Good morning, and welcome to The Mosaic Company's third quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode, and this conference is being recorded. After the company completes their prepared remarks, the lines will be open to take your questions. Now, I'll turn it over to Luciano Siani Pires, Executive Vice President and Chief Financial Officer.
Thank you, and welcome to our third quarter 2026 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer. We will then welcome Jenny Wang, Executive Vice President, Commercial, to join Bruce and myself as we open the floor to questions. We will be making forward-looking statements during this conference call. The 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 yesterday afternoon 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 ton, 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 would like to turn the call over to Bruce.
Good morning, and thank you for joining our call. Our message to investors remains unchanged. Mosaic is navigating a difficult phosphate market by managing all that is within our control. I have lived through many cycles over my 30-year career in the industry, and while certain aspects of today's environment seem unprecedented, one important constant to remember is that markets bounce back. The strongest companies are built to withstand markets like this by taking decisive actions, preserving financial flexibility, and positioning themselves to benefit as conditions improve. Allow me to summarize a few of the steps we have taken. We have temporarily adjusted our phosphate production across our portfolio to match the availability of affordable sulfur. This includes curtailments at Bartow, Louisiana, and in Brazil.
We've also idled mining at South Fort Meade and Miski Mayo to reduce unnecessary buildup of rock inventory, preserve cash, and better align mining activity with current production levels. For the production that remains online, our strategic relationships with U.S. Gulf Coast refiners continue to provide an important sulfur sourcing advantage. For the fourth quarter, we've secured supply at $615 per ton. We're continuing to review spending across the enterprise. We've reduced corporate SG&A significantly and expect 2027 SG&A to be below $500 million. We're also continuing to optimize our capital budget and now target 2027 CapEx of below $1 billion, $200 million lower than where we expect to finish 2026. We're continuing to pursue several portfolio actions to improve capital efficiency, strengthen financial flexibility, and invest in the opportunities that offer the greatest strategic value.
This includes completion of Canadian land sales last month, netting $36 million, advancing the sale process of Araxá in Brazil, and evaluating other non-core assets. Finally, we've taken important steps to maintain the strength of our balance sheet. In early August, we refinanced and extended all long-term debt maturities that were previously due in 2027 and 2028. We have no long-term obligations over the next two years, and access to liquidity remains available should we need it. Together, these actions ensure a strong foundation for any market, and we're already seeing results. Even with production curtailments in the U.S. and Brazil, we expect to generate positive free cash flow in the second half of this year. Before going deeper into the business, I'd like to address broader markets. Long-term agricultural fundamentals remain favorable, and near-term dynamics in our key markets are also starting to improve.
After two years of under-application and now unfavorable weather, yield impacts are becoming more visible around the world. At the same time, grain and oilseed prices have risen from their lows earlier in the year, which is supportive of better farm economics and nutrient affordability. Better nutrient affordability is coming at an important moment. Yield impacts in Brazil have become quite pronounced, and growers in North America have likely exhausted most residual soil nutrients. Under-application cannot go on indefinitely, and growers understand that. Phosphate supply remains constrained, with sulfur availability and affordability continuing to limit production and margins across the industry. For those still producing, spot sulfur prices are resulting in unsustainably low stripping margins. Fortunately, we're starting to see some improvement in prices, which is driving incremental production, but current economics remain insufficient for meaningful recovery in global supply.
Some producers in Asia have begun exploring non-traditional sources of sulfur, including reclamation from gypsum and the restart of long-dormant sulfur mines. These are longer-term solutions that could provide the industry with additional raw material supply options over time. In the near term, however, global phosphate shipments are expected to be down approximately 20 million tons from last year, and we expect this trend to carry over into 2027. Despite limited supply, we're seeing some indications of improving phosphate demand in our key markets. North America's netbacks moved higher toward the end of third quarter after lagging other regions for much of the year. Customer engagement has continued to improve in the fourth quarter ahead of fall application and winter fill in North America, and our tons are largely committed. In Brazil, fertilizer inventories are low, particularly for phosphate.
