QUOTE AND NEWS
Benzinga  Oct 1  Comment 
In a report published Wednesday, Morgan Stanley analyst Vincent Andrews reiterated an Equal-Weight rating on Mosaic Co (NYSE: MOS). In the report, Morgan Stanley noted, “Mosaic did two things today, the latter potentially more important than...
Benzinga  Sep 30  Comment 
Mosaic Co (NYSE: MOS) came out Tuesday morning and lowered guidance on third quarter potash and phosphate sales, citing increased input costs from higher sulfur and ammonia, coupled with weakened demand. Mosaic will focus on maintaining...
TheStreet.com  Sep 30  Comment 
NEW YORK (TheStreet) -- Shares of Mosaic are lower by 2.22% to $44.41 in late morning trading Tuesdayafollowing the company's announcement that itais reducing phosphate fertilizer production due to high prices of sulfur and ammonia. The...
newratings.com  Sep 30  Comment 
WASHINGTON (dpa-AFX) - Mosaic Co. (MOS) said that it is reducing phosphate fertilizer production, primarily because of high sulfur and ammonia prices. This curtailment will result in lower operating rates at Mosaic's mines and concentrates...
Market Intelligence Center  Sep 26  Comment 
After Thursday’s trading in Mosaic (MOS) MarketIntelligenceCenter.com's patented algorithms uncovered a trade that offers a 2.60% return or 16.64% on an annualized basis (for comparison purposes only), while providing 3.48% downside protection....
SeekingAlpha  Sep 22  Comment 
By IAEResearch: The Mosaic Company (NYSE:MOS) is the largest producer of phosphate and potash fertilizer in the U.S and is based in Minnesota. The company also deals in specialty products such as MicroEssentials, Pegasus and K-Mag, which are...
TechCrunch  Sep 22  Comment 
 “We need density in the cluster!” as an entrepreneur raising a Series A round in London said to me only last week. Her frustration was born of the fact that while many VCs have headed toward seed investing, and some have raised later-stage...
Financial Times  Sep 21  Comment 
$140m start-up fund set to launch in London is the latest sign of growing investor appetite for continent’s emergent tech sector
SeekingAlpha  Sep 10  Comment 
By David Stockman: CNBC’s long-running “jobs Friday” fetish is getting downright appalling. Each month the BLS puts out a treasure trove of data on the rich and complex mosaic of the US labor market—-a download that embodies a truly...
Benzinga  Sep 9  Comment 
Mosaic Co's (NYSE: MOS) flat demand for its fertilizer coupled with rising costs for production materials resulted in at least one analyst's downgrade Tuesday. The Plymouth, Minnesota, phosphate mining and production company is paying more for...




 

Mosaic, the world's largest phosphate producer, makes agricultural fertilizer out of potash, and phosphate. Mosaic owns a 13% share of phosphate global production and a 58% share of American production.[1] Similarly, Mosaic owns a 13% of potash global production and a 40% share of North American production.[1] It makes phosphate out of ammonia and sulfur. When sulfur and natural gas are cheap, phosphate is cheap to make, and therefore more profitable to sell. [2] When the price of crops goes up, farmers try to make their land produce more per acre. Thus, a bet on Mosaic is much like short selling ammonia and sulfur futures, and going long on corn , wheat , and soy bean prices.

Mosaic Company competes directly with the Potash Corporation of Saskatchewan (POT) and Agrium (AGU) for control over the Potash and Phosphate sectors of the commercial fertilizer industry. Mosaic is deadlocked with The Potash Corporation in the Potash market, but thoroughly dominates the phosphate market from a production standpoint. [3][4]

Business Overview

The previous fiscal year marked steep declines in Mosaic's net sales and gross margin.[5] These losses were driven primarily by rising prices for fertilizer and decreased demand for fertilizers in the face of higher prices. Poor environmental factors, such as low levels of rainfalls, further disincentive farmers from purchasing fertilizers.[5] Concerns over soil fertility and increasing oil prices, however, are favorable outcomes for Mosaic.

Business Segments

  • Phosphates: MOS accounted for about 13% of world phosphate-fertilizer production, and 56% of US production.[5] Phosphates generate a high percentage of the company’s earnings.
  • Potash: Mosaic is the second largest producer of potash in the world. It sells potash for fertilizer and industrial applications, holding 38% of North American production and 12% of global production.[5]

Quarterly and Annual Earnings

Q3 FY2011 Summary

Mosaic announced record Q3 earnings of $542.1 million as compared to Q3 earnings of $222.6 million for the third quarter in the previous year.[6] Driving these earnings were an increase in net sales in Q3 FY2011. Net sales increased to $2.2 billion as compared to $1.7 billion in year ago results.[6] Phosphate sales as well as potash sales increased to 2.4 million tons and 1.9 million tons respectively.[6] Their respective selling prices were $543 and $358 per ton.[6] Similarly, gross margin increased to 39% of net sales as compared to 28% of net sales in the third quarter of the previous year.[6] In other words, Mosaic's gross margin was $853.6 million in Q3 FY2011 as compared to $476.5 million in year ago results.[6]

Q1 FY2011 Summary

Mosaic tripled its net earnings for the first quarter of 2011 as compared to first quarter results the previous year[7] Earnings posted at $297.7 million as compared to $100.6 million in year ago results.[7] These earnings were driven by improved gross margin as a percent of net sales. Gross margin for the quarter was 23% as compared to 15% in Q1FY2010.[7] Net sales similarly improved from year ago markers. Mosaic's net sales improved from $1.5 billion in the first quarter of 2010 to $2.2 billion in Q1FY2011.[7]

