Mosaic Company (the) · NYSE:MOS
Mosaic Company (the) — 2008 ARA Conference and Exposition
60 slides from Mosaic Company (the)'s conference presentation, Dec 3, 2008
Slide 1: The Race For Global Resources: Implications For Crop Nutrient Markets
Exhibit 99.1 The Race For Global Resources: Implications For Crop Nutrient Markets Jim Prokopanko 2008 ARA Conference and Exposition President and CEO Austin, TX The Mosaic Company December 3, 2008
Slide 2: Welcome remarks
Thank you Don and good morning everyone. It is a pleasure to participate once again in the ARA annual conference and exposition. This is a great opportunity for me to meet with many of our customers and, at the same time, kick a few tires on the latest application equipment. 1
Slide 3: Safe Harbor Statement
Safe Harbor Statement Certain statements contained herein constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. Although we believe the assumptions made in connection with the forward-looking statements are reasonable, they do inv
Slide 4: Forward-looking statements reminder
I want to remind you that this presentation includes forward-looking statements and caution you that actual results may differ from those either made or suggested in this presentation. History has taught us that unpredictable developments such as unexpected changes in government policies or a global
Slide 5: Topics
Topics The race for global resources: long term opportunities Strong grain and oilseed demand prospects Traditional food demand drivers The expected impact of biofuels Implications for grain and oilseed production Positive long term crop nutrient demand forecasts Pit stops along the way: short term
Slide 6: Race for Global Resources theme and pit stops
Market conditions no doubt have changed since the planning committee selected “The Race for Global Resources” as the theme of this year’s conference. I suspect the committee might chose a different theme today given the volatility in financial and commodity markets during the last few months. Howeve
Slide 7: Grain and oilseed demand growth has accelerated
Grain and oilseed demand growth has accelerated Mil Tonnes World Grain and Oilseed Use 2,600 9% 2,500 8% Source: USDA 2,400 7% 2,300 6% 2,200 5% 2,100 4% 2,000 3% 1,900 2% 1,800 1% 1,700 0% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Food/Feed/Other U.S. Ethanol U.S. Ethanol Percent of
Slide 8: Strong demand prospects basis for long term outlook
Strong demand prospects are the basis for our positive long term outlook. The pace of grain and oilseed demand growth clearly accelerated during the last five years. For example, global demand increased 2.6% per year during the last five years. That is up 130 basis points from an annual rate of 1.3%
Slide 9: The 500 million tonne challenge
The 500 million tonne challenge Mil Tonnes World Grain and Oilseed Use 3,250 Source: USDA and Mosaic 3,000 Compound Annual Growth Rates 2,750 1990-03 2003-2008 2003-20 1.3% 2.6% 1.8% 2,500 2,250 2,000 1,750 1,500 1,250 1,000 80 85 90 95 00 05 10 15 20 Actual Actual for US Ethanol Forecast Forecast f
Slide 10: Forecast of world grain and oilseed use
More importantly, we forecast that world grain and oilseed use will continue to increase at a faster pace than historical trends due to steady population growth, higher per capita incomes and further increases in biofuels production. We project that global grain and oilseed production will increase
Slide 11: Grain and oilseed demand drivers
Grain and oilseed demand drivers Projected Sources of Grain and Oilseed Demand Growth 2008-2020 Biofuels 13% Population Growth 39% Income Growth 48% 2008 ARA Conference and Exposition 6 December 3, 2008
Slide 12: Long term demand forecast model
These long term demand forecasts were derived from a model that predicts use based on population and real GDP per capita. The amount of corn ground into ethanol in the United States was excluded from the statistical analysis and then added back based on actual and future mandated use. This chart sho
Slide 13: World adds another Thailand and Laos each year
The world adds the equivalent of another Thailand and Laos to global population each year Million World Population Growth By Region 80 Source: Global Insight 70 60 50 40 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Asia Africa Latin America Other 2008 ARA Conference an
Slide 14: Population growth drivers
Let’s look at each of these drivers in more detail. Increases in population are steady and predictable. Global population is projected to increase from 6.6 billion today to 7.5 billion in 2020. The world sets the dinner table for 73 million more people each year. That is the equivalent of adding ano
Slide 15: Asia and Africa account for over 80% of population growth
Asia and Africa projected to account for more than 80% of the growth in world population Former Soviet Union Europe North America 0.29 0.29 0.52 0.52 Middle East 0.34 0.37 Asia & Oceania 4.14 3.69 0.30 0.37 Latin World Population America in Billions Africa 7.52 6.65 0.58 0.65 1.18 0.93 2008 2020 Sou
