The Mosaic Firm (NYSE:MOS) This fall 2022 Earnings Convention Name February 23, 2023 11:00 AM ET
Firm Individuals
Paul Massoud – Vice President, Investor Relations and Monetary Planning and Evaluation
Joc O’Rourke – President and CEO
Clint Freeland – Senior Vice President and CFO
Jenny Wang – Senior Vice President, World Strategic Advertising and marketing
Convention Name Individuals
Steve Byrne – Financial institution of America
P.J. Juvekar – Citi
Christopher Parkinson – Mizuho
Adam Samuelson – Goldman Sachs
Richard Garchitorena – Wells Fargo
Vincent Andrews – Morgan Stanley
Edlain Rodriguez – Credit score Suisse
Josh Spector – UBS
Jacob Bout – CIBC
Andrew Wong – RBC Capital Markets
Jeff Zekauskas – JPMorgan
Joel Jackson – BMO Capital Markets
Operator
Good morning. And welcome to The Mosaic Firm’s Fourth Quarter and Full 12 months 2022 Earnings Convention Name. At the moment, all individuals have been in a listen-only mode. After the corporate completes their ready remarks, the strains will probably be open to take your questions.
Your host for in the present day’s name is Paul Massoud, Vice President of Investor Relations and Monetary Planning and Evaluation of The Mosaic Firm. Mr. Massoud, chances are you’ll start.
Paul Massoud
Thanks and welcome to our fourth quarter and full yr 2022 earnings name. Opening feedback will probably be offered by Joc O’Rourke, President and Chief Govt Officer; adopted by a fireplace chat after which open Q&A. Clint Freeland, Senior Vice President and Chief Monetary Officer; and Jenny Wang, Senior Vice President, World Strategic Advertising and marketing may also be obtainable to reply your questions.
We will probably be making forward-looking statements throughout this convention name. The statements embody, however should not restricted to, statements about future monetary and working outcomes. They’re primarily based on administration’s beliefs and expectations as of in the present day’s date and are topic to vital dangers and uncertainties.
Precise outcomes might differ materially from projected outcomes. Components that might trigger precise outcomes to vary materially from these within the forward-looking statements are included in our press launch printed yesterday and in our experiences filed with the Securities and Trade Fee.
We may also be presenting sure non-GAAP monetary measures. Our press launch and efficiency knowledge additionally comprise essential info on these non-GAAP measures.
Now I’d like to show the decision over to Joc.
Joc O’Rourke
Good morning. Thanks for becoming a member of our full yr 2022 earnings name. Mosaic had a report yr in 2022, delivering revenues of $19 billion, adjusted EBITDA of $6.2 billion and adjusted earnings per share of $11.01.
In 2022, we reached a number of operational milestones that allowed us to profit from sturdy costs. K3 reached its preliminary capability of 5.5 million tons. In Brazil, we grew our distribution market share from 16% to 18%.
In North America in phosphates, efficiency merchandise represented 43% of whole gross sales volumes and now we have now begun to take a look at increasing our MicroEssentials capability additional, which we are going to focus on later. These efforts are driving sturdy free money stream era, which allowed us to return vital capital to shareholders in 2022, whereas additionally strengthening our steadiness sheet.
During the last 12 months, we have now repurchased $1.7 billion price of shares excellent, if we embody the fourth quarter of 2021, we have now purchased again greater than 10% of the shares excellent or roughly 40 million shares.
Along with share repurchases, we have now additionally paid traders practically $200 million in dividends. Our common dividend now stands at $0.80 per share, up from $0.60 per share the prior yr. And on the steadiness sheet, we met our long-term debt discount goal of $1 billion with the retirement of $550 million of long-term debt in November.
Earlier than diving into our enterprise additional, I’d prefer to briefly focus on broader agriculture and fertilizer markets. Ag market fundamentals stay very constructive, with December corn close to $6 per bushel and November beans close to $14 a bushel. This displays ongoing world meals safety issues at a time of disappointing manufacturing. World stocks-to-use ratios are at 25-year lows and stay underneath stress due to elevated dangers that threaten output in 2023.
The world continues to look at the battle in Ukraine. We’ve got consulted with prime army and international coverage leaders who share our concern that the battle appears unlikely to be resolved within the near-term and can have lengthy lasting impacts, notably within the manufacturing of key crops like wheat and sunflowers, which is a supply of serious quantity of the world’s edible oils.
Exterior of Europe, we consider the USDA’s newest estimate for Argentinian manufacturing seems optimistic, as drought situations through the rising season counsel yields will disappoint. In Brazil, climate has delayed the planting of safrinha corn, which may stress the report crop that many are forecasting.
Around the globe, we nonetheless see fertilizer shortages in lots of key agricultural markets, regardless of some main markets being nicely equipped. Nevertheless, the general scarcity nonetheless threatens whole manufacturing and this can underpin world crop costs for a while.
Now let’s deal with the fertilizer markets. The sharp spike in nutrient costs within the first half of final yr resulted in growers aggressively mining their soils. As we enter 2023, phosphate and potash costs at the moment are half of what they have been on the peak.
With crop costs nonetheless very sturdy, farmer affordability for vitamins has improved considerably and is now again to the degrees seen in 2020 and 2021. This implies a powerful rebound in demand as growers search to maximise yields with enough fertilization.
