Mosaic Company (The) (MOS) Q2 2026 earnings call transcript

And now I'll turn it over to Mr. Paul Masood. Please go ahead. Thank you. We welcome to our second-quarter 2026 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer. Luciano Ciani-Pierras, Executive Vice President and Chief Financial Officer will review financial results. We will then welcome Jenny Wong, Executive Vice President Commercial, to join Bruce and Luciano as we open the floor for questions.

We will be making forward-looking statements during this conference call. Statements include but are not limited to statements about future financial and operating results. They're 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 this morning and then our reports filed at the Securities and Exchange Commission.

Please note, in today's presentation and in our press release and performance data, we will refer to and provide various financial measures, including adjusted EBITDA, adjusted earnings per share, free cash flow, cost per ton, and adjusted effective tax rate, either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures referred to are adjusted non-gap financial measures.

Reconciliations of these measures to our most directly comparable gap financial measures can be found in our earnings release.

Now, I'd like to turn the call over to Bruce. Good morning. Thank you for joining our call. Our message for you today is simple. Mosaic is working through a difficult market by successfully managing what is under our control and positioning ourselves for an eventual recovery. Solve for affordability and availability remain key drivers, but we know the situation will improve.

We've curtailed production and we're relying on our strong balance sheet as a bridge to a more sustainable environment. Here are some key examples from the quarter.

We've further curtailed phosphate production and minimized our purchases of high-cost raw materials. We've locked in a significant portion of our third quarter sulfur supply at reasonable prices that, while historically elevated, are still well below the current spot market. Across our business, we're aggressively managing our costs, which you can see in SG&A. These are real savings that we expect to be permanent.

We fortified our liquidity by terming out short-term debt. If this environment persists, we have full access to our untapped $2.5 billion revolver. And we've addressed all of these near-term issues without sacrificing our long-term goals. We're reallocating underperforming capital away from non-core assets to support future opportunities. We continue to explore strategic opportunities for certain assets, including Arashia and Patricinio, while investing in new areas like our fast-growing and resilient Mosaic biosciences business.

Before I get into our business performance, let's address the sulfur situation and our markets. The ongoing, straight-of-war moves closure and the more recent Kazakhstan blockade continue to impact the global flow of sulfur, and spot prices remain unsustainably high. We have curtailed production in the U. S. and Brazil simply because phosphate industry economics cannot accommodate current sulfur prices.

That said, Mosaic is in a better position to weather this storm than most of our competitors are. Our longstanding relationships with Gulf Coast refiners and other global suppliers give us reliable access to sulfur. In fact, we were recently able to negotiate third-quarter U. S. sulfur supply at a price that is considerably below the spot market. We are producing to meet as much demand as possible while trying to preserve margins and avoid high-cost inventory building.

The sulfur situation is more than just an inconvenience for our industry. We believe global phosphate production will fall well short of last year by up to 30 million tons. With last year's low application rates, especially in the U. S. , and limited fertilizer availability this year, crop yields will suffer, which could lead to food security challenges around the world in the near term.

We are already seeing evidence of challenges. In Brazil, for example, despite significant acreage expansion, total crop production forecasts for the year have not kept up, suggesting significant yield impacts. Another season of under-application will only exacerbate the problem.

Only recently have crop prices begun to acknowledge the reality of production challenges around the world. In the past month, major ag commodity prices have moved up, providing some relief from high input costs for the world's farmers. The outlook for farm incomes is improving, which should be a catalyst for fertilizer demand.

We are seeing early signs of this in Brazil. While shipments remain below historical levels as a result of ongoing credit issues, over the past several weeks, fertilizers shipments to Brazil have been very strong as growers respond to improved crop pricing.

We expect phosphate prices to remain at current levels, with sulfur-driven supply challenges as well as severely reduced Chinese exports. Availability is likely to remain limited in many parts of the world.