While it is still too early to call it a recovery, we are seeing green shoots emerge as appetite returns. Higher soybean prices supported stronger demand during the third quarter, and farm economics in Mato Grosso in the third quarter were at their highest level in the last three years. Customer credit remains constrained, and we continue to be selective in extending credit, but improving farm economics and low inventories provide a more constructive backdrop for demand in 2027. In India, phosphate imports have been robust for most of the year. While purchasing has slowed seasonally in recent weeks, additional import demand is expected through year-end. The global potash market continues to be constructive, with strong demand driven by good value and inventory replenishment. China continues to be an important source of demand as it supports domestic consumption and continues to build strategic reserves.
Against this backdrop, negotiations for the 2027 contract have already begun earlier than in prior years. On the supply side, logistic constraints in Russia and Belarus have disrupted roughly 1.5 million tons of potash shipments from the Baltic Sea in the fourth quarter. Overall, we see a constructive potash supply and demand picture. Turning to our business, I will start with phosphate. As previously announced, we curtailed production at Bartow in Louisiana to align with the affordable sulfur available to us through our U.S. Gulf supply agreements. In the third quarter, our realized sulfur price of $715 was well below the market average of $1,100 per ton. Looking ahead, our fourth quarter contract was recently signed at $615 per ton, once again below current market price, though volumes at that price are not enough to run our U.S. assets fully.
While spot prices have begun to move lower, they are still not low enough to restart curtailed production. In the meantime, we are focused on meeting our customers' needs as best we can while optimizing netbacks and managing inventory responsibly. For this reason, we began curtailing operations at South Fort Meade and Miski Mayo to avoid building unnecessary rock inventory while concentrate plants are running below rate. Despite lower operating rates, we have begun seeing improvements in our production costs. Cash costs of conversion per ton saw a meaningful sequential decline, reflecting in part the idling of phosphate production in Louisiana, which is our highest conversion cost facility, and we expect these improvements to continue in the fourth quarter.
Looking ahead, our lower sulfur contract price settlement will have an immediate benefit to fourth quarter cash flows, while the benefit to earnings will take longer as higher-cost inventory moves through the system. Because of the volatility, we have again decided to provide some guidance on raw material costs for the fourth quarter. For sulfur, we expect realized prices in cost of goods sold to be in the range of $800-$850 per ton. For ammonia, we expect costs to be in the range of $590-$610 per ton, and this will result in realized stripping margins in the mid-$300s per ton.
As lower-cost raw materials flow through inventory and our cost actions gain traction, we expect the underlying economics of the phosphate business to improve as we move into 2027. Potash continues to be a strong performer and an important cash generator. Third quarter cash cost of production declined $11 per ton sequentially as the production shifted toward lower-cost Esterhazy volumes.
During the quarter, production at Esterhazy was affected by lower ore grades associated with geology in the current mining area. This is temporary, and we anticipate the ore grades to improve as we continue mining. We continue to target annual potash production of more than 9 million tons over the longer term. In Mosaic Fertilizantes, third quarter results reflected a full quarter of production curtailments across most of the business, while higher-margin animal feed production continued. Distribution margins were within our normalized annual target range of $30-$40 per ton, supported by normal seasonality and commercial execution. We also made meaningful progress reducing finished goods inventory during the quarter, and collections associated with stronger third quarter sales are expected to support cash generation in the fourth quarter. Mosaic Biosciences continues to deliver strong growth.
Year-to-date net sales have more than doubled year-over-year, and we remain on track to generate nearly $135 million in 2026. We expect to launch a total of eight to 10 new products this year and deliver positive EBITDA, a strong step toward our goal of generating $200 million of EBITDA from the business by 2030. Finally, I'd like to spend a moment on our recent cost reduction actions and strategic capital allocation priorities. We're taking more aggressive actions to align our cost structure with current operating conditions. These decisions have been difficult, but they're necessary to position the business for long-term success. These actions include removing fixed costs from idle and underutilized operations, reducing SG&A, and concentrating resources on the areas that create the greatest long-term value.
We expect 2026 SG&A to be $510 million-$530 million, but our cost reduction initiatives suggest 2027 SG&A to be below $500 million. Capital spending remains an important lever. We have reduced our 2026 capital expectations over the course of the year and sharpened our focus on maintenance, reliability, and high-return projects. Based on our current plans, we are targeting below $1 billion of capital expenditures in 2027, roughly $200 million below where we expect to finish 2026. We remain focused on optimizing our portfolio of assets. Over the last few years, we've divested non-core assets that have allowed us to shift resources to better returning opportunities. This effort continues. One example is the divestiture of our Araxá asset in Brazil, a process we expect to complete over the next several months. We're also pursuing additional land sales in Canada and in Florida.
