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Good morning, and welcome to The Mosaic Company's Second Quarter 2026 Earnings Conference Call. Operator instructions. And now I'll turn it over to Mr. Paul Massoud. Please go ahead.
Thank you, and welcome to our second quarter 2026 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer; Luciano Siani Pires, Executive Vice President and Chief Financial Officer will review financial results. We will then welcome Jenny Wang, Executive Vice President, Commercial, to join Bruce and Luciano as we open the floor for questions. We will be making forward-looking statements during this conference call. Statements include, but are not limited to, statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published this morning and in our reports filed with the Securities and Exchange Commission. Please note, in today's presentation and in our press release and performance data, we will refer to and provide various financial measures, including adjusted EBITDA, adjusted earnings per share, free cash flow, cost per tonne and adjusted effective tax rate, either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found in our earnings release. Now I'd like to turn the call over to Bruce.
Good morning. Thank you for joining our call. Our message for you today is simple. Mosaic is working through a difficult market by successfully managing what is under our control and positioning ourselves for an eventual recovery. Sulfur affordability and availability remain key drivers, but we know the situation will improve. We've curtailed production, and we're relying on our strong balance sheet as a bridge to a more sustainable environment. Here are some key examples from the quarter. We further curtailed phosphate production and minimized our purchases of high-cost raw materials. We've locked in a significant portion of our third quarter sulfur supply at reasonable prices that, while historically elevated, are still well below the current spot market. Across our business, we're aggressively managing our costs, which you can see in SG&A. These are real savings that we expect to be permanent. We fortified our liquidity by terming out short-term debt. If this environment persists, we have full access to our untapped $2.5 billion revolver. And we've addressed all of these near-term issues without sacrificing our long-term goals. We're reallocating underperforming capital away from non-core assets to support future opportunities. We continue to explore strategic opportunities for certain assets, including Araxa and Patrocinio while investing in new areas like our fast-growing and resilient Mosaic Biosciences business. Before I get into our business performance, let's address the sulfur situation in our markets. The ongoing Strait of Hormuz closure and the more recent Kazakhstan blockade continue to impact the global flow of sulfur and spot prices remain unsustainably high. We have curtailed production in the U.S. and Brazil simply because phosphate industry economics cannot accommodate current sulfur prices. That said, Mosaic is in a better position to weather the storm than most of our competitors are. Our long-standing relationships with Gulf Coast refiners and other global suppliers give us reliable access to sulfur. In fact, we were recently able to negotiate third quarter U.S. sulfur supply at a price that is considerably below the spot market. We are producing to meet as much demand as possible while trying to preserve margins and avoid high-cost inventory building. The sulfur situation is more than just an inconvenience for our industry. We believe global phosphate production will fall well short of last year by up to 30 million tonnes. With last year's low application rates, especially in the U.S. and limited fertilizer availability this year, crop yields will suffer, which could lead to food security challenges around the world in the near term. We are already seeing evidence of challenges. In Brazil, for example, despite significant acreage expansion, total crop production forecasts for the year have not kept up, suggesting significant yield impacts. Another season of under application will only exacerbate the problem. Only recently have crop prices begun to acknowledge the reality of production challenges around the world. In the past month, major ag commodity prices have moved up, providing some relief from high input costs for the world's farmers. The outlook for farm incomes is improving, which should be a catalyst for fertilizer demand. We're seeing early signs of this in Brazil. While shipments remain below historical levels as a result of ongoing credit issues, over the past several weeks, fertilizer shipments to Brazil have been very strong as growers respond to improved crop pricing. We expect phosphate prices to remain at current levels with sulfur-driven supply challenges as well as severely reduced Chinese exports, availability is likely to remain limited in many parts of the world. As we expected, the temporary suspension of the U.S. countervailing duties on phosphate imports from Morocco has not yet had an impact on NOLA prices. Phosphate prices remain higher in other key regions of the world and producers can realize higher netbacks selling in markets outside the U.S. So there is little incentive for producers to send fertilizer to the U.S. In addition, as part of the ongoing sunset review, the U.S. Department of Commerce has determined that the illegal subsidies that led to the duties in the first place remain in place in both Russia and Morocco. And the U.S. Court of International Trade recently reaffirmed the International Trade Commission's determination that the subsidies cause injury in the U.S. market. We are confident that the duties should continue once the suspension ends. While phosphate and sulfur markets are quite volatile, the potash supply and demand picture is much more balanced with product moving freely around the world and global supply meeting strong demand in all major potash-consuming regions. In fact, our summer fill program was fully subscribed. Strong palm oil economics and inventory replenishment in China bode well for ongoing good potash demand. Overall, we expect the potash market to remain constructive through this year. And longer term, we continue to believe that announced potash capacity expansions will be absorbed by steadily growing demand. Let's move on to our business, which is performing well, all