Mosaic Company (MOS)

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See all Bulls Reasons Bulls: Reasons To Buy Agriculture boom will continue 100% agree Agriculture boom will continue Fertilizer and ag support products will continue to boom as world wide grain and food prices stay high. An integrated company like MOS makes money at several levels. View or Edit Reason 1 votes 100% agree China and Fertilizer 0% agree China and Fertilizer China has raised its exporting duty for Nitrogen and Urea to 130%, given the fact that China is one of the largest sources of these two item globally, the prices fo these fertilizer related items should shoot up sharpely. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell debt 0% agree debt much, too much, debt. View or Edit Reason 1 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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As evidenced by its performance (68% revenue growth in Q308 vs. Q307) over the last year, Mosaic has benefited from increasing demand for its products driven, by increasing production of ethanol and growing food consumption in emerging markets. From 1996 through 2008, demand for fertilizer has increased by 31% and over the same period prices for the company's products have also risen dramatically.

[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. ^{[3] [4]}

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. ^[5]

[Mosaic 2007 10K^[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.

[Mosaic 2007 10K^[7]

[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. ^[8]

• 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.^[9] In order to produce higher yields to meet rising demand, more crop nutrients are being demanded as well. ^[8]

• 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.^[10]

[edit] Market Share

Mosaic's world market share of phosphate is approximately 16% and global market share of potash is approximately 15%.^[11]

[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.

[edit] Footnotes

1. ↑ morning star analyst report (4/16/2008)
2. ↑ MOS 10-K, exhibit 13, page 9
3. ↑ PRNewswire-FirstCall, "Mosaic Announces Prepayment of $150 Million of Long-Term Debt, Reaching $1 Billion Prepayment Milestone," December 21, 2007
4. ↑
5. ↑ Mosaic 2007 10K, Item 26: Restructuring and Other Charges, pg. 88
6. ↑ Mosaic 2007 10K, Consolidated Statements of Operations, pg. 39
7. ↑ Mosaic 2007 10K, Item 28: Business Segments, pg. 95
8. ↑ ^{8.0 8.1} Mosaic 2007 Annual Report, Letter to Shareholders, pg. 11
9. ↑ Delta Farm Press, "World population trends favor farmers," December 5, 2007
10. ↑ Mosaic 2007 Annual Report, Fiscal 2007 Compared to Fiscal 2006, pg. 28
11. ↑ Mosaic 2007 Annual Report, pg. iv, 16
12. ↑ Mosaic 2007 Annual Report, pg. 2
13. ↑ October 2007 Investor Fact Sheet
14. ↑ 2007 Overview of PotashCorp & Its Industry, pg. 62
15. ↑ September 2007 Agrium Fact Sheet