As we expected, the temporary suspension of the U. S. countervailing duties on phosphate imports from Morocco has not yet had an impact on NOLA prices. Phosphate prices remain higher in other key regions of the world, and producers can realize higher netbacks selling in markets outside the U. S. So there is a little incentive for producers to send fertilizer to the U. S. In addition, as part of the ongoing sunset review, the U. S. Department of Commerce has determined that the illegal subsidies that led to the duties in the first place remain in place in both Russia and Morocco. In the U. S. Court of International Trade recently reaffirmed the International Trade Commission's determination that the subsidies cause injury in the U. S. market.

We are confident that the duties should continue once the suspension ends. While phosphate and sulfur markets are quite volatile, the potash supply and demand picture is much more balanced. With product moving freely around the world and global supply meeting strong demand in all major potash-consuming regions.

In fact, our summer fill program was fully subscribed. Strong palm oil economics and inventory replenishment in China bode well for ongoing good potash demand.

Overall, we expect the potash market to remain constructive through this year. In longer term, we continue to believe that announced potash capacity expansions will be absorbed by steadily growing demand.

Let's move on to our business, which is performing well, all things considered. Our global market access remains an important advantage. During the second quarter, we produced and sold 1.4 million tons of phosphate, despite all the turmoil in the market.

We were able to achieve these numbers because we have strong customer relationships across key agricultural markets and we optimize our product mix to meet shifting demand. In addition, our ability to flex production and manage through the cycle is supported by the extensive work we completed over the past 18 months to fortify our assets. We are prepared to ramp back up to full production rates when market and raw material conditions improve.

Hotash remains a steady earnings and cash flow contributor and our recent investments, including the Hydroflow Project at Esther Hazy, will provide meaningful benefits.

In Brazil, where we have curtailed all phosphate production, except for high margin products due to sulfur availability, our business continues to perform well. Given the overall market conditions, our $60 million of EBITDA for the quarter highlights the resilience of our Furlissantes franchise.

Capital allocation remains an important pillar of our strategy, and we continue to make good progress. We close the Carlsbad sale. We are optimizing our Brazil portfolio with the advancing process to divest our aeroshell complex, and we are allocating capital in pursuit of promising growth opportunities.

The Rainbow Rare Earth Elements Project in Brazil continues to show good potential, and our Mosaic Biosciences business is on track to double its revenues once again this year.

I want to note that Biosciences growth is strong, despite current farm economics, a clear indicator that growers are finding real value in our proven products.

To summarize, we are attacking a difficult market situation by doing all weekend to keep the company strong and preserve our ability to benefit from improving markets.

Now, over to Luciano for more detail on our financials.

Thank you, Bruce. If there is one takeaway for investors regarding our financials, is that we are effectively managing factors under our control as we wait for a more sustainable market environment.

In phosphates and ficciences, our operating costs were impacted by reduced absorption due to curtail volumes. We are now doing two things simultaneously. First, we are aggressively removing fixed costs where we can, especially in Brazil, to better cope with the temporary curtailments and to enable us to come back leaner when we restart.

Second, we are maintaining our focus on asset help so that we can return to full production rates when the time is right. In the near term, however, ongoing curtailments are expected to result in limited fixed costs absorption and elevated idle expenses in phosphates and if it is in the third quarter. But this is temporary and does not represent what this business is capable of in normal operating conditions.

In our US Phosphate business, we have shown an ability to manage our input costs. In quarter two, our raw materials cost average 522 per long term for sulfur and $621 per ton for ammonia, resulting in an average realized treatment margin of $422 per ton. For quarter three, as Bruce discussed, we settled a sulfur contract at $705 per ton. While much of this new contract price will be reflected in four quarters sales, we do expect some impact later in the third quarter. Even the dynamic nature of the market, we have chosen to once again provide some guidance for near term raw materials costs. Therefore, for the third quarter, we expect realized sulfur costs of approximately $700 to $710 per ton and ammonia costs of approximately $610 to $620 per ton.

Combining this with our DAP FOB pricing guidance of $820 to $840 per ton, yields an implied realized treatment margin well above historical averages, which is a good result. In punish, we successfully completed Ester Hases annual turnaround during the second quarter.

