Earnings Call: Q2 2018

Aug 7, 2018

Maintain important information on these non GAAP measures. Now, I'd like to turn the call over to Joc. Good morning. Thank you for joining our 2nd quarter earnings discussion. I would like to start by welcoming Clint Freeland, Mosaic's new CFO to the call. Clint has been with us a couple of months now, and he is fully immersed in the business. Our results for the quarter reflect continuing improvements in business conditions as well as meaningful benefits of our many strategic moves, including the acquisition of Vale for Losanches and the transformation of our cost base across the company. We would like you to take away 3 key messages demonstrating both the resilience for the remainder of For the quarter, net earnings were $68,000,000 or $0.18 per share after adjusting for notable items, primarily non cash items related to foreign currency changes, Mosaic earned $0.40 per share on sales of $2,200,000,000, up both sequentially and year over year. We have also raised both the full year adjusted EBITDA and adjusted earnings I'll begin with brief observations on the market. Starting with phosphates, if we look back a year or 2, 2018 was expected to be struggling to absorb the new production. What we're seeing today is a relatively tight phosphate market, which strong demand offsetting the gradual ramp up of new take a long time to reach full production capacity. That includes our joint venture with modern in Saudi Arabia, as it gradually works towards its stated capacity of 3,000,000 tons annually. In addition, Mosaic's idling of Plant City and ongoing restructuring of the Chinese industry have further tightened the S and D, with phosphate industry stripping margins now at their highest point in 4 years. That obviously is safe production capacity included in our recent acquisition in Brazil. Mosaic's global network of analysts expects global phosphate demand to reach another new record next year, with 70,000,000 to 72,000,000 tons of shipments predicted. New supply will continue to gradually come into the market at a pace we expect will be challenged to keep up with growing demand. As a result, we expect The global supply and demand picture remains balanced, and the prices are holding up well. Potash demand and producer shipments through the first half of twenty eighteen continued at a strong pace following last year's record setting numbers. Despite the recent drop in agricultural commodity prices, nutrients remain affordable and farmers are replenishing depleted soils after several back to back large crops. As we look ahead, we believe demand growth will be We are keeping our eye on a couple of factors. 1st, Chinese phosphate experts have fallen year to date in part because of new environmental restrictions on industrial facilities in China. But as market prices and stripping margins rise, and the Chinese currency weakens, producers there may respond by resuming higher export levels. Longer term, we continue to expect high cost Chinese producers to balance the market, which is a positive for Mosaic as a vertically integrated producer. 2nd, agricultural commodity prices are in flux. While we will continue to closely monitor these developments, and assess their potential impact on global P and K shipments. At this point, however, demand prospects look strong in our 2 key geographies. Soybean economics are highly profitable in Brazil due to weaker reais and a record local basis. In North America, farmers are expected to harvest another large crop about a month earlier than normal, and that means they will have ample time to replenish the record amounts of P and K taken out of the field this fall. Now I'll move on and provide some insight into our business segments. First, in the phosphates business unit, we generated gross margin of $67 per ton or $70 per ton after notable items. More than double the same quarter a year ago. Margins obviously benefited from higher market prices for our product. Just as important, though, is the progress consumed during the quarter, our phosphate rock costs remained below $60 per ton. In addition, we had record quarterly sales of our MicroEssentials premium products. During the quarter, our margins were negatively impacted by costs associated with a once every 5 year turnaround of our molten sulfur barge as well as higher sulfur costs from using more prilled sulfur. These higher sulfur costs are expected to carry into the third quarter. In the potash business unit, Our gross margins improved sequentially with higher sales volumes, offsetting the cost, impact of weather related logistics issues, at the beginning of the year. As we discussed on our last earnings call, we experienced containment issues during the first quarter and that impact flowed through the P and L during the second quarter. Production costs during the second quarter remained very well controlled and prices inched higher. Which bodes well for our profitability for the remainder during the third quarter, which is embedded in our assumptions and our guidance. We continue to make good progress at K3 We recently commissioned the Overland conveyor, and it will soon be tied into the K2 Mill. All facilities are now in place to enter the production phase later this Longer term, we expect to continue to brine management costs at K2. Mosaic Fertilizante, our business in Brazil and Paraguay, is also performing well. The previously published pro formas showed the business was about breakeven on an adjusted EBITDA basis during the second quarter of last year. This year we generated $55,000,000 of adjusted EBITDA. Some of the improvement came from favorable currency exchange rate and higher