things considered. Our global market access remains an important advantage. During the second quarter, we produced and sold 1.4 million tonnes of phosphate despite all the turmoil in the market. We were able to achieve these numbers because we have strong customer relationships across key agricultural markets, and we optimize our product mix to meet shifting demand. In addition, our ability to flex production and manage through the cycle is supported by the extensive work we completed over the past 18 months to fortify our assets. We're prepared to ramp back up to full production rates when market and raw material conditions improve. Potash remains a steady earnings and cash flow contributor and our recent investments, including the HydroFloat project at Esterhazy will provide meaningful benefits. In Brazil, where we have curtailed all phosphate production, except for high-margin products due to sulfur availability, our business continues to perform well. Given the overall market conditions, our $60 million of EBITDA for the quarter highlights the resilience of our Fertilizantes franchise. Capital allocation remains an important pillar of our strategy, and we continue to make good progress. We closed the Carlsbad sale. We're optimizing our Brazil portfolio with the advancing process to divest our Araxa complex, and we're allocating capital in pursuit of promising growth opportunities. The Rainbow Rare Earth Elements project in Brazil continues to show good potential, and our Mosaic Biosciences business is on track to double its revenues once again this year. I want to note that Biosciences growth is strong despite current farm economics, a clear indicator that growers are finding real value in our proven products. To summarize, we are attacking a difficult market situation by doing all we can to keep the company strong and preserve our ability to benefit from improving markets. Now over to Luciano for more detail on our financials.
Thank you, Bruce. If there is one takeaway for investors regarding our financials, it's that we are effectively managing factors under our control as we wait for a more sustainable market environment. In Phosphates and Fertilizantes, our operating costs were impacted by reduced absorption due to curtailed volumes. We're now doing two things simultaneously. First, we're aggressively removing fixed costs where we can, especially in Brazil to better cope with the temporary curtailments and to enable us to come back leaner when we restart. Second, we're maintaining our focus on asset health so that we can return to full production rates when the time is right. In the near term, however, ongoing curtailments are expected to result in limited fixed cost absorption and elevated idle expenses in Phosphates and in Fertilizantes in the third quarter, but this is temporary and does not represent what this business is capable of in normal operating conditions. In our U.S. Phosphate business, we've shown an ability to manage our input costs. In quarter 2, our raw materials costs averaged $522 per long ton for sulfur and $621 per tonne for ammonia, resulting in an average realized stripping margin of $422 per tonne. For quarter 3, as Bruce discussed, we settled a sulfur contract at $705 per ton. While much of this new contract price will be reflected in fourth quarter sales, we do expect some impact later in the third quarter. Given the dynamic nature of the market, we have chosen to once again provide some guidance for near-term raw materials costs. Therefore, for the third quarter, we expect realized sulfur costs of approximately $700 to $710 per ton and ammonia costs of approximately $610 to $620 per tonne. Combining this with our DAP FOB pricing guidance of $820 to $840 per tonne yields an implied realized stripping margin well above historical averages, which is a good result. In Potash, we successfully completed Esterhazy's annual turnaround during the second quarter. Looking ahead, the segment should see lower unit costs, especially with the additional volumes from Esterhazy's HydroFloat project. Second quarter MOP costs of $84 per tonne reflected a production mix that was more heavily weighted towards Colonsay volumes, but we expect to revert lower in the second half of the year. To offset some of the second quarter's curtailment impacts, we've become more aggressive in our review of corporate spending. You can see in our results that we've brought SG&A costs down by 20% year-over-year despite persistent inflation. Increased spending discipline, reduced support labor costs, lower bad debt expenses and benefits from recent divestitures are driving these savings. In the second half of the year, we expect SG&A to decline further as more of these savings are realized. From a cash flow perspective, we're starting to see the results of our actions. Mosaic's cash flow from operations improved through the first half of the year, and it is expected to rise further in the third quarter as working capital is released, mostly in Brazil and as additional cost reductions are realized. These are expected to more than offset any impact from higher raw materials costs. Combined with our lower CapEx expectation for the year of $1.2 billion, down from $1.25 billion, we expect sequential improvements in free cash flow in the third and in the fourth quarters. Our strong balance sheet continues to provide us with the flexibility to manage through this environment. In the second quarter, we put in place a $1 billion term loan to replace and extend very short-term commercial paper maturities. We refinanced $500 million of our commercial paper in June and the rest was done in July. We have a very comfortable short-term liquidity position. We have not tapped our revolver at all, and we will continue to evaluate opportunities to optimize our balance sheet. On the capital reallocation front, we continue to evaluate opportunities to optimize our portfolio and reallocate capital. We're advancing the process around Araxa, and we are progressing several opportunities involving our landholdings. To close, we've taken decisive actions and executed well as we work through the sulfur situation. The steps we have taken, first, across our operations; second, in our cost structure; third, in our capital spending; and fourth, in our balance sheet have all positioned us well for an ultimate recovery as market conditions normalize. And with that, I'll turn the call back to the operator for Q&A.