The world continues to be wanting potash. Sure markets are seeing extra available provide, however this implies different markets should not in a position to get what they want. Belarusian provide stays constrained due to the continued sanctions. We consider Belarus, Calais exports have been down about 8 million tons in 2022, and we anticipate solely modest restoration in 2023 with whole exports of round 6 million tons to 7 million tons or half of their pre-sanctioned export volumes.
The restricted product Belarus has been in a position to get in a foreign country has been aggressively marketed over the seasonally sluggish winter and we have now seen comparable actions from some Russian producers. That is driving current weak point in costs, however we consider the phenomena is non permanent and can reverse as spring demand ramps up.
In phosphates, China stays dedicated to the structural shift impacting the place it sends its phosphoric acid. Along with shutting down manufacturing for environmental causes, a good portion of phosphoric acid is now being directed to industrial makes use of, together with the battery market.
Roughly 1 million tons of completed fertilizer equal was diverted to the battery market in 2022 and we predict that may proceed to develop quickly over the subsequent few years as extra battery capability is added. This implies China’s exports of phosphate fertilizers will proceed to be down considerably as restrictions prolong into 2023.
Stock ranges in our key markets for each phosphates and potash have declined significantly from the elevated ranges noticed within the second half of final yr. Grower demand throughout the Americas has been very sturdy due to favorable affordability, however retailers have been hesitant to replenish inventories, due to the volatility in world costs, particularly in potash with the aggressive low season advertising and marketing from the Russians and the Belarusians. U.S. spring demand is ramping up over the subsequent coming weeks and we consider we have now reached a backside in potash costs.
In Brazil, sentiment has improved. Inventories have labored their approach all the way down to way more normalized ranges for each potash and phosphates, as growers reap the benefits of way more enticing barter ratios.
We estimate fertilizer shipments will whole 46 million tons in 2023, up greater than 10% from final yr and roughly 35% of these anticipated shipments have already been contracted.
In India, phosphate inventories stay very low even after a yr of elevated imports as many of the product went straight to the bottom. Authorities subsidies for the approaching fertilizer yr will decide whether or not India will be capable to appeal to the vitamins it wants to satisfy its meals safety issues.
In Southeast Asia, potash has turn out to be way more inexpensive for palm oil producers as nicely, which ought to drive demand restoration.
Globally, we’re seeing excellent farmer economics and depleted inventories that counsel sturdy demand for phosphates and potash in 2023.
Given this panorama, we consider our enterprise is nicely positioned to profit from the market’s restoration. In phosphates, lingering points from Hurricane Ian impacted our operations through the fourth quarter for longer than initially anticipated, however Florida operations returned to regular working ranges earlier this month. We now consider we have now moved previous the operational points that impacted output and are dedicating assets to fixing key parts in our manufacturing.
At Bartow, we’re upgrading our sulfuric acid manufacturing services following the current manufacturing stops we noticed after Hurricane Ian. And at Faustina, we have now improved operations at our ammonia plant and noticed a big improve within the quantity of ammonia produced from our plant through the fourth quarter.
Florida manufacturing has returned to regular working charges. In the course of the first quarter, we anticipate whole shipments of 1.7 million tons to 1.9 million tons with realized pricing of $625 per ton to $675 per ton. We anticipate stripping margins will stay comparatively steady quarter-over-quarter as decrease uncooked materials costs offset decrease completed product costs.
In our potash enterprise, slower demand led us to quickly cease manufacturing at our Colonsay mine, however we predict the present market state of affairs is non permanent and anticipate to restart operations at Colonsay throughout the first half of 2023.
At Esterhazy, the twelfth miner is being commissioned and the thirteenth miner is predicted to be in service earlier than the tip of the yr. When that’s carried out, it’ll add a minimum of 1 million tons of extra annual capability at probably the most environment friendly mines on this planet. Within the first quarter, we anticipate gross sales of 1.8 million tons to 2 million tons with realized MOP costs on the mine of $425 per ton to $475 per ton.
Mosaic Fertilizantes had its greatest yr since we bought the enterprise in 2018, with adjusted EBITDA of $1 billion in 2022, regardless of volatility within the second half of the yr. Fourth quarter outcomes mirror the sharp reversal of commodity costs from the highs of the primary half of the yr, which negatively impacted each the manufacturing and the distribution margins.
However for the total yr, our distribution margins averaged $36 per ton, which is correct within the vary of $30 per ton to $40 per ton that we might anticipate. First quarter distribution margins will probably be much like fourth quarter as larger stock is labored by means of. However for the total yr, we do anticipate distribution margins to be again inside our regular vary.
As we take into consideration the evolution of our enterprise, we proceed to execute our excessive returning investments whereas returning capital to shareholders. In phosphates, we have now begun growth of our MicroEssentials providing by including capability at our Riverview facility.
The undertaking is predicted to be accomplished by the tip of the yr. Upon completion, about 50% of our North American phosphate enterprise will probably be gross sales of value-added efficiency merchandise. This isn’t an costly undertaking. Whole funds is lower than $40 million with a payback interval of lower than two years.
We’re additionally constructing a take a look at plan for purified phosphoric acid manufacturing in North America to confirm ultimate design plans for industrial operation. That is the subsequent step in our shift away from commodity fertilizers and opens up new markets like meals manufacturing and batteries. We’re additionally exploring utilizing the plant’s byproducts to provide NPKs.
