Mosaic (MOS) Q1 2022 Earnings Call Transcript

Mosaic (MOS -0.43%)
Q1 2022 Earnings Call
May 03, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to The Mosaic Company's first quarter 2022 earnings conference call. [Operator instructions] Your host for today's call is Paul Massoud, vice president of investor relations and financial planning and analysis of The Mosaic Company. Mr. Massoud, you may begin.

Paul Massoud -- Vice President of Investor Relations and Financial Planning and Analysis

Thank you. Welcome to our first quarter 2022 earnings call. Opening comments will be provided by Joc O'Rourke, president and chief executive officer, followed by a fireside chat, as well as open Q&A Clint Freeland, senior vice president and chief financial officer; and Yijun Wang, senior vice president, global strategic marketing will also be available to answer your questions. We will be making forward-looking statements during this conference call.

The statements include, but are not limited to, statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release furnished yesterday and in our reports filed with the Securities and Exchange Commission.

We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now, I'd like to turn the call over to Joc.

Joc O'Rourke

Good morning. Thank you for joining our first quarter 2022 earnings discussion. I hope you've had a chance to review our posted slides, as well as our news release and performance data, which were made available on our website yesterday. I will provide some additional context before we respond to questions we received last night, and then we'll conclude with a live Q&A session.

Mosaic delivered first quarter net income of $1.2 billion and earnings per share of $3.19, adjusted EPS was $2.41, and adjusted EBITDA was $1.45 billion. Our results continue to highlight the positive evolution of our business, which reflect the contribution from Brazil, the additional production from the restart of Colonsay and the transition to K3, one of the largest and most efficient potash mines in the world. Phosphates segment adjusted EBITDA totaled $632 million, reflecting the impact of strong pricing, which more than offset higher input costs. Potash also benefited from higher prices, as well as the transition to Esterhazy K3 and the elimination of brine inflow management costs.

As a result, segment adjusted EBITDA totaled $651 million. In Brazil, Mosaic Fertilizantes generated first quarter adjusted EBITDA of $233 million, as the team capitalized on a strong market environment and its inventory position, particularly toward the end of the quarter as seasonal demand began to pick up. Looking forward, we continue to see agricultural market strength, extending well beyond 2022. The year began with a tight agricultural market and elevated prices, reflecting a 20-year low in global grain and oilseed stock-to-use ratios.

The conflict between Russia and Ukraine has exacerbated the situation and push soft commodity prices even higher. Together, these two countries account for 16% of global grain and oilseed export market with Ukraine's planting season now at risk in the coming year, and Russian crop export potentially also being constrained. The market is grappling with the potential of reduced supply of a number of key crops, which includes wheat and corn, but also oil seeds like soybeans, sunflowers and their respective oil. This situation has amplified food security concerns and is resulting in protectionist government policies that will likely drive commodity prices even higher.

As an example, last week, Indonesia placed a temporary ban on exports of palm oil, one of the most commonly used cooking oils in the world to ensure domestic supply. All of this suggests elevated crop prices are likely to persist for the remainder of 2022 and beyond. The strength in crop prices, combined with global fertilizer industry supply constraints have pushed nutrient prices higher. In potash, sanctions against Belarus and uncertainty over Russian exports are having an impact on supply.

Global prices have pushed higher as buyers look to secure adequate volumes. The global phosphate market has also priced in uncertainty around Russian supply of both finished products and inputs like ammonia and sulfur, though we are seeing some movement of Russian phosphates today. In addition, China's export restrictions remain in place. While we expect an easing of China's restrictions, we believe phosphate exports will drift lower over time as secular demand trends continue to grow, especially on the industrial side, from chemicals and electric vehicle lithium iron phosphate batteries.

On the demand side, we expect global shipments of potash and phosphates to be down from 2021 but the cause of this is availability, not affordability. Consumption will be forced to adjust to available supply. In North America, weather is indicating the possibility of a compressed application season. but growers remain incentivized to maximize yield.