分析師問答
Operator instructions. And the first question for today will come from Duffy Fischer with Goldman Sachs.
Question is really about consumption in the Americas. We know that last fall we didn't put down phosphate, and I saw on phosphate that we shorted the market. There's speculation we did the same thing in the first half. For this crop year, what's your best estimate for how much below normal phosphate application was in North America? And looking ahead, what do you think phosphate application in Latin America will be relative to normal?
Duffy, thanks for the question. You're right. We did see, as you said, application in North America down on phosphate last year. We're seeing the same thing this year. I'll turn it over to Jenny to give more details, but we also expect declines in Brazil and Latin America as well, mostly driven by Brazil. So let me turn it over to Jenny to give you details.
Sure. As you said, Duffy, last year we believe phosphate application in North America was down close to 15% versus a normal year. This year we are forecasting that application rate will be cut by around 20%. Compared with a typical phosphate application in North America, we are talking about more than a 30% decline in 2027. This reflects a combination of farm economic challenges and affordability issues, but there are also availability constraints. In Latin America, especially Brazil, phosphate application did not decline last year; in fact, we saw some growth. However, this year we are forecasting a similar decline in Brazil of about 30% at the nutrient level, and that pattern is likely to extend across the rest of the Latin American market. This under-application of phosphate will have a profound impact on yields, particularly in North America and Brazil. Based on what has been applied to fields and yields over the last two years, additional phosphate removal from the soil could be up to 1.3 million tonnes of DAP equivalent in Brazil, and about 1.4 million tonnes of additional nutrient removal in the U.S. With this extra removal of phosphorus from the soil, yields will be affected. We have already started to see yield impacts for recent crops in several major Brazilian states; despite increased harvest areas, yields have fallen. In the U.S., we may see yield impacts this year as well, which could be even more pronounced with adverse weather events.
Your next question will come from Joel Jackson with BMO.
I'm trying to understand a bit about some of your guidance around phosphate in Q3. It's the ammonia cost you gave of $610 to $620 a tonne. It seems surprising considering I imagine that these run rates you're running at really just tonnes, cost and cost plus. I just want to ask about what's going on there? And second part of the question would be, does this sort of imply that phosphate earnings are lower in Q3 by a little bit, a lot. So can you just give us color about Q3 phosphate earnings, all the things you're talking about and what that implies like relatively versus Q2 earnings?
Yes, Joel, thanks for the question. We did, as Luciano pointed out, see ammonia go up a little bit. Part of that is due to the flow-through of inventory of the contracts that were settled in June and July. So June, July, August came down; we'll see that actually flow through COGS in quarter 4 on the ammonia side. But to your point, a mix just because of lower production is going to be more heavily weighted towards those contract negotiations and our own internal production. So we're going to see a peak of that in Q3, which does kind of hurt stripping margins a little bit as well as the ammonia that Luciano talked about. But I would use those as factors as you're looking towards guidance. The other factors to think about are cost absorption for the additional production down in North America. Quarter 2 didn't represent all of those curtailments. Quarter 3, given that those curtailments are likely to be sustained barring some unforeseen circumstance in the market, we'll have to absorb more of that. So that will affect some of our conversion costs on the margin as well. So expect stripping margins to be down, but still the good news is they remain well above historic levels. We're feeling good about where they are; even though there are some headwinds, we should start to see some tailwinds on pricing. As Jenny alluded to on yield impacts, we're starting to see crop and ag commodity prices respond at a favorable level, which should raise the affordability piece on the farm side, which really is another constraint that may not be seen because of supply constraint. But that demand constraint definitely is out there if supply were to come back. Luciano, I don't know if you want to add anything?