phosphate prices, but much of the improvement resulted Our results in Brazil for the second quarter were negatively impacted by almost $40,000,000 for both planned turnarounds and the nationwide trucker strike in May. As a result of the strike, we idled production and lost shipment volumes lower adjusted earnings by approximately $11,000,000 before tax. We are continuing to monitor the situation closely as the government and the truckers work to find a more lasting resolution. Regardless, we believe our position at the low end of the delivered cost curve gives us a competitive advantage in Brazil. The teams in Brazil are well ahead of schedule savings this year and 2.75 several 100 projects from labor efficiencies to mine process improvements and increased chemical plant throughput. Year to date, $56,000,000 of gross synergies or $34,000,000 after cost to achieve have hit the bottom line. As an example, we are pleased to see While we believe it is likely we will achieve net synergies in excess of $100,000,000 in 2018, there is still much to be done. One of the key risks we continue to watch is the implementation of the government's published minimum freight rates. The entire Brazil team is energized and employee morale is very high, as Clint and I saw firsthand during a recent visit. It is worth reminding you that Brazil remains an extremely attractive agricultural market. Brazil is expected to surpass the United States in total soybean production for the first time this year, and the market needs fit well with Mosaic's product mix. Brazil's primary crop of soybeans needs high level of phosphate and potash. A final point on Brazil, The weak Brazilian real was a modest net benefit to us during the quarter. The benefit of currency devaluation are delayed as the changes impact the cost In addition, we are close to fully hedged Now a note on capital, our strong business performance in Brazilian customer prepayments are driving good cash flow, For the quarter, we generated close to $600,000,000 in free cash flow. We are using some of our cash to pay down debt, and work towards returning to our through cycle leverage ratio targets. In fact, with an additional $200,000,000 of debt retired already in the third quarter, We have already achieved our target of paying We seek to maintain a strong balance sheet and sustain our assets. And then we assess the best use of remaining capital, giving the opportunities we see. Including investments and shareholder returns. In total, we are pleased with Mosaic's performance for the quarter. We are optimistic that we will deliver strong results and our execution is generating real financial benefits. Range for adjusted EBITDA and in the $1.45 to $1.80 per share range for adjusted EPS this year. We have built a resilient business and our many strategic moves position Mosaic to generate attractive returns as this market continues to improve. Now, we will Our first question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open. Thank you, and good morning, everyone. Josh, you mentioned the higher stripping margins potentially helping sort of keep some of the Chinese capacity in the export market. How do you how do you think about that vis a vis your capability bring back Plant City, which would in theory, probably temper China's export. So obviously curtailing Plant Cities had great impact on the market, very positive impact on the market. But how do you counterbalance that with maybe the Chinese capacity not going away as fast as we thought? Sure. Excuse me. Good morning, Vincent. Good to hear from you. Well, let me start by just giving you a little bit of our thoughts on Plant City and I'm going to hand it to Corinne to just talk a little bit about some of these changes in China and And we do believe that with these higher prices, the changes will occur a little slower. We'll see higher utilization of some of the better environmental performing plants and the less expensive plants. But overall, I think we believe the trend is definitely that China will slowly decrease their exports. In terms of Plant City, the criteria for Plant City review has really not changed from last year. As you say, the thinking behind idling Plant City in the first place came from expecting to offset some of expected or might have been predicted. But at the same time, we still fully expect that production will come on in the next couple of years. Some of that will be offset by growth in the market, but we also believe some of that is offset by our own reduction in capacity. So with that, Corinne, is there anything you want to say about the Chinese market? We still are seeing, a lot of discussion about the environmental protection mandate that we've seen around the Yang Sea River The situation is still evolving and our local team has been doing a lot of work to try and get updates for us regularly. They are reporting reduced rock production at some of the mines and increased costs related to the Gypsum disposal And some producers are having real proximity challenges. They're too close to the river and they're being threatened with either closures or relocation, to get a little more distance. So that economic pressure in total on these producers is really starting to add up. We're seeing their cost structure go up and they're having to fully cover their costs. And that's part of why you're seeing these higher asking prices on their offers for exports. If you look at DAP map and triple exports, they are down for the 1st 6 months of the year modestly about 4% down, but it is starting to take effect. All that said, of course, with these strong stripping margins, it is really difficult to anticipate the pace of the