Back to cost reductions. We have achieved $150 million cost reduction targets established last year. How? On the back of Mosaic Fertilizantes as we discussed and SG&A alone. However, in SG&A, the bottom line is clouded because of the bad debt expenses and because of the noncash amortization of the large technology investment we made, and that amortization started in Q3 2024. And so we also included in the appendix of the presentation a demonstration of the SG&A savings. And with this achievement, we are now extending our goal from $150 million to $250 million. Going forward, this additional $100 million in value capture is expected to be achieved by the end of 2026 and will come from further cost reductions by automating administrative functions, optimizing supply chain and other cost reductions in operations, gross margin optimization, and fixed cost absorption as we ramp up our production levels. So the prospects here are very, very exciting. So to conclude, quarter 3 EBITDA in all segments is expected to be significantly higher than last quarter. With an extraordinary level of turnaround to improve asset health and reliability behind us. In phosphates, we expect volumes to increase, cash conversion cost per tonne to decline significantly in the third quarter, turnaround and idle expenses to come down as well, and therefore, having strong EBITDA growth from Q2 to Q3. In potash, we're pedal to the metal, increasing production sales outlook to take advantage of favorable market conditions. Mosaic Fertilizantes will have peak sales and peak margin season in Q3. We definitely have the wind at our back. With that, operator, please open the line for questions.

Just looking at the share price performance today, I was hoping you could parse out the noise from what has actually changed from your Investor Day for better or worse.

Ben, thanks for your question. I assume you want to go through everything in Investor Day that has changed?

I just want to understand why the market is reacting so negatively to what seems like a couple of bumpy quarters, but nothing has really changed in terms of the main outlook since your Investor Day. That's what I'm trying to understand.

Yes, yes. No, I appreciate the question. And I appreciate your report this morning as well. I thought it was well done. I think there's a question, and even I know you've asked this in your report on how much of this extraordinary expense that we've all been talking about and that we documented in Q2 is reoccurring or is transitory or extraordinary. And I think that's one thing because how do you kind of bake into what the underlying performance was when you normalize things. No doubt, our production volume in phosphates was down from what we had on Analyst Day, and we've talked about that in a number of conferences. There was discoverables particularly at new wells on kind of our phosphoric acid waste disposal handling systems on all 3 trains that needed to be upgraded. The final upgrade, as we communicated, we tried to pull that into June, just couldn't get the parts in time. We're targeting to have that done in mid-July. It ended up going all the way to the end of July due to parts availability. So that was the biggest change from a production, although we did guide in early June of what we anticipated there. And actually, we're right at the midpoint of guidance. But that is a definite difference in what we had in our Analyst Day numbers. As far as the extraordinary expenses, we've talked a lot about this, and Doug into kind of what is kind of average on turnaround and idle expense for our active facilities. And although it's not a perfect closure because idle and turnaround always has some variability to it, we feel that about $50 million of that expense in phosphates, particularly was kind of non-normal and was truly due to the extraordinary efforts, which we're happy to have behind us to get reliability and asset health back to where we need it to be to do exactly what we said in the Analyst Day, which is to get to that 8 million-tonne run rate. So everything else is actually trending quite good. Potash costs are a little bit higher with FX and the production mix with more run time from Colonsay, particularly in quarter 2, with Esterhazy being down, the horse rather in Q2 versus Q3, which is maybe more normal for turnaround. That cost difference probably was more highlighted and elevated. But listen, on Biosciences, we're making good progress on Fertilizantes as Luciano just highlighted in the prerecorded section. Really excited about what we're seeing in the underlying performance of that. And all of our Analyst Day targets, potash cost conversion cost as well as mined rock cost all are trending towards exactly where we wanted them to be on Analyst Day outside of maybe a little bit of impact of FX. That's a little bit more than what we would have thought at that moment in March earlier this year. So Ben, it's a great question. I think it's the phosphate volumes and, hey, when is execution going to come to bear? And how much of this large, extraordinary expense was reoccurring? And how much of that was kind of onetime.

What was your run rate approximately in July? How are we trending in August and September, and what is driving your confidence for the remainder of the year? Looking at Slide 8, it seems that Bartow is performing as expected, while New Wales and Riverview are still in the process of reaching their targets. Louisiana appears to be a bit uncertain. If you could address these points and clarify for us, it would be greatly appreciated.