And again, because we're guiding for sales between 1.1 million tonnes to 1.4 million tonnes compared to this quarter, 1.4 million tonnes, again, depending on how the market goes, there could be a little bit of downside in volumes as well.
The next question will come from Vincent Andrews with Morgan Stanley.
My recollection is that you were previously expecting about a $400 million outflow of working capital through the course of the year. Is that still a good number to work with? Or do you think it will be more or less based on what you know today?
Yes, Vincent, I think we've said $300 million to $500 million so $400 million is, yes, the midpoint of that kind of range. We do still expect that type of liberation. We saw some of that in Phosphate in the first half, but the bigger one that we've been pointing to comes often many times in this time of year historically is the liberation of working capital in Brazil. But we actually see that being more acute this year because our B2B business, our production is down. So you actually see more liberation. But Luciano has some details on that. I'll let him talk about it.
Okay. Vincent, so bear with me, this is going to be a little longer answer. So in Q1, we actually were kind of flat in working capital compared to a big investment the year prior. So that was a result of the destocking of phosphate inventories. In Q2, we actually increased inventories again by $200 million, but mostly in Brazil. And we actually collected a lot of the sales from the Q1 excess inventory that we discharged in Phosphates. So therefore, the working capital kind of situation in Q2 was negative, but not by a large amount. Again, if you compare it to the prior year, it's a little better given the quarter we're talking about because of these collections from Q1. What really disappointed in Q2 were actually the prepayments in Brazil. If you look a year back, if you look in the cash flow statement, there was a very strong cash inflow from what we call accrued liabilities, which include prepayments we received from our customers in Brazil in anticipation for the sales of Q3. But there has been a clear change in buyer behavior because of many factors. So prepayments didn't come in as much, so close to zero. So the prepayments did not offset this small decline in working capital. But the consequence of that is that because prepayments didn't come in Q2, farmers will actually need to pay for the product in Q3. And so the sales in Q3 will be, as they've always been, substantially higher. Just to give you a number, in the last three years, Brazil has sold 600,000 tonnes on average more in Q3 than in Q2. So these sales will kind of repeat this year. And the collections that are going to come from these sales are going to come mostly in Q4. So we should expect, first, some release of working capital in Q3, maybe between $100 million and $200 million, but the bulk of the $300 million to $500 million will come in the fourth quarter when the collections come in. So I would say we are still subscribed to the $300 million to $500 million release. The dynamics has changed a little bit. But yes, the last point that Bruce mentioned, this one is important because the distribution business in Brazil, you buy and you sell. So the cycle is comparatively short. The production business, you produce all over the year and then you sell mostly in Q3, which means that if we were producing, we would be rebuilding inventories in production in Q3 and in Q4. But because we are mostly curtailed in Brazil, that will not happen. And so therefore, the release in the distribution business will not be partially offset by another build in the production side. So again, that's another factor that the reason why we believe the $300 million to $500 million will come. Again, maybe one-third of it will come in Q3 and two-thirds in Q4.
The next question will come from Chris Parkinson with Wolfe Research.
Got it. Can we take a step back? Given all the noise around curtailments, which have been widely publicized, and your release saying Bartow is operating at about 40% while Louisiana is entirely offline, does the third-quarter production and volume guidance imply that both New Wales and Riverview are running in the low to mid-70s? I know there was maintenance activity in the first half, but regarding getting both facilities, specifically New Wales, back to an operating rate you would be happy with and the implications in a normalized environment, Bruce, I'd like your thoughts on where we are in the third quarter, how we're progressing, and how to think about operating the network once things normalize.
