The fertilizer sector has been plagued this last year by lower than expected demand and pricing issues from emerging markets, but the long term fundamentals remain strong. The Mosaic Company (NYSE: MOS) has suffered from secondary offerings increasing its share float as well. Now the company has an answer: cutting production.
Mosaic announced that it will reduce its planned potash production by up to 20 percent from February through May of this current year. The company calls it a ‘curtailment’ but it is fancy word around production cuts or lowering supply. Mosaic notes that this will end up causing lower operating rates at the company’s mines, but it also noted that this is not currently expected to result in any employee layoffs or material mine shutdowns.
As far as the blame, it is on cautious dealer sentiment which is continuing to delay purchases and lowering the near-term demand for potash.
Companies can claim that they are not cutting production to maintain pricing power, but at the end of the day there are two forces in the economic equation: supply and demand. Lower supply drives higher prices in a static scenario.
Longer-term, the company noted, “Farmer economics remain strong, and we continue to expect an above average application season in North America and record-setting global potash shipments in 2012. While we are confident fundamentals will ultimately prevail, we’ve taken steps that reflect the near-term supply and demand balance for potash.”
Mosaic shares are down almost 2% in early bird trading indications at $56.10 versus a 52-week range of $44.86 to $89.24.
JON C. OGG
Top Gaining Stocks
Top Losing Stocks