This year, we've signed deals for $67 million, and we expect additional transactions over the next 12 months. We're continuing to explore additional divestitures of non-core and underutilized assets that will further ease our CapEx burden and enable us to focus our resources on our opportunities. Let me close with this. The environment remains challenging, but we are acting decisively and seeing increasingly constructive signals across our markets. These actions have strengthened our underlying business and have positioned us to generate strong cash flow and returns as markets normalize. With that, we'll open the call for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Please limit yourself to one question. at this time, we'll pause momentarily to assemble our roster. The first question will come from Christopher Parkinson with Wolfe Research. Please go ahead.
Great. Thank you so much. You've spoken a lot about, over the last couple of quarters, about just having sulfur at the right facilities to basically sustain operating rates at the facilities that are, in fact, running. I'd love to just go through a kind of a state of the union of New Wales, Bartow, Riverview, understanding that there can be differences in operating rates based on products, so on and so forth. But, where do you stand there in terms of your sulfur supply heading into 2027? How do you feel about New Wales after, I think, one of the company's largest turnarounds in history in the first quarter of this year? There's still a lot to kind of look forward to, so I'm just kind of curious on where you think you are in that process.
Hey, Chris. Thanks for the question. Something we do talk a lot about and are working hard on. But just on the sulfur piece, we do have sulfur and confident we have sulfur going into 2027 to meet what we've kind of said of about 65%-66% of our production needs. And that fits nicely with the Florida footprint, and that also helps us alleviate water management issues in Florida's tropical environment on rainfall, because one of the biggest ways to do that is to run the asset. So, we feel good about where we are from a sulfur supply, again, on our contract basis, which has continued to stay advantaged to spot, and we are optimistic that we can continue to do that with the relationships that we have with the refiners. On the second part of your question is, how are things going at the facilities?
Generally, things are going very, very well. We've seen production improvements at New Wales. We've seen production improvements at Riverview. I think, Chris, you like to see kind of operating rate, if I'm not mistaken, operating rate for the Florida footprint generally is in the low to mid-60%, versus [10-K]. And those vary month by month, as you just said, on product mix. But what we see when we put the gas pedal down, when product mix lines up at New Wales particularly, is very good production and no concerns on the things that we were dealing with over the last two to three years. So, we'd love to get, no more than anyone else, this sulfur thing behind us where we could demonstrate that more fully, but we are seeing very good results at Riverview, New Wales.
Bartow continues to perform when DAP is a heavy product mix because that plant makes it better than anyone. Like I said, the Florida footprint is working to balance that sulfur that we have very well and hit the objectives of dealing with cash flow in the ways that we want.
The next question will come from Joel Jackson with BMO. Please go ahead.
Hi, good morning. A couple potash questions. Just first at Esterhazy, could you talk about hitting a lower-grade part of the ore last quarter? Was this hitting a salt horse, did you have to move the machine somewhere else? We know there was some seismic activity, or maybe generated by the miners this week, can you comment on that? Just wanted to talk about the guidance for performance products going forward. Is the run rate we saw in Q3 now the new run rate with K-Mag gone? Thanks.
Yeah, Joel, appreciate the question. Let's just start with the seismic activity. I think there was some press potentially on that yesterday or day before. It's not unusual to have seismic activity in that deposit. It happens, I don't want to say once a year, but that wouldn't surprise me if it was something like that. It's pretty moderate on the Richter scale standpoint. There's monitoring that the Canadian government has. We have our own internal monitoring as well. We did issue a statement just because of that activity was felt at surface and in the town of Esterhazy specifically. So we wanted to make sure that we brought comfort to the community that there was no abnormal issue there.
We do have protocols when those things happen to check, as you can imagine, the precious infrastructure underground that we have, particularly around the shafts and other mine workings that are critical. Everything was unaffected as it normally is. Our shafts are built for seismic activity that is pretty significant, given that there is a history of seismic activity there. As you can imagine, that whole piece of ground between the operators and that is pretty developed. As you said, seismic activity is not unusual. Just want to put that at ease that nobody likes to see that, but it is an artifact of heavy mining, and we have got protocols in place. Then it is important for us to make sure we update our community citizens to make sure that everything is all right as well.
