Mosaic Company (the) · NYSE:MOS
Mosaic Company (the) — TD Newcrest Agricultural Conference 2007
46 slides from Mosaic Company (the)'s conference presentation, Nov 5, 2007
Slide 1: Crop Nutrient Outlook: Revving Up Production Agriculture
Exhibit 99.2 Crop Nutrient Outlook: Revving Up Production Agriculture to meet the Growing Demands of a Developing World Dr. Michael R. Rahm TD Newcrest Agricultural Conference Vice President Harvesting Great Ideas Market Analysis and Strategic Planning November 5, 2007
Slide 2: 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 3: Topics and Take Aways
Topics and Take Aways Revving up production agriculture worldwide Accelerating demand growth Strong traditional demand drivers – it’s still a food game An octane boost from biofuels in a few key markets U.S. ethanol developments and issues Outstanding nutrient demand prospects The battle for acres t
Slide 4: Revving Up Production Agriculture
Revving Up Production Agriculture
Slide 5: Global grain and oilseed stocks will fall again this year despite a record harvest
Global grain and oilseed stocks will fall again this year despite a record harvest Percent Mil Tonnes World Less China Grain and Oilseed Stocks 450 32% Global grain and oilseed stocks Source: USDA 400 28% will decline again in 2007/08 despite higher crop prices and 350 24% the large increase in plan
Slide 6: Record imports indicate China also is using more grain and oilseeds than it is producing
Record imports indicate China also is using more grain and oilseeds than it is producing Mil Tonnes China Grain and Oilseed Net Imports 35 Source: USDA 30 25 USDA projects that China will 20 import more than 30 million 15 tonnes of grains (and mostly) oilseeds in 2007/08. That tops 10 the previous r
Slide 7: Demand growth is accelerating
Demand growth is accelerating Global grain and oilseed Bil Tonnes World Less China Grain and Oilseed Use demand growth is accelerating 2.1 Source: USDA due to rock-solid traditional 2.0 Grain Use CAGR drivers for food, feed and fiber. 1.9 97- 02 02- 07 1.8 1.1% 2.5% In addition, the exponential incr
Slide 8: Strong and steady traditional drivers
Strong and steady traditional drivers World GDP Growth Rate 6% Source: Global Insight 5% 4% The global economy continues to grow at relatively high and stable 3% rates. Global Insight projects that world 2% GDP will increase 3.6% in 2007 and 3.4% in 2008. 1% 0% 80 81 82 83 84 85 86 87 88 89 90 91 92
Slide 9: Rapid growth in key Asian crop nutrient markets
Rapid growth in key Asian crop nutrient markets Annual GDP Growth Rates in Key Asian Markets 14% Economic growth in key Asian Source: Global Insight fertilizer markets remains robust. 12% China and India lead the pack, but GDP in other important 10% markets such as Indonesia, 8% Malaysia and Pakista
Slide 10: It's still a food game
It’s still a food game World Grain and Oilseed Production Biofuels account for a small 3.0 Total For Biofuel Production in the United States, EU25 and China Source: FAPRI 6.5% percentage of global grain and Biofuel Use as a Percent of Total oilseed production. For 2.5 6.0% example, the latest foreca
Slide 11: It's still a food game
It’s still a food game Million Tonnes Developing nations have World Nutrient Demand 200 accounted for all of the growth in Source: IFA July 2007 world nutrient demand since 180 1995. Demand in these regions 160 is fueled by the traditional drivers of population and income 140 growth rather than biof
Slide 12: An Octane Boost from Biofuels
An Octane Boost from Biofuels (in a few key markets) VeraSun Energy Startup: October 2005 Ft. Dodge, IA Capacity: 110 Mil Gal Feedstock: Corn
