Mosaic Company (MOS) — Q3 2025 Earnings Call Transcript

Thank you, and welcome to our third 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, will review 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. Mosaic's third quarter results reflect the resilience and strength of our global business as well as the extraordinary work our teams are delivering to help us operate effectively in a highly dynamic market and geopolitical environment. We've demonstrated the ability to shift tonnes to regions with the strongest demand and capture value across agricultural and industrial markets, and we are navigating near-term fertilizer affordability issues while looking ahead to positive structural market trends. We remain focused on achieving reliable and consistent production from our assets, leveraging our market access advantage and executing our capital reallocation strategy, all in the service of creating shareholder value. Let me begin with our key messages for the quarter. First, we've made major investments in asset health, and we are seeing improving reliability. U.S. phosphate production has improved sequentially throughout the year and we remain focused on driving consistent performance across our phosphate assets. Second, our business in Brazil continues to deliver excellent performance. Adjusted EBITDA increased year-over-year, and we are managing well despite a challenging credit environment. Third, global potash demand remains very strong, especially in the Eastern Hemisphere, and we are running near record operating rates to meet that demand and capture value. Fourth, cost discipline remains a priority. We've achieved $150 million in initial cost savings and are on track to achieve our revised $250 million cost savings target by the end of 2026, driven by automation, supply chain optimization, and improved fixed cost absorption as production increases. And finally, we remain committed to disciplined capital allocation. Recent divestments, including the Taquari potash mine and the Patos de Minas asset reflect our commitment to streamlining the portfolio and redeploying capital toward higher return opportunities. To cover our third quarter results, net income for the third quarter increased to $411 million versus $122 million in the prior year. While adjusted EBITDA in the third quarter rose to $806 million from $448 million a year ago, driven by higher prices across all segments and very strong performance in Mosaic Fertilizantes. Let's look briefly at market dynamics. I'll leave the details to Jenny. Phosphate markets remain tight as global supply constraints persist. Key long-term drivers remain intact, including continued growth in LFP battery demand, rising domestic fertilizer demand in China which is likely to further erode exports and limited new capacity additions over the next few years. Despite coming off recent highs, phosphate prices remain elevated and affordability pressure remains a concern. We've seen growers in the U.S. and Brazil cautiously approach seasonal buying, which has moderated prices and impacted the timing of sales volumes. The challenging farm credit situation in Brazil continues to exacerbate this trend. In India, strong shipments in 2025 have largely recovered back closer to historical norms, but we still see a need for substantial replenishment after multiple years of tight supply and under application. Potash markets are balanced as good affordability drives demand around the world, particularly in China and Southeast Asia. Potash and phosphate demand should benefit from the strong yields U.S. and Brazilian farmers have generated this year. We expect big crops in North America and Brazil to remove an additional 1.5 million tonnes of potash and a similar amount of phosphate from the soil compared to last year. Growers will need to replenish these nutrients to avoid lower yields next year. For Mosaic, the focus on U.S. phosphate asset health is allowing us to run more reliably and at increased rates. We have experienced 3 consecutive quarters of production volume improvement, and volumes for the trailing 3-month period ending October have reached approximately 1.8 million tonnes, which is further improved from the third quarter. We remain committed to returning to previously achieved normalized production rates. Our focus now is on consistent and sustainable performance. In potash, we completed the Esterhazy turnaround in the second quarter, and the new HydroFloat system is delivering incremental tonnes. The resilience of our Brazil business demonstrates our effective commercial strategy and disciplined risk management, including a focus on sales to customers with strong credit profiles. Our team's deep local expertise and long-standing presence in Brazil have been instrumental in navigating market complexities and maintaining profitable growth. While we expect the usual seasonally slower fourth quarter, we expect earnings in this year's fourth quarter to be higher than a year ago. Cost initiatives are progressing across the company. Mosaic Fertilizantes continues to generate cost reductions and selling, general and administrative expenses declined year-over-year in the third quarter without the impact of the bad debt expense. We continue to leverage our market access, which is a key strategic advantage for Mosaic to accelerate growth in Mosaic Biosciences. Revenues for the first 9 months more than doubled year-over-year. We anticipate Mosaic Biosciences will contribute positively to consolidated adjusted EBITDA beginning in the fourth quarter. In addition to strong growth in the Americas, the market for biologicals is growing quickly in China, and we expect India to follow. All in all, we are well positioned for a strong finish to 2025 and a promising 2026 and beyond. Now I'll turn the call over to Jenny for more detail on agriculture and fertilizer markets.

