Good morning, and welcome to The Mosaic Company's Second Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Your host for today's call is Paul Massoud, Vice President of Investor Relations and FP&A of The Mosaic Company. Mr. Massoud, you may begin.

Good morning. Thank you for joining our second quarter 2023 earnings call. Mosaic delivered revenues of $3.4 billion, adjusted EBITDA of $744 million, and adjusted earnings per share of $1.04. First, I'd like to discuss the broader agricultural market, where fundamentals remain constructive. Global demand for crops is very strong, and supply is struggling to keep up. Geopolitical events are having a major impact. The war in Ukraine continues to restrict supply from one of the world's most important agricultural regions. Last month, the UN Black Sea Grain Initiative collapsed and was followed by the bombing of several grain terminals. As a result, we expect Ukrainian exports of corn and wheat to be down by as much as 30% versus last year, which was in itself a down year. But conflict is only one part of the supply problem. Around the world, weather extremes are having a profound effect on crop production. North American yields this year could be negatively impacted by dry conditions, and El Nino is hurting production across Southeast Asia and Australia. This situation is exacerbated by the underapplication of nutrients, especially potash, which is crucial for drought resistance and crop resilience. To maximize yields and meet global consumption needs, growers need to increase cropping intensity, which will mean increasing fertilizer applications. The world can't afford multiple years of underfertilization and crop production shortfalls. Today, China is importing record levels of soybean, wheat, and beef. Roughly 5 million tonnes of China's corn imports over the last 12 months were sourced from the Black Sea Grain deal. This is supply that must be replaced by other regions. The shortfall extends beyond China. Countries across Europe, Africa, and Asia will need to replace lost Ukrainian supply. In India, the focus remains on food security and affordability. Recently, the government responded by banning the export of non-Basmati white rice to ensure adequate domestic supply. Constrained supply and strong demand will continue to put pressure on global stock use ratios, which are already at multi-year lows. All these dynamics together continue to support a constructive ag market. The strong ag fundamentals should lead to strong fertilizer demand for the next several years, and we're already seeing robust demand in several of our key markets. Since the spring, improved affordability, channel inventory destocking, and sustained demand for grain and oilseeds have brought customers back to the market. In North America, a strong spring application season depleted fertilizer inventories, which customers are now looking to replenish. Logistical constraints associated with low water levels on the Mississippi River and limited trucking capacity persist, but favorable grower economics are leading retailers to secure supplies early to avoid any backups. In Brazil, the market is beginning to move as we expected. Like we saw in North America, demand was deferred late into the typical window, but customers have returned to the market. In-country inventories are well below the levels seen earlier this year, and growers are trying to secure tonnes ahead of the fast-approaching Zafra season. In India, monsoon rains have been strong enough to drive grower demand for fertilizer. Phosphate imports are expected to be strong throughout the rest of the year. Switching to potash supply, sanctions continue to restrict Belarusian exports. After a surge earlier in the year, rail volumes to China started to level off. We continue to expect Belarusian potash exports to be in the range of 7 million to 8 million tonnes, which is well below their historic 13 million tonnes. In North America, port terminal capacity has been constrained by multiple events. Repairs at Canpotex's Portland terminal are ongoing and should be completed by the end of the year. In Vancouver, a 13-day strike resulted in a temporary curtailment of the Neptune Terminal, but work continues to finalize a new labor deal, and we hope this will be resolved shortly. Canpotex is making use of alternative ports in Canada and in the Southern and Eastern United States to mitigate some, but likely not all, of the impact on international shipments. We expect constrained phosphate supply as well. Over the last several years, changes to China's environmental policy led to the permanent closure of 25% of their domestic capacity. China is also focusing on food security by ensuring adequate domestic supply while also meeting rising industrial demand, both of which are expected to limit exports for the foreseeable future. Industrial demand, particularly in China's lithium iron phosphate production, is expected to grow dramatically over the next several years. Last year, LFP production more than doubled to 1.1 million tonnes of finished fertilizer equivalent, and production is expected to grow by an additional 500,000 tonnes in 2023. This new market will continue to take phosphate volumes away from fertilizer production. We expect China's exports to be in the range of 7 million to 8 million tonnes this year or roughly 35% below 2021 export levels. Overall, the fertilizer market recovery is playing out as we expected. In a tight market, volumes are moving and prices are following. Phosphate prices have risen over the last month, while potash prices have stabilized and are now beginning to move higher. This sets the stage for a constructive second half of the year and into 2024. We believe our business is well positioned to capitalize on this recovery. Over the last several years, we've invested in our business to maintain our position as a reliable supplier to customers. In addition to the work we've done on our production assets, we've also invested in the infrastructure necessary to deliver that product. A few examples