Today's crop prices more than offset input cost, which suggests that farmer profitability in 2022 will be at the second highest level in more than a decade. Similarly, grower economics have also improved in Brazil, thanks to rising soybean prices. In India, farmer demand for nutrients remains very strong, thanks to another good monsoon season and strong global grain prices. But availability is still lagging in response to stronger grower demand and historically low domestic inventories.

Last week, the government increased fertilizer subsidies. We see this as a positive development that should help to meet, some, though likely not all of India's significant pent-up demand. As we look at our business in the context of today's global markets, we remain very optimistic. In potash, K3s ramp up to the initially targeted 5.5 million tonnes per year is now complete.

Logistical constraints and winter weather impacted first quarter shipments and production, but these issues appear to be largely behind us. In addition, Colonsay, which was down in March as rail constraints forced temporary curtailment is now back online and operating at an expanded run rate of 1.3 million tonnes over our initial target of 1 million tonnes. In the second quarter, we expect sales volumes of 2.4 million to 2.6 million tonnes. Realized prices in the second quarter are expected to be $40 to $60 per tonne, higher than realized prices in the first quarter.

In phosphates, we expect a recovery in volumes in 2022. Raw material costs have escalated, but we are well supplied to meet our production targets. In ammonia, we continue to benefit from a significant cost advantage, thanks to our internal production at Faustina, and our supply agreement with CF Industries. In the first quarter, 80% of our ammonia needs were met by tonnes linked directly to Henry Hub [Inaudible] and shielded from the price swings in the global ammonia market.

As a result, our first quarter ammonia costs were roughly half of the benchmark prices. In the second quarter, we expect phosphate sales volumes of 1.9 million to 2.1 million tonnes. Our expected sales volumes reflect an improvement in logistics delays, somewhat offset by inventories well below historic levels. Second quarter phosphate prices on an FOB basis are expected to be $140 to $160 per tonne higher than first quarter prices.

Price increases in the quarter are expected to significantly outpace the impact of higher raw material prices on our cost structure. For Mosaic Fertilizantes, we expect the business to continue reflecting the favorable market backdrop and our transformational efforts over the last two years. Seasonal demand began picking up late in the first quarter and should continue through the softer season. We expect to benefit as potash inventories, which were built during the fourth quarter begin shipping to customers.

We are seeing inflation affect our cost structure but believe ongoing optimization should offset much of the impact. Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022. Returning capital to shareholders remains a key part of our strategy. We continue to expect returning up to 75% of our free cash flow to shareholders through a combination of share repurchases and dividends, including the $463 million returned in the first quarter of 2022.

We completed the $400 million accelerated share repurchase program announced last quarter and continue to repurchase shares through our existing authorization. As a reminder, last quarter, our board also approved a new $1 billion authorization. In the area of balance sheet strength, we remain committed to reducing long-term debt by $1 billion. Part of that target was met with the retirement of $450 million last year, and we expect to reach the finish line later this year when another $550 million of long-term debt reaches maturity.

Given our outlook for the year, we expect we'll also be able to continue investing wisely and efficiently in our business. We seek out high-returning, modest investments in areas like enlarging our footprint in Brazil, expansion of MicroEssentials and investments in soil health and biologics. With recent disruptions to global fertilizer supply, a situation we believe could extend for some time, we are also actively exploring debottlenecking opportunities to increase our fertilizer production as quickly as possible. In potash, we've already raised Colonsay's annual run rate to 1.3 million tonnes, up from our initial restart target of 1 million tonnes, and we see a path to reach 1.8 million to 2 million tonnes in the second half of 2023 through the restart of Colonsay's second mill.

At Esterhazy, we are exploring the debottlenecking of the mills, which could add several hundred thousand tonnes by the second half of next year. In total, these initiatives could add roughly 1.5 million tonnes of potash production by the end of 2023. The cost for all these projects is expected to be less than $100 million. In North American phosphates, we expect production to be roughly 1 million tonnes higher than the 2021 production total of 7.3 million tonnes.

As headwinds experienced last year are addressed and our assets run at more normal rates. In Brazil, we are pushing for improved recovery from our phosphate mines and we're exploring the expansion of our quarry mine that increases production and extends its life. In total, when one considers our footprint in North America, our production in Brazil and our allocation of Ma'aden's finished product. By the end of 2023, we have the potential to see operating rates close to 25 million tonnes of total finished product well above our 2021 production total of 19.7 million tonnes.