When it comes to your second question, before I turn it over to performance products, and I will turn that to Jenny, we did put out a statement on ore grade. Let me cover maybe the broader question more broadly, which is just potash in general, because there are some things that I want to clarify in Q3, and then I really want to talk about where we are even through October, because it is quite exciting. Although we did hit our sales target that we put out guidance on for Q3, our Q3 total potash production was below what we anticipated going into the quarter. There are a few reasons for that. One, Joel, you nailed, is we did encounter some anomalous ore features. They were kind of salt domes that were not anticipated. That happens from time to time, and you have to adjust your mine plan.
That was behind us, but did cause some issues. The other was, in aggregate, in Q3, we had heavier turnarounds that impacted us in totality in time from shutdown to full ramp-up. Given our low inventory throughout Q3, and it remains pretty low as well right now, we were unable to build inventory as we needed for the anticipated Q4 sales, and we did have to adjust guidance, which I know many of you have seen. The good news is that the facilities are performing very well. In fact, Esterhazy particularly, I want to highlight, has set two records in October. The first was most production tons on K3 ore in its history, and then the second is the most ore tons mined at the site in over 60 years.
Just to anchor on some proof points, Esterhazy is performing extremely well, has been, as the quarter ore tons were actually quite good as well, one of the highest of the highest of the year. Going into 2027, Esterhazy is on pace for over 5 million tons of production, and together with Belle Plaine and Colonsay, confidently we have total MOP capacity over 9 million tons at a time, where we feel, as we have described what is going on in the Baltic and other places of the world, that the world is going to need it. So we are pleased with where we are in the potash segment. Joel, thanks for the question. With that, I am going to turn it over to Jenny to talk about performance products.
Thanks, Bruce. Joel, I think your question is more related to K-Mag, and with the transaction completed on Carlsbad, we actually stopped sales of K-Mag in Q3, and we have been supporting and bridging customers with the new owner of Carlsbad. Aspire is another performance product in our potash portfolio. With the robust demand to potash, the value of boron added to Aspire has been supported by the customers in North America and Brazil as well. We are very pleased to the performance of our performance product in potash portfolio. Thanks.
The next question will come from Ben Isaacson with Scotiabank. Please go ahead.
Thank you very much and good morning. Bruce, you mentioned earlier about conversion costs were improving, and I just wanted to ask about that trajectory. At your investor day, you talked about a 2027 target of reaching $90-$95, and let us leave the year for now, but is that quantum still achievable? If not, what is the right target? Is the gap to achieving that only based on volume improvement, or are there further operational changes or upgrades that need to be made? Thank you.
Ben, thanks for the question. Going back to investor day, just to level set, that was the target, and those future targets were not adjusted for inflation. However you want to adjust those, not trying to get cute, but that just is the reality of what that presentation was based on. Yes, we are seeing improvement. In fact, was it $11 a ton, Luciano, quarter-over-quarter improvement on conversion costs? Now granted, some of that is due to Louisiana being down, and that is a higher conversion cost facility. But when we put those targets out, Ben, they were based primarily on cost absorption on those incremental tons. Just given 70%, 75% of our costs are fixed, that was a huge lever for us on achieving lower costs.
There are other things around water management with some of our potential injection wells to better manage water at a lower cost. That would be part of that as well. By far, the biggest needle mover is volume improvement. Luciano, anything to add to that?
Just one other proof point. Turnaround costs are not included in conversion costs, and they have been coming down. I am talking about just turnaround, not turnaround plus idle plus other utilization. If you look, compare last year with this year, it is a decline of about $100 million. So another very good trend. Of course, this is going to be a little fuzzled going forward because of the idle and underutilization costs. Turnaround itself, you may remember, we had a very bad Q2 in 2025 and a lot of spend in Q1. So they have come down significantly as well.
The next question will come from Andrew Wong with RBC. Please go ahead.
Hey, good morning. Thanks for taking my questions. Just two things, actually. One is on the CapEx. The 2026 spend was cut to $1.2 billion from $1.5 billion, I think, delaying some work on gypsum and settling ponds. For 2027, you are targeting less than $1 billion. Can you just talk about what kind of spend is being deferred and when that CapEx spend would need to occur? Then just secondly, on the phosphate ramp-up decision, what would you need to see to make that decision? Is it just mainly about access to sulfur? Do you need to see a sustained period for phosphate margin improvements before restarting? Could you, if the Strait were to reopen tomorrow, would you just start prepping for that right away in anticipation of phosphate margins improving? Can you just help us understand that a little bit better?