Slide 13: A big biofuels impact during the next 3 years
A big biofuels impact during the next 3 years Percent of World Grain and Oilseed Growth Accounted for by Biofuels 60% Source: FAPRI However, the FAPRI projections 50% also show that the exponential growth in biofuels production will account for a large percentage 40% of the projected growth in grain
Slide 14: Ethanol is largely a U.S. and Brazilian game
Ethanol is largely a U.S. and Brazilian game Bil Gal All Grades Top 10 Ethanol Producing Nations 5.0 The United States and Brazil 2006 2005 2004 are the leading ethanol 4.5 Source: F.O. Licht producers by a wide margin. 4.0 World ethanol production 3.5 increased almost 6% to 12.87 3.0 billion gallon
Slide 15: Capital has gushed into the US ethanol industry
Capital has gushed into the US ethanol industry The Renewable Fuels Association counted 130 ethanol plants with combined capacity of 6.9 billion gallons in operation on October 30. In addition, 73 new plants were under construction and expansions at ten existing plants were in process that will add
Slide 16: Exponential increases in U.S. ethanol output
Exponential increases in U.S. ethanol output Bil Gal U.S. Ethanol Production Percent 16 16% U.S. ethanol production Source: EIA and Mosaic increased from 1.6 billion 14 14% gallons in 2000 to about 4.9 billion gallons in 2006. We 12 12% estimate that U.S. ethanol 10 10% production will increase to 6
Slide 17: Significant increases in corn used for ethanol
Significant increases in corn used for ethanol Corn used for ethanol production has increased from 700 million Bil Bu U.S. Corn Used for Fuel Ethanol Production Pct of Crop bushels in 2001/02 to 2.15 billion 5.5 55% bushels in 2006/07. The 5.0 50% percentage of the corn crop Source: USDA and Mosaic
Slide 18: The tyranny of OR and genius of AND
The tyranny of “OR” and genius of “AND” Mil Acres U.S. Corn Planted Acreage and Average Yield Bu Acre 95 185 Source: USDA and Mosaic Our analysis indicates that the 90 170 United States can grow enough 85 155 corn to meet the demands for food, feed, fiber and fuel if planted 80 140 area stabilizes a
Slide 19: Medium term U.S. ethanol assessments
Medium term U.S. ethanol assessments U.S. can support a 15-20 billion gallon corn-based ethanol industry and still: Meet feed requirements Higher-than-expected percentage of DDGS in feed rations Steady improvements in DDGS quality Meet food uses Meet export needs A 15-20 billion gallon corn-based et
Slide 20: An Alternative View from Omaha
An Alternative View from Omaha An investor asked Warren Buffett, Berkshire Hathaway CEO, his thoughts on ethanol at their 2007 annual meeting in Omaha, NE. He passed the question to his long time associate and vice chairman Charlie Munger. “Running cars on corn is about the stupidest thing I ever he
Slide 21: Current Issues with Biofuels
Current Issues with Biofuels A public opinion backlash The energy balance of ethanol How green is ethanol? Food vs. fuel journalism Starving children vs. gas-guzzling SUVs Food inflation A margin squeeze for U.S. ethanol producers Plants will run – price exceeds variable cost But a slowdown of new p
Slide 22: So, what's the problem?
The Ethanol Margin Squeeze October 26, 2007 WTI Oil Nearby Price: $91.86 bbl (42 gallons refined gasoline/bbl = $2.19 gal gas raw material cost from oil only before refining and distribution costs!) Omaha cash corn price: $3.17 bu So, what’s the problem? Market Analysis & Strategic Planning 21 Novem
Slide 23: So, what's the problem?