Yes, Chris, I think you're pretty spot on about operating rates in the mid-70s at the other facilities. Let me step back and set the stage. After Q1 and the Q2 turnaround at New Wales, and before the larger curtailments and the move to conserve sulfur inventory that was cheaper coming out of Q1 and Q2, New Wales was operating at essentially full utilization and we were seeing encouraging signs. After that we pulled back across Louisiana and much of the Central Florida network to conserve sulfur, so the strong signs were mostly for parts of the month after restart following the turnaround. Riverview also had a turnaround and came back online, but it never really had a chance to run at full capacity because we were already sulfur curtailed. So we have seen good signs at all of our facilities. New Wales was the last to come out of turnaround and did get a chance to run up to its full capacity target, and we were very encouraged by that. The sulfur situation, as you noted, is constraining us. We are currently limited to sulfur under contract volumes. Those contract volumes would support the full run rates you described, Chris, but right now New Wales and Riverview are still a bit below that, Bartow is at about 40%, and Louisiana is fully down. That sulfur supply is the constraint we are optimizing around. How we operate week to week or month to month depends on product demand, since not every facility can make every product. Those are the target operating levels, but if, for example, we see higher DAP demand from the international market, we would run Bartow more and run Riverview or New Wales less because Bartow can produce more DAP for that active market. It’s a bit messy while we’re under this constraint, but we are managing to the sulfur limit and aligning production to where active demand and the highest netbacks are, given what product mix each facility can produce. Other considerations like water balance and staffing utilization across the network also factor into those decisions. The current approach is not to push any single site hard; it’s to optimize around the sulfur constraint and supply the active markets from Central Florida now that Louisiana is completely down. I know it’s complicated and I wish there were a simple formulaic answer, but we can follow up on a call if you’d like.
The next question will come from Jeff Zekauskas with JPMorgan.
It's a two-part question. Your cash flows from operations are about $270 million year-to-date and your overall spending on CapEx, loss and dividends is about $1.5 billion. So, order of magnitude, if cash flow from operations this year is $900 million assuming you hit your working capital targets, or $1 billion, will you be roughly $500 million short of the cash outlays you have to make? And secondly, Faustina is your lowest-cost source of ammonia. Why is Faustina being closed down? Is it because you have commitments to buy ammonia and would therefore have too much supply? What's your strategy there?
I'll let Luciano answer the first part of the question, but let me address the Faustina issue because there's some misunderstanding. We are running Faustina's ammonia plant at full capacity and using that ammonia within the Florida network. So this is a product-mix question: how we manage water going into hurricane season and what outlets we have at each facility. Louisiana has a lot of flexibility to be completely down on fertilizer production. We will take advantage of the producer economics for ammonia and ship it across the Gulf into Florida. If we have excess, we would sell it into the market because it's attractive from a profitability standpoint. But the intent is not to run it just to sell it; the primary intent is to run the ammonia plant to supply the Florida network.
So Jeff, your numbers are correct, both for the cash flows from operations for the full year and for the sum of the capital expenditures with the dividend, which means, yes, we're going to be down around $500 million for the year. But most of it is past already. So I would say our expectation is to be indebtedness kind of stable in Q3 and then go down a little bit in Q4. And of course, if this goes into 2027, which we do not believe, we would need to pull additional levers to try to balance those things. But again, the message is, so far, we're managing for a temporary situation. And we believe not only this is unsustainable, but maybe as a follow-up to the first question on under application, whenever the bounce back comes, it will come up with a lot of pent-up demand. As much as people are talking about, for example, the need to replenish strategic oil reserves following the resolution of the conflict as much as there was a lot of revenge travel following COVID, there will be some revenge fertilizer application for years to come to support, we think, the business. So it's just a question how to manage until we get there.
The next question will come from Ben Theurer with Barclays.
I wanted to dig a little bit into your outlook for the back half in Fertilizantes, just given that the purely the focus shifts towards South America. So you've mentioned in your release and in the commentary that you expect profitability to be down in the third quarter compared to the second quarter. Can you help us understand what the main drivers are behind that? Is that just associated with your own production? Is that part of the distribution business coming? Is it all of it? And then how should we conceptually think as you look into these dynamics around increased crop pricing and so on for the business in South America as we move into the fourth quarter?