We take our mission of helping the world grow the food it needs very seriously. We believe the geopolitical issues that have impacted global supply during the first quarter will not be reversed anytime soon. As a result, we are pulling every lever we have to efficiently raise our production rates to help offset the supply shortages from other sources in ways that also creates value for shareholders. With that, let's move on to the Q&A portion of the call.

Paul Massoud -- Vice President of Investor Relations and Financial Planning and Analysis

Thanks, Joc. Before we open lines for the live Q&A, we're going to address some of the most common questions we received last night after our materials were released. Our first question is on the issue of the potash market and the geopolitical issues that are impacting supply. What is Mosaic assuming for global supply and where replacement tonnes might be coming from?

Joc O'Rourke

Thank you. Together, Belarus and Russia represent close to 40% of the global potash market. Their absence is nearly impossible to replace, and today's prices reflect that. Belarus remains sanctioned and our previous assumption of those tonnes coming back midyear appears optimistic as most or all of their exports will be curtailed due to logistics.

Russia is another factor following the invasion of Ukraine. While some tonnes are making it to market, the Swiss system expulsion makes shipment and transactions difficult. We expect that some buyers, especially in Asia and South America will try to work around the hurdles, but they can't all be overcome. Remaining producers will struggle to make up those tonnes in the near term.

That's why we're pushing ahead with our debottlenecking plans and expect others to do the same. We are expecting a tight potash market to extend well beyond 2022.

Paul Massoud -- Vice President of Investor Relations and Financial Planning and Analysis

A follow-up question on this issue. How much can Mosaic raise volumes to help fill the gap. Specifically, what is Mosaic doing to add those incremental 1.5 million tonnes.

Joc O'Rourke

Thanks, Paul. We are actively increasing productive capacity in our potash business. We're already running assets at a 10.8 million tonne run rate with the ramp-up of K3 and running Colonsay at 1.3 million tonnes per annum. As we move forward, we have project teams actively working on two additional miners for Esterhazy, the debottlenecking of the Esterhazy mills and the restart of the second Colonsay mill.

Paul Massoud -- Vice President of Investor Relations and Financial Planning and Analysis

Joc, some have asked about the potash price guidance for the second quarter. Can you elaborate on what is reflected in those figures?

Joc O'Rourke

Our price guidance of $40 to $60 per tonne increase over Q1 and does include some conservatism. First, we are seeing today's market prices, but our realization timing will depend on our railways ability to return to normal rates. We believe the sooner rail returns to normal, the sooner our price realization will reflect a shorter lag to market pricing.

Paul Massoud -- Vice President of Investor Relations and Financial Planning and Analysis

Let's shift focus to nutrient affordability. Are growers beginning to hesitate given the level of fertilizer prices?

Joc O'Rourke

Thank you, Paul. If there's anything that's inhibiting grower demand, it's availability of nutrients, not affordability. With near-term corn at $8.20 a bushel, near-term soybeans at $16-plus a bushel and palm oil at MYR 7,000 to MYR 8,000 per tonne, global growers are seeing solid profitability levels. In North America, buyer behavior is focused on near-term applications.

Weather has forced a compressed planting season, but today's crop prices suggest growers will continue seeking maximum yields. In Brazil, grower appetite for fertilizers is quite strong, especially with recent crop price moves and a slightly weakening Brazilian real. In India, a good monsoon is predicted, and the government has just raised importer subsidies last week. If there's a threat to consumption, it's the lack of supply across both P&K, but global demand is there if the tonnes are available.

Paul Massoud -- Vice President of Investor Relations and Financial Planning and Analysis

Clint, this last question is for you. Can you discuss our capital allocation priorities for 2022?

Clint Freeland -- Senior Vice President and Chief Financial Officer

Sure. Thanks, Paul. So as we think about 2022, I don't think our capital allocation priorities have changed. I think we continue to look for ways to strengthen our business through prudently investing, as well as strengthening our balance sheet as we've spoken about in the past.