In Brazil, we proceed to develop our distribution enterprise. Whereas our footprint is already giant, there are nonetheless areas the place we see alternatives to develop. We’ve got begun building of a 1 million ton mixing and distribution facility at Palmeirante within the quick rising North with entry to very enticing rail infrastructure.
Returns of about 20% on an anticipated $80 million funds, make this one other instance of extremely enticing modest investments. We’re additionally monetizing previous investments. In January, we offered our Streamsong Resort for $160 million, as a result of we may understand interesting worth for a noncore asset.
Our three way partnership in Saudi Arabia can also be performing nicely. In 2022, Mosaic’s fairness earnings from the three way partnership totaled $195 million, which is a couple of quarter of our preliminary funding. This yr, they plan to scale back debt by $800 million. They’ve additionally distributed $100 million in dividends to traders. Our proportional share of $25 million was acquired this month.
Lastly, I need to reiterate that we stay dedicated to our strategy to steadiness sheet administration and shareholder capital returns. In November, we retired $550 million in long-term debt and this allowed us to satisfy our dedication of lowering long-term debt by $1 billion. As we have a look at our steadiness sheet in the present day, we consider we’re nicely positioned for the long-term.
Much like final yr, we plan to return considerably all of our free money stream to shareholders in 2023 by means of a mixture of share repurchases and dividends. Since September of 2021, we purchased again $2.2 billion in shares and we proceed to see nice worth in our shares. To emphasise that time, we plan to proceed with a $300 million accelerated share repurchase program within the first quarter.
We’ve got additionally grown our common dividend to $0.80 per share and we’re nicely positioned to think about additional development, particularly with our diminished share depend. Along with the common frequent dividend, our Board of Administrators has accepted a particular dividend of $0.25 per share to be paid out on March thirtieth to shareholders of report on March fifteenth. Given our sturdy money stream, mixed with the proceeds of asset gross sales, our Board accepted this payout as a complement to our ongoing share repurchases.
Earlier than we go on to Q&A, permit me to summarize. Mosaic delivered report ends in 2022 and we anticipate favorable dynamics to proceed in 2023. The world is brief world grains and oilseeds. So farmers are incented to maximise yields.
We anticipate this to drive sturdy fertilizer demand and our enterprise is nicely positioned to satisfy that demand by means of our current property and thrilling new development alternatives. With the sturdy money flows that these present, we’re returning vital capital to shareholders by means of dividends and share repurchases.
With that, I’d prefer to now transfer on to the Q&A portion of the decision.
Query-and-Reply Session
A – Paul Massoud
Thanks, Joc. Earlier than we transfer on to the stay portion of this name, as we have now carried out in previous quarters, we wish to handle a number of the commonest questions we acquired after we printed our earnings supplies final evening. Joc, may you present a little bit extra shade on the potash market and why we anticipate Colonsay will should be restarted within the first half of 2023?
Joc O’Rourke
Thanks, Paul. Let me begin by saying, we have now had a yr of low potash utilization, which implies soil ranges are depleted and farmers might want to add potash to the soil to make sure affordable yields this yr.
So growers are seeing very enticing economics and they’re appearing on it. We’re seeing issues like our largest channel buyer in North America has already bought 60% of their farmer’s demand is dedicated for spring, which is larger than most conventional years.
In order we transfer into spring, our expectation is farmer demand goes to be good, however everyone is ready for the final second. They don’t need to stay with the worth danger. So why we anticipate an excellent season in North America and we’re already seeing a very good season in Brazil, we do anticipate folks to attend so long as they really feel they will, however as soon as it strikes, we anticipate it to maneuver pretty nicely.
Total, we do see the potash market as being restricted by manufacturing. So whereas demand will probably be regular, we anticipate Russia will probably be exporting lower than what they’ve up to now, in all probability, 1.5 million to plus 1 million tons and Belarus will in all probability export 6 million tons to 7 million tons, which is half of what they did pre-sanction.
So we predict this case in the present day the standoff is non permanent and it’ll begin shifting, and when it begins shifting, we anticipate we should run laborious to produce the market. Jenny, do you need to simply give us a little bit little bit of a spotlight of the place the general S&D is for potash proper now?
Jenny Wang
Certain, Joc. As you talked about, the potash market final yr declined by 16%. That was pushed by the availability constraint, and this yr, with a really constructive farm economics. Within the markets like North America and South America, we consider farmers have all the motivation to return to use potash on the sector to maximise their yield.
For the markets like China and India, the federal government they’re involved to the total safety. Due to this fact, there are plenty of native insurance policies to help the farmers to maximise their manufacturing. For that, we even have seen potash demand elevated final yr in China. We consider this development goes to proceed.
So, general, in 2023, we anticipate the demand to rebound globally, however there’s no technique to have the total restoration again to 2021, simply due to the availability is constrained. We’re seeing 5 million tons to six million tons of provide scarcity on this market.
Paul Massoud
Joc, Mosaic Fertilizantes gross margin dropped considerably within the fourth quarter. What drove that margin compression and the way ought to traders take into consideration margins for the enterprise in 2023?