include the overhauling of our rail fleet, revitalizing our in-country distribution facilities, and our purchase of the remaining share of golf sulfur services to secure logistics around our sulfur supply. These investments are integral to our results. In potash, sales volumes for the second quarter reflected the benefit of a strong North American spring planting season, while prices reflected the bottoming of the global market. Markets are improving, a trend we expect to continue throughout the second half of 2023. Over the last year, Mosaic has met demand by carefully managing production and inventory. We have built a flexible, low-cost system that's able to capture market opportunities as they become available. Last month, we temporarily restarted our Colonsay mine to replace Esterhazy production, which is currently undergoing its summer turnaround. In the third quarter, we expect total potash sales volumes of 2.1 million to 2.3 million tonnes. This guidance reflects the results of a very successful summer fill program in North America, which was oversubscribed by 30%. We currently expect MOP prices at the mine in the range of $250 to $300 per tonne. In phosphates, we reported strong sales volumes in the second quarter. Our average realized price was at the high end of our guidance range, and our stripping margin benefited from lower raw materials costs. As we discussed last quarter, we are pushing ahead with increased investments in our phosphate business targeted at improving reliability. This may require short-term increases in maintenance like we experienced during the second quarter. Looking ahead to the third quarter, we have a solid order book with 70% committed and priced today. We anticipate total sales to be in the range of 1.7 million to 1.9 million tonnes and DAP prices at the plant in the range of $475 to $525 per tonne. In Brazil, we reported sequential improvements in our operating results. Our distribution margins are recovering, and we expect that trend to continue in the third quarter as Brazil demand moves higher. 90% of our third quarter volume is already committed and priced. Finally, I'd like to spend some time on our capital allocation strategy. Our approach has not changed. We remain committed to investing in our business, maintaining a strong balance sheet, and returning capital to shareholders. In potash, an independent audit of the K3 mine and K2 mill expansion was recently completed, which verified a total nameplate capacity of 7.8 million tonnes at our Esterhazy potash complex. Esterhazy is now the largest potash operation in the world and certainly one of the most efficient. In addition to the underground optimization, we've also begun debottlenecking the K2 mill at Esterhazy by installing a new hydrofloatation process. This will add up to 400,000 tonnes of incremental production capacity with minimal additional operating costs. We're investing $55 million in this project, which has an unlevered after-tax IRR in excess of 75%. In phosphates, we continue to move production away from commodity products and towards differentiated value-added products through the expansion of MicroEssentials capacity at our Riverview facility. Following the expansion, which is expected to be complete by the end of the year, about half of our North American phosphate sales volumes will be higher value specialty products. This is a $34 million investment with an after-tax unlevered IRR in excess of 50%. This expansion comes just ahead of next year's launch of MicroEssentials Pro, which is the next generation of MicroEssentials. Our field trials in Brazil indicate that growers will see a yield bump on soybean acres of 3% or roughly 2 bushels per acre versus the current generation of MicroEssentials. Against traditional MAP solutions, MicroEssentials Pro provides an 8% yield advantage or nearly five bushels an acre. The patent on the new formulation extends through 2038. We are very excited about the launch of MicroEssentials Pro, which builds on an already strong foundation of value creation for the growers, our customers, and for our shareholders. In addition to higher-grade phosphate fertilizer, we're also exploring entry into purified phosphoric acid for the lithium iron phosphate battery market. Our initial work has validated this opportunity, and together with constructive and developing discussions with OEMs and battery manufacturers, our Board of Directors has approved an additional $60 million to commence engineering work on a commercial plant. In our Mosaic Fertilizantes business, we're building a 1 million-tonne blending and distribution facility in Palmeirante, in the state of Tocantins in Northern Brazil. We currently don't have much presence in this region, so the facility will extend our distribution footprint into an attractive high-growth area. This is an $80 million investment with an after-tax unlevered IRR in excess of 20%. In total, our capital spending expectations this year remain unchanged at $1.3 billion to $1.4 billion. Our balance sheet is strong. During the quarter, we entered into a $700 million credit facility, which gives us additional flexibility to manage our capital. Our final focus is on capital return to shareholders. All excess cash will be returned to shareholders through dividends and share buybacks. Year-to-date, we're ahead of our target. Over the last 18 months, we've repurchased 15% of our float and believe our shares still represent good value. Our regular dividend today is $0.80 per share, and our business positions us to consider further increases over time. To sum up, Mosaic continues to demonstrate the earnings power and resilience we have created over the last several years. Our second-quarter results were strong despite deferred fertilizer demand in many markets, and our outlook for the remainder of the year and beyond is quite positive. The world's farmers have strong incentive to maximize crop production and meet global food demand. Fertilizer is critical to their success, and Mosaic will continue to meet that need.