These earnings are set against the backdrop of higher potash sales volumes and higher prices for phosphate sales; potash sales prices, however, partially offset these gains for the first quarter.[7] Net sales in Phosphates increased by $400 million for the quarter culminating at $1.6 billion.[7] Potash's net sales increased to $621.9 million from $333.3 million in the previous quarter.[7]

FY2010 Annual Earnings

Mosaic posted net earnings of $6.8 billion for FY2010, a decrease from $10.3 billion the previous year.[5] Gross margin similarly decreased from $2.8 billion to $1.7 billion.[5] Operating earnings decreased from $2.4 billion in 2009 to 1.3$ billion in 2010.[5] Overall expenses, whether they are general, administrative, or other operating expenses, increased in 2010 from $365.8 million to $422.5 million.[5]

Trends and Forces

The World Food Crisis Increases Demand for Fertilizer; Temperature and Precipitation Fluctuations Stave Off Customers

Large farming regions within the United States, India, and China are experiencing severe drought conditions that makes growing crops extremely difficult. On one hand, higher demand for food due to lower supply will improve demand to fertilizer. On the other hand, farms will not pay for fertilizer if there is not enough water to grow crops. [8]

Despite drought conditions in California, however, the Midwest is expected to yield a record corn and soybean crop in 2009. Good weather and favorable pollination conditions have driven crop prices down, anticipating record supply surpluses. [9], [10]

Even with supply surpluses, the world food crisis will place some upward pressure on food prices. A 2008 FAO report pegged the number of undernourished people in the world at 963 million, nearly 15 percent of the world's population. [11] Many liberal organizations blame US fertilizer companies for misleading farmers and partially contributing to the world shortage, but at the end of the day, high demand for food will translate into high fertilizer demand absent a severe worldwide drought.

High food prices, and moderate drought conditions will improve demand for the The Mosaic Company's products. Severe drought conditions will disrupt demand for Mosaic's fertilizer because it is pointless to fertilize dead fields. Low food prices, and great weather will decrease demand for Mosaic's fertilizers.

Higher Gas Prices Increase Demand for Biofuels

Ethanol in the U.S. is produced from corn, one of the most fertilizer and nitrogen intensive crops. [12] The demand for Ethanol and biofuels increase with rising gas prices. People only consume biofuels, it seems, when gas prices are extremely high. When there is greater demand for ethanol, there is greater demand for corn fertilizers. Higher gas prices benefit the Mosaic Company by increasing demand for bio-fuel, and therefore Soybeans and Corn.

Reduction in Arable Land, Increasing Populations

The amount of arable land worldwide is dwindling. The population boom has cut the amount of arable land per person in half over the past 50 years.[12] 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%.[13]

Brazil, China, and India are three of the five most populous countries and are trying to meet the growing demand for food, fuel, and feed for livestock. Brazil, China, and India each have just 7%, 15%, and 49% of arable farmland, respectively,[14] and with their respective populations on the rise, these countries need to make the most of the arable land they have. In addition, weather factors such as temperature, rain, floods, droughts, and hurricanes destroy arable land for a particular crop season and render land unusable for a few seasons.

Reduction in arable land should increase the demand for yield-increasing fertilizers in the long run and benefit Mosaic. In the short run, however, violent destruction of arable land through natural disasters could disrupt Mosaic's contracts and damage the company's profitability.

Competition

Mosaic has few competitors since the fertilizer industry has significant barriers to entry and Economies of scale. It would cost from $1.6-$2.5B for a new company to enter the industry. A company would need five to seven years of development time to build mines and factories, build rail and gas lines, and purchase rail cars and storage before it could even begin making a profit from Potash or Phosphates. [3] [15]

Mosaic primarily competes with the Potash Corporation of Saskatchewan (POT), and to a lesser extent with the Nitrogen giant Agrium (AGU). Nitrogen based fertilizers are not a significant part of Mosaic's business model.



Footnotes

  1. 1.0 1.1 | MOS 2009 Annual Report
  2. Mosaic Company 2009 Form 10-Q Second Quarter
  3. 3.0 3.1 Potash Corp. 2008 Annual Report, "Company Overview: Potash," p. 2
  4. The Mosaic Company 2008 Annual Report, "Company Overview: Mosaic," p. 2
  5. 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 | Mosaic's 2010 Financial Highlights
  6. 6.0 6.1 6.2 6.3 6.4 6.5 | Mosaic Announces Third Quarter Results
  7. 7.0 7.1 7.2 7.3 7.4 7.5 7.6 The Mosaic Company Reports Threefold Increase in First Quarter Fiscal 2011 Net Earnings
  8. | Map of International Drought, Global Researcher
  9. | UNL's Drought Monitor
  10. | Good corn pollination in the 2009 season so far
  11. [http://www.un.org/apps/news/story.asp?NewsID=30256&Cr=Food+crisis&Cr1 | UN News Centre]
  12. 12.0 12.1
  13. Delta Farm Press, "World population trends favor farmers," December 5, 2007
  14. | C.I.A. World Factbook: Brazil, China, India
  15. Mosaic 2007 Annual Report, pg. 2
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