Thank you, Bruce. We continue to navigate a very dynamic global agriculture environment. Commodity values and trade uncertainty have impacted near-term sentiment in North America, but the recent recovery of corn and soybean prices should encourage more fertilizer activity, particularly with China now looking to purchase U.S. soybeans and wheat. Any additional direct government help to farmers could provide further support to the market. In Brazil, growers have had to navigate tighter credit availability and higher interest rates, but have benefited from expanded trade opportunities, particularly with China. Brazilian fertilizer demand is still growing this year and will likely expand again next year as growers replenish soils and expand acreage for upcoming seasons. Our customers remain engaged and are actively buying fertilizers for the upcoming safrinha corn and the 2026 Safra soybean. Ag economics remain more constructive in other parts of the world, and Mosaic has pivoted to active markets. Longer term, we continue to see ag fundamentals as supportive to fertilizer demand, driven by growing demand for food, feed, and fuel, which we have seen supportive biofuel legislation around the globe. Moving to the fertilizer market. On phosphate, markets have been very constructive for March of 2025, given robust demand for nutrients, which in turn has supported prices. Prices of phosphate have moderated from recent peaks, but remain elevated, driven by tight global supplies and strong demand. Stripping margins also remain above historical norms. Chinese exports of DAP, MAP, and TSP are expected to decrease by more than 1.5 million tonnes this year, and China has recently pulled back phosphate export approvals. Like Bruce mentioned, LFP battery demand has continued its growth. In the first 3 quarters, Chinese LFP production has already surpassed the full year production in 2024, representing over 40% year-over-year growth. While Chinese demand for fertilizer and industrial phosphate continues to grow, we see limited new capacity expansion in other regions over the medium term. In the case of potash, markets are balanced after a first half supply deficit. Global demand has been steady and is expected to approach another record as affordability has encouraged strong Chinese consumption, healthy Brazilian imports, and growing Southeast Asian demand, which is tracking up to 50% higher input in some of the key countries. Given this persistent global appetite, we expect record Canpotex shipments this year and further strength heading into 2026. North American potash demand has held relatively consistent this year on healthy affordability and fall application tonnes are moving to the ground as we speak. However, given that potash is often applied with phosphate, we may see some modest fall deferral into Q1. In summary, we are optimistic heading into 2026 as growers look to replenish soils and fulfill any pent-up demand. Long-term food security and the industrial use continue to support a constructive outlook for phosphate markets, particularly absent any significant capacity additions. Potash markets are stable on balanced fundamentals, and we expect demand growth to reach a new record.