Looking ahead, the segment should see lower unit costs, especially with the additional volumes from Ester Hases Hydroflow project. Second quarter, MOP costs of $84 per ton reflected a production mix that was more heavily weighted towards Colonsie volumes, but we expect to revert lower in the second half of the year. To offset some of the second quarter's curtailment impacts, we've become more aggressive in our review of corporate spending. You can see in our results that we've brought SGNA costs down by 20% year over year, despite persistent inflation. Increased spending discipline, reduced support labor costs, lower bad debt expenses, and benefits from recent divestitures are driving these savings. In the second half of the year, we expect SGNA to decline further, as more of these savings are realized.

From a cash flow perspective, we're starting to see the result of our actions. Mosaic's cash flow from operations improved through the first half of the year, and it is expected to rise further in the third quarter as working capital is released, mostly in Brazil, and as additional cost reductions are realized. These are expected to more than offset any impact from higher raw materials costs. Combined with our lower-compact expectation for the year of $1.2 billion down from $1.25 billion, we expect sequential improvements in free cash flow in the third and in the fourth quarters. Our strong balance sheet continues to provide us with the flexibility to manage through this environment. In the second quarter, we put in place a $1 billion term loan to replace and extend very short-term commercial paper maturities.

We refinance 500 million of our commercial paper in June, and the rest was done in July. We have a very comfortable short-term liquidity position. We have not tapped our revolver at all, and we will continue to evaluate opportunities to optimize our balance sheet.

On the capital reallocation front, we continue to evaluate opportunities to optimize our portfolio and reallocate capital. We're advancing the process around Aisha, and we're progressing several opportunities involving our land holdings.

To close, we've taken decisive actions and executed well as we work through the sofa situation. The steps we have taken, first, across all operations, second, in our cost-structured, third, in our capital spanning, and fourth, in our balance sheet, have all position as well for a note-to-mate recovery as market conditions normalized.

And with that, I'll turn the call back to the operator for Q&A. Thank you.

Hey Duffy, thanks for the question. You're right. We did see, you know, as you said application in North America down on FOSFATE last year. We're seeing the same thing this year. I'll turn it over to Jenny to give more details. But we also expect declines in Brazil and Latin America as well, mostly driven by Brazil.

So let me turn it over to Jenny to give you details.

Sure. So as you said that field last year, we believe North America FOSFATE application was down close to 15% versus the normal year. And this year we are forecasting this application rate to further cut by around 20%. So if you compare with the normal typical FOSFATE application in North America, we're talking about over 30% FOSFATE down this year in 27.

This is a combination of some economic challenges for the ability issues, but also it's a availability issue. So over to Latin America, especially in Brazil. Last year FOSFATE application didn't really go down, so that was normal last year. We actually saw some growth in Brazil last year. However, this year we are forecasting similar percentage of the FOSFATE application down in Brazil by 30% at Newton level. And this is likely going to be applied in the rest of the Latin America market. In fact, this end application of FOSFATE are going to have the profound impact to the yield, specifically for North America and Brazil.

By looking at what has been applied to the field and also what has been the yield over the last two years, we are saying additional FOSFATE removal from the field in Brazil could be up to 1.3 million tons of DAP equivalent for that number in North America in the US that's 1.4 million tons additional removal of the nutrient. So as you can imagine with this additional removal of forest from the soil, there will have impact to the yield. And specifically we have started to see yield impact in some of the major states in Brazil for the last crop. We see despite increased harvest areas, but the yield actually came down. There was evidence in term of the yield impact from this end application of FOSFORES, US market.

We may see the impact this year which can be even more evident towards the weather event. Thanks.

Yeah, Joel, thanks for the question. We did, as Luciano pointed out, ammonia will go up a little bit. Part of that is due to the flow through inventory of the contracts that were settled in June and July. So, July, August came down. We'll see that actually flow through COGs in quarter four on the ammonia side. But to your point, a mix just because of lower production is going to be, you know, more heavily weighted towards those contract negotiations in our own internal production.

