A Closer Look at the Mosaic Company’s Q4 Earnings
Yesterday morning, The Mosaic Company (NYSE:MOS) released its fourth-quarter earnings figures. While net profits slumped nearly 80 percent, the report reaffirmed my conviction that Mosaic is the best large-cap fertilizer investment.
Mosaic’s net earnings fell significantly from $615 million in Q4 of 2012 to $129 million in Q4 of 2013. This massive decline was due almost entirely to the weakness in fertilizer prices. The company’s average realized phosphate price slumped from $532/ton in Q4 of 2012 down to $381/ton in 2013. Its average realized potash price fell from $435/ton in Q4 of 2012 down to $303/ton in Q4 of 2013. Since production costs remained relatively flat, this decline more or less went directly to the company’s bottom line.
Nevertheless, there are reasons to be optimistic that the fertilizer market will rebound in the coming quarters and years. The significant price drop during the summer of last year occurred as Russia’s largest potash producer — Uralkali (or, URALL) — left the Belarusian Potash Company (or, BPC) — a potash “cartel.” Fertilizer prices had already been relatively weak over the past couple of years, but with the breakup of the Belarusian Potash Company, its members were free to flood the market with potash.
But despite this short term set-back investors need to note the following. First, demand for fertilizers has been steadily rising over the long term as fertilizers are used by farmers in order to increase crop yields. As the world’s population rises without a parallel, a rise in the amount of arable land farmers need to become more efficient. This has created demand for fertilizers, and the price of fertilizers has been rising over the long-term with intermittent setbacks such as that seen during the 2008 financial crisis and the more recent one resulting from the breakup of the BPC.