Thank you, Jenny. Let us take a deeper dive into our performance. You will remember that Q2 EBITDA came below expectations due to a number of larger than usual provisions, inventory adjustments, environmental reserves, legal reserves, and also due to a sharp increase in turnaround expenses. We said these effects were going to reverse in Q3, and they did. Q3 was more of a clean quarter, minimal onetime items and a reversal of turnaround expenses from USD 144 million in Q2 to $85 million in Q3. You should expect idle and turnaround expenses to remain at normal levels in Q4. Despite being a clean quarter, Q3 EBITDA was impacted by lower sales volumes, which reflect a shortfall in phosphate production and an intentional slowdown of sales from Fertilizantes given the credit challenges in Brazil. Let's address phosphates. On the revenue side, for Q4, we expect phosphate sales to be between 1.7 million to 1.9 million tonnes with risk to the downside due to demand deferral. On the cost side, you saw the significant decline in idle and turnaround expenses from $84 million in Q2 to $42 million in Q3 as expected. But we still had a lot of repair work mostly in July, recording into cash conversion costs, which were at $131 per tonne, which is about the same level of $126 per tonne in the second quarter. The next step is to have a meaningful decline of cash conversion costs in the fourth quarter, given that the asset health and repair work will be normalized and also due to our expectation of higher production and fixed cost absorption. So for phosphates in Q4, higher sales volumes, historically elevated stripping margins, and anticipated lower conversion costs should support results. In Potash, cash production cost per tonne of $71 was down from $75 from Q2 as production volume increased. We expect the fourth quarter unit costs to be similar to Q3 and finish the year at low to mid-70s. If you recall, we guided 2025 unit production costs in the $64 to $69 range on Investor Day earlier this year. Since then, we kept operating at higher cost Colonsay mine for longer than expected and the Canadian dollar has strengthened against the U.S. dollar. If we adjust the Investor Day targets to reflect the current exchange rate, our full year forecast would be on track to hit the targets. Potash continues to be a very stable business in terms of production volumes, costs, and capital intensity. Fertilizantes, our results were driven by 2 opposing forces. On one hand, strong underlying business performance, but on the other hand, a softening market in the near term. EBITDA came in at USD 241 million, above the $200 million that we have guided even after we strip out the $27 million recovery of the bad debt recorded in Q2. That performance was achieved despite distribution margins at about $20 per tonne, which is, again, below our targeted $30 to $40 range as we had to make margin concessions because of the weakening market. The new level of EBITDA generation of Fertilizantes is a testament to the strong cost performance of the business in 2025 despite the strengthening of the Brazilian real. What do you expect for Q4? Well, we expect an important drop in EBITDA due to a number of factors. Lower prices, still compressed distribution margins, normal for the season, but still compressed, higher raw materials costs, seasonally lower overall sales volumes, and product mix. These uncertainties in volumes, prices, and margins are very high in the quarter. So EBITDA could be in a wide range. But in any scenario, we still expect it to be above the same quarter prior year. Thanks to the sustained cost improvements. A few words on cash flows. Cash flow from operations was only USD 229 million for the third quarter because of over $400 million increase in working capital driven by several factors: higher physical inventories of the end products in North America and Brazil due to the slowdown in sales at the end of the quarter, higher prices for such inventories and for raw materials, and the buildup of inventory of phosphate rock to support future production plans. We expect these effects to partially reverse in Q4, supporting cash flows. But even with that reversal in Q4, if you look at the full year, and we have a slide in the deck for that, working capital will continue to post a large increase. And therefore, 2025 cash flows will be well below what is intrinsic to the business. In 2026, with raw materials prices stabilizing, phosphate rock inventories being consumed by higher production and the adjustment in inventories in Brazil and North America, cash flow from operations and free cash flow is expected to improve significantly. Therefore, we're prudently deferring any extraordinary dividends or buybacks to 2026. Finally, a note on noncore asset sales and capital reallocation. You saw Mosaic announcing the completion of the Taquari transaction yesterday. We sold this potash mine in Brazil for USD 27 million. But the transaction is also expected to eliminate capital investments exceeding USD 20 million in the short term. We will avoid significant capital investments to extend the life of mine beyond 2030 in the medium term, and we will transfer asset retirement obligations of USD 22 million. So a lot of capital that is not going to be deployed anymore in this asset. Mosaic also announced the closing of the sales of the Patos de Minas idle phosphate mine early October with proceeds of $111 million with $51 million already received. The rest will be collected over 4 years. We have many assets under review and several strategic talks ongoing, and we expect 2026 to be a year when capital reallocation will gather steam. So in conclusion, we are highly confident in our ability to finish the year on a high note, and we encourage you shareholders to focus on the strong momentum we expect to enter in 2026. With that, operator, please open the line for questions.

Just given, obviously, you've been on a pretty long-term fixing of the turnaround schedule across the 4 primary facilities. Can we just get an update on after the issues in late September, how you performed in October versus expectations, how you're thinking about initial November? And just what's your degree of confidence that you should be within that 4Q production guide? And how we should think about the cadence of such given the outlines that you projected at the CMD back in March, how we should be thinking about the confidence level as it relates to 2026?