restructuring. But like Joc said, in the long run, we anticipate you're going to have really a smaller, but financially healthier Chinese industry in the long run. And so let me just reiterate. Our criteria for restarting Plant City will be a real perceived longer term need for that product in the market. We don't see that today, but that may change in the future. Our next question. Okay, sir. Our next question comes from the line of Jonas Oxgaard from Bernstein. Your line is open. Good morning, guys. A two part question on, on the Vale Fertilis or Mosaic Fertilisanti, if you don't mind. First is just, first impressions. Now you've been down there for 6 months. And kind of what's what's your next steps here? The second is a little bit more math. In your Q1 earnings, you talked about 1 third of the realized synergies in the first half and 2 thirds in the second half. Now you're saying 56,000,000 so far, does that mean we have another $112,000,000 in second half? Or how should I think about that? Okay. I'll come back to the math in a second here, Jonas. By the way, good morning. Thank you. Yes, first impressions, first impressions of, of a Mosaic Fertilizantes, I think our first impressions have been that the opportunities were at least as good or better than what we had hoped for. We've seen an extremely energized team, probably the most encouraging perspective from my point of view is how energized new Mosaic employees are about making the changes and really becoming part of the Mosaic team. They're very excited about being part of a group that's focused on crop nutrition and delivery of crop nutrition. So that's That's really encouraging. As you kind of indicate, our synergy capture has been at least as good or better than what we could have hoped for. So now let me come back to the Q1 earnings question in terms of or sorry, the synergy question. 1st half of the year, yes, we have $56,000,000 of gross synergies. Net of cost to achieve, though, were more like 34. And we said we would achieve 100 including net of the cost to achieve. So 2 thirds of the next year we have or next quarter, we have achieve about $66,000,000 to the bottom line. And we're certainly running at a rate that will give us that. And we're encouraged that we might do better than that. We're running at a very good run rate, and we'll be very well positioned not only for achieving the 100. But for going into 2019 in a very good position to choose the 175. Thank you. Our next question comes from the line of Jeff Zekauskas from JP Morgan. Your line is open. Thanks very much. It's really a 2 part question. In your China phosphate export data, what you show is dap up about 10%, but map, down by about a third and TSP is also up. What do you make of the decrease in MAP shipments, but the increase in DAP shipments? And secondly, in the third quarter in your Brazilian operations, are there more turnaround costs or trucking issues or other cost inflation that you might note that would carry over from the 2nd quarter? Sure. Well, thanks, Jeff. I'm going to hand the China question over to Mike, but let me let me comment turnarounds were in the second quarter as we head into the main fertilizer season, we need our plants to be running well and be in good shape, which is why we take the turnarounds outside of the quarter. In terms of the trucking issues, The big issue there from our perspective is that the strike that the 2nd quarter. And it will probably come a little bit into 3rd quarter because of, cost of goods, but we've certainly covered that in our guidance. The biggest area of concern is there is while the trucking tables have been implemented by the government, A lot of people believe that is unconstitutional and anticompetitive, so they don't believe that that was, implemented correctly. So we're the government has yet to find really what we call a workable solution there. So the main exposure is from product sales, which include freight, and that we entered into before the strike. Now in these cases, we still have uncertainty and don't have the kind of clarity we need the implementation of that freight rate table. So there's a known exposure there, which we have incorporated into our guidance. However, there's also the risk because there is a lack of a clear resolution, there's always a risk of further disruption by the truckers. We don't think that's likely, but we do believe it is a risk. And it's one risk that we can't really plan for because it is obviously an unknown. Hopefully, that helps. But generally, the biggest risks to Brazil right now, we've got a good book of sales on. It's just execution and making sure that that trucking works. Thank you. Oh, and sorry, China. Let me hand that straight to Mike. I think he's got a pretty good handle on the S and Ds. Sure. Good morning, Jeff. I think, the numbers that you see in the first half are really indicative of the changes that we expect to accelerate in China over the next several years. 