Yes, I appreciate the question, Ben. Let me set it up and then Luciano can get into more details on EBITDA and how to think about that for Fertilizantes. Starting with volumes in the third quarter: Q3 is always the peak volume quarter in the calendar year, and we expect that to be the same this year. Historically, Q3 over Q2 is roughly 600,000 to 800,000 tonnes higher quarter-over-quarter, and we would expect the same this year. What is muting the full historical potential is our production being down. We are not making, or are making very little, commodity fertilizers in Brazil because of sulfur availability and affordability issues. That is driving lower supply relative to demand in Brazil. Jenny noted phosphate production is down roughly 20 to 30% this year, which will affect volumes. So volumes should be better than quarter 2 — typically up 600,000 to 800,000 tonnes — but our quarter 2 this year was down and remains constrained because we don't have B2B production volumes to sell. That will handicap EBITDA, and we expect to be down more than we were in quarter 2. Luciano can discuss how to think about the EBITDA puts and takes for Fertilizantes.
Yes. I would say the goal during these curtailments is to make the production business stand on its own, essentially a zero net contributor. This is achieved by having the contribution margin from animal feed sales, plus some sulfuric acid sales and co-products, match the fixed costs and turnaround costs. We're actually seeing a small surplus in Q3 because it's a strong quarter for co-products. A reminder: when people ask where co-products come from if we are not producing, about half of our co-product revenue comes from gypsum sales, and we have a very large gypsum stockpile. To sell gypsum to Brazilian farmers, we do not need to produce, so those sales will occur regardless of curtailments. Gypsum represents about half of co-product sales. That is the first bucket: margins from animal feed, sulfuric acid and co-products should cover all fixed and turnaround costs in production. The other bucket is distribution. Q3 is very strong for distribution, and margins, while not yet where we'd like them, are slowly improving. In Q3 we will also start seeing contribution from Biosciences in Brazil; we expect around $30 million of sales in Brazil with a contribution margin around 40 percent, which translates to roughly $12 million of contribution from Biosciences in Brazil. If you add distribution margin plus Biosciences on one side and SG&A on the other, there will be a surplus in Q3, and we hope to maintain a surplus going forward so Brazil stays in positive territory. It will be harder in Q4 because it is a less prominent quarter, but for Q3 we are confident we will be positive, although the $60 million we mentioned may not be achieved in Q3.
The next question will come from Matt DeYoe with Bank of America.
I appreciate there's a lot of uncertainty, and I'm trying to get a sense of the idle turnaround costs in Phosphates for the third quarter. It was $60 million in Q2 and your commentary suggested it will increase. Roughly, is $100 million the right number for Q3? Could it be $120 million? How should we frame that? And you're guiding potash realizations to be relatively flat quarter-over-quarter, maybe up about $10, which is a bit softer than our expectations and what we've seen in the market. Is that simply a function of higher freight rates driving lower netbacks to FOB, or is it due to selling forward? What's going on there?
Let me take the back half of your question, and Luciano can talk a little bit about the idle turnaround. You're spot on with freight rates, particularly on the export side. So Canpotex is definitely seeing higher freight rate. So the netback impact is there. The other thing is in the mix. So where we're seeing growth in Potash is through Canpotex. And so the contribution, it's a channel mix issue. There's more export in Q3 than what we have historically seen. We're not losing anything in North America. It's just more international growth through Canpotex that is at a lower netback and then being discounted even more because of those higher freight rates. So I think that's probably what hopefully squares the circle or circles the square for you on why there might be a disconnect. Luciano, maybe over to you on turnaround idle.
So Matt, the $60 million in Q2 is basically half and half, half idle, half turnaround. And so yes, for Q3, that idle component, it's probably going to double, right? So it's another $30 million. But the turnaround component is going to half probably. So maybe we're talking about $15 million, let's just put a bracket $10 million to $20 million additional from Q3 to Q2. But in the fourth quarter, you're going to have an additional reduction in turnaround because you're not doing turnaround on something which is either, right? So you're going to probably go back to the six-handle in the fourth quarter. So it's not $100 million, it's not $120 million. It's well below that.
And maybe just to highlight that: these plants, if you take Louisiana, are now 100% down. They are basically being put in a frozen stasis, so they're not being utilized. Planned turnaround schedules will be delayed, so CapEx that would normally be invested for a routine turnaround is going to be deferred. That does not mean we're deferring CapEx for asset structural health. Even though these assets are not running, we're still adhering to their scheduled turnaround times. While they're down, we are taking advantage of both CapEx and turnaround costs that will be deferred until they are back up and running, and we will use that runtime for turnaround work. It is, again, complicated, but we are looking very closely at everything and taking advantage of everything we can, focusing on the things we can control to wring costs out in a way that doesn't damage asset health for the long term.
