Mosaic reported fourth-quarter and full-year results that met our expectations, and we don’t expect to change our fair value estimate or moat rating based on the quarterly performance. Sales volumes for potash (up 26% year over year) and phosphate (up 2% year over year) both increased in the quarter, but were more than offset by price declines.
Phosphate prices sank 8% compared with the prior-year period, and potash prices dipped 21% year over year. Altogether, Mosaic’s revenue dropped 4.5%. Improved operating rates compared with the prior-year period helped costs per metric ton to decline for both phosphate and potash. But because of the lower prices, gross profit per metric ton came down for both nutrients.
The demand picture for potash has improved over the last few months, bolstered by a compressed but strong planting season in North America and new contracts with China and India. But with India still well below its previous demand peak and buyers around the world practicing caution, Mosaic will shut in a portion of production in the coming months to match market demand. The company expects potash prices to drop further compared with the fiscal fourth quarter.
Our thesis has been that potash prices will decline over the long term as supply grows faster than demand, but it looks like we will reach our long-term price forecast sooner than we expected. Mosaic’s realized potash selling price for the quarter was $401 per metric ton compared with our 2017 forecast of $385. If potash prices were to drop below our forecast it could take some time for prices to recover with more brownfield production capacity coming on line in 2013 and 2014.
On the other hand, lower near-term prices will likely cause producers with projects in the works to reassess. Mosaic has already shelved its end-of-decade potash projects and others may follow suit. Essentially, the lower the near-term
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