Chris, thanks for your question. First off, we're committed to achieving our normalized production rates that we've been talking about. We did have those issues that we had a press release out in September, those are behind us. But I think as I've reflected on this, things are taking a little longer than anticipated. As we did, as you pointed out, get to our normalized turnaround schedule, which was the big issue for us was to do that first. And as we remove that macro asset health issue, it shined a light on some other issues, mostly that for me, and this is my terminology, that we kind of lost some muscle memory, and I'll give you some examples. Since we haven't run at these rates for 5 years, we've kind of stumbled on just starting back up out of normal repair days, stumbled on making product shifts. So now that asset health on the big unit operations are not the issue anymore, it's really with high turnover in our workforce over the last 5 years that institutional knowledge is a place that we've got to focus. The good news is that we are seeing full rates a lot of the time. And in fact, at times even over full rates. We just need to lock in on more consistency and then sustain that for longer periods of time. But as I reflect for me in the past 18 months, to your point, we've made significant progress and sulfuric acid plant turnarounds were accelerated to kind of eliminate that really macro asset health issue. But during that time, we advanced several improvement projects in potash and granulation and more importantly, some of our critical support facilities around water and electrical infrastructure. All in all, we've invested an additional $100 million in CapEx and an additional $100 million this year in maintenance expense that are above and beyond just kind of normal for these operational enhancements and asset health improvements. In addition to that, to leave no stone unturned, we have brought on board some external consultants to make sure that we are leveraging everything we can do to get back to those rates. So as you pointed out, all the work has led to 3 consecutive quarters of sequential improvements. And with those consistent gains, as we reported in the earnings presentation, the trailing 3-month period ending in October is at that 1.8 million tonnes, which is in the middle of our guidance range. So we are changing our guidance philosophy a little bit, and I think that's important is that we're going to base guidance on the forward quarter based on kind of how we have proven in the past months. And so that trailing 3-month was critical for us to set kind of that guidance range of 1.7 million tonnes to 1.9 million tonnes phosphate because we were actually at that 1.8 million tonnes rate right now. But looking ahead, we're going to continue to focus, Chris, on our processes and instilling operational discipline across the organization. We've got work ongoing and a lot of emphasis on strengthening our institutional knowledge at the front line. And then we've got a lot of work also on further leveraging technology across our ops and maintenance teams to put better data and decision-making at their fingertips. So we're optimistic and very excited about what the future is bringing. It's just a little unfortunate, it's taking longer to get there. But where we are right now, we feel very comfortable and confident achieving the guidance range that we've set forward.

If I could follow up on your answer to Chris' question. Can you maybe Bruce dive into what is the difference between a good day and a bad day? So good days says you're at full rates or better; a bad day, you're not there. Is it a certain asset? Is it a certain thing going on? Can you elaborate good day and a bad day versus your targets?

Thank you, Joel. The distinction between a good day and a bad day is quite complex and depends on the facility involved. Currently, bad days do not indicate any catastrophic failures or issues that we are merely trying to manage until a turnaround. The main difference is whether we operated without any disruptions, particularly in phosphoric acid production, especially during ore granulation. For example, if we had to shift from the MAP product to MicroEssentials at any given facility, the initial quality might not have met expectations, resulting in lost product or the need to shut down a granulator. The key factors separating good days from bad days are related to operational practices rather than structural asset health. It’s about the consistency in executing our operations and quickly reaching full rates after any repairs or product changes, which happens frequently. This reflects normal operations and maintenance. Overall, the main issue isn't structural asset health but rather the application of operational knowledge and consistently delivering high performance daily.

Could you clarify the expected phosphate run rate? Is it now 1.8 million tonnes, or is that just for the upcoming quarter with potential for long-term growth as you regain some of that institutional knowledge and refine your processes? Also, regarding phosphate margins, can you explain the various factors as we approach Q4 compared to Q3? There are many changes in prices, input costs, and asset health, but as production increases, it should help lower fixed costs per tonne. Can you help us understand that?