So, we're going to see a peak of that in Q3, which does kind of hurt stripping margins a little bit, as well as the ammonia that Luciano talked about. But, you know, I would use those as factors as you're looking towards guidance. The other factors to think about are, you know, cost absorption for the additional production down in North America. Quarter two didn't represent, you know, all of those curtailments. Quarter three, given that those curtailments are likely to be sustained barring some unforeseen circumstance in the market. We'll have to absorb more of that. So, that will affect some of our conversion costs on the margin as well. So, expect stripping margins to be down, but still, the good news is well above kind of historic levels.

So, we're feeling good about where they are, even though there's some headwinds. We should start to see, you know, some tailwinds on pricing as Jenny alluded to on yield impacts. We're starting to see crop at commodity prices respond in a favorable level which should raise the affordability piece on the farm side, which really is another constraint that, you know, may not be seen because of supply constraint, but that demand constraint definitely is out there if supply were to come back.

Luciano, I don't know if you wanted to add anything. And again, because we're guiding for sales between 1.1 to 1.4 compared to this quarter, 1.4. Again, depending on how the market goes, there could be a little bit of downside in volumes as well.

Yeah, I think we said 300 to 500 to 400 is the midpoint of that kind of range. We do still expect that type of liberation. We saw some of that phosphate in the first half, but the bigger one that we've been pointing to, you know, comes often many times in this time of year historically is the liberation of working capital in Brazil. But we actually see that being more cute this year because our B2B business, our production is down. So you actually see more liberation. But Luciano has some details on that. Let him talk about it.

Vincent, bear with me, this is going to be a little longer answer. So in Q1 we actually were kind of lacking working capital compared to a big investment the year prior. So that was the result of the stalking of phosphate inventories. In Q2 we actually increased inventories again by 200 million but mostly in Brazil. And we actually collected a lot of the sales from the Q1 axis inventory that we just charge in phosphates. So therefore the working capital kind of situation in Q2 was negative but not by a large amount. Again, which is if you compare it to prior years, it's a little better given the quarter we're talking about because of these collections from Q1.

What really disappointed in Q2 were actually the prepayments in Brazil. If you look a year back there was, if you look in the cash flow statement, there was a very strong cash inflow from what we call accrued liabilities which include prepayments we received from our customers in Brazil in anticipation for the sales of Q3. But there has been a clear change in bio-behavior because of manufacturers. So prepayments didn't come in as much so close to zero. So the prepayments did not upset this small decline in working capital. But the consequence of that is that because prepayments didn't come in Q2, that farmers will actually need to pay for the product in Q3.

And so the sales in Q3 will be, as they've always been substantially higher just to give you a number. In the last three years Brazil has sold 600,000 tons on average more in Q3 than in Q2. So these sales will kind of repeat this year.

And the collections are going to come from these sales are going to come mostly in Q4. So we should expect for some release of working capital in Q3, maybe between 100 and 200 million, but the bulk of the 300 to 500 million will come in the second quarter, in the fourth quarter, when the collections come in. So I would say we still subscribe to the 300 to 500 million release. The dynamics has changed a little bit.

And yes, the last point that Bruce mentioned, this one is important because the distribution business in Brazil, you buy and you sell. So the cycle is comparatively short. The production business, you produce all over the year and then you sell mostly in Q3, which means that if we were producing, we would be rebuilding inventories in production in Q3 and in Q4. But because we are mostly curtailing in Brazil, that will not happen. And so therefore, the release in the distribution business will not be partially offset by another build in the production side. So again, that's another factor that the reason why we believe the 300 to 500 will come. Again, maybe a third of it will come in Q3 and two thirds in Q4.

Yeah. I think you're pretty spot on on the operating rates in the mid 70s at the other So, let me just go back maybe a little bit and set the stage. I think of what you're looking for.

As we came out of Q1, Q2, turn around at new whales prior to the big announcements of curtailments and conserving sulfur inventory that was lower cost out of Q1 and Q2, new whales was running at its kind of full utilization rate. So we were seeing great signs of that. Then came, we pulled the breaks back on everything in Louisiana and kind of the central Florida network to conserve sulfur. So, we saw great signs on a sustained basis for good parts of the month following startup out of turn around. Riverview also had a turn around.