And I think as we look toward the balance of the year and our expectations around earnings and cash flow, I think there's an opportunity to return a significant amount of cash to shareholders as we've spoken about in the past. I think as we look at our capital investment program, I think we're finding opportunities to improve reliability to find opportunities for debottlenecking to again be able to produce at elevated levels given the market environment that we're in today. Also, think we have an opportunity to hit our debt target later this year with the maturity of another $550 million in debt that would get us to the $1 billion debt reduction target. And again, as we look at the balance of the year and our expectations for the amount of free cash flow that we should generate, we should also be able to return a significant amount of cash to shareholders in line with what we've spoken about earlier.

Joc O'Rourke

Well, thank you, everyone. And with that, I want to open it up to live Q&A.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line of Steve Byrne from Bank of America. Your line is open. Please go ahead.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Yes. Thank you. I'm curious to hear your view on any potential shifts in the global phosphate industry in -- with respect to the production of DAP versus MAP versus TSP, and maybe that's really more applicable to similar competitors that don't have your ammonia cost advantage. Could this lead to more applications of TSP? Does that satisfy grower needs? And could this lead to maybe a premium price for DAP that could be to your advantage?

Joc O'Rourke

Yes, Steve. Absolutely, we expect that with the ammonia shortage globally, there will be a shift in some situations to TSP. We understand that our Moroccan competitor is already shifting some of their production toward TSP. Again, the idea there being that we -- they maximize the amount of phosphate fertilizer that gets to market with this exact issue of a decrease in ammonia supply.

This doesn't really impact us, of course, because of our very solid supply of ammonia. What I would also say, I guess, your second part of your question was, is this been a premium for DAP, I wouldn't really expect a premium, but it probably will mean that it will be the first to sell right now. At this stage, any fertilizer is probably pretty easy to sell. So I suspect there will be a pretty good price for TSP right now as we've seen in the market.

Operator

Thank you. And your next question comes from the line of Chris Parkinson from Mizuho Securities. Your line is open. Please go ahead.

Chris Parkinson -- Mizuho Securities -- Analyst

Great. Thank you. Just given all the debate pertaining to the longevity of the potash shortfall, what are your team's latest thoughts in terms of the potential shortfall from Russian producers, your continue just given, obviously, your assumptions for domestic demand, rail capacity in China, as well as Baltic ports. And then also, probably more importantly, Belaruskali.

So just how is your team basically balancing those shortfalls, not only for 2022, but what are your expectations within a reasonable range for '23 and '24?

Joc O'Rourke

Yes, Chris. I think in my prepared remarks, I mentioned that our -- sorry, our original expectation was that the Belarusian sanctions might come off toward the middle of the year and past. As we look at it now, we don't see how that will be resolved, especially now with Belarus, working with the Russians in terms of the invasion of Ukraine and that being a starting point for their -- some of their invasions. So what -- as we look forward, we see a fairly large gap this year.

I think we've talked about 8 million tonnes of exports being lost from Belarus and around 2 million tonnes from Russia. We think the Russians will find ways to get things out by probably next year. And so in 2023, we still expect Belarusian sanctions, but we think at least the Russians will find more ways to get their product to market. So maybe it will be a two-year problem.

And then even then, it probably will take two to four years after that for the deficit to catch up.

Operator

Thank you. And your next question comes from the line of Jeff Zekauskas from J.P. Morgan. Your line is open.

Please go ahead.

Jeff Zekauskas -- J.P. Morgan -- Analyst

Thanks very much. My first question is, are there any Belarusian tonnes that are now traveling by ocean freight? And if there are, out of which Russian port are they moving from? And secondly, for Clint, accounts payable, I think, went down $400 million sequentially. Why is that? And where should payables be?

Joc O'Rourke

OK, Jeff. Well, let me start. I just mentioned we expect BPC will reduce their exports by about 8 million tonnes. And that means that probably, what they're going to ship this year has already been shipped or at least the vast majority of it.

We have not seen or heard or been able to track down any BPC tonnes on oceanborne freight. The only tonnes we've heard that have been exported is early in the piece. There was some exports by rail through a very circuitous route through to China. But I think even that has dried up now completely.