Joc O’Rourke
Thanks, Paul. Now if we have a look at the second half of 2022, it displays a reversal in costs from the primary half of the yr. This impacted each our distribution and our manufacturing enterprise. In our manufacturing enterprise, we at the moment are working our approach by means of excessive value uncooked supplies similar to sulfur and ammonia. As these transfer by means of the system, we anticipate our margins to get extra normalized after the primary quarter. In distribution, excessive value stock is now working its approach by means of the system.
Now, none of this could have come as a lot of a shock as a result of costs have been shifting up within the first half and coming again down within the second half of the yr. So, within the first half of the yr, we made larger distribution margins, and within the second half of the yr, these reversed as we have been promoting higher-priced stock into the market.
If we have a look at it over a complete yr, each our manufacturing enterprise and our distribution enterprise did very nicely, and general, 2022 was a really profitable yr and a report yr for the Fertilizantes enterprise.
As soon as we get previous the primary quarter, distribution margins ought to be in step with our historic expectations of $30 per ton to $40 per ton, and our manufacturing margins will revert to regular stripping margins nicely as soon as we work by means of the excessive value uncooked supplies.
Paul Massoud
Joc, how ought to traders take into consideration our manufacturing volumes over the subsequent yr and what forms of capital tasks is Mosaic initiating to help reliability?
Joc O’Rourke
Thanks. Initially, let me say, the final couple of years, there have been some extraordinary circumstances which have impacted our manufacturing, notably in our phosphate enterprise and our Brazil companies.
First, sulfur shortages popping out of the Gulf of Mexico has damage us at first of final yr, refinery shutdowns, COVID, transportation limitations at first of final yr, after which, in fact, a few huge hurricanes, one which hit Louisiana and the opposite one final yr, which hit straight onto our operations right here in Florida.
Now, what we noticed from these was injury that, in all probability, lingered longer than we might have preferred, due to the situation of a few of our crops. So what are we doing to enhance that? We’re taking a look at how can we fortify our crops to make them extra resilient to the sort of prevalence. And a few of meaning we have now changed a bunch of our converters in sulfuric acid, our boilers or economizers, et cetera. In Brazil, we’re constructing a brand new sulfur tank, new phosphoric acid tanks are being overhauled. So we’re doing plenty of work to essentially fortify and reinforce the resilience of those crops.
So the place can we anticipate these to go? What we have now seen already is, as an illustration, the place we have now carried out the restore work at Faustina, in Louisiana, greater than 40% of our ammonia final quarter was equipped from Faustina, which is the very best it’s been in over a few years. So we predict we’re getting forward of all of that.
Now if I look ahead, what do I anticipate? I anticipate that we’ll be working in that 85% to 90% of our 10-Okay worth. So that will in all probability point out someplace within the vary of seven.5 million tons to eight million tons in phosphates and three.5 million tons in our Brazilian enterprise.
Paul Massoud
This concludes the prerecorded portion of our name. Let’s now transfer on to the stay Q&A. Operator?
Operator
Thanks. [Operator Instructions] The primary query in the present day comes from Steve Byrne with Financial institution of America. Please go forward.
Steve Byrne
Yeah. Thanks. Simply sort of following up on that statistic that you simply offered, Jenny, the place world consumption of potash down 16% in 2022 and your estimates for Russia and Belarus sound like down one other 10% or down 10% from 2021 on this yr. My query for you is, does the world actually not want 70 million tons of potash or may there be an impression on world crop manufacturing this yr because of this and/or do you suppose there could possibly be possibly a little bit of a panic to satisfy farmer demand this spring given the simply in time buying mentality?
Joc O’Rourke
Thanks, Steve. That is Joc. I’ll begin right here and hand it over to Jenny as you requested. However let me say the world does want 70-plus million tons of potash. We consider there’s a actual want and what’s — we anticipate to see occur and what we have now seen occur is continents like Africa really going with out product that they really want. So we are literally shorting some areas, Africa and elements of Asia, as a result of they will’t afford it and even a few of Central America.
So the truth is, if there was extra potash, it could definitely discover a residence, and clearly, the worth sensitivity can be totally different as it’s in the present day. We anticipate the main markets that may afford will bid up the potash value and that will probably be what drives that. So I’m going handy it over to Jenny to only discuss a little bit bit about that steadiness.
Jenny Wang
Yeah. Certain. Thanks, Joc. Steve, to your query, what’s the impression with a big demand of cargo discount final yr, we consider that was over 11 million tons versus the earlier yr. We consider the impression to the yield in a number of the markets may be mirrored on the yield for that yr and in some markets like North America and Brazil, the place the farmers in all probability have invested within the potash utility.
Within the earlier yr, they in all probability they have been in a position to afford for lowering charge for a yr, however in two years in a row to chop utility charge, it’s not actually a very good choice for the farmers to maximise their yield and manufacturing. Due to this fact, we consider the demand restoration of the demand for potash on this market are there. It’s simply the farmers have the motivation to maximise their manufacturing.
There are specific markets, as I discussed within the prerecorded reply, authorities are actually supporting the farmers to make use of potash with a view to safe their meals safety and we consider that authorities help are going to proceed as we’re entering into 2023.
Lastly on the spring demand, what we heard from our prospects and in addition the growers on the bottom, Steve, in North America, specifically, there’s a really clear want primarily based on the affordability and the farm economics that farmers to return to use potash, particularly for individuals who skipped a season final yr or reduce the speed final yr.