The Ethanol Margin Squeeze October 26, 2007 WTI Oil Nearby Price: $91.86 bbl (42 gallons refined gasoline/bbl = $2.19 gal gas raw material cost from oil only before refining and distribution costs!) Omaha cash corn price: $3.17 bu So, what’s the problem? CBOT ethanol December option: $1.74 gal Marke
Slide 24: Ethanol prices and margins are under pressure
Ethanof prices and margins are under pressure today despite high gasoline prices and the drop. 7 corn prices. nalysts attribute this fo a ding Wal!” or the lack of ibution infrastructure (e.g. rail cars or storage fanks at blending facilities) needed fo ed ethano! from the Midwest te ‘o large blendi
Slide 25: U.S. Ethanol Economics
U.S. Ethanol Economics Return Over Variable Cost ($ Gal Ethanol) Conversion Price of Ethanol fob Plant ($ Gal) 2.8 Gal/Bu $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 $5.00 ($0.78) ($0.55) ($0.32) ($0.09) $0.15 $0.38 $0.61 $0.84 $1.08 $4.50 ($0.65) ($0.42) ($0.18) $0.05 $0.28 $0.51 $0.75 $0
Slide 26: U.S. Ethanol Economics
U.S. Ethanol Economics Plants will run Price exceeds variable cost for most plants But a big change in economics from two years ago A slowdown in new project development A high “Blending Wall” HUGE blending margins in the value chain The “Blending Wall” will crumble Infrastructure investments in E-1
Slide 27: Topics and Take Aways
Topics and Take Aways Revving up production agriculture worldwide Accelerating demand growth Strong traditional demand drivers – it’s still a food game An octane boost from biofuels in a few key markets U.S. ethanol developments and issues Outstanding nutrient demand prospects The battle for acres t
Slide 28: The wheat market tightens further this year
The wheat market tightens further this year Mil Tonnes World Wheat Stocks Percent 225 39% Source: USDA 200 36% 175 33% Global wheat stocks are 150 30% projected to decline to 107 125 27% million tonnes or less than 18% of use. That is the 100 24% lowest stock level since 1975/76 and the lowest 75 21
Slide 29: Wheat prices climbed to record high levels
Wheat prices climbed to record high levels Hard Red Winter Wheat Price $ BU Daily Close of the Nearby Futures Contract 10 Source: KCBOT Wheat prices climbed to record 9 high levels this fall. The 8 KCBOT nearby wheat contract peaked at $9.49 bu on October 7 1. Since then, it has dropped back to the
Slide 30: New crop wheat prices are at high levels
New crop wheat prices are at high levels $ BU New Crop Wheat Prices Daily Close June 1 to May 31 7.00 Source: KCBOT 6.50 6.00 5.50 New crop wheat prices for the 5.00 next two years have climbed to the $7.00 per bushel range and 4.50 reflect the continued strength in 4.00 the global wheat market. 3.5
Slide 31: Corn stocks are projected to increase this year
Corn stocks are projected to increase this year Bil Bu U.S. Corn Stocks Pct of Use 5.0 70 Source: USDA 4.5 63 U.S. farmers have harvested the largest corn crop ever 4.0 56 this fall. USDA projects that 3.5 49 this year’s crop will total 13.32 billion bushels, topping 3.0 42 the previous record set i
Slide 32: Corn prices remain at high levels
Corn prices remain at high levels Corn Price $ BU Daily Close of the Nearby CBOT Futures Contract 6.0 Source: CBOT 2007 corn prices still remain at 5.5 high levels relative to history, 5.0 despite the bin-buster crop. 4.5 The daily close of the nearby 4.0 option peaked at $4.35 bu on February 22, 20
Slide 33: New crop corn prices are at extraordinarily high levels
New crop corn prices are at extraordinarily high levels $ BU New Crop Corn Prices Daily Close July 1 to June 30 4.4 Source: CBOT 4.2 New crop prices for the next 4.0 three years, however, remain 3.8 in the $4.00 per bushel range 3.6 and reflect the fundamental 3.4 strength in the global corn 3.2 mar
Slide 34: The largest one-year drawdown in stocks
The largest one-year drawdown in stocks Mil Bu U.S. Soybean Stocks Pct of Use 600 35 Source: USDA USDA now projects that U.S. 30 500 soybean stocks will drop from a record 575 million bushels 25 400 at the end of 2006/07 to just 215 million bushels at the 20 end of the 2007/08 crop year. 300 15 That
Slide 35: Double digit soybean prices
