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Mosaic (NYSE: MOS) was the world’s largest producer of phosphate and the world's third largest producer of potash during the company's 2008 fiscal year; in FY 2008, Mosaic accounted for approximately 15% of global phosphate production, and approximately 14% of global potash production.[1] Phosphate and potash are two crop nutrients that are primary ingredients in producing fertilizer. Mosaic also has an offshore business segment that purchases and resells fertilizer produced by other companies. Mosaic is vertically integrated, it mines phosphates, potash, and nitrogen; processes them into forms that can be absorbed by crops; and distributes the resultant fertilizer to wholesalers and retailers worldwide.
Mosaic benefits from increasing demand for its products driven by increasing production of ethanol and growing food consumption in emerging markets; however, declining demand, starting in late 2008, has prompted Mosaid to reduce annual phospate production by 10%.[2] The reduced production caused Mosaic's revenues and net income to decrease from $2.1 billion and $521 million, respectively, during FY 2008's Q3 to $1.4 billion and $59 million, respectively, during FY 2009's Q3.[3]
[edit] Business Financials
Mosaic was formed in 2004 through the merger of IMG Global Inc. and the Cargill, Inc.'s Crop Nutrition fertilizer businesses. As the post-merger integration wraps up, the company’s strategic focus is on expanding potash capacity as well as debt repayment. In 2007 Mosaic paid down $1 billion of long-term debt, reducing its debt load and interest payments. By paying down debt, Mosaic’s management also hopes to improve its bond rating to investment grade. By reaching investment grade status, Mosaic can borrow at more favorable interest rates. Mosaic's total debt as of November 30, 2007 was $1.7 billion. [4] [5]
Mosaic’s revenue climbed 31% between 2005 and 2007. Its operating income over the same period jumped 94%, a result of favorable market prices for fertilizer as well as a restructuring of its phosphate unit to increase operating efficiency. The 2006 dip in operating income was a result of the phosphate restructuring. [6]
Mosaic’s phosphate business segment accounts for half of its revenues. It is the world’s largest producer of phosphate with an annual effective capacity of 9.4 million tons. This is larger than the combined capacity of the next three largest producers. Potash and offshore interests each account for almost a quarter of revenues. Its offshore interests also purchase and market products from other producers worldwide.
[edit] Business Drivers
- Increasing importance of biofuels: Strong growth in the biofuels industry has been a key of the success of many companies in the biofuel supply chain including fertilizers and biotechnology companies such as Monsanto Company (MON) . As demand for grain crops such as corn increases, farmers are working to increase yields, which involves applying more fertilizer per acre and planting more acres of crop. [9]
- Rising demand for food worldwide: As population and personal incomes in developing regions of the world increase, the worldwide demand for food also has increased. Worldwide population has grown 12% in the past ten years, while farm acreage has grown only 2%. The middle class in the BRIC and other developing countries is growing, and they are improving their diets by adding more meat. This drives demand for more grains and feed for animals.[10] In order to produce higher yields to meet rising demand, more crop nutrients are being demanded as well. [9]
- Increasing prices of phosphate and potash: Rising demand due to both biofuels and increased food demand has driven up the prices of phosphate and potash. In the quarter ending in May, 2007, the price of diammonium phosphate fertilizer rose to $338 per ton, compared to $248 per ton in the same quarter of the previous year.[11] However, in October 2008 the company decided to reduce phosphate production by approximately 10% of its total annual production because of lower levels of fertilizer demand, although prices of fertilizers have remained unchanged.[2]
[edit] Market Share
In 2008, Mosaic's world market share of phosphate was approximately 15% and its global market share of potash was approximately 14%.[1]
[edit] Competitors
Because fertilizers are a global commodity that are available from many sources around the world, fertilizer producers compete on price. There are high barriers to entry, particularly in the potash industry, as a new mine costs $1.6 billion in capital, making it difficult for new entrants to enter the market.[12]
Within the fertilizer market, Mosaic's competitors include Potash Corporation of Saskatchewan (POT) and Agrium (AGU). The PotashCorp's primary product is potash, while Agrium's primary product is nitrogen. PotashCorp has a majority of the world's excess capacity of potash, which will allow it to respond quickly to increased demand. Agrium has a strong distribution network as it is the largest agricultural retailer in the US.
| Leading Fertilizer Producers 2008 Financial Comparison | ||||
|---|---|---|---|---|
| Company | Revenue | Net Income | Profit Margin | Operating Margin |
| Potash Corporation of Saskatchewan (POT)[13] | $9.4 B | $3.5 B | 37.00% | 49.07% |
| Mosaic Company[14] | $9.8 B | $2.1 B | 21.232% | 28.60% |
| Agrium (AGU)[15] | $10.3 B | $1.3 B | 12.87% | 19.34% |
| Leading Fertilizer Producers' Annual Nutrient Capacity (million tonnes) | ||||
|---|---|---|---|---|
| Company | Phosphate | Potash | Nitrogen | |
| Potash Corporation of Saskatchewan (POT) [16] | 2.4 | 13.2 | 3.5 | |
| Mosaic Company (MOS)[17] | 9.4 | 10.4 | 0.5 | |
| Agrium (AGU)[18] | 1.0 | 2.1 | 5.0 | |
[edit] Footnotes
- ↑ 1.0 1.1 MOS 2008 10K
- ↑ 2.0 2.1 "Mosaic Misses Earnings and Brings Down the Sector" Seekingalpha.com 10/7/2008
- ↑ MOS 2009 10Q
- ↑ PRNewswire-FirstCall, "Mosaic Announces Prepayment of $150 Million of Long-Term Debt, Reaching $1 Billion Prepayment Milestone," December 21, 2007
- ↑
- ↑ Mosaic 2007 10K, Item 26: Restructuring and Other Charges, pg. 88
- ↑ Mosaic 2007 10K, Consolidated Statements of Operations, pg. 39
- ↑ Mosaic 2007 10K, Item 28: Business Segments, pg. 95
- ↑ 9.0 9.1 Mosaic 2007 Annual Report, Letter to Shareholders, pg. 11
- ↑ Delta Farm Press, "World population trends favor farmers," December 5, 2007
- ↑ Mosaic 2007 Annual Report, Fiscal 2007 Compared to Fiscal 2006, pg. 28
- ↑ Mosaic 2007 Annual Report, pg. 2
- ↑ 2008 POT 10K
- ↑ 2008 MOS 10K
- ↑ 2008 Agrium 10K
- ↑ 2008 POT 10K
- ↑ 2008 MOS 10K
- ↑ [Agrium (AGU)|Agrium]]<ref>[http://www.agrium.com/uploads/Agrium_Fact_Sheet.pdf September 2008 Agrium Fact Sheet]</li></ol></ref>
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