Thanks, Joc. Before we open the lines for live Q&A, we'd like to address some of the most common questions that came in last night. Our first question is on our guidance. With fertilizer markets turning higher in the last few weeks, is there conservatism in our outlook? What are we assuming in our volume and price ranges for phosphates and potash?

Thank you, Paul. In potash, our volume will be dependent on the ability to ship internationally. With the continued labor unrest following the 13-day strike in Vancouver and the ongoing repairs at Portland, our export capability may be limited. But the midpoint of our guidance range is in line with our historic average, which tells you how strong the North American demand has been this summer. Demand has been very strong with our summer fill program oversubscribed by 30%. Phosphate volumes could also see some upside given the strong global demand, but we're limited on inventory. We expect production to be higher sequentially, so there is some opportunity to exceed our current guidance range. On pricing, 70% of our Q3 order book is committed and priced. Depending on how the rest of the quarter plays out, there is an opportunity for price upside. But much of that would get realized in the fourth quarter, where we have more unpriced tonnes.

Joc, our next question is on Brazil. Fertilizantes' recovery appears to be slower than some had expected. Were there any major surprises in the second quarter? And how should investors think about that business in the second half of the year?

Thank you, Paul. Weaker pricing affecting our production business and demand deferral due to grower liquidity issues extended longer into the second quarter than we had been anticipating. But the market did eventually turn. And at today's prices, the market ratio for beans is very attractive, which is driving farmers to secure supply for their Zafra season. Our distribution business posted a sequential improvement in quarter two, and we see that trend continuing into the second half of the year. Second half distribution margins are expected to be at the high end of our targeted range of $30 to $40 per tonne. In production, second quarter results were impacted by unplanned outages at Uberaba and Araxá. Those issues are behind us, so we expect higher volumes in the third quarter. The other issue in our production business was working through higher cost inventories of sulfur and ammonia, which we now expect to be lower in the third quarter. Overall, with high-cost finished product destocking and distribution now complete and Brazilian operational issues behind us, the business is very well set up for Brazil's busiest quarter of the year.

Joc, our next question is on Colonsay. What was the rationale for Colonsay's restart? Is market demand now strong enough to keep it running after Esterhazy's turnaround is complete?