By the way, we didn't have the opportunity, but the CapEx profile. So you remember, we started the year with $1.5 billion, then we got back to $1.25 billion and then now $1.2 billion. The pace at which you kind of slam the brakes matters here. So CapEx will still be in Q3 somehow around like $300 million, with a three-handle, but then it will drop substantially in Q4. So it's another reason why Q4 should be a stronger quarter for cash flows just because that's the way you manage, right? You cannot just stop all of a sudden. So you have to manage through and then you're going to see a step change in CapEx down for Q4.
The next question will come from Edlain Rodriguez with Mizuho.
Bruce, in terms of the affordability issue in phosphate, like how long can this go on? And how do you think it gets addressed? Is it crop prices moving up or phosphate prices moving down or combo? And what's your preference?
Edlain, no, thanks. I always appreciate the question. Yes, it's impossible to know exactly. I think it's probably a combination of both. In what proportion, I don't know. I don't think that I have a preference to be quite honest, Edlain. I think in my mind, what's most certain is, as Jenny outlined, there has been up to 30 million tonnes this year of production that just won't happen, depending on how long this sulfur availability thing is prolonged. If it goes to the end of the year, the number can be up to 30 million tonnes based on our calculation. Already less phosphate applied last year, a significant reduction this year in Latin America and in the U.S., the agronomic science has not changed. So this will have an impact on yields at some point and then layer into the risk of what does El Nino do globally. So I think ag commodity prices are set to continue to rise as more evidence as crop gets removed over the course of the next three months, four months, six months, which is going to provide tailwinds for farmer demand. It won't take much for farmers to change the narrative on affordability. If corn hits $5, north of $5, that is going to provide a lot of sentiment positivity. It's going to provide a lot of tailwinds. And the place that I would look first is in Brazil because the soil type just doesn't have the ability to bank nutrient value for mining it later as much as North America. But as Jenny said, in North America even, we've mined almost 2.7 million tonnes over two years of phosphate out of the crop removal from '25 and now '26 projection above what is average, and we aren't applying average nutrients to replenish that. So I think crop prices are going to rise. What happens with raw materials, your guess is as good as mine. But what we are in today is not sustainable. There will have to be a new economic equilibrium hit in order to not have yields on a long-term sustained basis stay negatively impacted.
The next question will come from Kristen Owen with Oppenheimer.
I did want to ask two things here. First, there was a write-down in the period. Can you just articulate what that was? And then my real question just is on your inventory levels. You finished the quarter at about 125 days. Can you just help us parse out how much of that is raw versus finished goods? And how we should think about that being sort of elevated levels versus elevated prices? Just provide a little bit more color on that inventory level, please?
No, Kristen, thank you. The write-down was a capital project that we had looked pursuing in the past, which was purified phosphoric acid and going into battery cathode material. I think we had talked about that publicly two, three years ago. It became the point that we pretty much ruled out that ever being a possibility and took the write-down noncash. On the inventory, Luciano, I'll turn it over to you, maybe you got some more color on what's driving.
Yes. So, Kristen, you probably looked into it. There's a footnote in our financial statements — I think it's footnote 5 — which gives the breakdown of inventories in the various categories. Raw materials have been on a trend up because of prices, of course, but I would say they tend to go down now because even if you keep the same days of inventory, you were running fewer facilities, especially in Brazil, where sulfur inventories are pretty much going to go down to zero. The same will probably happen with work in progress as well. You may remember past conference calls when we talked about an accumulation of rock inventories. There was still a little bit of buildup in Q2 because you stop facilities but are still processing rock, but structurally these tend to go down a little bit as well. As for finished goods, in terms of physical inventories there is no different pattern for Phosphates or for Potash than we observed in the past. There was an uptick in finished goods inventory for Phosphates in Q4 last year — we ended up with close to 1 million tonnes of finished goods, but now we're down to around 600,000–700,000 tonnes, which is a healthier level. If demand rebounds, we might even go lower than that. MRO inventory is fairly stable and flat as well. So, other than the traditional seasonality of Brazil, which will behave as I described earlier, from a physical perspective the absolute trend for inventories is coming down, and of course you layer on top of that the price effects.
The next question will come from Lucas Beaumont with UBS.