Slide 16: Where population is expected to increase
This chart shows where population is expected to increase. Asia (including Oceania) and Africa are expected to account for more than 80% of the increase in world population between now and 2020. 8
Slide 17: People upgrade their diets as incomes climb
People upgrade their diets as incomes climb from low to moderate levels Meat Consumption vs GDP (per capita in 2002) 160 140 120 100 80 60 40 y = 17.913Ln(x) - 91.411 20 2 R = 0.6745 Source: FAO, Global Insight 0 0 5000 10000 15000 20000 25000 30000 35000 40000 Income per Capita (1997 US$) 2008 ARA
Slide 18: Income growth as demand driver
Income growth is the second driver of grain and oilseed demand. Statistics show that people upgrade their diets to include more protein-rich foods as incomes increase, especially from very low to moderate levels. For example, this analysis indicates that, on average, per capita meat consumption incr
Slide 19: Broiler consumption gains due to income growth
Increases have occurred during the last 10 years due to income growth in many countries 0 10 20 30 40 50 kg per capita UAE 44.4 Brazil 16.1 Mexico 10.9 Russia 8.3 Australia 7.9 USA 7.4 Argentina 7.2 Malaysia 6.9 S Korea 3.7 EU27 3.1 Vietnam 2.9 Change in Per Capita Broiler Consumption China 2.7 1997
Slide 20: Recent trends in broiler consumption
Let’s take a closer look at recent trends for a couple of protein-rich foods. This chart shows the change in per capita broiler consumption in 17 countries during the last 10 years. Many developing countries such as the big three Latin American countries registered impressive gains. Other gains may
Slide 21: Large dairy consumption gains in developing countries
Large gains have occurred during the last 10 years in many large developing countries -30 -20 -10 0 10 20 30 kg per capita China 9.3 Brazil 6.1 Mexico 5.4 India 5.1 Indonesia 0.4 USA 0.2 Philippines -0.1 Thailand -0.6 Australia -0.8 Malaysia -0.9 Change in Per Capita Dairy Consumption Japan -5.3 199
Slide 22: Dairy consumption trends
Meat obviously is not the only way to upgrade one’s diet. People also consume more fish, eggs and dairy products as incomes increase. This chart shows the change in per capita consumption of dairy products for 14 countries during the last 10 years. Consumption of dairy products is on the rise in man
Slide 23: One billion people to join middle class in China and India
One billion people are projected to join the middle class in China and India by 2025 McKinsey studies China and India -- 1.1 billion people are projected to join the middle class between 2005 and 2025 China Middle class is projected to grow from 130 million in 2005 to 690 million in 2025 Lower middl
Slide 24: Middle class growth and diet upgrades
The last several slides showed some pretty impressive growth in the consumption of protein-rich and grain- intensive foods in the developing world. But that is history. Despite the current downturn in the global economy, what really excites us is demand prospects during the next 10 to 20 years. Stud
Slide 25: U.S. ethanol plants and capacity
U.S. ethanol plants and capacity 2008 ARA Conference and Exposition 13 December 3, 2008
Slide 26: U.S. ethanol plants and capacity
In addition to these traditional demand drivers, biofuels has emerged as a significant component of grain and oilseed demand growth. According to the latest information compiled by the Renewable Fuels Association, 181 ethanol plants with combined capacity of 11.2 billion gallons were operating in th
Slide 27: Ethanol accounts for almost 7% of gasoline supplies
Ethanol accounts for almost 7% of gasoline supplies and is projected to account for 10% by 2015 Bil Gal U.S. Ethanol Production Percent 16 16% Source: EIA and Mosaic 14 14% 12 12% 10 10% 8 8% 6 6% 4 4% 2 2% 0 0% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Actual Forecast Percent o
Slide 28: Exponential increase in U.S. ethanol production
This chart shows the exponential increase in U.S. ethanol production. Production totaled 6.5 billion gallons in 2007 and we estimate that production will climb to approximately 9.3 billion gallons in 2008. Corn-based ethanol accounted for 4.6% of U.S. gasoline supplies in 2007 and is projected to ac
Slide 29: One-third of U.S. corn crop used for ethanol
One-third of the U.S. corn crop now is used to produce ethanol Bil Bu U.S. Corn Used for Fuel Ethanol Production Pct of Crop 5.5 55% 5.0 50% Source: USDA and Mosaic 4.5 45% 4.0 40% 3.5 35% 3.0 30% 2.5 25% 2.0 20% 1.5 15% 1.0 10% 0.5 5% 0.0 0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Crop Year Begin
Slide 30: Ethanol as second largest use of U.S. corn