Thank you, Paul. Yes. Colonsay will be needed for the foreseeable future. Over the last year, we have met potash demand by carefully managing production and inventories. In quarter two, strong demand in North America resulted in approximately 300,000 tonnes of inventory drawdown. With Esterhazy's planned summer turnaround and a very successful summer fill program, Colonsay tonnage is required to meet our customer expectations and needs. At present rates, Colonsay must run approximately five months to replace the one month Esterhazy maintenance turnaround. With strong demand in North America and a rebounding international market, the main determinant to future volumes will only be limited by export logistics capabilities.

Joc, the last question that we want to address is on capital allocation. Is Mosaic still committed to returning all free cash flow to shareholders?

Our commitment to return all of our free cash flow has not changed. Though to reiterate, that is a commitment to return cash flow over time, not a quarterly commitment. Returns will vary from quarter-to-quarter based on the seasonality of our business and internal capital needs. However, keep in mind, year-to-date, we have returned in excess of 100% of our free cash flow to shareholders.

That concludes the fireside portion of our call. Operator, could you please open the lines for the live Q&A?

We will now begin the question-and-answer session. Our first question will come from Steve Byrne of Bank of America. Please go ahead.

Yes, thank you. Joc, I'd like to hear your view on what you think is an appropriate potash price in the market right now, given, as you highlighted, the reduced production at Belarus, you got tight inventory levels in most of the world, lower nutrient levels in much of the soil and yet you're expecting pricing in the high 200s mine gate. Does that seem appropriate to you? Or is there something that's causing potash pricing to be weaker than maybe we would have thought? Some second-tier pricing out there that's coming from perhaps Russia or Belarus, is there some of that, that's causing this?

Steve, that's a great question. We need to consider the aftermath of last year, where there was significant panic in key markets, followed by overpricing. This led to a complete withdrawal from the market by farmers. As we enter the third quarter, I believe we've overcorrected downward based on fundamental facts. The market will be limited by supply rather than demand for potash. We're expecting production from the former Soviet Union, particularly Belarus, to be between 7 million and 8 million tonnes, down from 13 million. Russian producers are also facing declines of 4 million to 5 million tonnes this year. I think mine gate prices are at least $100 lower than they should be in the near term. So, do I believe the current prices are appropriate? Not really. However, I want to emphasize that the volumes must move, and they are starting to move strongly. Brazil is showing robust movement as we head into Zafra, and our North American fill program is exceptionally successful. We're also seeing volume and price increases in China. India has its challenges, but they need product. All these factors suggest a strong rebound, and I hope it happens in an orderly manner. Overall, the fundamentals indicate a bullish outlook.

The next question comes from Joel Jackson of BMO Capital Markets. Please go ahead.

Good morning, Joc and team. On phosphates, could you talk a little bit about in your release, your comment that says for phosphate in the third quarter, you expect margins will benefit from lower raw material costs in the third quarter. So does that imply that you think third quarter phosphate margins will be up sequentially? And then just in general, phosphate rock costs have been higher for several quarters. Should we expect that to continue? When would phosphate rock costs maybe go back down to more normalized ranges? Or is it near normal?

Okay. Thanks, Joel. So assuming the phosphate prices hold, clearly, lower raw materials prices will result in a better margin. And we see actually a divergence. We're still seeing at least the sulfur prices have remained low and have gone to even lower. Ammonia, on the other hand, is starting to tighten up a little bit. So we might expect ammonia to be flat or even up a little bit over the rest of the year, depending, obviously, on markets. But overall, we think that raw material costs will help our margins this year or this next six months. And what we're seeing is we're seeing price movement. Jenny, do you just want to clarify price movement on phosphates, particularly, I guess, Brazil right now?

Yes, Joc. Phosphate price changed well, moved upward since the beginning of July. In North America, DAP and MAP price moved up over $50 per tonne, and Brazil followed over the last few weeks as well. And we should see the price upward impact not only in Q3 but also into Q4.