Yes, Chris, thank you for the question. In July, our run rate did not meet our expectations mainly due to a two-week delay with the third pumping system at New Wales. New Wales is an important asset for us, and now that the issue has been resolved, we are seeing performance similar to what we experienced with the other two systems, with elevated rates. It's still early in August, and since we are only at the end of the month, we don’t have a lot of clear run rate data for August yet. However, the numbers we are seeing are very promising. Louisiana is performing better than expected, and I'm actually quite optimistic about the figures coming from there. Our approach to displaying asset health is unique, and I am truly encouraged by the results in Louisiana. Bartow is operating steadily at its 2 million tonne annualized capacity with minimal disruptions. Most of the major work at Riverview is completed, and we are enthusiastic about the potential there. With the significant tasks behind us, we can now focus on maintenance activities without any major work scheduled, allowing us to push forward in phosphate production. We are optimistic about stringing together successful days, weeks, and months, which underpins our guidance of a 1.8 million to 2 million-tonne range. This reflects our confidence in our operations and the progress we’ve made moving forward.

So we have $50 million idle and turnaround one-off costs in Q2. You've been very clear about that in lots of different ways. You say that those costs are going down in Q3. I think what investors and shareholders really want to understand is these $50 million of extraordinary costs, how do these exactly ramp down? If you can give us as much granular as possible, is that $30 million in Q3, $10 million in Q4, 0 in Q1? Is it 0 in Q4? Please tell us.

Yes, Joel, I'm not going to answer it the way you're asking because we don't guide on this on a quarter basis. But let me try this. As we look back historically at turnaround costs in phosphates, as an example, they're in the ZIP code on an annualized basis of $100 million to $110 million. It is lumpy because unit operations have different schedules for phosphoric acid, granulation, and sulfuric. So it's not that easy. And you will always have one quarter higher than another year-over-year because of that kind of lumpiness. But on average, I think a good number to model from an annualized basis for phosphates is about $100 million to $110 million. In potash, that number is going to be a different number. I know you asked about phosphates, particularly. And then you can look at the history there. I don't think the history is different in potash. But again, you look at what we had at Esterhazy, Q2, we executed a turnaround this year, in Q2 rather than what is more traditionally Q3, and that was to try to do the hydrofloat tie-in so that we had the 400,000 tonnes of additional capacity going into the back half of the year due to that high return capital project. So I know you'd like a perfect answer. There's no way to give you one. But hopefully, giving you a little more color on an annualized basis allows you to better appreciate what to expect on a more normalized ongoing basis.

Joel, I don't know if you had the time to go through it, but the presentation on our website has one slide, which is Slide 9, which gives the actual numbers for Q2 '24, Q1 '25, Q2 '25, then you can do some comparisons and you're going to...

I have a couple of points regarding phosphate. First, we are entering the typical hurricane season in Florida, so I'm interested in understanding what measures Mosaic has taken to protect its assets from potential weather disruptions and how this impacts the Q3 guidance. Additionally, while Bruce has touched on this, it seems that earlier in the year, there was an expectation that a significant amount of work would be completed by Q1. However, I understand there are still issues, like the new gypsum handling systems, that may require more attention and had not been previously mentioned. I'm curious to know if there are any major maintenance items still outstanding that could affect production moving forward, or if everything is now complete.

Yes, Andrew, I appreciate your question. Hurricane season is approaching, and we prepare for it each year, completing our crisis planning and practices in advance. Regarding hardening our assets, we have assessed our motor control centers, especially those in coastal areas, ensuring they are above flood stage probabilities based on storm categories. We also worked with our insurance providers to make improvements recommended for wind resistance in our stationary buildings, particularly our warehouses, by enhancing ventilation to reduce the risk of roof damage. We have implemented various measures while considering storm surge and wind impacts. One challenging aspect of our preparations involves maintaining freeboard in our gypsum stacks and clay settling areas, as we need to account for the heavy rainfall from storms. Some storms, like the one we experienced late last year, can bring significant rainfall that is hard to prepare for. We must manage billions of gallons of water and ensure we meet regulatory requirements in cooperation with state agencies before hurricane season. Additionally, we establish backup power and pumping systems as part of our annual readiness strategy. As for your second question about phosphate, we consistently discuss this with our reliability maintenance teams, and we do not currently see any major issues with the rest of our asset base. All planned maintenance for asset health and reliability is now completed on our side. We may not have mentioned the gypsum stack pumping systems in our recent earnings call but have discussed them at various investor conferences. As we increased sulfuric acid production, especially at New Wales after not operating at those rates for four years, we encountered issues with phosphoric acid processing related to gypsum handling. The rock quality has improved, resulting in increased gypsum output per tonne of rock feed compared to the past, which turned those systems into bottlenecks that we were unaware of until we tried operating at full capacity. Consequently, we had to replace all three phosphoric acid train gypsum pumping systems during April, May, June, and July. We do not anticipate similar issues at our other facilities as production ramps up in the coming weeks.