It came up, it never really had a chance to stretch its legs at full capacity because we were already kind of sulfur curtailed if you want to look at it that way.

So, we've seen good signs at all of our facilities. Now, I think the last one out there was at new whales and we did get to stretch its legs following turn around and we're very encouraged by what we saw running at its full capacity target. The sulfur thing, as you we are only dealing with sulfur based on contract volumes which provide that full run rate that you just described, Chris, which is still a little bit down at new wells in Riverview, 40% at Bartow and then 100% down at new whales. So that sulfur supply, I'm sorry, at Louisiana. That sulfur supply is what we're now constrained to and how we're trying to optimize. Now, what will happen in any given week or any given month depending on what product demand there is because we don't have endless product capability at every facility.

Those are the general targets that we're shooting for but if we have higher DAP demand coming out of the international market and we need to run Bartow a little bit more and run Riverview or new whales a little bit less because that's where we can make more DAP for an active market, that's what we'll do. So it is a little bit messy during this constrained period of time but we're managing to the sulfur constraint and then pairing that up to where active demand is with highest netbacks and what product makes we can make at what facility.

There are a number of other factors like water balance, utilization of people around the network, et cetera, et cetera that go into that decision but the decision right now is not to try to run hard at any one site it's to try to optimize for the constraint of sulfur for what the active product is in whatever markets that are active and then producing that in central Florida now because Louisiana is under percent down. I hope that answers. I know it's complicated. I wish there was an easier way to, you know, formulaically tell you something but we'd be happy to follow up on a call if necessary.

I'm going to let, thanks, Jeff, for sure. Let Lucy only answer the first part of the question. But let me address the Faustina thing because there's some misunderstanding there. We are running Faustina's ammonia plant full and we're using that within the Florida network. So, again, it becomes what a product mix issue is, how we can manage water going into hurricane season and what outlets we have at individual facilities. Louisiana has a lot of flexibility to be 100 percent down in that regard on fertilizer production, but no doubt we're going to take advantage of the producer economics ammonia and use that by shipping it cross Gulf into Florida. And if we have excess, we would sell it into the market because it's quite attractive from a profitability standpoint.

But the intent is not to run it, to sell it, it's the first intent is to run the ammonia plant to utilize within the Florida network.

Lucy, I'll over to you on the cash flow.

So, Jeff, your numbers are correct both for the cash flows from operations for the full year and for the sum of the capital expenditures with the dividend, which means, yes, we're going to be down around 500 million for the year. But most of it is passed already. So, I would say our expectation is to be in-depthness kind of stable in Q3 and then go down a little bit in Q4. And, of course, if this goes into 2027, which we do not believe, we need to pull additional levers to try to balance those things. But again, the message is, so far we're managing for a temporary situation and we believe not only this is unsustainable, but maybe as a follow-up to the first question under application, whenever the bounce back comes, it will come up with a lot of pent up demand.

As much as people are talking about, for example, the need to replenish strategic oil reserves following the resolution of the conflict. As much as there was a lot of revenge travel following COVID, there will be some revenge fertilizer application for years to come to support we think the business. So, just a question to how to manage till we get there.

Ben, let me tee it up and then Luciano can get into some details on more on the EBITDA, and how to think about that at a fertile lasante. But let's start with kind of volume out of quarter three.

Quarter three is always kind of the peak volume quarter within the calendar year. So, we expect that to be the same this year. However, historically we see Q3 over Q2 roughly about six to 800,000 tons more quarter over quarter. And it would expect the same this year, but what's muting the full potential of what's historic is actually our production business being down. We are not making or making very little commodity fertilizers in Brazil given the sulfur availability and affordability issue.

And so that is what's driving kind of demand being down or supply to feed demand. However, you want to look at it. In Brazil and Jenny addressed that being down what up to 20%, 20%, 30% this year and phosphate. So that is what will give you kind of to help figure out on volume. So better than quarter two, typically quarter two is up six to 800,000 tons.