Yes. As I said, Andrew, our guidance philosophy has switched to more proven. But at the end of the day, we're committed to get back to full rates. There's no question about that. So there's no wavering on that. It's just rather than guide to the promise we're going to guide to actually what's delivered and then the upside is there as we achieve all those gaps that you just mentioned that we talked about in the last 2 questions as well. So yes, to your point on cost, fixed cost absorption is the biggest thing. And we're not seeing any more unusual expenses in the script. Luciano talked about the higher cost of putting in these new gypsum handling systems at New Wales. Those things are behind us from an expense standpoint. So normalized turnaround costs, normalized maintenance costs, labor, and all those things being fixed with the higher cost of production as we go from what we've demonstrated now 1.8 million tonnes towards that 2 million tonnes, all are going to go to the bottom line, fixed cost absorption. Luciano, you got more to say?

Yes. Andrew, we posted $131 per tonne of conversion cash costs. But if you look at August and September, the number was actually a little under $120. And the rule of thumb is for every 100,000 tonnes additional in the quarter, you should see about $7 per tonne reduction. So if we were to post 2 million tonnes in a single quarter, which is our long-term aspiration, that sub-$120 would be somehow between $100 and $105, which is still kind of $5 above our Investor Day targets. So we still have maybe $5 of extraordinary small repair work that we need to shave, but that gives you kind of a ballpark thinking about how the costs should progress. In addition, I would like to call attention to the operational leverage in phosphates. So because most of the costs are fixed, the marginal tonne earns way more than the average tonne, which means that, for example, if you were to increase production by 25%, so for example, coming from 6.4 million tonnes to an 8 million tonnes rate, theoretically, EBITDA could improve by more than 50%, and the impact on cash flows would even be more magnified. So that is something to bear in mind that the results of phosphates are very, very leveraged to volumes.

I wanted to revisit the cash flow situation. The operating cash flow to EBITDA conversion this year has been approximately 45%. Normally, the long-term range is in the 80s. You mentioned improvement for next year, but I would like your perspective on where you think that conversion could go. Additionally, you mentioned efforts to reduce operating expenses after resolving production issues. However, this year is on track for around $1.3 billion, consistent with the last seven years. How much potential do you believe there is to enhance free cash flow next year in that regard?

Yes, Lucas, thanks. I'll just start and then turn it over to Luciano; he's got a lot to say about this issue particularly. But yes, cash flow is a little weaker than we wanted or anticipated for the quarter, mostly because of the kind of slowdown in sales in the Americas, which caused a little bit of a build in inventory and then the higher pricing in inventory and our buildup of rock inventory, particularly in North America for phosphates anticipated higher production kind of added some of that cash into inventory, but that will revert as production starts to materialize and sales start to move into spring season. So feel good about that, and they will improve on the cash conversion. But go ahead, Luciano, maybe you want to talk about that.

Yes, Lucas, you're likely referring to the annual cash conversion rate, specifically the conversion from EBITDA to operating cash flow, which is expected to be around 50% this year. You mentioned 45%, but it could be slightly higher with a recovery in the fourth quarter. This fluctuation is due to inventories and working capital consuming about 20% of that EBITDA for the year. If we adjust for changes in working capital and inventory, the conversion rate would be approximately 70%, which aligns with what we see as the industry standard among some competitors. Looking ahead to 2026, we anticipate a decrease in working capital needs, potentially pushing the conversion rate above 70%, possibly nearing 80%. This is before accounting for capital expenditures, which are also around 50% of EBITDA this year. As a result, the net cash conversion stands at 50%, with CapEx also at 50%, leading us to a free cash flow for 2025 that is close to zero. However, by 2026, with improved EBITDA due to higher volumes and an increased cash conversion rate beyond 70% towards 80%, we could see a free cash flow conversion rate of 25% to 30%. In the short term, we are already observing a positive trend in the reduction of asset retirement obligations and legal and environmental reserves, which we spent about $400 million on this year. We expect next year to mark the beginning of a long-term decline in these expenses, providing a tailwind to cash flows. Regarding capital expenditures, we are currently in our budgeting process and will share our plans for next year once finalized. The positive news is that cash outflows for asset retirement obligations and environmental reserves are already declining.

