Mosaic Earnings: Fertilizer Demand Returns, Which Should Stabilize Prices

We maintain our $40 per share fair value estimate for Mosaic MOS following the company’s second-quarter earnings. Our no-moat rating is also unchanged. At current prices, we view Mosaic shares as fairly valued, with the stock trading just above our fair value estimate.

Mosaic’s results reflect continued lower fertilizer prices. Both potash and phosphate prices are down since hitting all-time highs last year as a result of the supply shock from the Russia-Ukraine conflict that sharply reduced fertilizer exports from Russia and Belarus. In response to record prices, farmers applied significantly less fertilizer to their fields and demand has remained below 2021 levels even as prices have fallen, which has caused prices to fall nearly as fast as they rose.

In potash, prices are now near our midcycle forecast of $310 per metric ton (in 2023 real terms), as the contract between China and Canpotex (Mosaic and Nutrien’s export joint venture) was set a $307. In response, we expect potash demand will return to more normal levels in the coming years, supporting current prices. As Mosaic ramps up production at its low-cost Esterhazy mine, we expect the company’s average unit production cost will fall. Combined, higher volumes and lower unit production costs should support long-term profit growth even if prices remain flat.

In phosphate, while price have fallen from last year’s peak, they remain above our midcycle price forecast of roughly $400 per metric ton (in 2023 real terms). This is in line with our view that phosphate prices would take longer to return to midcycle conditions as phosphate saw a double supply shock, from lower Russian exports and lower Chinese exports, as more supply remained in China for both agriculture and lithium-ion battery use. However, we think exports will eventually ramp up. Combined with new supply from Morocco and the Middle East, we think phosphate prices will eventually return to midcycle levels.

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