Thank you.
Yeah, Andrew, that is definitely the topic we focus on the most these days, is what would that look like? Let me address the CapEx first. We have said before this acute disruption in the Persian Gulf and what we're dealing with right now, that $1.5 billion that we were planning to spend in 2026 was going to be our high watermark. We would have seen CapEx moderate a little bit over maybe the next two to three years in the five-year period. But at the five-year point, being at that kind of billion-dollar mark, we still believe that that's the case. Obviously, we're not running our full footprint, which that was based on. And how we have been able to moderate CapEx to date in this year and looking forward into 2027 is because we are far from running our full complement of footprint.
When you're not running the asset, it doesn't take sustaining CapEx. You're not eroding, you're not corroding, you're not doing anything. It's basically in the garage waiting to be driven. We have the luxury, in an odd way, of being able to avoid, right now, general sustaining CapEx. Along with that, those facilities that aren't running, whether they be mines or whether they be fertilizer complexes, their waste disposal requirements are not being needed to be expanded or the next new capacity built because we are adding no waste to them. So they also sit as they did when they were parked, ready to take on those tons. And then in time, as they are filled, that CapEx spend will need to be put in to build new gypsum stacks or new clay settling areas or new tailings dams in Brazil.
That wave is just being spread out and pushed. But again, we still believe that in time, when things do normalize, we will get down to a run rate of that billion dollars of CapEx for the full complement footprint that we were talking about prior to the Persian Gulf conflict. When will that occur? Well, I wish I knew, but I know you've thrown some hypotheticals, and we kind of play scenario dartboard here in our own office on what could happen. But we need to see, first and foremost, stripping margins on a sustained basis above where they are today for our full portfolio. And more importantly, we need to see spot sulfur that we would be exposed to turn those idled facilities on, far improved to where those spot prices are today.
We would need to have the confidence that those are not going to whipsaw again, because these actions are very serious actions to idle these things, and to bring them back, bring people back. We want to have the confidence that we do not have to do this again in another week, month, four months down the road. We will have a very moderated approach if and when that, well, not if, when that time comes, because we are seeing good signs that things are improving. Sulfur prices on the spot market are definitely improving in all geographies, but U.S. Gulf spot is one that we are particularly interested in, given our footprint exposure. All of those things are starting to come to the right direction, move in the right direction.
They are not quite where they need to be yet, and then when they do get there, we need to see that sustain and have confidence in total stripping margin, which includes ammonia and all the other things, be north of where it is today. Luciano, you got more you want to add?
Back to the CapEx question, another data point to call your attention. The asset retirement obligations, if you look into our consolidated statement of cash flows, we now, for the second quarter in a row, we have a line specifying how much we spent on those. If you look at that, nine months ended September 30, 2025, $201 million. Nine months ended September 30, 2026, $133 million. So it is a very meaningful decline, and that decline is structural because it is associated with work that has already been completed, especially in our permanently idle sites like Plant City. So another important number to watch.
The next question will come from Duffy Fischer with Goldman Sachs. Please go ahead.
Yeah, good morning, guys. I just want to understand a little bit more on phosphate, the demand picture for your product today. If you could get more sulfur, you know, at your 615, would you produce more phosphate, and is the demand there to sell it at current prices? What is your take on North American fall application this year relative to this year? Kind of flat, or do you think it will be down again?
Duffy, great question. Thanks for asking. Let me just talk just generally, and I am going to turn it over to Jenny. What we see, not only in North America, but around the globe, is that demand is actually surprisingly good on the upside. I think if we could get the economics and the confidence from a risk profile that those economics are sustainable for a period of time, that we would turn things back on, and we would probably do that in a moderated way as volume would flow through. We have thought about that. We have got a number of permutations that we would work on. To answer your question, demand is pretty good. I think demand is constrained generally because of the sulfur and the supply side. I will let Jenny add to that and then address North American fall, how this year compares to normal.