If I'm just looking at ore grades at the mine site, particularly in Florida and the degradation, is it like realistic to hit 2 million tonnes per quarter for phosphate? And I say because I assume with like higher throughput, it means you're probably driving up asset wear, you're probably burning out pumps more quickly, and that probably plays into just uptime in general. So can you manage these issues? Has that already been handled and that's really not the issue anymore? Is that a nonfactor? How does that just in general play into this?

Yes, thank you, Matthew. The chemistry of the ore is not a concern for us. You are correct that it impacted our margins this year, especially at New Wales, where we had to upgrade the gypsum handling system due to increased waste generated per ton of feed. We hadn't tested those systems at these higher rates in the last five or six years. However, the quality of P2O5 and the chemistry of the ore do not hinder our ability to achieve those targets. It does restrict our ability to catch up, which means we need to be more precise with our operating discipline. From a rock quality perspective, geology influences some costs for mined rock, particularly in Florida. Factors like stripping ratio, the extent of overburden removal, and pumping distance can affect costs, impacting overall profitability for the finished product. However, these factors remain relatively stable. Thus, ore grade and chemistry are not the main concerns, though they do present challenges that require us to maintain consistency and improved discipline in our operations as we process the material.

Maybe, Bruce, to your point, in order to reduce the risks, we actually are building up rock inventories this year as well. So there's ample buffer to absorb any variations. And indeed, back to the cash flow conversation, about $160 million of increase in working capital this year comes from rock inventory that we are preparing to fire in all cylinders when we can in the concentration plants.

Regarding the fourth quarter phosphate sales volume guide, I wanted to clarify whether the potential demand deferral that you called out is reflected in that range? Or would it be lower if that occurs? And could you maybe try to size that potential impact?

Yes. Let me start, Jordan. Appreciate that. Our guidance is really based on production at this point. We did mention in the commentary that any deferral could be risk. And let me just turn it over to Jenny to kind of talk about what that is, it looks like.

Sure. I’d like to begin by discussing the overall phosphate shipments in North America this year. There have been many conversations regarding changes in demand. It’s important to note that imports into the U.S. market have decreased by 1.1 million tonnes year-to-date through October, which represents a 36% reduction. If there are no further imports before the end of the year, the total reduction could reach 1.3 million tonnes. This suggests that demand in North America is likely to be influenced by supply. Additionally, spring applications were consistent with expectations in terms of shipments, and the summer field subscriptions have shown strong performance. Currently, fall applications are progressing well. However, we understand that customers are being cautious about entering the winter fill period due to the economic situation of farmers and uncertainties regarding government payments. This caution may lead to potential deferrals of phosphate applications from the fourth quarter to the first quarter. Such deferrals could depend on a couple of factors: firstly, the timing and amount of government payments and, secondly, the weather conditions in November and December. If the weather remains dry and warm, farmers are likely to apply fertilizers before winter conditions affect their ability to work the fields. These two factors are critical for us and our customers, and they will determine if purchases occur in November and December or get delayed until next year’s first quarter. In summary for phosphate, the possibility of deferrals hinges on these factors, with demand being influenced by reduced imports. Potash presents a different scenario; affordability isn’t an issue, but there is caution regarding potential deferrals since customers typically apply potash alongside phosphate. Thus, any deferral of phosphate could also result in a delay for some potash applications into the first quarter. I’d like to conclude by noting that the substantial harvests in both North America and Brazil will significantly remove nutrients from the soil, creating a need to replenish phosphate and potash to maintain productivity and yield for the upcoming year. Farmers in the U.S., Canada, and Brazil are aware of this necessity.

I wanted to come back to Fertilizantes. I mean I remember about a year ago at the Investor Day, you talked about how you want to bring this business into a level of somewhere north of $100 million, like $120 million, $130 million, I think, was target on a quarterly basis. And you've been on a nice track as it relates to the delivery in Q1, Q2, and then significantly surpassed Q3. So maybe explain us a little bit more what drives your expectation for the fourth quarter so much down, particularly considering that this is actually a relatively important quarter in Brazil. So help us understand what is taking it back to square one so to speak? And then how should we think about it as we look into 2026?