And Clint, I'll leave it the next to you.

Clint Freeland -- Senior Vice President and Chief Financial Officer

Yes. Thanks, Joc. Jeff, I think what you're seeing is a combination of a couple of things. Typically, in our first quarter, we have kind of a seasonal dynamic where we have payables and accrued liabilities from the previous year, things like Canadian taxes payable, things like compensation payables.

We also have -- as an example, in the fourth quarter, as the Brazil distribution business is building up its inventory in advance of season. A lot of those payables come due in the first quarter. So I think there's a seasonal dynamic to our working capital that you're seeing. And I would expect that to normalize as we go through the year.

Operator

Thank you. And your next question comes from the line of Vincent Andrews. Please state your firm name. Your line is open.

Please go ahead.

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you. Vincent Andrews from Morgan Stanley. I wanted to get your guys' sense of how summer fill is going to play out this year and just sort of in terms of where do your customers in North America, what their desire to hold inventory and to build inventory over the summer? And do you think they'll have to be incentivized with price or some type of indexation? Or the demand there that they're just going to be confident that the price will stay elevated all the way through the summer and into fall? And then Clint, if I could just ask a follow-up on the working capital. Can you remind us how these higher ammonia prices flow through your working capital?

Joc O'Rourke

OK, Vincent. Let me start by giving you just a quick update on what we think is going to happen in the summer fill program and working capital. I'll hand some of that over to Jenny as well, and then working capital probably Clint can address that. First of all, the summer fill program, we're already seeing probably good confidence in the potash market that our buyers are coming to the table and looking for a product for summer fill.

I think there with the high level of uncertainty of supply through Belarussia and Russia that there really is an understanding that there will be a very strong demand and probably tough to get products. So we're seeing people come to the market quickly for that. In phosphates, I think there's a little more hesitation because there's a little more uncertainty whether the Russian tonnes will get to markets and whether we'll be able to supply all of their needs. But in general, we don't see a huge discounting coming through in the summer for either product.

As a matter of fact, we expect that there will be pretty strong demand, and it will be pretty tight in the U.S. going into summer and then through into fall. Jenny, any comments from you?

Yijun Wang -- Senior Vice President, Global Strategic Marketing

Yes. I think probably, Joc, I just want to add one point related to the phosphate. Like you said, the customers are being cautious on phosphate. They are also watching when the Chinese government is going to losing control on export and which will define their ability to step into the market.

I fully agree with you that the demand is going to be very strong, and we have seen the signals from the customers already.

Joc O'Rourke

And then, in terms of the working capital in ammonia, I'm going to hand that straight to Clint, but obviously, it does play in our finished product inventory, as well as raw materials that we hold.

Clint Freeland -- Senior Vice President and Chief Financial Officer

Yes, that's right, Joc. It actually moves through our working capital in a few different spots over kind of the evolution of buying raw materials through actually delivering and receiving payment from customers. So our raw materials globally, in total, when you look at our inventory balances, depending on price environment, it can be anywhere from $200 million to $400 million. I think it tends to be a little bit on the high end of that right now given the pricing environment that we're in.

But then as we use those raw materials that will go into inventory, but it will go into inventory, finished product at cost. And so it will migrate, obviously, into that account. When we sell it, though, and that's again at cost. And so it's still a relatively small number, that will really be driven by volume of finished product.

But once we sell and deliver it to customers, then it goes into our receivables. And that's where you see the full price of the finished goods. And that's where you will tend to see the receivables grow pretty materially because embedded in there is also our margin on top of the cost. So I would say it travels really through our raw material inventory than into finished product at a full costing and then into a receivables balance at kind of full sale price to our customer.

Operator

Thank you. Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open. Please go ahead.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, thank you. Good morning, everyone. I was hoping to maybe dig a little bit more on capital allocation. And I think the comments on 2022 and the desire to return cash or pretty clear small step-up in growth investments.