So I guess just want to get back to kind of the Phosphates volume outlook. So based on the current conditions, what you know today in terms of the pricing, input costs and sulfur and ammonia, if conditions kind of remain where they are now, what would you expect to do from a production footprint reduction standpoint as we go into the fourth quarter? Would you keep things the same in the U.S.? Would you reduce them? Or would you be able to increase it further?
Yes, Lucas, I appreciate the question. Under your assumption, which I would say is not far from where we are assuming right now, production would stay as it currently is. We would consume what we believe is advantaged sulfur versus the competition. We know there are enough active markets globally to utilize that sulfur while restricting ourselves to the advantaged contract sulfur we have in those markets. Based on that, we expect production volume may fluctuate by 100,000 to 200,000 tonnes here or there, but generally being in that ZIP code is a reasonable assumption.
The next question will come from Andrew Wong with RBC.
I just have a couple of questions. When things normalize and you return to regular operating rates, how quickly could that ramp-up occur? For example, if the Strait opened today, could you get back to regular operating rates by September? My second question is about the sulfur contracts. $705 per long ton was well below spot prices. Can you explain how that pricing came about? And if the Strait remains closed into Q4, could you still sign another contract at a roughly similar level?
Let me start with the latter part. I think it's worth talking about that we were able to create a separation on that settlement cost from what spot solid sulfur was. And I think that is a testament to the relationship that's very symbiotic that we have with the Gulf Coast producers here in the United States to be able to take their molten supply and give them a baseload that's very ratable and doesn't jeopardize their primary existence, which is to produce oil and gas. So that is a relationship that has worked in ways that favor us and in ways that favor them over the decades that we've had this advantaged relationship here in North America. So I can't speak to what we should expect. I think they appreciate, as we've appreciated when economics have been tough for them in the past, that we are riding the edge on economics because we can't pass through that on the demand side because then we will run up against demand disruption. So we found this way to thread the needle. I think they appreciate that. They appreciate our relationship and our expectation is that that continues to stay there. I can't guarantee what that is going to be, but I think we've proven in Q3 that we have that relationship, and we would expect to continue to see something there. How fast we can ramp back up? It's going to depend on, well, in your scenario that magically things just return, which, by the way, they won't. It's going to take time to recover. Even if the Strait opened up tomorrow, there's damage in refineries that are producing sulfur, what's going on in Russia and Ukraine is independent of the Strait opening up, what's happening with Kazakhstan restrictions has to change as well. I mean all of those things have to happen. But if magically sulfur were to return, we can ramp up pretty quick. As we talked about, we are making a priority to protect asset health and any of the decisions we're making about capital prioritization to do just that. Now granted, if things become protracted for even longer, that may add a little bit of time. But I'd say we're talking weeks, not months to get back to production.
The next question will come from David Symonds with BNP.
It's just a follow-up on Jeff's question about the realized ammonia costs in Faustina. You talked about $610 per tonne to $620 per tonne realized ammonia cost in Q3. I just want to understand, does that include the internal buying of Faustina and the kind of advantaged supply there? And if it does, I would have thought Faustina would be quite a large portion of your ammonia supply at the guided production rates of phosphates. So could we see a big drop in the ammonia realized cost in Q4?
It does include that, and it includes our internal volumes. It's based on the other contracts we've settled and how those will flow through inventory. A large portion of our production is either internal gas-based or gas-tied contracts. We still have some spot volumes in there. The settlement prices for our strategic contracts that are negotiated monthly are all included in what Luciano was talking about regarding the impact on COGS. That does include our Louisiana tonnes.
This will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.
To conclude our call, I'd like to restate our key points. While sulfur affordability and availability are challenging for everyone in the phosphate industry, we know that the crisis will come to an end. We're taking all the necessary actions to weather the storm, cutting capital and other costs, idling facilities where necessary, redeploying capital in pursuit of higher returns and further strengthening our balance sheet, all while preserving our ability to thrive when conditions improve. So to be clear, Mosaic remains in an advantageous position with access to U.S. sulfur and open shipping channels in the Americas. In fact, our raw material advantage moves us down the cost curve at times of stress like we're feeling right now. At the same time, we're pushing to grow with incremental tonnes in potash, our very promising Mosaic Biosciences business and potential for new minerals extraction. Put simply, this is a tough time, but Mosaic is strong and resilient and better markets are ahead. So thank you, and have a great and safe day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.