The Mosaic

US President Donald Trump announced on his social media platform the US is working on a deal to purchase potash from Belarus. Shares of potash producers Nutrien and Mosaic fell on the news.

Why it matters: Over 90% of US potash demand comes from imports, the vast majority of which come from Canada. By contrast, less than 5% of potash imports come from Belarus. The two largest Canadian potash producers are Nutrien and Mosaic. If this occurs, we expect a fairly quick trade flow shift in potash. We estimate over 60% of global potash supply is controlled by Nutrien, Mosaic, Belarusian state-owned producer Belaruskali, and Russian state-owned producer Uralkali combined. Belaruskali exporting more to the US would likely mean lower exports to other countries, such as Brazil, India, and China. As a result, we would expect Canpotex, the Nutrien and Mosaic potash export joint venture, to export more volumes to these countries, leading to no net supply changes.

The bottom line: We maintain our USD 80/CAD 112 fair value estimates for narrow-moat Nutrien and our USD 35 fair value estimate for no-moat Mosaic. We view Nutrien shares as fairly valued with the stock trading in 3-star territory and Mosaic as undervalued, with shares in 4-star territory. We do not see any changes in global demand or supply from a US potash import deal with Belarus, so we don't see a major impact on prices, just trade flow shifts. The US has historically purchased potash at spot pricing, in contrast to China and India, who buy potash on a fixed contract price. If the US begins to buy potash at a contract price, it may receive a slightly lower price versus the spot market, but spot and contract prices tend to move together.

We maintain our $35 fair value estimate for Mosaic following the company's second-quarter results. We use a 7.5 times enterprise value/EBITDA terminal value multiple. Our weighted average cost of capital for Mosaic is roughly 9.5%.

In 2026, we assume a potash contract price of $383 per metric ton. This is the contract price set between India and major potash exporter Belaruskali. We expect Canpotex (Mosaic and Nutrien's potash export joint venture), which sells the majority of potash on spot prices, will see prices around this level in 2026. Potash exports from Russia and Belarus were back to historical levels of exports before the Russia-Ukraine conflict began. Our long-term potash price forecast is in the mid-$300-per-metric-ton range. We expect little impact from US tariffs, as potash is currently exempt.

For Mosaic, long-term profits should grow from lower unit production costs as the majority of production moves to its lower-cost mines. We forecast Mosaic's production will eventually rise to over 10 million metric tons, with nearly 90% of volumes coming from low-cost mines. As Mosaic grows its low-cost K3 volumes, we expect companywide unit cash costs will fall from the mid-$90 range in 2024 to the mid-$80 range over the next few years.

We forecast phosphate prices will average $700 per metric ton (DAP US Gulf free-on-board basis) in 2026, above 2025 prices, as the supply shock from the Middle East is partially offset by demand destruction, with farmers applying less phosphate due to high prices. We expect prices to remain above the marginal cost of production as Chinese exports remain below historical levels. In the longer term, we expect Chinese phosphate production to increase, driving higher exports. As low-cost Moroccan and Middle Eastern production continues to come online, we forecast long-term phosphate prices of roughly $550 per metric ton in 2026 real terms as the new supply limits long-term price appreciation. However, Mosaic's phosphate business should benefit over time from selling a greater proportion of premium phosphate products, such as MicroEssentials. For phosphates, we forecast higher unit production costs as Mosaic faces production challenges at its mines.

Given the wide range of long-term fertilizer prices, we have created additional valuation scenarios. In an upside case, we assume fertilizer prices stay higher for longer as strong demand growth requires higher cost supply to enter production. In this scenario, our Mosaic fair value estimate would rise to $75 per share.

In a downside case, we assume fertilizer prices rapidly fall and remain below our base-case midcycle forecast amid weakening demand and persistent oversupply. In this scenario, our Mosaic fair value estimate would fall to $15 per share.

We assign a no-moat rating to Mosaic on a companywide basis.

In phosphate, the company has a solid but not spectacular cost position. Mosaic is a fully integrated phosphate producer, which allows the company to operate lower on the industry cost curve than its competitors that purchase phosphate rock at spot prices, primarily from Morocco. Morocco, the largest phosphate rock exporter with the world’s largest reserve base, holds the key to future phosphate rock prices. Rock production in Morocco is controlled by state-owned OCP, which is increasingly growing its production of phosphate fertilizer instead. We estimate OCP’s phosphate fertilizer production is below that of Mosaic, leading to Mosaic’s position on the cost curve rising over time as OCP grows its fertilizer production.