1, the increase in DAP imports is driven largely by strong demand in India or rebound in Indian imports this year. And that is being supplied by typically large integrated players who have more modern plants that are not located on the river and the like. The big drop in map, production really reflects some of the economics of the non integrated players that are mostly along the river, where, as Corinne mentioned before, they're incurring higher costs and more stringent environmental regulations that are difficult to comply with. And as a result, we're seeing a 33% reduction in exports there. Bottom line I think it's just indicative of things to come. Your next question comes from the line Steve Byrne from Bank of America Merrill Lynch. Your line is open. Hi, this is Ian Bennett on for Steve. Following up kind of the back of Jeff's question, it seems that not only China is exporting less MAP, but also your largest competitor in OCP is exporting less MAP and more DAP. Can you comment on your price realization in the first half of the year and the ability to switch production as well as if you think those markets will remain in a similar pricing levels or there will be any divergences? Thank you. Sure. Thanks, Ian. I'm going to hand this over to Corinne to talk about the price differences between MAP and DAP and and some of those progressions. What I will say, however, is from a production perspective, we have a strong ability to produce the products that the market needs. So we're driven more by market demand than we are about the ability to produce 1 or the other. We're switching those products all the time to better serve the market. Corinne, do you want to talk about the price realizations? Sure. Thanks for the question, Ian. It's actually a good point. With the idling of our Plant City facility, which produced quite a bit of DAP, we have seen a little bit of an increase in the DAP price relative to MAP overall in our market. That combined with the other factors that you noticed, a little less MAP exports out of China. We are seeing a little bit of an increase in debt price overall. As Joc mentioned, we've got the flexibility to be able to produce the products that our customers want, but we do have quite a bit of production on our MicroEssentials products now, and that is basically a map based pricing product. Mike, you want to add something? Just in terms of the fundamentals, as Kurt said, there's stronger DAP import demand by the U. S. Given the idling of Plant City Indian DAP demand has been very strong. And on the flip side, MAP exports into Brazil are off to a slower start this year. We expect them to pick up. So And I think we're seeing some changes in that price relationship already with Matt prices recovering, some of that, some of their premium. And I think that probably will continue given the strong import demand that we expect in Brazil second half of the year. Your next question comes from the line of Ben IFAxon from Scotiabank. Your line is open. Thank you very much. Can you talk a little bit about microessentials? You had record volume this past quarter. How are those markets doing, in Brazil and the U. S? And where does growth come from in the future And maybe you could triangulate that with where you stand with the patents and when those come off patent, what are your expectations from the competition? Thanks, Ben. Let me start by just giving you the main markets. We obviously started in in the U S because that's our key market. And we developed the product and the, research and whatnot in the U S. Brazil And Central And Central America became the 2nd target area. And frankly, quite soon, we're going to be running up against production limitations. Again, we have capacity to produce close to 2,500,000 tons, But that, we're going to start hitting that production limit, not too far out. So we're going to have to look at what's next for microEssentials, it's been such a successful product around the world, that we believe that there will be an opportunity to expand that further In terms of the patents, I might just hand that over to Mark Isaacson, our General Counsel in a second, but let me say one thing. As much as anything, our knowledge and how to produce and the scale of production of MicroEssentials, plus the proven 10 years of proven in the field results come and do a me too with or without the patent situation. Yes, Ben, thanks so much for noting. This was a record production and sales quarter for MicroEssentials, and it just shows the success that we're having with the product. Overall pricing has been maintained at the levels relative to MAP in all of our markets. And demand has been strong and growing. As Joc says, we're going to have to start to think about the further growth from there in production. And, in terms of the patent, I'll turn over to Mark Isaacson. Right. Even though that the primary, MicroEssentials patent, will be expiring in a few years here. We also have improvements that have been made to that product that we'll be, filing patents for. And as and that we have already. And as Joc mentioned, really, much of the MicroEssentials technology is in, in trade secrets and in operating knowledge that allows us to make them into quantities and the quality that we can. Your next question comes from the line of Don Carson from Susquehanna. Your line is open. Yes, thank you. Question for Mike. On slide 1718, you outlined your demand expectations for P and K. What do you see on the supply side? How do you see operating rates globally unfolding as we go through 'eighteen into 'nineteen and some of this new capacity starts up. And then just as a follow-up on Brazil, what's the overall impact of Rick rising freight rates, does that affect you more as a domestic producer or does it create a higher price umbrella because it'll lead to higher freight costs on a relative basis for imports of phosphate into Brazil. Let's, Mike, do go ahead and give the first part to that fleet. Okay. Yes, Dan, thanks for the question. Good morning. Yes, if you look at those charts, there's certainly a very good demand story unfolding. I should note that we have revised up, our shipment estimates for the past couple of years based on new trade information from various sources, including the international fertilizer association. And when you look at our projections for 2019, they are they do reflect a bit more