Can you talk about how tariffs have raised the cost of imports of phosphates into the United States on some kind of percentage or per tonne basis?

Yes, Jeff, thank you. It's an evolving topic that seems to change almost weekly. Generally, imports of phosphate carry a 10% tariff, which varies by location, though most regions have this tariff in place. Currently, there are no tariffs on Russia, but there is a potential for additional duties due to the situation surrounding the Russia-Ukraine ceasefire. If that ceasefire does not occur, we may consider increasing tariffs on Russia. However, as of now, there are no tariffs. Jenny has more details on this, so I'll let her elaborate. Jenny?

Sure. Jeff, I think Bruce talked about the tariff impact on the market, which actually indirectly supported the market in the U.S. as this reduced input. Year-to-date, we see around 20% of the import reduction for both P and K. It looks like it is going to continue. In terms of the direct impact on our own business, our raw materials on sulfur and ammonia. Sulfur, the majority of the sulfur for our own production in North America is coming from the Gulf, meaning there's no impact from the tariff. We do buy some solid dry sulfur from Canada, which is exempt from the USMCA agreement. In terms of ammonia, the majority of ammonia that we use or consume in the U.S. are coming from 2 sources. One is contracted with the suppliers in the U.S. The second part is our own self-produced in Faustina. We do buy a small percentage of ammonia from the market in this bucket. We have a very small volume coming from Trinidad, which we will need to pay 15% of the import tariff. That volume is very small. So I would say the direct impact as of today to our cost from the raw material side is probably minimal.

So Jeff, that's probably more of an answer than you asked in your question, but that gives general tariff response on not only what's happening to competitors coming into North America but also impacts on our own business due to tariffs.

I have a follow-up regarding Slide 8. The asset health target you mentioned, which is between 85% and 95%, depends on turnaround timing. Can you clarify that this range means it could vary based on how extensive your planned turnarounds are in any given year? Is that right? Also, does this not take into account any unplanned outages that may occur during the year? Furthermore, do you expect that, due to the efforts you've made over the past few years, the frequency of typical unplanned outages, excluding extraordinary events like hurricanes, would be minimal? Is that correct?

Vincent, that's a great question. I realize this metric is a bit unusual, and it's not about operating rate, which was intentional. But you are correct in your understanding. The pie chart will reflect a shift from 95% to 85% based on duration. For example, a sulfuric acid plant turnaround occurs on a three-year cycle. In the second year after a turnaround, asset health slightly declines until the third-year turnaround, at which point it returns to full health. This is simply a timing issue since asset health naturally fluctuates due to erosion and corrosion in piping and equipment after each turnaround. The reason the figure isn’t at 100% is because it accounts for normal unplanned downtime, which is common and not the extraordinary unplanned downtimes we've experienced more frequently in the past. So, yes, you should view these numbers as not including extraordinary unplanned downtimes, and we don't expect that to become the norm moving forward. Currently, the asset health shown on Slide 8 reflects our targets based on the significant efforts, spending, and work we've undertaken over the past few years.

I have a question on Fertilizantes in fact. I see that you talked about shrinking perhaps your customer base because you're focusing more on a better credit profile. At the same time, you are adding capacity in Palmeirante and now you're talking about $200 million or even more than $200 million EBITDA for next quarter. I'd like to understand, we also have Bioscience becoming EBITDA positive later in the year. How should we think about the earnings power of this business in a mid-cycle scenario?

Thanks for the question, Aron. I understand that the two points may seem contradictory, but they are part of our risk management strategy in relation to credit with customers, especially considering the credit challenges in Brazil. If these credit issues persist with certain customers, we might decide against doing business with them. This is why our guidance range is rather broad, and we suggest that in the Fertilizantes segment, it could be on the lower end due to these risks. This outcome is uncertain, but we're cautious not to take unnecessary risks. I'll now hand it over to Jenny to elaborate further, and then Luciano can share his insights on the anticipated financial performance in the Fertilizantes segment, especially regarding changes in cost structure and our growth and distribution plans with Palmeirante, as well as our objectives for organic growth utilizing existing capacity as the market expands. So, Jenny?