Ethanol now ranks as the the second largest use of U.S. corn. Feed remains the largest but ethanol has eclipsed exports for the number two spot. The U.S. industry ground 3.0 billion bushels of corn into ethanol during the 2007/08 crop year -- or almost 23% of the record crop harvested in 2007. Corn
Slide 31: Topics
Topics The race for global resources: long term opportunities Strong grain and oilseed demand prospects Traditional food demand drivers The expected impact of biofuels Implications for grain and oilseed production Positive long term crop nutrient demand forecasts Pit stops along the way: short term
Slide 32: Implications for grain and oilseed production
So, what does all of this mean for grain and oilseed production and crop nutrient demand? 16
Slide 33: The 500 million tonne challenge
The 500 million tonne challenge Mil Tonnes World Grain and Oilseed Use 3,250 Source: USDA and Mosaic 3,000 2,750 Compound Annual Growth Rates 2,500 1990-03 2003-2008 2003-20 1.3% 2.6% 1.8% 2,250 2,000 1,750 1,500 1,250 1,000 80 85 90 95 00 05 10 15 20 Actual Actual for US Ethanol Forecast Forecast f
Slide 34: Boosting global production 20% by 2020
We noted earlier that the world likely will have to boost global grain and oilseed production 20% between now and 2020. That is the 500 million tonne challenge. 17
Slide 35: More area and higher yields required
More area and higher yields are required to meet projected grain and oilseed demand Mil Ha World Harvested Area and Average Yield MT Ha 925 3.50 Source: USDA and Mosaic 900 3.25 875 3.00 850 2.75 825 2.50 800 2.25 775 2.00 750 1.75 80 85 90 95 00 05 10 15 20 Actual Area Forecast Area Actual Yield Re
Slide 36: Additional area and yield increases required
Additional harvested area and steady increases in yields are required to meet this challenge. This chart shows the average global yield required to meet projected demand, assuming further small increases in harvested area worldwide. You can see that the average yield must increase at a rate slightly
Slide 37: Higher application rates to achieve required yields
Higher application rates to achieve required yields KG HA World Average Yield and Application Rate MT HA 275 3.50 Source: IFA, USDA and Mosaic 250 3.25 225 3.00 200 2.75 175 2.50 150 2.25 125 2.00 100 1.75 80 85 90 95 00 05 10 15 20 App Rate - Actual App Rate - Model Yield - Actual Yield -Rqrd 2008
Slide 38: Genetics and intensive cropping practices
Improved genetics and more intensive cropping practices are required to achieve the needed growth in yields during this period. Based on the historical relationship between yields and nutrient application rates, this chart shows the application rates required to achieve the yields needed to meet pro
Slide 39: Global nutrient use to exceed 230 million tonnes by 2020
Model predicts that global nutrient use will increase to more than 230 million tonnes by 2020 MMT World Nutrient Use 250 Source: IFA and Mosaic 225 200 175 150 125 100 75 50 80 85 90 95 00 05 10 15 20 Actual - ROW Actual - FSU Mosaic Model 2008 ARA Conference and Exposition 20 December 3, 2008
Slide 40: Nutrient use forecast
Based on this analysis of the underlying agricultural fundamentals, we forecast that global nutrient use will increase from about 170 million tonnes in 2007 to more than 230 million tonnes in 2020. Global nutrient use is projected to increase 3.3% per year between 2005 and 2010 and 2.4% per year bet
Slide 41: Topics
Topics The race for global resources: long term opportunities Strong grain and oilseed demand prospects Traditional food demand drivers The expected impact of biofuels Implications for grain and oilseed production Positive long term crop nutrient demand forecasts Pit stops along the way: short term
Slide 42: Long term outlook and near-term challenges
Based on that analysis, the long term outlook for global agriculture continues to look rock solid to us. This race for global resources will create great opportunities for both crop nutrient producers and agricultural retailers over the long haul. However, the unprecedented volatility in financial a
Slide 43: A perfect storm hits crop nutrient markets
A perfect storm hits crop nutrient markets Impact of global financial crisis on nutrient markets Credit constraints limit sales in some regions Commodity sell-off erodes farm economics and nutrient demand Slower economic growth prospects reduced energy demand and prices Lower operating and raw mater
Slide 44: Developments creating the perfect storm
In fact, a number of developments have created a “perfect storm” that is buffeting crop nutrient markets today. The global financial crisis has impacted crop nutrient markets in several ways. First, reduced credit has limited sales in some regions such as South America. Second, the commodity sell-of
Slide 45: New crop prices and corn vs. oil prices
New crop prices and corn vs. oil prices $ BU New Crop Prices WTI Crude Oil vs. Corn Nearby Futures Prices Daily Close of 2009 New Crop Options Jan 1 to Nov 22 8.0 16 Source: NYMEX and CBOT Source: CBOT and KCBOT 7.5 14 7.0 12 6.5 6.0 10 5.5 8 5.0 4.5 6 y = 0.0393x + 1.2791 4.0 2 R = 0.8522 4 3.5 Jan
