Crop squeeze feeds demand for Mosaic fertilizer

Mosaic CEO James Prokopanko at the company’s port facility in Riverview, where a ship is loading fertilizer bound for Brazil.

CHRIS ZUPPA | Times

Mosaic CEO James Prokopanko at the company’s port facility in Riverview, where a ship is loading fertilizer bound for Brazil.

RIVERVIEW

It's not every executive who can claim to have improved his company's margins from nearly zero to more than 30 percent in less than two years. But Jim Prokopanko, president and chief executive of the Mosaic Co. since January 2007, finds himself riding a rocket driven by growing global demand for his company's crop nutrients and strained supply. And Mosaic, the world's largest producer of phosphate fertilizer and second-largest supplier of potash, another key crop nutrient, is in the enviable position of controlling nearly every step in the production process, from mining the raw material to shipping the finished product.

Though Mosaic is based outside Minneapolis, in Plymouth, Minn., more than half its $5.8-billion sales last year were tied to the phosphate rock they take out of five mines in the Tampa Bay area and process at three area plants. During a visit Thursday to Mosaic's Riverview facility, Prokopanko, 54, talked about the forces propelling Mosaic's startling growth and why he's optimistic about the future.

You've been in the business, previously with Cargill, for 30 years. Did you ever think you'd see diammonium phosphate fertilizer (DAP) selling for more than $1,000 a metric ton?

Never. This is absolutely unseen in my generation. And it came about very quickly.

Is it a bubble?

We've seen spikes in grain prices before, but those were supply-driven, caused by floods in Mississippi or droughts in Canada. This is demand-driven by an increase in consumption the world over. I think we've hit a tipping point because while we have very steady population growth, at the same time we're having strong world economic growth. Though there may be a slowdown in the U.S., the economy is strong in areas of the world like Asia and South America with the greatest population growth. And at $4,000 to $5,000 per capita annual income, people look to improve their diets. That translates to demand for more grain. The world's inventory is also dangerously low. We're emptying the cupboard.

So when grain prices rise, farmers plant more acres and want more productivity, increasing the demand for fertilizer?

Farmers, of every size, can't afford not to maximize their production. Their costs are also up. For the last two decades, the agricultural industry has not had very favorable returns; the profit has not been there. So there's been consolidation throughout the industry, including in the fertilizer business. Two years ago, we closed a mine and two plants in Florida, which were high-cost facilities. Though demand has grown, you can't just turn on a dime to produce more phosphate. We're running 24/7, mining 17.5-million tons of phosphate rock each year and we're working to expand our mining areas, both here and at our potash mines in Canada. But if you started permitting a plant today, it would take five years to get it up and operating.

In addition to phosphate rock, you need ammonia and sulphur to make DAP. How have those costs increased?

The cost of ammonia, made from natural gas, has tripled over 10 years. Sulphur, a byproduct of oil refining, has gone from $55 a ton to $450 a ton in the past year. Ocean transport for fertilizer, from Tampa to India, used to cost $35 a ton. Now it's $100 a ton.

The world price for DAP is set by Morocco, which is the Saudi Arabia of phosphate with a 300-year reserve. Last year, phosphate rock from Morocco was $55 a ton; today it's over $250 and for the second half of the year it's going to be $350-$400. That sets a floor price for fertilizer producers who don't own their own rock, who have no choice but to buy from Morocco. But we own our rock.

How are world markets changing?

China used to be our largest customer. This year China was a net exporter, supplying 5-million tons to the world market. But China's government is very concerned about food security and they've just put a 135-percent tariff on fertilizer exports. That will have a major impact on world supplies.

India is now our biggest customer, but the government caps the price of fertilizer to the farmer at $200 a ton and subsidizes the difference. This year, the Indian government will end up spending more on fertilizer subsidies than on its military. It's an impossible situation.

How do you address environmental concerns while ramping up production?

The fertilizer industry has had a bad reputation based on past behavior. I can't argue with that. It did things that would not be allowed today.

Now there are new standards and the whole game is raised. And we're going to some considerable effort to meet those standards.

Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

Mosaic Co. (MOS)

. Chief executive/president

James Prokopanko

. Founded

2004 through combination of
IMC Global and fertilizer division of Cargill Inc. (Cargill owns about 66 percent of MOS)

. What it does

World's largest producer of phosphate fertilizer, second largest producer of potash

. Employees

7,100 (3,000 in Central Florida)

. Florida operations

250,000 acres including five phosphate mines and three concentrates plants in Hillsborough, Polk and Manatee counties

. 3Q 2008 net income

$520.8-million or $1.17 per share

. Phosphate reserves in Florida mines

35 years

. U.S. phosphate fertilizer market from Florida mines

75 percent

. Global phosphate fertilizer market from Florida mines

25 percent

Source: Mosaic documents

Crop squeeze feeds demand for Mosaic fertilizer 04/24/08 [Last modified: Friday, April 25, 2008 2:59pm]

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