The second part of your question was about rock costs in mining. There are a few relevant issues in mining. In the new area we’re currently mining, we've encountered some variations in rock quality, which is to be expected as we begin work in a new area. In South Fort Meade, we're also in a new section in the eastern extension of that mine. In both cases, during the second quarter, we were moving into uncharted areas. As we delve deeper into these new sections and access the main ore bodies, we anticipate that costs will decrease as the grade and ease of mining improve.

Next question comes from Richard Garchitorena of Wells Fargo. Please go ahead.

Great, thanks for taking my question. Looking at the slides, when you look at global shipments, it looks like you took your potash shipments down as well as phosphate assumptions for the year. Just wondering, is that a function of the limitations you're seeing upon the port level, demand, you're talking about strong demand in North America as well as in Brazil. And then just what's driving the reduction on the phosphate side as well?

Thanks, Richard. Regarding our phosphate volumes, they have been slightly lower than we expected in the first half. The markets are strong, but we've been limited by low starting inventory at the beginning of the year. We are essentially producing and selling on a tight schedule, which means that any disruptions can lead to delays. This situation creates risks for our timing, especially toward the end of the year. However, I believe the market remains strong and we will be able to sell whatever we can produce. The main limitation in potash remains the logistics constraints, particularly concerning our exports.

The next question comes from Christopher Parkinson of Mizuho. Please go ahead.

Great, thank you so much. Just on the potash rock cost, given the shift in mine mix, at least temporarily towards Colonsay versus Esterhazy. How should we be thinking about the cash costs during the second half of '23 based on your projected operates? And then any preliminary views once Esterhazy back up and presumably Colonsay stays back online? Just what would be kind of the normalized run rate that we should be considering into 2024?

Yes. Thanks, Chris. From a macro perspective, the cash costs at Colonsay are expected to be around $30 higher than those at Esterhazy. This means that for the one month of downtime at Esterhazy, which we will be replacing over the next five months at Colonsay, the additional production of 100,000 tonnes per month will incur this $30 increase in cost. However, we still anticipate it to be highly profitable. Our strategy is to focus on selling highly profitable tonnes. Once Esterhazy is operational again, likely within a month after we complete the maintenance turnaround, we will continue to run Colonsay. This is necessary to compensate for the missed tonnes during Esterhazy's downtime, plus an additional 300,000 tonnes that we delayed starting at Colonsay until absolutely necessary. Consequently, Colonsay will operate for a period, and during that time, the 100,000 tonnes per month will be produced at a cost that is $30 higher than what our average cost would have been before.

The next question comes from Edlain Rodriguez of Credit Suisse. Please go ahead.

Thank you. Good morning everyone. Quick questions on potash shipments again. You have it at 62 million to 65 million tonnes. Like do you see it going back to that 70 million range over the next year or two? And part two of that same question, part of the reduction was due to fewer tonnes out of Belarus and Russia. Like why can't the other producers ramp up to replace those lost tonnes from Eastern Europe if the issue is not lower demand?

Yes. Thanks, Edlain. Again, I just want to reiterate, the 62 million to 65 million tonnes is not demand-driven this year. It is supply-driven. I'm going to give over to Jenny to just walk through the details. But let me say, the market was low to start at the start of the year. So there were constraints in terms of a slow start to Brazil, a little bit later, China contract or whatever. And so it took some time to get product really moving this year. But as we go through that, like we said earlier, the limitation is going to be logistics. And I think what will allow the other producers to make up the gap is going to depend on if you can actually move it. I would imagine that most of the other producers or most of the other sources other than maybe Canpotex are actually supply-limited. And Canpotex is likely going to be logistics-limited. But Jenny, do you want to just go through the supply and demand balance?