Sure. Thanks, Bruce. I like to say, the demand on phosphate globally, it is actually constrained by supply. It has been the case over the last couple of years, and this year is in particular because of the sulfur-related product constraint. This supply constraint, it is there, and one of the evidence that I can share with you is North America. If you recall, last year, we saw reduction in North America more driven by farm economics. Last year, North America phosphate shipment was down 15% year -over -year. This year, the general expectation was the demand will be further reduced, and that was probably the case for the spring application.
As we got into fall applications, especially when ag commodity prices went up in late second half of September, farmers were really motivated to step in with a very clear understandings of end application of phosphate over the last seasons, and also with the improving farm economics. The fall demand for phosphate in North America has been coming much stronger than many of us anticipated. Even our customers, the retail customers, they have not prepared for such a strong demand. With that, you have heard Bruce mentioned that we basically sold out our Q4 availability. If we were to be able to produce more tons on phosphate in Q4 or into 2027, we definitely see the demand. That is probably hopefully answer your question.
The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Thank you. Good morning, everybody. Just wanted to ask a bit on the Eastern European potash situation, and tie it together with some of the other global dynamics. Bruce, I think I heard you refer to probably a reduction in exports, particularly out of Russia, of potash for the fourth quarter. Wondering if you know if that's just production that's being continuing, but exports that aren't taking place, so therefore those exports get pushed into future periods, or some of the trade publications are suggesting there might actually be a reduction in production. I think if I tie that together with your announcement that you're going to make 400,000 less tons of potash this year than you thought before, and your other comment that sounds like China's coming to the renegotiating table on the contract maybe earlier than was previously expected, just given where their port inventories are.
Can you just put all that together for us in terms of what you're seeing and how you think that's going to play out over the next quarter or two? Thank you.
Yeah, Vincent, thanks. A lot there to unpack. I'm going to probably get Jenny to assist me with this. But let's start with kind of the big ones is just demand overall for potash. We see that being record or very close to record this year, about 75 million tons of demand. So, there is good demand. The affordability factor on potash still feels good for buyers and farmers. So, that's the good news in the backdrop, and we continue to see good growth going into even 2027 on that front. China has come in big, but they've got big demand. So their stock-to-use ratios, when you put aside, and I'll let Jenny get into the details of that, their strategic reserve, which they really, that's an emergency program, and there is all sorts of hurdles that have to be met in order for that to be released.
That is really not on the table. That is why, given the backdrop and the constructiveness in the market, and I think some of these things that we've been talking about with Eastern Europe potash, shipments coming out of the Baltic Sea, things like that, China is very eager to engage. In fact, there has been engagement, as you noted, and I've said in my prepared comments. This is some of the earliest that they've done that possibly ever. Let me let Jenny kind of add to that, because we see the potash market being very constructive. Jenny?
Sure, Bruce. I guess probably just want to add some data points. The growth of demand for potash this year is actually across the board, with one exception, which is in Southeast Asia, Malaysia, Indonesia, because of the drought situation. Other than that two market, the growth of potash has been really robust in 2026. In term of China, indeed, we have seen a very strong import demand, and as you can see that they've imported more than 4 million tons up to end of September, and that added port inventory, which is very visible, right? I want to call two things. One is the domestic demand. The on-the-ground application increased close to 1 million tons. That import demand increases, it's not only building inventory, it's actually support the growth of the demand in country. The second part is really the strategic reserve.
It's very clear the Chinese government has seen the demand and the benefit of building its reserve in order to support its agriculture market. The early starting point of the negotiation pertains their desire to further build the strategic reserve. We heard speculations of higher reserves being ordered to be built. Those are the very strong drivers to further build the demand growth into 2027. Lastly, on the logistic constraints at Baltic ports in Russia, that was widely reported, it's ordered by the Russian government in order to support the shipment of other commodities, including grains, and then potash was ordered to slow down its shipment. The question is whether those slowdown of the shipment are going to be inventory built or those shipment are going to be gone.
We tend to believe those tons are likely going to be gone, because they can't be shipped out into the market. The total reduction of the export out of Russia and Belarus likely going to be 1.5 million tons in Q4 only, which further support the strong fundamental for potash as we get into 2027.
The next question will come from Salvator Tiano with KeyBanc. Please go ahead.