We’re on the stage that, the farmers want to interact with their retailers after which the retailers to cowl the final a part of the shopping for from us and we see that’s occurring. In actual fact, this week, we’re seeing rising inquiries within the south a part of the U.S. because the season began.
So we really feel assured that demand goes to get well for potash we nonetheless consider with a big constraint on provide and the worth will keep at a wholesome degree, though, it’s way more moderated from final yr.
Joc O’Rourke
Yeah. Okay. And simply let me add this, Steve, as nicely, since you requested the query of Colonsay. One of many causes we consider Colonsay will possible be wanted within the first half of the yr as that demand comes again, we predict there’s a very good case for the restart of Colonsay.
So it’s in scorching standby. The labor is there. All people is prepared. Now if we don’t want it, it received’t come up. But when we do want it, it’ll come and we anticipate may be the — that’s the possible case as we see it.
Operator
The subsequent query comes from P.J. Juvekar with Citi. Please go forward.
P.J. Juvekar
Sure. Joc, I believe, you talked about that, 1 million ton equal of fertilizer goes into the battery market. Is that DAP equal that you’re speaking about? Is that [Technical Difficulty] because the LFP battery grows in China and possibly sooner or later different elements of the world. What are your expectations there and do you might have any product that goes into that market?
Joc O’Rourke
Yeah. Thanks, P.J. Simply checking my numbers to verify I’ve this proper. However, so, sure, your equivalency is right. We’re seeing or we noticed final yr about 0.5 million tons of purified phosphoric acid be redirected from fertilizers to batteries. Now that’s equal to about 1 million ton of DAP.
And what we’re seeing in that market, it was final yr a minimum of a development of nearly doubling over one yr. So we have now gone from 500,000 equivalents to 1 million equivalents and even when that goes to1.5 million equal to 2 million equal, we’re going to see a heck of plenty of displaced phosphates out — not getting out of China. In order that’s the rationale we really feel pretty assured that our expectation for exports is affordable.
By way of our personal, we’re not supplying any of that market at this stage. We’re within the technique of doing a pilot research now. We’ve got carried out the — this tabletop work and we at the moment are doing a pilot plant to get the design standards and the costing for our personal purified phosphoric acid and I’d anticipate to be saying extra about that within the subsequent six months or so and we will probably be speaking about making an financial choice after that.
Operator
The subsequent query comes from Christopher Parkinson with Mizuho. Please go forward.
Christopher Parkinson
Nice. Thanks a lot. You may have a useful define on slide 10, simply given the sensitivities to DAP, MOP, so on and so forth. Are you able to converse to the potential year-on-year advantages from all three of your sources of ammonia, in addition to the typical sulfur value. The way in which you see that trending within the first half. Simply any shade on that because it pertains to DAP your margins? Thanks a lot.
Joc O’Rourke
Sorry. Thanks, Chris. I believe what you’re asking is, if I’ve bought this proper is, how is the stripping margin sensitivity to enter costs, if you’ll. And what we anticipate for the yr is, I believe, what we’re seeing is we’re seeing a rise in refinery exercise, which is resulting in a greater provide of sulfur and possibly making the sulfur market a little bit looser. But when DAP demand goes up rather a lot, that might tighten once more, however once more, that kind of units itself out with value.
After which on ammonia, what we’re seeing is an enormous decline within the value of pure gasoline in Europe and that value of pure gasoline, in fact, is driving down the worth of pure gasoline right here within the U.S. and in addition driving down the worth of our nitrogen inputs.
So our expectation is that that may proceed after which flatten, so we are going to proceed to lower for some time after which it’s in all probability getting near flattening now the place you’ve got I believe urea costs are down in that $300 vary and it could actually’t actually go that a lot decrease than that or you’ll begin seeing manufacturing decelerate once more.
So we anticipate that to occur and we anticipate that — over the yr, stripping margins are literally going to be fairly flat for us. In different phrases, the any drop in value will probably be met, due to a drop in uncooked supplies and vice versa.
Operator
The subsequent query comes from Adam Samuelson with Goldman Sachs. Please go forward.
Adam Samuelson
Sure. Thanks. Good morning, everybody. Possibly, Joc, simply to make clear that final level on phosphate stripping margins. So is the implication then that, if you’ll be able to ship, I believe, you heard 7.5 million tons to eight million tons of product in 2023 or that will be the present sort of plan as you’ll sit right here in the present day with flat stripping margins that the EBIT — you suppose your EBITDA is rising in phosphate? After which the second query I had was simply in Fertilizantes once more, a bit extra of a clarification on in — the drivers within the fourth quarter and the primary quarter. How simply the weak point in margins between the distribution and the upstream phosphate manufacturing, simply comparable — each companies will look comparable from a margin perspective within the first quarter earlier than normalizing thereafter, I simply need to be sure that I heard that proper?
Joc O’Rourke
Yeah. Okay. So I’ll reply the primary one right here, which was, sorry, I simply bought to learn. Oh! Yeah. Our quantity. Yeah. Our quantity, I believe, is — that’s not an unreasonable expectation for quantity. The query was in respect to what our manufacturing capabilities have been.