Obviously, our quarter two this year was down, but then it is constrained because we don't have our B2B production volumes to be able to sell. So with that, that already is going to handicap EBITDA and then we're going to be more down than we were in quarter two and Luciano can kind of talk about how to think about how the EBITDA puts and takes work with fertilizers.

Yeah, I would say that the goal throughout this curtailance is to make, for example, the production business stand on its own, so be kind of a zero net contributor and how this is achieved. Like the contribution margin of our animal feed sales plus a little bit of the sulfuric acid sales plus co-products should match the fixed costs and a turnaround cost. And we're actually kind of seeing Q3 even a little surplus because it's a strong water for co-products as well. And a reminder, when we talk about co-products people usually associate, well, if I'm not producing where article products, about half of our revenue from co-products comes from the sale of gypsum, which we actually have a very large stockpile.

So to sell gypsum for the Brazilian farmers, we don't need actually to produce. So the sales are going to be there regardless of curtailance, gypsum only, which is about half of the co-product sales. So this is the first bucket. So the margin we make in animal feed, so for acid and co-products should pay for all of the fixed costs and turnaround costs in the production business. And then the other bucket is the distribution. So Q3 is very strong for distribution. So margins are not yet where we would like it to be, but they are slowly improving. And Q3, actually, we're going to start having some contribution from biosciences in Brazil. We expect around $30 million of sales of biosciences only in Brazil with kind of a margin contribution margin of around 40%.

And so you start seeing, maybe, it's not a lot, but it's the beginning, right? $12 million of contribution from biosciences in Brazil only. So if you add the distribution margin, plus biosciences, on the one hand you have a GNA on the other, and so there will be a surplus in Q3, and we hope that we can maintain a kind of surplus going forward so that Brazil could keep in positive territory.

Again, it's going to be hard for the Q4 because we have a less prominent quarter as usual, but for Q3 we're confident that we're going to be positive, albeit as we sign a signal, maybe the 60 million will not be achieved in Q3. Now, to your question about improving crop prices, that's actually some upside that maybe we've not baking in. We have seen recently, and Jenny can provide details over the last few weeks of actually to pretty normal buying patterns.

And if that were to continue, probably we would have some upside potential in Brazil. Anything to add there, Jenny?

I think I covered it. So, thanks again, Ben.

What's going on there? Let me take the back half of your question, and Luciano can talk a little bit about the idle turnaround. You're spot-on with freight rates, particularly on the export side, so Campitex is definitely seeing higher freight rate, so the netback impact is there. The other thing is in the mix. So, where we're seeing growth in potash is through Campitex. And so, the contribution is a channel mix issue. There's more export in Q3 than what we have historically seen. We're not losing anything in North America.

It's just more international growth through Campitex that is at a lower netback and then being discounted even more because of those higher freight rates. So, I think that's probably what, hopefully, squares of the circle or circles of square for you on why there might be a disconnect.

Luciano, maybe over to turn around idle. So, Matt, the 60 million in Q2 is basically half and half idle turnaround.

And so, yes, for Q3, that idle component is probably going to double, like so it's another 30 million. But the turnaround component is going to have, probably. So, maybe we're talking about 15 million. Let's put a bracket 10 to 20 million additional from Q3 to Q2. But in the fourth quarter, you're going to have an additional reduction in turnaround because you're not doing turnaround on something which is idle, right? So, you're going to probably go back with a six handle in the fourth quarter. So, it's not 100, it's not 120, it's well below that. And maybe just to highlight on that, I mean, these plants you take these in and it's now 100% down, they are basically being put in a frozen stasis.

So, they're not being utilized. The planned turnaround schedules will be delayed. So, capex that may be invested associated with a normal type turnaround is going to be deferred. That does not mean we're deferring capex for asset structural health. So, as these assets are not running, we're still sticking to its running turnaround time schedule. But while they're down, we are taking advantage of both capex and turnaround costs that will be deferred until these things are back up and running and utilize that runtime for turnaround. So, it is, again, complicated, but this is, we're looking very detailed at everything and taking advantage of everything we can, as we've talked about, things we can control to ring costs out in a way that doesn't damage asset health for the long term.