Yes, thank you very much. I am just wondering, what are your expectations firstly broadly for phosphate and potash demand next year? Say, for the market, if prices stay where they are currently, still at elevated levels, and what could be the shipment rebound? Could it be very material and double digit if phosphate prices become much more affordable as sulfur goes down? You have that very interesting slide showing the phosphorus content in the soil globally. Firstly, can you clarify, it shows that there is sufficient or excess phosphorus in North America. That seems to be a little bit at odds with a comment you had earlier in the call that nutrients in the soil are depleted rapidly.
Also, given what it does show that in Europe and North America, we have a lot of phosphorus in the soil, is there any chance this indicates actually that we have been over-applying for years and the actual North American European market demand should actually be quite lower than it has been for the past five years?
Yeah. Let me start from the phosphate deficiency. I am very glad that you saw the map. For the market like Europe and U.S., although you see that part market soil type probably are more favorable to keep the nutrients of phosphorus in the soil, but it does not mean that nutrient removal can stay without replenishment, can stay longer. Couple of data point. TFI just released a report. It is a sample testing for the soil in North America. It shows 45% of the soil tested in North America shows phosphorus deficiency. That is one data point. The second data point, as you mentioned earlier, phosphate application in the U.S. market over the last two seasons have been lower than the normally required.
Although you have not really seen the yield impact as we did in Brazil, which is very visible for the yield impact, in the U.S. market this past season, while the harvest is just ongoing or just complete, we heard from our customers or farmers on the ground telling us the yield level are far off than what they anticipated. Those anecdotal reports from the field may not be the same as the data that have been published, but we believe the yield impact will eventually be reflected to the production, eventually going to support the corn and soybean prices. That is the phosphate deficiency part. On the demand side, I just want to remind you some of the data point. With the significant reduction of application or shipment for phosphate due to supply across the globe, we are seeing significant reduction on the shipment.
It is including in North America, we are going to see further reduction this year in 2026. If you combine 2025 and 2026, North America phosphate reduction application are going to be reduced close to 25% versus normal year. Brazil, this year, we are going to see over 25% of the phosphate reduction in term of the application. Remember, Brazil, you will see on the same season yield impact due to this application reduction. We are saying India, even with the government support, their application are going to be reduced by 20%. This list are going to go long. With the coming improvement of the commodity prices, as we mentioned, on the yield impact, and potentially weather impact, we do see a very strong tailwind for phosphate demand as we get into 2027.
The next question will come from Matthew DeYoe with Bank of America. Please go ahead.
Thank you. I wanted to hone in a little bit on the mining costs, because I feel like some comments have been made in passing a little bit to me over time. If we just look at the last three years, what would you say consolidated stripping ratios have been for the Florida mining operations? What should that look like in 2027 versus 2026? What generally have variable mining costs been? With all this debottlenecking work, kind of reasonable to, if you publish a new technical report this year, kind of think it would make sense.
Yeah, Matthew, I do not have 2027 stripping margins at the tip of my fingertips for mining in Florida. Part of that is we are still going through the planning process of what 2027 will be based on where we see demand. That is a big variable because each mine has got something different. But in general, stripping margins have increased, particularly because of our South Fort Meade reserve. That reserve is incredibly deep. It does have good rock in the eastern part, but we are having to bench mine there, which means strip off a 20-foot layer of overburden, get the dragline back down on the bench, and then be able to mine the last 80 feet of overburden, rock, overburden, whatever may be there. So, that has definitely added to costs at South Fort Meade.
Those are highly variable as well, and I am sure you have been to our sites. Unlike in potash, where things are more consistent, generally speaking, in Florida, you can see in a few square mile difference, higher variability. But in general, South Fort Meade has a higher strip ratio than what it has had in the past. The good news is, at least for now, in one regard, is that that mine is idled, and we are benefiting from much lower costs as we move into 2027 with just Four Corners, Wingate, and then what is running at Miski Mayo, that is a much more advantaged composition for rock supply and cost.
The next question will come from Edlain Rodriguez with Mizuho. Please go ahead.
Thank you. Good morning, everyone. Just trying to get your insights into the affordability concerns with phosphate. If prices stay as elevated as they are, what is going to drive farmers back to normal consumption? I mean, do we need to see lower phosphate prices or a significant increase in crop prices? Because with December 2027 corn prices below $5, I am not sure that is going to do it. What do we need to see happening for the affordability concerns to be kind of be resolved?