Thank you, Ben. I think we may have a different view regarding the situation not reverting to square one. We included a comparison to last year in our earnings materials. We are confident that the fourth quarter this year will be significantly improved compared to last year. However, the credit situation in Brazil poses some risks for purchasing, especially for smaller farmers. Additionally, historically, the fourth quarter tends to show a lower distribution margin due to product mix, with a higher volume of nitrogen products and fewer phosphate products during the growing season, which also affects our results. Despite these factors, achieving over $100 million in EBITDA is, in our opinion, reasonable given the current conditions in that market. If we average our performance over the quarters, we anticipate generating around $120 million in EBITDA on a quarterly basis, though we expect to see some seasonality in the first and fourth quarters, which are typically our weakest periods primarily due to the product mix in Brazil. Jenny, would you like to add anything? Luciano, please go ahead.

Most of the decline will be driven by the production business in Brazil due to the product mix mentioned earlier. The Brazilian market is currently purchasing a significantly higher quantity of lower analysis products, such as SSP, including imports. Since a portion of our production in Brazil consists of higher value products, we are factoring in lower sales for these higher-margin items in our forecast. This situation is contributing to approximately $70 million in decreased results from the production side. Additionally, it's important to note that the third quarter typically sees peak sales for co-products, which are expected to decline by about $20 million as well. Furthermore, we won't benefit from the usual boost from bad debt recovery. Taking all of this into account, along with a cautious approach regarding the sales performance of higher-margin products, we are exercising caution in our guidance.

This is for Bruce or even Jenny. So given all the puts and takes in the ag market right now, crop prices, inventory levels, supply/demand and so forth, in your view, what drives fertilizer prices higher in the near term?

Yes, thanks, Edlain. I'll start and then pass it to Jenny, who has some insights on various regions. It really comes down to the macroeconomic factors. I know part of your question involves differentiating these from agricultural fundamentals and farmer affordability. Regarding the two commodities we produce, the supply and demand for fertilizers, as Jenny mentioned, is tight, particularly for phosphate, where supply constraints mean that prices need to increase to balance demand with supply. Until there are fundamental changes, especially with China's growing demand for both agricultural inputs and LFP industrial uses, less Chinese phosphate will be available for export. Jenny will discuss potential new restrictions, but without a significant increase in supply, we won’t see a noticeable change in the supply side. Therefore, in the short term, we expect demand to remain limited due to supply shortages, and significant changes aren’t likely in our forecast for some time. We might begin to see more supply around 2028 as OCP increases production alongside Ma'aden. The situation with potash is similar, maintaining a strong supply and demand dynamic, which is driving fertilizer prices. In the first half of this year, supply was constrained with former FSU production down and fewer supplies from Laos. China's demand for potash continues to grow, leading to a tight market, particularly in Southeast Asia this year. We don't expect dramatic changes in the supply and demand balance through 2026, especially with BHP delaying start-up timelines. We do anticipate a slight increase in supplies from Laos and some contributions from EuroChem and BPC towards the end of this year, but demand is expected to keep pace with the available supply. So, the outlook for fertilizer supply and demand remains strong. Jenny, I'll hand it over to you, as I've touched on some of your points.

I want to add some data points. When discussing agricultural and farm economics, we often focus on the U.S. and Brazil, but the situation varies greatly around the world. While there are pressures in the Americas, we see much more favorable conditions elsewhere. In major agricultural markets like China and India, government policies are very supportive. Therefore, agricultural economics are not a major challenge. We have observed significant growth in the consumption of potash and phosphate in both markets, alongside other markets in Asia that are influenced by different crop dynamics. Additionally, regarding phosphate, Chinese exports are expected to continue to face restrictions. Year-to-date, there has already been an 18% reduction, equating to over 1 million tonnes. For the remainder of the year, we anticipate very little phosphate exports from China, leading to an overall reduction of over 1.5 million tonnes for the full year. This shortfall means that the supply for phosphate this year is constrained by demand. Looking ahead to 2026, the economic conditions are quite favorable for further demand growth, contingent upon improvements in supply, part of which will come from Mosaic. For potash, the market remains stable, and the affordability of the nutrient is strong, which is why we expect growth to continue through 2026.