And I guess I'm just trying to think on a multiyear basis, if high prices, high levels of profitability and cash flow persisted kind of where that desire for growth investment and the capacity for growth investments would be just in terms of things that have been in progress or things on the drawing board, long-lead equipment that you might have been looking at? Just trying to think about if this is the beginning of the next fertilizer cycle, just were how Mosaic is going to be participating from an investment perspective at that growth.

Joc O'Rourke

Sorry, turned to the wrong way. Sorry. Thanks, Adam. In terms of this year, let's start there.

Our capital allocation strategy hasn't changed this year at all. Our goals remain the same, strong balance sheet. We want to make sure we do get -- take down the $1 billion of debt -- we want to continue to invest in our business, and we've got some really good attractive short-term investments that we can make to increase production on the short term. And of course, because of that increased sales.

And then the majority, of course, we expect this year, we're going to return to shareholders. In terms of looking at this from a multiyear perspective, at this stage, we don't see anything in the large investment range that we think is going to give our shareholders, our stakeholders superior value. So we're focusing on those minor capital, high-return brownfield type projects, debottlenecking of Esterhazy mills, increasing the number of mining machines at our K3 mine, restarting the Colonsay second mill, etc., and growing our footprint in Brazil. We think those are a much better way to add significant value to our shareholders over the midterm.

Operator

Thank you. Your next question comes from the line of PJ Juvekar. Please state your firm name. Your line is open.

Please go ahead.

PJ Juvekar -- Citi -- Analyst

Yes. Hi. Good morning. Quick question on your reserve additions in phosphate at Fort Meade.

Does that only increase reserves also or is it also production? And then, I have a question for Jenny about the China phosphate and you mentioned LFP battery for a couple of quarters. is LFP a big -- that bigger -- is it that bigger part of the phosphorus market in China? I mean, I'm wondering if you have any numbers around that.

Joc O'Rourke

OK. Thank you, P.J. Let me start with the reserves. The Fort Meade reserves, I think you're referring to is our South Fort Meade Eastern extension and -- this is a normal part of the ongoing development of our phosphate business.

So we're constantly buying new land, bringing in new reserves to our system. And what that does is that allows this business to run sustainably for a long, long time. I'd like to say we -- I came to the company and I think we had 35 to 40 years of reserves, and I have -- we have 35 to 40 years of reserves 15 years later. So you can see where every year, we're adding new reserves.

So this is a big new area, but it's not expected to increase production per se, but to extend the life of our operations and our quality rock for many years to come. In terms of lithium iron phosphate batteries, Jenny is right up on the supply and demand and what China has been doing particularly on that front. So I'm going to hand it over to Jenny directly.

Yijun Wang -- Senior Vice President, Global Strategic Marketing

Thanks, Joc. Yes, P.J., we started to talk about the LFP production in China last year in the background of increases of electrical vehicle and also the increases of the adoption of LFP in the EV battery. And this year, for the first quarter, we are saying more than doubled EV penetration to start with. The second thing, we are seeing more than doubled adoption of LFP battery in the EV adoption.

Therefore, the total LFP production in the first quarter this year has been more than doubled than the same time of last year. And it is reaching to the half of the total production in 2021. So we are seeing significant increases of LFP production, which are taking away of [Inaudible] from the fertilizer MAP DAP production. And lastly, I want to say from the latest issued Chinese policy which was issued on the seventh of April, the government has strictly controlled the new addition of MAP, DAP and the yellow phosphorus production capacity.

So with that new restriction, we are going to foresee further reduction of fertilizer MAP DAP with the shift of the PTO to other industrial use, especially on LFP.

Joc O'Rourke

And let me remind you, P.J., that while electric vehicles have been the focus, stationary batteries for wind and solar power, becoming more and more important because of the variability of those power sources. And while the nickel, CAD, lithium, nickel, cobalt batteries are probably smaller and lighter if you've got a nonrestricted area, these lithium-ion phosphate may be the long-term solution.

Operator

Thank you. Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is open. Please go ahead.

Andrew Wong -- RBC Capital Markets -- Analyst

Hi. Good morning. I have two questions. First is on potash run rate and production.