Ammonia and sulfur are other key cost inputs in the production of phosphate fertilizers, but together they account for a smaller percentage of total costs than rock. In ammonia, Mosaic is mostly vertically integrated and the company benefits from low-cost US natural gas, the key input for ammonia. The company produces roughly one-third of its ammonia needs through its company-operated plants that use low-cost US natural gas inputs, and has an agreement to supply another third with CF Industries in a contract that gives Mosaic producer-like economics. The company purchases the remaining third on the open market. Mosaic purchases sulfur on the open market, leading to no discernible cost advantage in this input. All in all, we estimate Mosaic’s position in the phosphate cost curve is in the second quartile, but slightly rising as low-cost OCP boosts production over time. While Mosaic’s cost position may be below average, we view the cost curve as less steep between Mosaic and the marginal cost of production. This factor has resulted in more variable profits and even led to operating losses when phosphate prices are at cyclical lows.

To counteract the growing supply of fertilizer from lower-cost producers, Mosaic is focusing on value-added products, such as MicroEssentials, which blends standard phosphate fertilizer with micronutrients to create a premium fertilizer. While farmers may choose this product over standard phosphate, this is ultimately still a commodity fertilizer with the premium price reflecting the additional cost of the micronutrients. Accordingly, we doubt Mosaic’s specialty products will generate pricing power as farmers would likely trade down if the price premium was too high.

Additionally, nearly half of phosphate production is from government-controlled producers, which do not act as rational economic players, which can also hurt the phosphate business’s ability to earn excess returns. This leaves Mosaic at risk of seeing phosphate prices fall when some producers choose to boost production and increase exports even when market conditions are balanced and most private producers would likely keep production volumes steady. All in all, we view the phosphates business is no-moat as we do not have confidence the business will generate excess returns on invested capital throughout a cycle.

We also view Mosaic Fertilizantes as a no-moat business. This segment primarily purchases and distributes fertilizer in Brazil and also owns and operates higher-cost phosphate and potash mines in Peru and Brazil. Given that this is one of the largest fertilizer distribution operations in Brazil, this business could generate a cost advantage through scale. However, we have not seen evidence that this has occurred, with this business generally earning distributor-like profit margins. As a result, we are not confident that this business will generate excess returns on invested capital over the cycle.

However, we view Mosaic’s potash business as moatworthy as the company's assets operate in the bottom half of the industry cost curve, by our estimates. Mosaic used to have a middle-cost position due to its additional brine inflow expenses that the company had to spend to operate its older K1 and K2 mine shafts at its Esterhazy mine. However, Mosaic closed K1 and K2 in 2021 and switched all Esterhazy production to the K3 mine shaft, which does not require the additional brine inflow expenses. This moved Mosaic as a whole to the bottom half of the cost curve. While the company still remains higher by our estimates than Canadian peer Nutrien and low-cost Russian producer Uralkali, we view Mosaic’s operations as firmly in the second quartile of the cost curve and well below the marginal cost of production.

While we think Mosaic benefits from a cost advantaged potash operation, as a whole we are not confident the firm will outearn its cost of capital throughout a cycle given our view that the phosphate business and fertilizer distribution business are both no-moat.

Mosaic’s potash unit costs will fall from the ramp-up of the K3 mine shaft at Esterhazy, which eliminated its historical flooding issues at the mine.

Potash application rates in China and India lag scientifically recommended levels. With these two countries working to secure food supply, increasing potash application is required to raise crop yields and food production, which will result in higher potash demand growth.

Phosphate demand from batteries used in electric vehicles will take an increasing share of new supply, keeping fertilizer supply tight and prices higher.

Low-cost phosphate producers such as state-owned OCP in Morocco continue to expand capacity and could take market share from Mosaic over the long term through the pursuit of a volume-over-price strategy.

Long-term oversupply threatens to reduce the marginal cost of production in potash and lower long-term prices. This includes BHP's Jansen greenfield project and brownfield expansions from existing producers.

Fertilizer prices are still well above the marginal cost of production. As prices moderate to midcycle levels, Mosaic's profits will fall accordingly.