Mosaic profits drop amid drought, weak phosphate sales

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All that bad weather across much of North America last summer not only hurt many farmers it also wrecked havoc for fertilizer producers such as Mosaic Co.

Plymouth, Minn.-based Mosaic saw its profit in the first quarter ended Aug. 31 drop 18 per cent from a year earlier, to $429-million (U.S.). Sales fell 19 per cent to $2.1-billion. The company is the first major fertilizer maker to report financial results that took into account last summer's weather troubles which included a drought across most of the United States.

The dry weather ruined crops and dropped water levels on the Mississippi River so low barge traffic nearly ground to a halt. That delayed shipments and increased transportation costs for companies such as Mosaic.

"I can't remember another time in my career when so many of the outside influences that impact our business, and global food supply, were so volatile," Mosaic chief executive Jim Prokopanko told analysts on a conference call Tuesday.

"Mother Nature has left much of the planet very thirsty, while also battering us with tropical storms, hurricanes and heavy rainfall in Canada."

The drought pushed up prices for many commodities, especially corn, which means farmers who could keep farming can expect record incomes this year. Higher crop prices should be good news for fertilizer companies too, since they encourage farmers to plant more.

But Mr. Prokopanko said prices for plant nutrients such as potash and phosphates have defied historic norms and are not moved in tandem with crop prices. Why?

"The short answer is sentiment and risk aversion," Mr. Prokopanko said. He explained that farmers are reluctant to stock up on fertilizer because of uncertainty about pricing. "They don't want to get stuck on the wrong side of a potential price decline, so they are keeping their fertilizer bins nearly empty," he said.

Demand has also fallen from important international customers, particularly India. A change in government subsidies has increased the retail price of fertilizer in India and decreased demand. China has also yet to sign a new six-month contract for potash and it is believed to be holding out for a better price.

Overall potash shipments are expected to drop to 53 million tonnes this year from 55 million in 2011. Prices are also forecast to remain between $420 and $450 a tonne this year.

However, Mr. Prokopanko and others are expecting a turnaround in 2013. Mosaic predicts potash shipments will jump as high as a record 60 million tonnes next year. "The current dip in demand, we believe, is essentially a timing issue, and we are beginning to see improving dealer sentiment in North America and elsewhere," he said.

A recent market report by Potash Corp. of Saskatchewan Inc. said demand from India will also increase next year, commiserate with government policy changes. China and other Asian countries are also expected to increase potash purchases, the company said.

For now though investors didn't take kindly to Moasic's earnings, pushing the company's share price down nearly 5 per cent Tuesday on the New York Stock Exchange. The stock managed to recover and closed down $2.25 at $55.76 (U.S.).