Now that Colonsay and K3 have been fully ramped up, should we expect operating rates to get back closer to 90%? Or maybe said another way, like what's the potential production from the 11 million-tonne run rate on operational capacity? And then, my second question is on Ma'aden. Now, that we've seen phosphate and ammonia prices moving up pretty significantly, what's the profit generating potential out of Ma'aden? And then, do you have any thoughts on participating in Ma'aden III?

Joc O'Rourke

OK. Thanks, Andrew. Potash run rate, as you say, a 10.8 million tonnes per annum, which is a 1.3 million tonnes out of Colonsay now. In terms of Esterhazy, it's running at its 5.5 million-tonne basic capacity.

We will be adding another two mining machines to Esterhazy. So that will go up a little bit from that as we not only complete, but optimize the run rate at there. So overall, if you took a 90% or 85% operating factor, you're probably in that 9 million to 9.5 million tonnes of potash capacity right now and looking to move up from there as we look at increasing the Colonsay capacity to almost 2 million tonnes and Esterhazy, probably from the 5.5 million up to the 6.5 million tonnes. In terms of Ma'aden's profitability, I'm going to have to hand that over to Clint because I don't know the exact number, but I will tell you that Ma'aden is now profitable and they are contributing to our bottom line.

However, you also need to note that Ma'aden's results are one quarter delayed. We only see one quarter behind. So there's a little bit of a lag there from the overall. But Clint, do you want to talk about that?

Clint Freeland -- Senior Vice President and Chief Financial Officer

Yes. No, happy to. So as you said, we -- remember that it is on a one quarter delay, but this quarter for the first quarter, which is representative of Q4 last year. Equity earnings for Ma'aden was about $30 million to $31 million.

So as Joc said, it is now profitable. I think you also keep in mind that because there's no cash to Mosaic associated with it at this point, maybe a year or two ago, we removed that from our EBITDA calculation. So that's something to keep in mind, as well as we go forward.

Joc O'Rourke

Right. Good point. Operator next question.

Operator

Thank you. And our next question is from Anja Isaacson from Scotiabank. Your line is open. Anja Isaacson, your line is open.

Joc O'Rourke

I believe that's Ben Isaacson, operator?

Operator

And our next question is from Michael Piken from Cleveland Research. Your line is open.

Michael Piken -- Cleveland Research Company -- Analyst

Yeah. Good morning. Just wanted to talk a little bit about your retail operations down in Brazil. There's been some talk that potentially consumption for the country might be off 20% or as much? And how is your retail business down there handling it? And what does it mean also for your wholesale business in terms of the type of margin opportunities that are there, if there's trouble attracting getting the imports in for whatever reasons?

Joc O'Rourke

Yeah, good morning. Yes. Thanks, Michael. Well, let me say, yes, in fact, Brazil probably will be one of the areas that will have some trouble getting all of the fertilizer they may want or need.

We have seen record fertilizer demand in Brazil year over year for a number of years now. Likely, that growth will probably stop or at least slow down a lot this year because of availability, not because of demand. However, when you look at our business, with our extremely good link into ourselves through our phosphate business and are linked to Canpotex for our potash. We expect that our -- we will actually have a pretty good opportunity because we'll be one of the retail/distribution businesses, it's very well supplied through this.

And we've probably already seen some of that in that we had a very good inventory going into the start of the year. And now as the demand is picking up, we're there to take advantage of that. Overall, however, there will be probably some people in Brazil that won't get the product they need or want.

Operator

Thank you. Your next question comes from the line of Joshua Spector from UBS. Your line is open. Please go ahead.

Lucas Beaumont -- UBS -- Analyst

Good morning. This is Lucas Beaumont on for Josh. So I just wanted to go back to sort of what you're seeing from customers currently, if you could have it. So in terms of sort of them being willing to kind of contract with Russia and Belarusian producers since the onset of the complaint.

So I mean, are contracts still being concluded? Or is that sort of completely dried up? And if it's in the process of drying up, is that kind of you think the volumes are going to kind of slow further there? And then, just sort of as a second part in that. I was just trying to think about like what's your incentive to kind of push tonnes at the moment into China and India where the pricing sort of 550 versus the sort of much higher net back pricing you can get in Brazil or sort of in North America? So as you kind of get any more incremental tonnes available, is there anything you can do to kind of push that into the more profitable markets given the tight supply situation? And could we sort of see a two-tier market there developed between sort of what slipped between going to Asia, as you mentioned earlier in sort of the higher, more profitable markets?