Yes, I have a question about sulfur and phosphate inputs in general. The export ban on sulfur from Russia appears to be driving up sulfur prices. Additionally, there have been some outages in ammonia, which are also affecting ammonia prices. I'm curious about the spot stripping margin you presented, which has returned to more normalized levels. Is there a risk that this could decline further due to weak farmer economics, making it difficult to pass on some of these costs in DAP? Do you see any short-term risks concerning stripping margins?

Thanks, David. That's a good question and definitely something we discuss frequently. We are seeing stripping margins decline due to the factors you mentioned regarding raw materials. Sulfur costs are expected to remain elevated into early next year. On the other hand, we anticipate ammonia prices will decrease over time as new capacity becomes available. However, in the short term, certain restrictions have led to price increases. Despite the decrease, stripping margins for Mosaic are still above historical averages. They have dropped, but they're moving from the mid-fives to possibly the low fours or upper threes, which still represents healthy margins for phosphate when considering historical data. Jenny, would you like to elaborate on what you’re seeing regarding raw materials?

Yes, sure. Some data points. Sulfur export out of Russia post the war has significantly reduced. So the recent attack of Ukraine to refineries in Russia has, for sure, contributed to the tightness of the export of sulfur out of Russia. I would also say the overall sulfur being used on fertilizer production is over 50%. So if the price of phosphate is under pressure, that will have an impact on the sulfur price as well. So I would say not only the sulfur price is not only driven by supply/demand itself, it will also be impacted by the demand from phosphate. If there is any pressure on the prices of phosphate, that will eventually impact the sulfur prices as well. So that happened many times in history. It will just take a bit of time to work through the S&D dynamics between phosphate S&D and also sulfur S&D.

I wanted to go back to the topic of critical minerals. The comment period for that ends this month. Can you remind us of the factors to consider regarding whether phosphate will have any impact on you? How should we think about the advantages and disadvantages of adding that to the list?

Yes, Kristen, great question. We're active in Washington, not only ourselves, but through industry associations to advocate for that. And it seems that there is momentum to add it. I know even at some of the Senate hearings recently talking about that seems to indicate more momentum than not. What does it do for us? I think what we're hoping for is that it brings a spotlight to the criticality of that, obviously, being a critical mineral. But it keeps that education within government that we need streamlined regulatory frameworks, maybe less burden, quicker permitting times to bring things to market. That is probably where the biggest advantage is for us to make sure that at the end of the day, we keep good supply within North America for good pre-trade and competitiveness for farmers to maximize the food that they grow. And that's what we're interested in by adding phosphate to the critical minerals list.

I just wanted to ask on the finished goods inventory. I think it's about 1.7 billion. How much of that is at the mine or one of your facilities versus perhaps on consignment with the customer?

Yes, Vincent, thanks. Luciano, I'm just going to turn it over to him as he's got that handy here.

The inventories are primarily distributed across the entire supply chain. We have our warehouses in the Midwest, barges on the river, and finished goods yards at our Florida facility. This means it's ready to be moved and is well positioned to be sold as soon as demand returns.

I think with that, we're going to close the call as we're at time. So thank you for your questions, everyone. To conclude our call, I'd like to reiterate a few of our key points. First, our work to improve phosphate asset reliability is definitely paying off, and we're seeing that day in and day out with phosphate production climbing as the year moves along. We intend to reach our targeted rates, and we intend to sustain our production at high levels once we get there. Our business in Brazil is performing very well despite the difficult credit environment. And Mosaic's potash business continues to deliver very strong results. We are producing at high rates to meet robust global demand. And we remain focused on our financial foundation. We're reducing costs and remaining committed to disciplined capital allocation. In all, Mosaic is in an excellent position to deliver compelling returns through 2026 and beyond. So thank you for joining the call, and have a great and safe day.