Mosaic recently reported results for the second quarter of fiscal 2013 - the company will soon move to align its fiscal year with the calendar year - and the conference call featured some interesting comments about the potash industry.
The company remains bullish on the prospects of potash - and fertilizers in general - both in the long-term, and over the course of the next year. Despite continuing politically-driven and currency-related problems in India, Mosaic expects a record, or near-record year of potash consumption, in part because net farm income is as high as it’s ever been, while fertilizer remains very affordable. Indeed, the costs of fertilizer are as low as a percentage of crop prices as they've been in 10-15 years.
Mosaic outlined their medium-term assumptions for potash industry, as well. Demand, management forecasts, will be 55-57 million tonnes for fiscal 2013, 59mmt for 2014, and rise to 63-64mmt for 2017. Industry capacity, they believe, will be in mid-70mmt range, meaning that the industry will be operating at 85-90% capacity, which should be good for prices.
Significantly, CEO Jim Prokopanko strongly hinted that when the current MOU expires at the end of this year, Canpotex will discontinue its long-standing policy of selling to China and India on contracts, and begin selling instead on the spot market. He noted that contracts were signed for a year in the past, were reduced to the present six month terms, and - wink, wink - said, "I think you can see the direction we're headed" (1). This will make for a much smoother quarter-by-quarter business, and will likely also mean somewhat higher prices, but somewhat lower volumes.
Sources: (1) http://seekingalpha.com/article/1095101-the-mosaic-management-discusses-q2-2013-results-earnings-call-transcript
My analysis of Potash Corp is here.
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