Yes, I think you covered well on the supply side of the limitation from Belarus and Russia earlier and also the limitation on the logistics side for the Canadian producers. On the supply side, we are seeing a wide range of recovery in the global market, firstly led by the North America market. We are saying North American potash demand is growing back by 20% or more this year versus last year. So this has been proven by a strong spring application and a very strong summer field program. We're seeing the rebounding of the demand in Brazil as well and also similarly to the other Latin American markets. How this demand is going to recover this year even greater than our current estimation, which is 64 million tonnes, it is really supply-driven. So back to your question when we will see this shipment number to go back to 70 million tonnes? Probably next year, the supply is unlikely going to go back to 70 million tonnes. We are forecasting in 2025 when the FSU producers' shipment could be recovered back to pre-sanction and that number might be achieved. So once again, the shipment for potash at a global level is really constrained by supply.

Yes. Just to reiterate, and I think this also answers part of where Steve Byrne was coming from earlier. Until there's a resolution of the Ukraine war and until there's a resolution of the Belarus sanctions, this is going to be a supply-constrained market. And I don't think any of us can really say when either of those issues are going to get resolved.

The next question comes from Andrew Wong of RBC Capital Markets. Please go ahead.

Hey, thanks for taking my questions. Just a question on Esterhazy capacity figure. What does that mean for your normal operating capacity? Does that mean if the mine just can produce a lot more than what it was doing previously? And what does that mean for the Canpotex allocation?

Thanks, Andrew. First of all, I want to clarify that the nameplate capacity is determined through an independent audit that involves a short run to confirm that the unit operations can meet the design specifications. That process is now complete. We are currently collaborating with Canpotex to understand the implications of that from an allocation standpoint, and we will provide an update once that is finalized. As for the actual operating rate, keep in mind that this figure represents peak capacity. It would likely be less than that on a daily basis due to annual downtime and other factors, so it's more of a theoretical number. We plan to operate Esterhazy fairly intensively, but I wouldn't anticipate it to consistently operate at those peak rates. I would expect to downrate that figure. However, once we implement the new hydrofloat process, it could exceed 7 million tonnes.

The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Thank you. Good morning everyone. I have a quick clarifying question. Joc, did you mention that you expect Colonsay to keep operating until you compensate for the production loss from Esterhazy being down, after which you might decide to shut it down? Or is your plan to maintain its operation indefinitely? Additionally, could you elaborate on the MicroEssentials Pro product and explain how you plan to price it in relation to the incremental yield value you mentioned? Finally, over what timeframe do you expect MicroEssentials 2 to replace MicroEssentials 1, and how should we approach that transition?

Yes. Thanks, Vincent. Yes, let me start with Colonsay. For now, Colonsay needs to run to reestablish our inventory levels to where they would have been previous to the Esterhazy shutdown. As you're well aware, these operations shut down pretty much every summer in Canada. So we've managed our inventory such that we don't have a bunch of excess coming into the summer. And so now we'll run Colonsay first to fill that, then to make up the gap of what we had in extra we had in Q2 and what we're seeing for the summer fill in Q3. So I would say for the foreseeable future, we could see Colonsay running. But again, I'm not going to run an operation for the sake of running it. We're going to manage our inventories, managing our working capital carefully, and part of that means using the production capacity at Colonsay to manage that function. In terms of MicroEssentials Pro, and as I said earlier, this is a pretty exciting piece of progress. First of all, the very fact that it takes the patent level out to 2038 gives us a nice protection for a long time. But equally exciting is it appears that what we're seeing is real agronomic benefit. And we don't have a pricing strategy or an implementation strategy, a launch strategy quite finished out yet. But I will say our philosophy has always been that we would share the benefit from the new products basically equally between the grower, i.e., the farmer, the retailer who is selling it and ourselves. So our pricing strategy will be such that we can do that. And again, the economics should be fairly strong because the gain is fairly strong as it was for MicroEssentials.

The next question comes from Josh Spector of UBS. Please go ahead.

Yes, hi. Thanks for taking the questions. So I just wanted to ask it within potash, when you're talking about making up most of the disruption within the logistics in Canada to get material out. I assume that's going to have a higher shipment cost. So one, I'm wondering, can you quantify roughly how you're thinking about what that could be? And two, is that a cost that you would have to eat? Or is it something that you can get potentially buyers to kind of back in on? I assume it's going to impact your cost structure, but I want to clarify that.

