Mosaic's Tightrope Walk: Can Higher Prices Offset Production Slumps?

The fertilizer giant Mosaic (NYSE: MOS) faces a critical balancing act in 2025: leveraging record phosphate prices to offset near-term production setbacks while navigating operational hurdles that could derail its long-term goals. Recent guidance revisions reveal a stark trade-off between soaring DAP (diammonium phosphate) prices and constrained output volumes—a dynamic that investors must dissect to gauge the company's trajectory. With the company's 8 million-tonne annual production target for U.S. phosphate assets hanging in the balance, the stakes are high.

The Volume-Price Trade-Off

Mosaic's Q2 phosphate sales volumes fell to 1.5–1.6 million tonnes, down from earlier expectations, due to extended maintenance at key facilities like New Wales and Louisiana. Meanwhile, DAP prices surged to $650–670 per tonne, up from $635–655, driven by robust global demand and tight supply. This pricing power is a silver lining, as higher margins could offset lower volumes. However, the full-year production guidance cut to 7.0–7.3 million tonnes from 7.2–7.6 million tonnes underscores the operational headwinds.

Ask Aime: How will Mosaic's Q2 sales volumes impact its long-term growth strategy?

The question for investors is: Does the price boost outweigh the volume loss? For now, the math seems favorable. At the midpoint of revised guidance, a 15% price increase (from $645 to $660) would more than compensate for a 6% drop in sales volume. But this hinges on execution—specifically, whether Mosaic can resolve bottlenecks and hit its Q3 production ramp-up targets.

Q3: Can Production Recover?

Mosaic's Q3 outlook rests on three pillars:
1. Bartow Facility: Already operating at target levels, it aims to produce over 500,000 tonnes in Q2, supporting an annual run rate above 2 million tonnes.
2. New Wales Facility: Critical to the 8 million-tonne target, New Wales' delayed gypsum handling system—now expected online by early July—could unlock a 3 million-tonne annual run rate.
3. Riverview and Louisiana: Both are targeting post-maintenance run rates of 1.6 million and 1.4 million tonnes annually by Q3, respectively.

If these facilities meet their deadlines, Q3 production could surge, narrowing the gap between current output and the 8 million-tonne goal. However, delays at New Wales or Louisiana—already pushing the company's timeline—would prolong the pain.

Valuation: Anchored to the 8 Million Tonne Target

Mosaic's valuation is inextricably tied to its ability to achieve the 8 million-tonne run rate. At current prices, hitting that target would generate significant EBITDA upside. For instance, 8 million tonnes at $660/tonne would yield $5.28 billion in phosphate revenue, compared to the revised full-year guidance of ~$4.5 billion.

But the stock's current valuation may already reflect this optimism. At a trailing P/E of 12.5x (vs. 10x for peer Potash Corp), investors are pricing in a successful turnaround. The risk is clear: If production lags further, the stock could underperform as expectations reset downward.

Operational Execution: The X-Factor

Mosaic's success hinges on three operational variables:
1. Gypsum System Commissioning: New Wales' delayed equipment is a make-or-break moment. A July completion is critical to avoid another quarter of underperformance.
2. Maintenance Discipline: Louisiana's unexpected repairs during downtime highlight execution risks. Future maintenance must be better planned.
3. Global Demand Trends: While current DAP prices reflect strong demand, a sudden drop in agricultural commodity prices (e.g., corn or soybeans) could pressure phosphate prices.

Investment Implications

For investors, Mosaic is a high-reward, high-risk bet on phosphate markets. The stock could outperform if operational issues are resolved by Q3, unlocking the 8 million-tonne target and validating its valuation. However, setbacks in production could lead to a sharp correction.

Action Items:
- Buy: If you believe Mosaic can execute its Q3 turnaround and phosphate prices remain robust. The stock could climb to $50–$55/share if the 8 million-tonne target is met.
- Hold: For those unconvinced about execution or concerned about global macroeconomic risks (e.g., a slowdown in fertilizer demand).
- Avoid: If you think operational delays will persist beyond 2025 or phosphate prices retreat due to oversupply.

Final Take

Mosaic is walking a tightrope between fleeting operational challenges and long-term phosphate market tailwinds. The coming months will test whether its price gains can offset volume losses, and whether its facilities can rebound to support the 8 million-tonne target. For investors, this is a story of execution over execution—and the margin between success and disappointment is paper-thin.