By the way, we didn't have the opportunity, but the capex profile, so you remember, we started the year with 1.5, then we got back to 1.25, and then now 1.2. The pace at which you kind of slammed the brakes matters here. So, capex will still be in Q3 somehow around, like, 300 with a 3-handle, but then it will drop substantially in Q4. So, it's another reason why Q4 should be a stronger order for cash flows, just because that's the way you manage, right? You cannot just stop all of a sudden, so you have to manage through, and then you're going to see a step-changing capex down for Q4.

Adlaine, no thanks. I always appreciate the question. Yeah, it's impossible to know exactly. I think it's probably a combination of both. In what proportion? I don't know. I don't think that I have a preference to be quite honest, Adlaine. I think, in my mind, what's most certain is, as Jenny outlined, there has been up to 30 million tons this year, the production that just won't happen, depending on how long this sole for availability thing has prolonged. If it goes in the end of year, the number can be up to 30, it could be the high end, 30 million tons, based on our calculation. Already less phosphate applied last year, a significant reduction this year in the US.

The agronomic science has not changed, so this will have an impact on yields at some point, and then layer into the risk of what does El Niño do globally?

I think ad commodity prices are set to continue to rise as more evidence as crop gets removed over the course of the next three months, four months, six months, which is going to provide tailwinds for farmer demand. It won't take much for farmers to feel differently about the narrative on affordability.

If corn hits five, north of five, that is going to provide a lot of sentiment positivity. It's going to provide a lot of tailwinds. The place that I would look first is in Brazil, because the soil type just doesn't have the ability to bank nutrient value for mining it later, as much as North America. But as Jenny said in North America even, we've mined almost 2.7 million tons over two years of phosphate out of the crop removal from 25 and now 26 projection above what is average, and we aren't applying average nutrients to replenish that. So I think crop prices are going to rise.

What happens with raw materials? Your guess is as good as mine, but what we are in today is not sustainable. There will have to be a new economic equilibrium hit in order to not have yields on a long-term sustained basis. Stay negatively impacted.

I did want to ask two things here. First, there was a right down in the period. Can you just articulate what that was? And then my real question just is on your inventory levels. You finish the quarter at about 125 days. Can you just help us parse out how much of that is raw versus finished goods and how we should think about that being sort of elevated levels versus elevated prices. Just provide a little bit more color on that inventory level, please. Thank you. No, Kristin, thank you.

The right down was a capital project that we had looked pursuing in the past, which was purified for acid and going into battery cathode material. I think we had talked about that publicly two or three years ago. It became the point that we pretty much ruled out that ever being a possibility and took the right down non-cash.

On the inventory, Luciano, a turn over to you, maybe got some more color on what's driving.

Yeah. So, Kristin, you probably looked into it. There's a footnote in our financial statements. I think it's footnote 5, which gives the breakdown of inventories in the various categories.

So raw materials have been on a trend up because of prices, of course. But I would say they tend to go down now because even if you keep the same days of inventory, like you were running less facilities, especially in Brazil, so for inventories are pretty much going to go down all the way to zero. The same is going to probably happen with working progress as well. So, you may remember past conference calls we talked about in accumulation of rock inventories. And, again, there was still a little bit of build up in Q2 because, again, you stopped the facilities and then you're still processing rock, but structurally, these tend to go down a little bit as well.

Finish goods, I would say, there's, in terms of physical inventories, there's no different pattern for faucets or fopotish than we observe in the past. You remember there was an uptick in finished good inventory for faucets in Q4 last year. We ended up with close to a million tons of finished goods, but now we're down to kind of 700,000.600,000, this is more like a healthier level.

If there's a rebound in demand, we might even go lower than that. MRO inventory, it's kind of stable, flat as well. So, I'd say other than the traditional seasonality of Brazil, which we'll have the behavior I described earlier very quickly, I'd say from the physical perspective, the absolute trend for inventories is coming down. And of course, you later on top of it, the price effects.