Yes, thank you. We are utilizing both New Brunswick and Thunder Bay, and we are also considering some Southern U.S. Gulf options to transport the product. These routes come with higher costs, but I can't provide specific numbers since those will flow through Canpotex, our marketing organization. The mine site return we discuss includes these additional logistics costs, which vary based on the destination country or market. You can expect some extra expenses, but whether the buyer absorbs those costs or we do depends on supply and demand dynamics. We do not set prices ourselves; we are influenced by the global market conditions. If the market is tight and demand increases prices, we may absorb those additional costs. Conversely, if the supply and demand are balanced, the costs may fall on the suppliers. However, we believe the market is tight, which suggests that these costs will likely be absorbed by the end user.

The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone. I would like to explore Brazil and Fertilizantes in more detail, particularly regarding production. You provided a clear overview of the distribution business. However, I am interested in understanding how profitability might improve in the second half regarding production. Can you explain the advantages that arise from the lower input costs you have been purchasing and how these might impact the profit and loss statement? Additionally, could you discuss any improvements in conversion costs or rock costs resulting from more efficient operations? Lastly, should we consider the product mix, especially if competition among TSP and SSP has been more intense compared to MAP, potentially influencing your realized prices and sales mix?

Yes, there's a lot to digest in that one. I might just throw it to Jenny and ask her to talk a little bit about raw materials pricing and some pricing strategies and what we see with competition, particularly on the different grades in Brazil.

Yes. So you're right that in Brazil, we sell our phosphate product. We do have competition on TSP and SSP and similarly to MAP. Over the last few weeks, we are seeing the price rebound across the whole portfolio of phosphate. So therefore, the price increases which is much more visible for MAP, that is actually the same for TSP and SSP. So we are going to see a higher price for all range of the phosphate products that we're going to sell in Q3. On raw material prices, similarly to the raw material prices lagging in terms of the reflection in our margin, the lower-priced sulfur and lower-priced ammonia is going to take time to really be reflected in Q3. We will see a lower cost of sulfur and ammonia. But in comparison with the market benchmark, probably, the speed of that comparison is probably going to lag a little bit.

Yes. Thanks, Jenny.

The next question comes from Aron Ceccarelli of Berenberg. Please go ahead.

Hello, good morning. I have a question about potash imports in Brazil. Industry figures for the first half show that imports in Brazil decreased by 10% year-over-year, following a similar 10% drop in 2022. If this trend continues, Brazil's potash imports could reach about 10 million tonnes, which would be relatively low. Can you comment on the current behavior of farmers in Brazil and your outlook on demand there?

Thanks, Aron. Yes, Brazil's imports have indeed decreased this year, as well as last year. Overall, there was an inventory buildup in Brazil because actual application last year, particularly in the second half, was quite low, likely due to pricing factors. Potash imports have also declined, and we've adjusted our expectations for overall fertilizer use in Brazil to 42 million tonnes, down from a peak of 46 million tonnes a couple of years ago. That's a drop of about 10% in total fertilization. However, I want to emphasize that this does not necessarily indicate a shrinking market. Brazil has experienced very good harvests, and due to its tropical depleted soil, it needs to fertilize every year. In fact, Brazil practices double cropping, meaning they harvest two crops from the same land each year. The carryover of fertilizer in the crops is significant, and they need to replenish that fertilizer annually. They have not done so for the past two years, and if that continues, it could negatively affect yields. Jenny, would you like to discuss the Brazilian market and its balance a bit more?

I think you addressed it well, Joc. I just want to mention that potash shipments last year decreased by 10%, which is accurate. This year, we anticipate that total shipments in the country will remain flat, but we do see potential for upside as the year progresses. It's important to emphasize that if potash or other nutrients are not applied adequately in this kind of market, it will affect yields. Brazilian farmers are acutely aware of this, and it has been evident in their recent purchasing activities.