So I’ll qualify that and say that our — we at all times are pushed by what’s the on the bottom demand for our product and never essentially what our manufacturing capabilities are. So there could possibly be a spot between what our manufacturing capabilities are in our gross sales, however that may rely. Seemingly, this yr, we anticipate for each potash and phosphate demand will probably be good. So we anticipate to promote most of what we make. In order that’s not an unreasonable assumption.
By way of the pricing, yeah, our expectation is that, because the season will get shifting, each phosphates and potash costs ought to transfer up a minimum of considerably, and I believe within the case of potash, it may transfer up rather a lot, however definitely in phosphates. However we anticipate that phosphates will sort of steadiness off with a comparatively flat stripping margin, if you’ll. In order that’s our fundamental prediction of the place that will go.
By way of Brazil, I’d say that, each the manufacturing enterprise and the distribution enterprise have been equally impacted. One, by rising uncooked materials prices and the opposite by simply the timing of gross sales versus purchases of third-party materials. So, with that in thoughts, you may consider it as returning again to extra normalized degree after quarter one.
Operator
The subsequent query comes from Richard Garchitorena with Wells Fargo. Please go forward.
Richard Garchitorena
Thanks. Simply needed to the touch on the plans to restart Colonsay. I suppose while you have a look at the outlook and the place we have been a yr in the past while you have been planning to develop additional, while you begin up, I suppose, how lengthy will it take you to get again to that, I suppose, 1.3 million run charge initially when it was shut. After which how are you excited about shifting ahead by way of increasing that capability, is it in all probability going to be extra of 2024 occasion, assuming we have now demand get well or is that on maintain deliberately for the market recovers?
Joc O’Rourke
Yeah. Thanks, Richard. Look, the best way I’d have a look at Colonsay is, so after we anticipated the volumes would proceed on the charge they have been, and let’s name it, the center of the yr to the primary half of the yr. That slowed down considerably within the third quarter and fourth quarter, which was lower than what we might anticipate. So fairly we shutdown Colonsay.
Now like I stated earlier, we shut it down. We nonetheless have the workers. We nonetheless have every little thing able to go. So it doesn’t take a lot to restart. However what’s occurred within the meantime that must be thought-about is, we have now added since that point and due to the slowdown, we have now been in a position so as to add two new miners at Esterhazy. So very quickly, Esterhazy can have an incremental capability of 1 million tons.
So in case you add the 1.3-ish million ton run charge of Colonsay plus 1 million tons of Esterhazy, it doesn’t appear to me that we’re going to want the second mill at Colonsay. So I’d say that, usually, that will be on maintain. And a matter of reality, I believe, the longer the demand weights, the later that colons they would want could possibly be down, due to Esterhazy taking over the slack.
Operator
The subsequent query comes from Vincent Andrews with Morgan Stanley. Please go forward.
Vincent Andrews
Thanks, and good morning, everybody. Joc, may you simply discuss the way you kind of view the form of the yr volumetrically by way of seasonality and whether or not as we get after the U.S. spring season, which presumably goes to be fairly sturdy. Do you anticipate the availability chain kind of getting into a restocking section or do you suppose they will need to have empty bins and there’s going to must be summer time fill and all that. And I’m simply curious as a result of it looks as if everyone is working hand to mouth proper now. I simply can’t inform whether or not you’re kind of assuming that that is the tip of hand to mouth as we get into spring after which we return to possibly kind of the availability chain having regular ranges of stock by means of the yr, so what are your ideas there?
Joc O’Rourke
Yeah. Thanks, Vincent. Look, I believe that, proper now with the volatility in entrance of individuals, individuals are very involved with ready very lengthy, if you’ll. So every little thing is at all times simply in time. However, in fact, the sellers and our prospects must steadiness that with the necessity to verify they get the product they want in time for season. In order that’s at all times the steadiness.
My expectation and what we — Jenny and I have been on the Fertilizer Institute assembly every week or two in the past, and virtually to each buyer, we’re nonetheless listening to we wish to have our place — product in place for the beginning of the season. We aren’t going to refill till we’d like it after which we need to finish the season empty. In order that’s our expectation, that’s what they may do. However that additionally signifies that the summer time fill program ought to be sturdy right here in North America.
In Brazil, I believe the — due to the lengthy lead time for every little thing, it is going to be a little bit totally different than that and I believe the Brazil market will probably be extra steady all year long and we are going to see the conventional sample of third quarter being our strongest quarter and like we have now stated right here, even the Safrinha season we’re beginning to see some fairly sturdy demand alerts a minimum of.
So we predict that may proceed. We expect third quarter will probably be fairly regular with the U.S. fill. After which the one you’ve got to think about is, in some unspecified time in the future, we have to see and we anticipate to see Central America, China, India, Asia, the potash going to the Indonesia and Malaysia, we anticipate all that has to ramp up as a result of they’ve a yr the place they only haven’t used the merchandise they want. So even when they aren’t refilling, they will have to purchase.
Operator
The subsequent query comes from Edlain Rodriguez with Credit score Suisse. Please go forward.
Edlain Rodriguez
Yeah. Thanks. Good morning, guys. So a fast query on farmers affordability. It has improved fairly a bit as fertilizer costs declined over the previous a number of months. In order that’s good for the farmers. However what’s good for you is for fertilizer costs to start out shifting larger. But when they do, doesn’t that deliver again your affordability concern once more. So my query is like how do you attempt to steadiness that delicate line?