Thanks. Regarding Brazil, I believe the credit risks are linked to the macro environment with high-interest rates and the overall agricultural commodity prices. The market is cyclical, and prices will rebound. Our focus in the northern region of Brazil extends beyond just this season or the next; we are considering the overall agricultural growth in that area. We expect significant growth in the coming years. Is this contradictory to our smaller customer base? I would argue that as the northern market grows, our customers, especially large farmers and major trading companies, are also expanding their presence. We are growing alongside them, and these customers have a stronger credit position in that market. Thus, it’s not contradictory; rather, it’s complementary as we navigate growth in Brazil. Regarding Bioscience, we anticipate reaching EBITDA positive by the end of this year, with growth next year driven by new product launches. This year, we've already launched two new products, and we have three more in the pipeline for the rest of the year, with additional products planned for next year as we move through regulatory processes. Growth will also come from new customers and different crops. The initial half of our Bioscience growth reflects contributions from both new and existing customers. Those who have utilized our bioscience products this year have experienced the benefits of PowerCoat and BioPath, particularly given the rising fertilizer costs, which enhances the efficiency of these expensive inputs. For financial projections, I'll ask Luciano to share more details. Lastly, Luciano can also provide insights on funding solutions to help us navigate the challenging credit environment in Brazil this year. Over to you.

So Aron, looking five years ahead, our targets from the Investor Day presentation aim for approximately 13 million tonnes of sales in Brazil. If we consider the upper end of our $30 to $40 distribution margin, that brings us to around $500 million from distribution alone. On the lower side, if we take a number like $10 million multiplied by the lower bound of the distribution margin times 30, we would arrive at $300 million. Therefore, we aspire to grow into a range of $300 to $500 million from just the distribution aspect. Currently, we are also discussing $75 to $80 per tonne for the 4 million tonnes we produce, which contributes an additional $300 to $350 million from our own production. This highlights the earnings potential for Mosaic Fertilizantes. Additionally, factoring in coproducts, which are about $40 million per quarter, could lead us to reach $1 billion in the long term, which is definitely our goal. It’s also worth noting that while we don't disclose it now, our China business is becoming increasingly significant. We recorded around $30 million in the first half of this year, and we may reach approximately $60 million, with the potential to double or triple that figure quickly. In the Biosciences sector, we are still working towards our $250 million EBITDA target in the long term, with our progress largely hinging on regulatory approvals for some of our products.

So first question, if I back out the implied specialties price from the phosphate division, then it looks like the price realization was quite low for phosphate specialties. Is there any reason for that? If you could talk through what happened with MicroEssentials pricing in the quarter. Could you give an idea of what's happening on the ground in Brazil? So you mentioned the change to government financing support for farmers, and we've seen potash prices stall a little bit in Brazil over the past few weeks. So I don't know; it's interesting to hear your very positive outlook for Fertilizantes at the same time as talking about potentially some headwinds in the Brazilian market. Maybe you could elaborate on that. And then I think you mentioned in the prepared remarks that you expect the third quarter to be the best quarter for some time. Given the share price reaction today, and given the consensus, I think, it was around $850 million EBITDA for Q3, could you maybe give a bit more color on those remarks too?

David, can you clarify your question on specialty phosphates? I think none of us kind of followed that. Are you saying MicroEssentials margins? What particularly are you asking? So we can answer that.

Yes, sure. So if I take the ASP and the phosphate division, and then I back out the realized DAP price using DAP volumes and the price you give for DAP, and the remainder, I'm taking as a kind of benchmark for the specialties pricing. And that seemed to fall quarter-on-quarter with worse realization on the sort of in the rest of the business, if I take out the DAP part. So just curious whether that's a quirk of the calculation or whether there's anything happening in specialty pricing in Q2.

Yes. I believe that's better discussed in detail offline due to the complexity of the feed products and various factors involved in that calculation. We're also running short on time, so I'm not trying to avoid your question. Regarding the second part, which pertains to Brazil, could you clarify what's happening on the ground there?

Yes, exactly. And maybe some comments specifically around the government's reduction in support for pharma financing of input costs.

Yes. I'm going to turn that over to Jenny, and if Luciano has got anything to add as well. But Jenny, go ahead.

Sure. Starting with Brazil, we experienced a strong first half of the market, driven by the last of the safrinha corn crop. However, the soybean summer season is progressing much slower than usual. The farm economics are facing difficulties due to higher input prices and lower crop prices, and credit challenges are contributing to this slower market. Currently, only about 5% of fertilizers needed for the summer season have been purchased, while this year it’s around 20%, highlighting the sluggish pace of the market. We are advising customers that the window for getting fertilizers applied is closing, and they need to increase their purchases to avoid significant logistical issues. On a positive note, for the next safrinha or second corn crop, farmers are on track to sell their crops and purchase fertilizers. They have already secured 35% of their future corn fertilizer needs for this next crop, compared to the average of 25%. The primary challenge lies within the current summer soybean season, and the credit situation is a major concern. Many customers are actively seeking solutions, which may include government support, and I’ll need to ask Luciano for further comments on that.