Joc O'Rourke

OK. I'm not sure I fully understood your first question, are you asking about the China and India contracts with Russia? On the first part of your question, will those contracts dry up? If you've been muted, I'm going to assume that was your question, Lucas. OK. So thank you, Lucas.

On the first part of the question, which is are the contracts with Russia and China, India are likely to dry up. Certainly, in China, we have not seen the Chinese renew contracts with Belarussia or Russia. So other than the product coming by rail over the Euro mountain range, which is limited in volume to about 1.5 million tonness a year, we're not seeing Russian or Belarusian tonnage come to China. In terms of India, we have seen phosphates make its way to India from Russia.

So one would assume that the Russians will also try to move potash to India if they're looking for places where they can sell that product. In terms of the second piece of your question, you really only need to look at last year when the price to China and India was significantly lower than the market. And what we did was exactly what you said. We made our -- we certainly made all of our commitments to those markets.

But beyond our basic commitments to the markets, any extra tonnes we move to more profitable, higher priced markets. And there are significant opportunities for that this year. Last year, India actually renegotiated some of its pricing because of that. And you could see that happening again this year in both China and India, if the prices as they are persist.

Operator

Thank you. Your next question comes from the line of Adrien Tamagno from Berenberg. Your line is open. Please go ahead.

Adrien Tamagno -- Berenberg Capital Markets -- Analyst

Hello. Good morning. I have a question on ammonia. Can you remind us what is beyond the CF agreement? I believe it could be extended until 2022.

But if you can remind us what needs to happen for these agreements to extend until then, that will be helpful? And in addition, do you have any option to increase your captive ammonia production more meaningfully?

Joc O'Rourke

Yes. Thanks, Adrien. Well, let me start with the CF contract. The CF contract was written as an eight-year contract and with the option to extend at mutual agreement.

So whether we would extend or not really depends on what the market looks like at the time. I would expect, though, because from a physical perspective, this is a good partnership. It's good for them and it's good for us. And I suspect we'll find a way to extend that beyond the original eight years.

Oh, yes. In terms of our captive production of ammonia at Fostina, we have looked at debottlenecking that a few times in the past. And I guess at these prices, it's probably -- we're relooking at that, but it's an older plant, and we're not sure that that might -- would necessarily be the best place to be investing money right now.

Operator

Thank you, presenters. There are no further questions at this time. I'd like to turn it back over to Joc for any closing remarks.

Joc O'Rourke

OK. Well, thank you all for all your questions. To conclude our call, I would like to reinforce some of our key points. First, this was a very good quarter for Mosaic and our outlook for the remainder of 2022 remains strongly positive.

We expect fertilizer supply to remain extremely tight for the foreseeable future, as global crop prices support demand. And with these geopolitical situations restricting both fertilizer production and trade flows, we expect this to continue for some time. At Mosaic, our mission to help the world grow the food it needs has never been more important than it is today, and we are working to produce every possible tonne of fertilizers so that we can help farmers around the world to maximize their production. And in that, we are confident that we can do our part while creating significant value for all of you, our shareholders.

Thank you for joining our call. Have a good and safe day.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Paul Massoud -- Vice President of Investor Relations and Financial Planning and Analysis

Joc O'Rourke

Clint Freeland -- Senior Vice President and Chief Financial Officer

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Chris Parkinson -- Mizuho Securities -- Analyst

Jeff Zekauskas -- J.P. Morgan -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Yijun Wang -- Senior Vice President, Global Strategic Marketing

Adam Samuelson -- Goldman Sachs -- Analyst

PJ Juvekar -- Citi -- Analyst

Andrew Wong -- RBC Capital Markets -- Analyst

Michael Piken -- Cleveland Research Company -- Analyst

Lucas Beaumont -- UBS -- Analyst

Adrien Tamagno -- Berenberg Capital Markets -- Analyst

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