Joc O’Rourke
Yeah. Edlain, it is a huge problem for us in that we sit in a worldwide commodity market and whereas we attempt to be sure that the spikes and the troughs are affordable and that farmer economics keep good, what you see and what we noticed final yr within the begin of the yr was panic shopping for, if you’ll. So everyone was shopping for.
They have been very frightened about getting their product. After which the farmer stated, nicely, that’s awfully costly, and acknowledge final yr, the farmer economics weren’t dangerous. So the psychological piece took a toll.
My concern this yr is definitely considerably what you stated, which is folks wait to [Technical Difficulty] rush to get your product, and all of a sudden, there’s one other value spike that does damage product — damage farmer affordability to the purpose the place they’re resistant to purchasing fertilizer once more.
However I’ll say, one yr, you get away with the second yr we’re going to begin to see yield drops, and in case you begin to see yield drops, you will see only for the underlying agricultural commodities.
So I believe it’s actually self-correcting this yr, which is that if they don’t use the product yield [Technical Difficulty] commodities will go up, which goes to drive the demand. So I believe you may’t management it. Hopefully, folks purchase early sufficient and we get by means of in a reasonably rational approach and farmer affordability stays affordable.
Operator
The subsequent query comes from Josh Spector with UBS. Please go forward.
Josh Spector
Yeah. Hello. Thanks for taking my query. I simply needed to observe up on an earlier level round, I imply, much like the prior query by way of potash affordability. However possibly particularly with the markets that you simply stated have been extra value delicate when you find yourself speaking about Africa, Asia, et cetera. Are we at a degree the place that’s not a problem in the present day and you will see or anticipate shopping for to return and is there a spread if costs transfer up $50 a ton to $100 a ton, that’s nonetheless going to be a degree the place it’s enticing for that area to purchase or are we nonetheless on the level the place that’s nonetheless questionable?
Joc O’Rourke
Yeah. Thanks, Josh. I believe, the place — as we glance around the globe, it actually relies on the place you’re looking. Look, in case you are shopping for fertilizers for — and the overwhelming majority of fertilizer is used for giant crops and export crops. So in case you are promoting your crop into a world market the place you may get the worldwide value, then you’re positive and the demand will probably be there.
So if you concentrate on North America, most of South America, Europe, et cetera. Yeah, that’s all positive. If you concentrate on Africa, the issue in Africa and the rationale, I’d say, no, it’s not the case, they nonetheless can’t afford it in Africa is as a result of they’re shopping for for promoting into a world market, they’re shopping for for subsistence farming to feed themselves.
So whether or not crop costs are excessive or not is nearly irrelevant, as a result of it’s how a lot they must put into the crop [Technical Difficulty] and that’s the place the availability hole finally ends up being most acute. And we have now heard it from, as an illustration, the U.S. State Division, which says that elements of Africa at the moment are shifting from starvation into acute, what you name it, from starvation to hunger principally.
So in Asia, sure, they may be capable to afford it I believe, however in case you get to the poorest elements of the world, no. Now does that have an effect on the general market? Not likely, as a result of these should not huge customers within the first place, however that’s in all probability essentially the most tragic a part of this complete factor.
Operator
The subsequent query is from Jacob Bout with CIBC. Please go forward.
Jacob Bout
Good morning. I needed to return to that dialogue on Colonsay and Esterhazy. If I’m mistaken, Esterhazy is your lowest value potash mine by far. Simply why wouldn’t the subsequent incremental ton be coming from Esterhazy. Is there something that we ought to be excited about from a mill or hoist perspective or bringing on incremental capability?
Joc O’Rourke
Yeah. Thanks, Jacob, and good to have you ever again on the decision. Yeah. Your feedback are precisely right. Esterhazy is by far our most cost-effective or a minimum of costly to function mine. And you may take into consideration this as, every new miner that is available in, it provides us roughly 400,000-ish tons of latest capability and there’s no restrict.
As we see it, we anticipate no restrict on the hoist and we will probably be plant restricted at in regards to the 1 million tons of incremental capability that we have now talked about bringing on. So we will probably be plant restricted by, let’s name it, the center to the tip of this yr, and at that stage, yeah, Esterhazy, we are going to maximize tons from Esterhazy first and solely use after which Belle Plaine after which use Colonsay as required.
Operator
The subsequent query comes from Andrew Wong with RBC Capital Markets. Please go forward.
Andrew Wong
Hey. Good morning. Thanks for taking the query. I simply need to return to LFP. We’ve got seen a few LFP tasks introduced just lately within the U.S. I’m sort of curious what’s Mosaic view on the home LFP alternative and possibly it is a little bit early given you’re performing some pilot testing right here, however I respect any preliminary ideas, like, in case you have been to provide a purified phos acid for batteries, like, what can be required for that to occur and can they try this with the present rock that they’ve or do you want a special sort of rock or what sort of upgrades would you should do to your processing crops in the present day and what sort of prices would that contain? Thanks.
Joc O’Rourke
So, thanks, Andrew. Let me say, we have now been within the testing section and I can inform you pretty definitively, that we’re able to making the grades of purified phosphoric acid required for batteries.
And as you stated, there may be various LFP lithium iron phosphate crops being talked about within the U.S. right here. And we’re in dialogue with a few of these, and clearly, there’s nondisclosures for every of these units of discussions. So I received’t discuss specifics.