The next question comes from Jeffrey Zekauskas of JPMorgan. Please go ahead.

Thanks very much. As your potash prices have come down, your Canadian resource taxes have also come down? Is there a way to gauge what Canadian resource taxes are going to be over the next couple of quarters or into next year?

Yes, thanks, Jeff. I'm looking to my partners to see if anyone has a good answer to that. It's probably more detail than I have readily available. I don't have a forecast detailed enough to provide a specific answer. We can get back to you on that, which is likely the easiest approach. You're right; it has significantly decreased from where the prices were earlier. I apologize for not being able to provide more information. Clint, do you have any details to add?

Yes. One of the key factors in that is related to price. I think it’s going to align with your price expectations. From a percentage or margin perspective, it should remain fairly consistent, but it will follow your price expectations moving forward.

The next question is a follow-up from Steve Byrne of Bank of America. Please go ahead.

Yes, thank you for letting me back in here. I was just curious about the difference between those two versions of MicroEssentials. And was that yield benefit demonstrated by some land grant universities that you can back it up with? And when do you think you might have Versions three and four, and so forth that might have some biologics in there for your collaboration with BioConsortia?

Well, Steve, welcome back. We've missed you. The main topic regarding the new generation of MicroEssentials is the swellable granule, which allows for controlled release of key components. This process enhances the bioavailability of both sulfur and phosphates, as well as micronutrients to the plant roots. In simpler terms, that's what this product aims to achieve. We are conducting field trials independently and in collaboration with institutions like the University of Illinois and with our customers in Brazil, across various locations. As a producer, we are cautious about introducing new products that haven't been thoroughly tested and proven to deliver positive results for growers. This product has been in development for a few years, and with the patent secured, we feel ready to move forward with its introduction. We will continue to conduct additional trials next year as well. Regarding biologics, we are exploring possibilities, but those developments are still some time away. It's an exciting area, but we prefer to wait until we have solid evidence before moving forward. So stay tuned for new updates in the future.

The next question is also a follow-up from Edlain Rodriguez of Credit Suisse. Please go ahead.

Thank you. I would like to follow up on the potash shipments question again. You have stated that the market is supply limited, which is understandable. However, I would like to emphasize that Colonsay will remain operational for the long term. Doesn't the market need that supply?

Thank you, Edlain. For clarification, I completely agree with you regarding the actual supply and demand scenario. We believe that all our production will be necessary in the market at least in the short term. There are two actions we need to take. First, we need to ensure we can move our products, which has been somewhat hindered recently due to a 13-day strike at the Vancouver port. All stock workers were off, and there's a new ratification vote scheduled for Friday as negotiations are ongoing. Even after this situation resolves, it will likely take over a month to restore fluidity in the system, which our main carrier to the West Coast, Canadian Pacific, has indicated. It’s important to remember that it’s not only potash and fertilizers that are affected; there’s also coal, grain, and other goods moving through that port, resulting in significant pressure on the rail system and, consequently, on the overall Canadian economy. For us, this fluidity is crucial. If the market rebounds and remains robust, I have no doubt that we would like to see Colonsay operating for an extended period.

This concludes our question-and-answer session. I would like to turn the conference back over to Joc O'Rourke for any closing remarks.

Well, thank you, everyone, for your attention. To conclude the call, I just want to reiterate our key messages. Mosaic delivered solid earnings in the second quarter, and we have a positive outlook for the remainder of this year. Agricultural markets are strong. Farmers around the world have a strong incentive to maximize crop production. As a result, global fertilizer demand is also robust, and we expect that demand to remain strong. Mosaic today is well positioned to capitalize on the ongoing fertilizer market recovery. The transformation of our cost structure, along with the investments we've made over the past decade are delivering earnings power and cross-cycle resilience. So thank you for joining our call. Have a great and safe day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.