Double digit soybean prices Soybean Price $ BU Daily Close of the CBOT Nearby Futures Contract 11 Source: CBOT 10 9 The price of the nearby option 8 is trading in the $10 bu range today, but still slightly off from 7 the record of 2004. 6 5 4 95 96 97 98 99 00 01 02 03 04 05 06 07 Market Analysis &
Slide 36: New crop soybean prices remain at high levels
New crop soybean prices remain at high levels New Crop Soybean Prices $ BU Daily Close July 1 to June 30 10.5 Source: CBOT 10.0 New crop soybean prices for 9.5 the next two years moved up to 9.0 $9.50 per bushel range and reflect the fundamental 8.5 strength in the global oilseed 8.0 market. 7.5 7.0
Slide 37: Optimistic global demand forecasts
Optimistic global demand forecasts Steady increases in population Million Tonnes World Nutrient Use and continued strong economic 200 growth, particularly in large and Source: IFA July 2007 rapidly developing countries in 180 Asia, are boosting the demand 160 for more protein-rich food. 140 In addit
Slide 38: Strong demand growth in Brazil and India
Strong demand growth in Brazil and India MMT Brazil Fertilizer Shipments 30 Mil Tonnes India Nutrient Demand Source: ANDA & Mosaic 24 25 Source: IFA June 2007 22 20 20 Nitrogen Phosphate Potash 18 15 16 14 10 12 10 5 8 0 6 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 92 93 94 95 96 97 98
Slide 39: High and stable U.S. nutrient use
High and stable U.S. nutrient use We estimate that U.S. nutrient U.S. Nutrient Use use increased 10% in 2006/07 25 due to the large increase in 24 corn acreage and a recovery in application rates. U.S. demand 23 is forecast to stay flat in 22 2007/08 due to a switch in 21 acreage from corn to soybea
Slide 40: Topics and Take Aways
Topics and Take Aways Revving up production agriculture worldwide Accelerating demand growth Strong traditional demand drivers – it’s still a food game An octane boost from biofuels in a few key markets U.S. ethanol developments and issues Outstanding nutrient demand prospects The battle for acres t
Slide 41: High degree of confidence in grain and oilseed demand forecasts
High degree of confidence in grain and oilseed demand forecasts Step One: Forecast global grain and oilseed demand Mil Tonnes World Grain and Oilseed Use The statistical model indicates 3,000 that variations in population and Source: USDA and Mosaic per capita GDP explained more 2,750 than 99% of th
Slide 42: Area and yields will need to increase to meet projected grain and oilseed demand
Area and yields will need to increase to meet projected grain and oilseed demand Step Two: Assess global area and yield required to meet projected demand Mil Ha World Harvested Area and Average Yield MT Ha Harvested area has remained 925 3.2 relatively stable since 1980. 900 3.1 875 Source: USDA and
Slide 43: Higher yields require higher nutrient application rates
Higher yields require higher nutrient application rates Step Three: Quantify the relationship between yield and application rates World Average Application Rate and Yield There also is a strong statistical 1980-2006 relationship between the world 2.9 average grain and oilseed yield 2.8 and the world
Slide 44: Rates are forecast to increase from 191 to 234 kg/ha
Rates are forecast to increase from 191 to 234 kg ha to produce required yields Step Three: Quantify the relationship between yield and application rates KG HA World Average Yield and Application Rate MT HA 240 3.250 This chart shows the average 230 3.125 application rate from 1980 to Source: IFA, U
Slide 45: The model forecasts that global nutrient use will increase 2.8% per year
The model forecasts that global nutrient use will increase 2.8% per year Step Four: Forecast nutrient demand based on area and yield/application rate MMT World Nutrient Use Assuming harvested area 220 climbs to 900 million hectares 210 Source: IFA and Mosaic and the average application rate 200 incr
Slide 46: Crop Nutrient Outlook: Revving Up Production Agriculture
Crop Nutrient Outlook: Revving Up Production Agriculture to meet the Growing Demands of a Developing World Dr. Michael R. Rahm TD Newcrest Agricultural Conference Vice President Harvesting Great Ideas Market Analysis and Strategic Planning November 5, 2007 Market Analysis & Strategic Planning 45 Nov