Slide 46: Commodity prices follow oil prices
Let me elaborate on a few of these developments. The sharp declines in agricultural commodity prices have closely followed the declines in oil prices. The chart on the right shows the high correlation between the daily closing prices of nearby corn and oil contracts this year. Commodity traders view
Slide 47: Another bumper crop is required in 2009
Another bumper crop is required in 2009 Mil Tonnes World Grain and Oilseed Stocks Percent 650 34% Source: USDA and Mosaic (for 09/10 estimates) 600 31% 550 28% 500 25% 450 22% 400 19% 350 16% 300 13% 250 10% 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 09/10 09/10 L M H Stocks P
Slide 48: Signals commodity markets send to farmers
The market, of course, is always right, but we are concerned about the signals agricultural commodity markets are sending to farmers right now. Our analysis indicates that another bumper crop is required in 2009 to prevent global grain and oilseed stocks from declining to dangerously low levels by t
Slide 49: A free-fall in raw materials costs
A free-fall in raw materials costs Sulphur Prices Sulphur Prices $ MT $ LT c&f Tampa c&f India 900 675 800 600 Source: Fertecon Source: Green Markets 700 525 600 450 500 375 400 300 300 225 200 150 100 75 0 0 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09 2008 ARA Conference and Exposit
Slide 50: Markets re-calibrating to lower raw material costs
Crop nutrient markets are re-calibrating not only to lower grain and oilseed prices, but also to a free-fall in the costs of key raw materials. This chart shows the rise and fall in the sulphur prices. Sulphur is a key raw material used to produce phosphate fertilizer. Charts for other raw materials
Slide 51: Crop nutrient markets re-calibrate
Crop nutrient markets re-calibrate Prilled Urea Prices DAP Prices $ MT fob Yuzhnyy $ MT fob Tampa Vessel 850 1300 Source: Fertilizer Week America 750 1200 Source: Fertecon 1100 650 1000 900 550 800 450 700 600 350 500 250 400 300 150 200 50 100 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 0
Slide 52: Sharp drop in nutrient product prices
As a result, prices for many crop nutrient products have dropped sharply during the last several months due to lower demand prospects and the drop in raw materials costs. This chart shows the sharp decline in urea and DAP prices during the last few months. 26
Slide 53: Buyers step out of the market
Buyers step out of the market Mil Tons Mil Tons U.S. DAP/MAP Domestic Shipments 2008/09 North America MOP Domestic Shipments 2008/09 KCL 1.0 1.6 Source: TFI and Mosaic Source: IPNI and Mosaic 0.9 1.4 0.8 1.2 0.7 0.6 1.0 0.5 0.8 0.4 0.6 0.3 0.4 0.2 0.1 0.2 0.0 0.0 Jul Aug Sep Oct Nov Dec Jan Feb Mar
Slide 54: Decline in domestic shipments
I noted earlier that customers have stepped out of the market due to the expectation of lower prices, relatively high pipeline stocks and a late North American harvest. These charts show domestic shipments of the leading phosphate and potash products during the first four months of the 2008/09 ferti
Slide 55: A perfect storm of another kind next spring?
A perfect storm of another kind next spring? Will the poor fall season result in a large spring season? Will farm economics improve before spring planting? Will grain prices decouple from energy prices? Will input costs fall further? How much were pipeline stocks drawn down? Will financial markets s
Slide 56: Questions on next spring season
A key question is whether the perfect storm raging right now will spawn a perfect storm of another kind next spring. By most accounts, the North American fall application season was one of, if not the, worst in modern history. Will that result in an extraordinary spring season, especially if farm ec
Slide 57: Risk management issues
Risk management issues Volatile commodity business Control what you can control Save on the way up Limited risk management tools Financial instruments such as swaps No price established (NPE) contracts Mosaic’s FPD (future price determined) programs Exclusive storage arrangements Adjustments take ti
Slide 58: Risk management from a producer's perspective
Let me conclude with a few comments about risk management issues from a producer’s perspective. First, we operate in markets that are global, cyclical and commodity based. Unpredictable events such as a natural disaster or a political decision on the other side of the globe will impact the price of
Slide 59: Thank You for Your Business!
Thank You for Your Business! The Race For Global Resources: Implications For Crop Nutrient Markets Jim Prokopanko 2008 ARA Conference and Exposition President and CEO Austin, TX The Mosaic Company December 3, 2008
Slide 60: Thank you for your business and kind attention
Thank you for your business and kind attention. 30