So, I guess just want to go back to kind of a phosphate volume outlook. So, based on the current conditions, what you know today, in terms of the pricing, input costs, and software and ammonia, if conditions kind of remain where they are now, what would you expect to do for a production production standpoint as we go into the fourth quarter? Would you keep things the same in the U. S.? Would you reduce them? Or would you be out of increase it? Thanks. Yeah, Lucas, appreciate the question.

Under your assumption, which I don't would say is not that disconnected from probably where we're assuming right now, production would stay the way it currently is.

We would consume what we believe we have is advantage sulfur to the competition. And we know there are enough active markets globally to be able to utilize that sulfur and constrain ourselves to that advantaged contract sulfur that we have in the active markets. And based on that, we kind of see that production volume, listen, it may fluctuate 100, 200,000 tons here or there. We'll see. But generally in that zip code is probably a good assumption.

Just tell a couple here. When things do normalize and you like to get back to the regular operating rates, how quickly could that ramp up look like? Like could we say this straight opens up today? Could you get back to regular operating rates by September? And then my second question is on the sulfur contract. 7.05 was pretty, it was well below spot prices. I mean, just kind of talk about how that came about. If the straight does remain closed into Q4, could you still sign another contract at the roughly similar level? Thank you.

Let me start, Andrew, with the latter part. I think it's worth talking about that we were able to create a separation on that settlement cost from what spot solid sulfur was.

And I think that is a testament to the relationship that's very symbiotic that we have with the Gulf Coast producers here in the United States to be able to take their molten supply and give them a base load that's very rateable and doesn't jeopardize their primary existence, which is to produce oil and gas. So that is a relationship that has worked in ways that favor us and in ways that favor them over the decades that we've had this advantage relationship here in North America. So I can't speak to what we should expect. I think they appreciate, as we've appreciated when economics have been tough for them in the past, that we are riding the edge on economics because we can't pass through that on the demand side because then we will run up against demand destruction.

So we found this way to thread the needle. I think they appreciate that. They appreciate our relationship and our expectation is that continues to stay there. I can't guarantee what that is going to be, but I think we've proven in Q3 that we have that relationship and we would expect to continue to see something there. How fast we can ramp back up, it's going to depend on, well, in your scenario that magically things just return, which by the way they won't, it's going to take time to recover. Even if the damage and refineries that are producing sulfur, what's going on in Russia and Ukraine is independent of the Straits opening up, what's happening with Kazakhstan, restrictions, that has to change as well.

I mean all of those things that happen, but if magically sulfur were to return, we can ramp up pretty quick. As we talked about, we were making a priority to protect asset health and any of the decisions we're making about capital prioritization to do just that. Now granted, if things become protracted for even longer, that may add a little bit of time, but I'd say we're talking weeks, not months to get back to production.

It does include that and it is so it does include that. It's just based on the other contracts that we have settled and how that's going to flow through inventory.

So good chunk. The majority of our production is either internal gas based or gas-tied contracts. We do still have some spot that's in there. But the settlement prices for our strategic contracts that are tied to market negotiation on a monthly basis, that's all included in what Luciano was talking about on how that would impact on COGS. So that does include our Louisiana tons.

To conclude our call, I'd like to restate our key points. While sulfur affordability and availability are challenging for everyone in the phosphate industry, we know that the crisis will come to an end. We're taking all the necessary actions to weather the storm, cutting capital and other costs, idling facilities were necessary, redeploying capital and pursuit of higher returns and further strengthening our balance sheet, all while preserving our ability to thrive when conditions improve. So to be clear, mosaic remains in an advantageous position with access to US sulfur and open shipping channels in the Americas. In fact, our raw material advantage moves us down the cost curve at times of stress like we're feeling right now. At the same time, we're pushing to grow with incremental tons in pod ash are very promising mosaic biosciences business and potential for new minerals extraction.

Put simply, this is a tough time, but mosaic is strong and resilient and better markets are ahead. So thank you and have a great and safe day.