modest growth from a much higher base. And I would emphasize that those are our initial forecasts. We'll see how demand plays out in particular how ag commodity prices move. We've seen a big drop off in June, but they are rebounding very nicely given a much smaller global crop than what was anticipated, especially for wheat. When you lay that up against increases in capacity, In the case of phosphate, we basically see a deficit in 2018 for half. We think that deficit was close to 500,000,000 tons. For the year, it could be in that 700,000,000 to 1,000,000 ton range. And what we've said in the past several earnings calls is that we're not saying the world is going to run out of phosphate. All we're saying is that price and margins need to probably increase as they have to levels that maybe trim a little bit of demand and also stimulate a little bit more supply from various sources. And for 2019, when we look at those changes, Given what we think will be a significant reduction in exports from China next year, We think that deficit situation likely will continue well into 2019, even with the continued ramp up of the additional capacity. And the same really holds true for potash as well. There are some puts and takes, obviously, on the supply side with some facilities winding down production and others, ramping up. But the bottom line is we see a balance to tight situation in the global potash market through at least the end of next year. An answer to your second question, Don, clearly one of the advantages of our Mosaic Fertilizantes business is the proximity to the key agricultural markets. So freight is a much lower component of our cost structure in Brazil than it would be for an imported product. As such, we expect that in general, we have a freight advantage and proportionally, our freight advantage would increase with the cost of freight. Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open. Yes, thanks. Good morning, everyone. A question on Fosafe in North America. Between the closure of or idling of Plant City And Nutrien closing the Redwater plant by the end of the year. The North American market imports import requirements are going to are going up by a pretty meaningful amount. I just interested to hear your thoughts on the market structure and pricing structure where the U. S. Continues to trade at a pretty healthy discount to key to the export prices or import equivalents from Brazil. Just not the best netback market for Moroccan or Russian product and how do you think the market structure evolves over the next 18 months? If that discount persists, I mean, and how you think about your own sales mix in that context? Thank you, Adam. Yes, let me start by saying clearly the import requirements into the U. S. Are increasing by both Redwater and Plant City. There's no question of that. I suspect some of the, redwater plant may be brought up by other production within the Nutrien group. I'm not sure of that, but it certainly indicates that there will be a need for more imports. And those imports have not been coming into the U. S. Market at the rate they might need to because of the discount that we're seeing at the New Orleans price. Over time, They will have to equalize those price to drive the redistribution of fertilizers from the Brazil market. So in other words, the U. S. Will have to pay up, or the fertilizer will go to the, to the Brazil and other markets rather than the U. S. So I mean, free market systems mean these have to work out over time, and we think that's positive for the U. S. Market. Anything to add, Corinne? No, I think the only thing I would add is, you asked about Mosaic's own export sales. And We do have a pretty heavy export lineup coming up. These, markets in Brazil and other areas have been pulling product pretty hard. We are starting to see a few more vessels into the lineup, into the U. S. Market. I think it indicates people are starting to become aware of the needs for this market to move June statistics came out and we have a complete picture for the 2017, 'eighteen fertilizer year that ended on June 30th and indeed We did see record phosphate imports into the U. S. Of about 2,500,000 tons. The only thing I would add on North America is that there's some really interesting things I think going on in the market. When you look at implied shipments in North America, they are trending upward. And I think that reflects the fact that these massive crops have taken lots of nutrients out of the soil. And this is a market that has that has grown significantly in the past 5 years. Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is open. Hi, good morning. Just going back to Brazil, not to the labor, right? But, I understand there's some uncertainty with the trucker tables. And as of now, it's a little bit difficult to tell, but can you just tell us what the freight costs are per ton and how that's changed and how much of the cost can be passed down the chain? Sorry, Andrew, microphone. Yeah, I can answer part of that. Obviously, the actual table is extremely complicated. And I don't think we can give you that level of clarity, but what I can tell you is, yes, once we get new contracts those will be, incorporating the new freight rates into them. But the main exposure right now is sales we did before the strike. So in other words, we have a contract of affreightment at one rate, but the new table is at a different rate. So the question is, do the truckers honor the old rate, which they entered a contract with us, or do they try to achieve the new rate. And what that number is is about $6 per ton of risk on those sales we've already entered into. So we may or may not see those. And as we go through 1st our third quarter, more and more of that old, those old contracts are used up and sold. So the exposure gets less and less over time. Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is open. Hi, good morning, Josh. Maybe a 2 parter on potash. Your MOP cash cost have been pretty stable over the last year. Would you expect that over the next year or so? Of course, Q3 is a little bit higher because of turnarounds? And then second part, you didn't raise your potash volume guidance, your Canpotex partner Nutrien did by a few 100,000 tons. Any thinking about that, why you didn't raise your volume, but your Canpotex partner did? Thanks. Sure, Joel. Thanks. I will answer each of those questions quite a bit separately. MLP cash costs were clearly impacted to some extent by both, turnarounds in the second quarter, but also by the problems we had with transport in the first quarter carrying over into the 2nd quarter. So I think that's the high end of where we would expect our costs to be over the next little while. But clearly, those costs being there or a little bit lower is where we expect the costs going. In terms of potash volume guidance, we have a different rev recs standard. So it could be just that what's being recognized as revenue is a little bit different. And that leads to the to that difference. Other than that, I'm not really sure. I know what Nutrien's rationale is or what the thinking behind that is. We've simply looked at our markets and added them up and said, this is where we expect to see revenue recognition. Mike, do you want to I guess the only thing I would add, Joel, is that we really haven't revised our 2018 shipment number that much. We took it up, I think a couple 100,000 tons. So we haven't changed our view of the market maybe as much as some of the competitors have. Your next question comes from the line of P. J. Juvekar from Citi. Your line is open. Hey, good morning, everyone. It's Dan Jester on for P. J. Maybe just a question for Mike, on phosphates in India, domestic production is down pretty substantially so far this year. So just wondering if you can comment on some of the drivers of that? And as we look forward, do you think India is going to be met with more important needs or is there a scenario where that domestic production could come back? Thanks, Dan, and good morning. Yes, I think it's pretty well understood that, production economic in India, we would like to call them fabrication economics. Were unfavorable given the high relative cost of phosphoric acid. So I think production first half of the year was down significantly. I think to the tune of 500,000 tons or I don't have the number in front of me. One of the things they have done is they have lowered the GST on imported phosphoric acid so that we think going forward, you may see a little bit of a ramp up of production there. Bottom line is, we expect about 5.5 1,000,000 tons of imports. And we do think that production probably recovers a little bit over the next several months And we'd probably end the calendar year with production in that maybe 4,200,000, 4,300,000 ton range. And I think in longer term, India is always going to look for a diversified source of phosphate. So we don't see domestic fabrication growing dramatically over time. And as demand increases, we do think most of the increase in demand likely will be met by, greater imports. Your next question comes from the line of John Roberts from UBS. Nutrien is talking about possibly consolidating the non soybean retail market in Brazil. I think Mosaic is more distribution than retail in Brazil, but I'm not always sure where distribution ends and retail begins. Do you have any parts of your network that might be noncore or, on the other side, does your balance sheet even allow you to participate in any further consolidation, if you wanted to? Hello, John. Thanks for that. The structure of the the structure of the Brazil business or the Brazil market is quite a bit different than what I would call the North American retail. So as you say, it's kind of hard to determine what is retail and what is distribution. We sell to a lot of very large farmers, but we also sell into some smaller retails. It's a very fragmented type of industry there. And again, I can't comment on what our competitors are doing or thinking. What I would say though is we believe we've built a very good competitive business in Brazil. We believe the synergies between our distribution business and our production business gives us competitive advantage and a real first mover advantage into those core markets. And other models for that, we'll just wait and see and see how they work. And we'll obviously respond to what that means to the competitive landscape. Thanks. Your next question comes from the line of Michael Piken from Cleveland Research. Your line is open. Yeah, hi. I'm just wondering if you guys could give us a little bit I know you said you're going to talk more about K3 on your next call, but just talk about kind of where you see yourself on a cash cost per ton for potash. And then follow-up would be just any updates on when we might see India or China Federal potash contract? Thanks, Michael. Yes, on case 3, let me let me give you an update on where we're at. And we will talk more about this in future calls. And the reason we didn't talk about it today is more that if anything, we are in the process of shutting down and doing a turnaround at K2. And one of the big product projects during that turnaround will be to tie in the conveyor from K3 to K2, which means that we can start ramping up K3 from a production perspective, somewhere in this third quarter. So we're