Very quickly. So high interest rates, yes, less government support what's happening is that the big farmers, they continue to do well. But the small ones are being squeezed. You're seeing consolidation. So when we talk about credit issues is just on that range of small farmers and the retailers that buy and sell and have a lot of working capital needs. So the planted area is actually growing because the big ones are making up for the difficulties of the small farmers. So that's the situation.

So shifting to potash, I noticed you increased your full year production guidance. In the third quarter, you had idle costs of $34 million in potash during the second quarter. Do you expect to recover any of that in the third quarter? Additionally, with the Esterhazy hydrofloat ramping up, how should we approach 2026 production levels if the market remains strong?

Yes, Richard, third quarter turnaround costs because Esterhazy would usually be it, and it's usually in that $25-ish million to $30 million ZIP code for a turnaround in Esterhazy was pulled in the second quarter. We don't have that in the third quarter. Belle Plaine still has a turnaround that straddles third and fourth quarter. But you should expect, as we've said, to see significant decreases in third quarter turnaround costs in potash. As far as running our facilities, we're going to continue to run Colonsay to meet the strong demand that we're seeing, hence, where we raised guidance. And that's really coming from Southeast Asia; we got good solid demand in the Americas. But really, where we're seeing good growth is on the international side. In fact, Canpotex had a record shipment in the first half of the year and is anticipating something similar in the second half of the year given the strong demand. So there's good demand at the right value proposition for us to run all of our assets right now. How does that look going into 2026, given that hydrofloat is now ramping back up? We're going to have to continue to evaluate that. If Canpotex and Mosaic domestically have enough share and enough volume and demand exists for our products, and the value creation is there, we'll continue to run those facilities. But it's too early to say outside of running Belle Plaine full and Esterhazy full what we're going to do with the Colon at this moment in time until we get a little bit closer to that to quarter 1 and quarter 2 of next year.

I actually want to finish here on the beginning question, and forgive the simplicity of it, but asking on behalf of myself as the newcomer and on behalf of some of the shareholders, the more broad shareholder base that you've attracted post Investor Day. Given what you know today about your operating rates, you've given guidance on pricing, you've given guidance on volume, you suggested you're sold out in cost for 3Q. How much better can 3Q EBITDA be versus 2Q? Any sort of quantification of that sequential step-up would be extremely helpful.

Well, Kristen, it's kind of like earlier question on guiding to turnaround costs. We just don't guide on EBITDA, but maybe Luciano can help give you some things to think about as maybe you're modeling, because the growth should be pretty significant based on those numbers from Q2 to Q3. So Luciano?

So Kristen, starting with phosphates, stripping margins are expected to increase. We are guiding prices of $700 to $720 per tonne compared to the $668 realized this quarter, while sulfur and ammonia prices may remain stable. If you factor in the change in margin and the tonnes, that creates an increase. Additionally, phosphate volumes are on the rise. You can use the guiding figures for tonnes and apply the Q2 margins to estimate the impact. We anticipate a decrease in turnaround and idle costs, which is another positive factor. Conversion costs are also expected to decrease. You can estimate the conversion costs per tonne and apply that to the tonnes and blended rock costs. In summary, there are many favorable conditions. Regarding potash, we're guiding prices of $270 million to $290 million versus $261 million, and that increase will directly benefit the bottom line. You can assess the changes based on the difference in volumes, which are expected to remain stable. Production costs will likely decrease with hydrofloat implementation, and we have discussed the reduction in turnaround and idle expenses as well. For Mosaic Fertilizantes, we have guided EBITDA to be over $200 million, potentially higher depending on our sales. There are numerous factors to consider when estimating the Q3 performance, and we anticipate much better results.

Well, listen, that's all the time we have for this call. I apologize to the 5 or 6 folks that we didn't get a chance to get to. I really appreciate the interest in our call today at a good lineup. I think we talked about a very robust set of topics. So I appreciate that, but I encourage you to follow up with the IR team and ask your questions there as they're well prepared to talk about that. So I'd like to close our call by reminding you of our key messages. First, our work to improve asset reliability is paying off, and we expect strong production performance as we talked about for the remainder of the year. Second, fertilizer market fundamentals are compelling with tight supply and good global demand driving prices higher for both potash and phosphate. Third, our Brazil business is performing very well, and we expect significant earnings growth in the second half of this year. And finally, we're continuing to derive value from our extensive market access. We have the ability to move tonnes to the markets where demand is highest, and we have the pipelines to introduce new products like our Mosaic Biosciences innovations at scale. All in all, we've done the work necessary to set Mosaic up for a very strong second half. So again, thanks for joining our call, and have a great safe day.