No, totally get your question, Edlain, and appreciate that because it's something we talk about a lot too, is there probably is, at some point, a ceiling that could put the damper on demand. But we actually don't, ironically, see that right now, and it's hard to separate, and I know this is the difficulty for all of us, is what is actually driving the lower consumption? Is it actually supply constraint, or is it actually demand disruption due to affordability? And I can't parse and parcel that particularly well. It might be a little bit of both, depending on the geography and what's going on. But in North America, particularly, and Jenny alluded to it earlier, and I'll let her comment on it again if she's got more to add, is we are seeing the farmers actually want to engage.
It's a matter of likely not being able to get as much product as they want. Farmers know the agronomic science. They know what's in their soil, particularly in the U.S. and in Canada and North America in general. Brazil as well, they're very sophisticated in testing that. They are seeing, as Jenny alluded to earlier, proof points that their soils are deficient. They are going to, for that marginal cost, probably want to apply fertilizer to maximize yield as long as they can get it. Could there be a point where that destroys? We always are trying to think about that. We don't necessarily control that because these prices are global.
But the other thing is, if you believe, and we do, that yields will be impacted because of under-application that has happened over the last two seasons, two years, fertilizer seasons, or fertilizer years, these are going to be evident at some point in time. Likely, the biggest proof point to that is going to be a harvest that comes off in the spring, and we will see what yields actually are, and that will probably set a direction on ag commodity prices. And if those yields are down where we think, what we're hearing boots on the ground from our people, that's probably more on the downside to what some of the published yields are, that's going to be tailwinds for ag commodity prices, going to be tailwinds for farmer economics, going to be tailwinds for fertilizer demand. Jenny, anything to add?
She's shaking her head no, Edlain , so I learn from her well.
The next question will come from Kristen Owen with Oppenheimer. Please go ahead.
Good morning. Thank you for taking the question. You have talked about production costs improving, but not yet at the level to restart. You have also given us some color on SG&A and CapEx in 2027. Can you just explain for us what is the production assumption underlying those estimates, and what would change in that cost outlay if you were to get comfortable enough to restart production? Thank you.
Yeah. Kristen, I am going to turn it over to Luciano and give you some color around that question. Thank you.
The assumptions are the current production levels. If you go back to full operating rates, then you would have all the cost dilutions apply on top of that, on the proportion of 80% fixed cost, 20% variable cost.
Kristen, it is too murky right now to know exactly when. What we are doing, as we have said, and what I think a company in this situation should do, is control what we can control and plan for the things that are only directly in front of us, which is maintaining that sulfur advantage contract that we have versus spot, producing as efficiently as we can, and placing those tons in the marketplace where there is active demand, and waiting to see and being ready to capitalize on upside economics as fast as possible when those costs, particularly around raw materials, fall into a favorable, sustainable level that we feel worth the risk to restarting. Then that would justify if there is additional CapEx that we have deferred that needs to be pulled forward, and other costs.
That is how we are thinking about it, and I think that is the right way to think about it, because we just do not know when that is going to happen.
But one other thing is, absolutely Q4 is going to be a trough in terms of EBITDA, especially in the phosphate segment, because of the flow-through of the guidance we just gave of $800-$850 per ton on sulfur prices. It is obviously higher than the $715 of this quarter. That is going to have an impact on realized stripping margins that you are going to see in print. But although from a cash perspective, we are going to immediately start realizing the benefits of the 615 contract price and lower sulfur prices. We could talk about many tailwinds on the cash side, but the number you are going to see from an EBITDA perspective in phosphates and for Mosaic will trough at the quarter four.
With that, we are at time for this call. Great detail and complex questions. Much appreciated the active engagement, but thank you to all of you. To conclude our call, I would like to reiterate a few key points. We have a strong foundation, a more resilient portfolio, and the flexibility to manage through the current environment while remaining focused on long-term value creation. We are seeing increasingly constructive signals across our markets. Agricultural fundamentals remain supportive. Phosphate supply does remain constrained, and potash continues to benefit from strong global demand. As affordability improves and growers replenish nutrients following an extended period of under-application, we are confident that Mosaic is positioned to generate stronger cash flow and returns as market conditions normalize. Thank you all for joining us today, and have a great, safe
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