very encouraged with where that is going. K3 we fully expect will be 1 and particularly once we eliminate the brine inflow costs at K2, K3 will be one of the lowest cost, cash cost projects in the world, certainly one of the most efficient potash mines in the world. So that's our expectation there. We'll talk more about expectations of cash costs in the future. In terms of the India China contract, look, two things on that, they both will need fertilizer, they both will need potash at some point today. Those contracts are, in process. I don't like to talk about any contracts that Canpotex is in the middle of. I don't think that's a good thing to do in a public forum. But I will tell you that the rest of the world is demanding potash our volume movements of a bellwether. I'd also say at least in our quarter 3, our guidance includes very little volume, particularly from China. It doesn't have a big impact on Our last question comes from the line of Chris Parkinson from Credit Suisse. Your line is open. Seen the Moroccan do a pretty good job developing that African market in terms of NPS and some other inputs. On this front, Can you just talk about MicroEssentials' current spread versus debt map and then also give us a sense of any of your other longer term agronomic development efforts specifically on the P front and anything in LatAm and Indian in particular? Thank you. Okay, thanks, Chris. Yes, I would concur that, I mean, from the outside looking in, OCP has done a very good job of developing the African market. And I think that's great for society overall. So we're pleased to see both the development of the market and the contribution to Africa in general. So we're good we're glad to see that. Obviously, our MES products, our MicroEssentials products go to somewhat different markets. This in terms of the spread over DAP and MAP, there's really two pieces to that. And I'm going to let Corinne talk about this a bit, but we maintain a price relative to MAP, and that has a constant premium in some cases that has not changed. But then we also make part of our increased margin is because the inputs into MicroEssentials are different than the inputs into DAP and MAP. So the cost structure is more favorable for our MicroEssentials product is basically the thing. So you can't just look at price, but you will see over time a price premium for the microessentials products, particularly in markets like Brazil. Corinne, do you want to follow that on? Sure. When we talk about MicroEssentials, there are a number of different products within that group of products And so we've got different pricing for each one of those relative to the micronutrients, the sulfur content, etcetera. The, as Joc mentioned, the pricing premium is relative, to MAP or DAP has, been maintained. And even with our growth that we've seen in the markets, we have been able to maintain those pricing premiums. I think you also asked about other new products. Mosaic does spend a fair amount of time working on other new products. We have long some new, new micronutrient enhanced potash products. And we are working on further developments in our phosphate line of products. We'll stay tuned for more information about those as we develop them. Get them in the market. And we have time to take our last question from the line of Mark Connelly from Seasons Incorporated. Your line is open. Thanks. Just two things. Jacques, you proposed shifting from FOB to CFR in Brazil, and I'm just curious what response to that has been? And second, these brine costs look like they're in really good shape. Is that where you expect them to be in the second half? Yes, thanks, Mark. Yes, look, our preference with this level of uncertainty will be to enter into more CFR contracts in Brazil or sorry, FOB contracts in Brazil to, let's say, move the freight risk from our system. That's not always possible, but that is a focus we would have. And we have to find a way of mitigating that risk or we have to price it into our offerings. So I mean, easy to do, sometimes more challenging to implement because you do have MOUs and long term customers where you've got a certain way of selling. So We'll either have to incorporate it into our pricing or move that risk over to our, customers at this time. Now in terms of brine costs, yes, we've been doing a the potash team's been doing a great job on brine management and brine costs. If you remember, we put a fair bit of money into some technological improvements, I guess about 3 or 4 years ago, And that, along with just good cost management, have really helped us control that brine cost for a number of years now. So we're feeling pretty good about it. Obviously, the long term solution is to eliminate it altogether, but, it is well controlled, and we do not expect any real variation. Obviously, Mother Nature plays a role, but we do not expect any real variation in the second half of the year. Oh, and sorry. And just with that, I'd just like to wrap up by saying, again, our company is well positioned here. And I want to just reiterate our key performance issues. Our business is performing well. We're generating substantial substantial cash as a result of both better market conditions and our business transformations. 2nd, we're extremely good progress on our Mosaic Fertilizantes business in Latin America, and we continue to feel good about the acquisition. And third, we're optimistic that our momentum will continue and accelerate as we move into the end of this year. To sum it up, Mosaic continues to be well positioned to deliver attractive returns as these business conditions continue to improve. Thank you for your attention. Have a great and safe day.