However I can inform you, there’s a big want amongst these battery producers to have one, a shorter provide chain, i.e., a extra steady provide chain out of the U.S., and secondly, plenty of these subsidies and stuff require that the U.S. content material to be there.
So there’s various explanation why the market a minimum of could be very curious about that. And what we’re doing now along with doing the pilot work on this, which goes to present us the design standards, inform us assist us outline what the prices of each capital and working will probably be.
However on the similar time, we’re doing market research to know what the ultimate measurement of this market could possibly be right here in North America specifically. However keep in mind, as we take into consideration purified phosphoric acid, there’s additionally the opposite industrial makes use of and meals and every little thing else. So this could possibly be fairly a helpful department for us to de-commoditize to some extent.
Operator
The subsequent query is from Jeff Zekauskas with JPMorgan. Please go forward.
Jeff Zekauskas
Thanks very a lot. With fertilizer costs coming in, ought to working capital be roughly a supply of $700 million in money in 2023. And secondly, with the entire totally different ammonia services which can be being proposed for the Gulf Coast, does it make sense sooner or later to purchase extra value plus ammonia or are you proud of what you’ve got?
Joc O’Rourke
Yeah. Thanks, Jeff. Let me hit the — these two by way of — I missed your first query. Sorry, I bought…
Jenny Wang
Working capital.
Joc O’Rourke
Oh! Working capital. Yeah. You — relying in your assumptions, clearly, we’re going to work our approach by means of some product that’s fairly excessive priced proper now. And relying on what you assume for the ultimate pricing, there’s positively going to be some money coming into the system from working capital. So in different phrases, our working capital wants ought to go down with value clearly.
If I have a look at this yr, I believe, our working capital has been virtually all because of the value of third-party product. So the volumes of our stock hasn’t modified, however the worth of that stock has modified considerably and that’s not for produced product, that’s for third-party buy product.
By way of the ammonia, I believe, you might have — I hit that precisely on the pinnacle by way of the place we’re going with our CF contract, which is we have now stated that, this was an eight-year contract with CF. CF has given us discover they need to renegotiate it. But when that they had not carried out that, we in all probability would have as nicely.
Now I believe it’s price hedging a part of our wants for ammonia with a price plus sort contract, however possibly it received’t be as excessive a quantity as we have now carried out up to now or it may be a special formulation. However I believe there’s methods that’s in each ours and CF’s curiosity to relook at that contract and have a look at how we value our ammonia going ahead. So and there’s others like OCI and whatnot which have, clearly, come into that market. So we see ourselves in a fairly good bargaining place for what we do going ahead.
Operator
The final query comes from Joel Jackson with BMO Capital Markets. Please go forward.
Joel Jackson
Hello, Joc. Good morning. We are going to see you subsequent week. I needed to ask a bit extra about Brazil to know a few of your shade round margins, clearly, an enormous margin discount in This fall. I believe you stated, you anticipate margins in Fertilizante to enhance by the tip of the yr. Are you able to give a bit extra shade, ought to we anticipate comparable margins in Q1 and enhancing throughout the yr and while you say again to you, I believe, historic or common margin. However I don’t actually know what that’s anymore as a result of, clearly, you got the Belle asset, the combination modified, margins went up with the upper commodity costs, you probably did plenty of work to enhance the property you might have there some optimization and synergies. What’s historic margins in Fertilizante?
Joc O’Rourke
Yeah. Thanks, Joel. So, let me say, traditionally, we have been speaking particularly in regards to the distribution margins, and if we have a look at the distribution margins over time, they’ve actually ended up someplace in that $30 per ton to $40 per ton. Now the manufacturing enterprise, clearly, way more value of phosphate and potash dependent. But when I have a look at the distribution enterprise, that’s not a foul place to start out.
By way of how we anticipate this to play out, we at the moment are shopping for product at in the present day’s value, however that product received’t be offered till the tip of quarter one and into quarter two. So the product we’re working our approach by means of is the higher-priced product from quarter 4 that we have been buying at that stage, as a result of there’s that huge lag in Brazil of, let’s name it, three months.
So we do anticipate margins, notably distribution margins to be much like what they have been in quarter 4, however I could have been misunderstood once I stated they have been going to construct over the yr, over the typical of the yr, we nonetheless anticipate them to be in that very same vary of $30 to $40. So meaning they must rebound pretty rapidly and we absolutely anticipate they may.
Operator
This concludes our question-and-answer session. I wish to flip the convention again over to Joc O’Rourke for any closing remarks.
Joc O’Rourke
So, thanks everybody for all of your questions and your curiosity in us. To conclude our name, I’d similar to to reiterate our key messages. Mosaic delivered report ends in 2022 and we anticipate sturdy enterprise situations all through 2023, farmers across the globe have sturdy incentives to maximise their yield and fertilizer is briefly provide in lots of elements of the world.
So we anticipate sturdy demand and Mosaic is nicely positioned to ship this for our prospects. We’re additionally delivering for our shareholders by returning primarily all of our free money stream by means of dividends and share repurchases.
So, with that, thanks for becoming a member of our name and please have a protected and glad day.
Operator
The convention has now concluded. Thanks for attending in the present day’s presentation. Chances are you’ll now disconnect.
