Intrepid Potash, Inc.
Q2 2015 Earnings Call Transcript

Published: 28 Jul 2015

[Operator:]

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Intrepid Potash Inc. Second Quarter 2015 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I’d like to turn the conference over to Gary Kohn, Vice President, Investor Relations. Please go ahead, Mr. Kohn.

[Gary Kohn:]

Thanks Brock. Good morning everyone and welcome to our call today. I will remind everyone that parts of our discussion will include forward-looking statements, as defined by the U.S. Securities Laws. These statements are not guarantees of future performance and are based on a number of assumptions, which we believe are reasonable. These statements are based on the information available to us today, and we are not assuming any obligation to update them. You can find more information about risks and uncertainties to our future performance in our periodic reports filed with the SEC. During today’s call, we will refer to certain non-GAAP financial and operational measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in this morning’s press release. Our SEC filings and press releases are available on our website at intrepidpotash.com. Presenting on the call today are Bob Jornayvaz, our Co-founder, Executive Chairman, President and CEO; and Brian Frantz, our Senior Vice President and Chief Accounting Officer; and Kelvin Feist, our Senior Vice President of Sales and Marketing will be available for our Q&A. With that, I’ll turn the call over to Bob.

[Bob Jornayvaz:]

Thank you Gary and good morning everyone. Last year and into this year we’ve been focused on optimizing our very diverse set of assets. Our solar assets, Wendover Moab and our new HB are the most financially reliable best performing and highest cash flow per ton assets in our portfolio. Our combined solar operations are cost competitive with the most potash mines worldwide. Growing our solar capacity is a wonderful opportunity; we’ve capitalized on this opportunity utilizing our expertise we expect 36% of our total potash production in 2016 will be from solar evaporation up from 25% pre-HB in 2013. Having more solar production will continue to benefit our company, companywide potash cash cost - cash operating cost in the second half of this year and even more so for the full year of 2016. The next step in sustaining and then potentially stepping up our solar production is accessing the Amax Horizon mine to exploit the remaining potash remaining after the mine closed in 1993. As a reminder this mine is separate and distinct from our HB mine, but ties into all the newly build HB infrastructure. As an update just this month we obtained all required permits that allow us to begin injecting brine according to our time line. In the first half of the year potash production was down 5% compared to the first half of 2014. The lower production results were influenced by production challenges at our conventional facilities. Our focus is on improving the up time across the conventional plants through a continued optimization. We will continue to have some planned downtime as we perform upgrades in the third quarter. At our West facility we continue to make upgrades that complement the improvements we’ve made previously in mining, hoisting and equipping the mill for better variable ore processing. In early July we began installing new crushing equipment that enhances recoveries are also increasing reliability. We are ahead of schedule with this upgrade and is going well. We also augmented our capabilities by modifying the new thickener system we recently completed installing. We believe we are close to having all the final pieces in place in West and getting West fully optimized. The East facility is our most expensive and complex Potash mill and requires our more intense focus. We are investing to decouple the plant to create the ability to produce potash and Trio separately and with higher degrees of reliability. In order to decouple the process and develop this optionality we are performing plant test to produce Trio independent from potash. On the Trio side we are making advancements in converting standard and fine size material in the premium size Trio. The improved conversion rates we have achieved for the past year set the stage for us to continue implementing more fine recovery innovations. Concurrent with these efforts we are mining to access our untapped high-grade Trio reserves, which are core hole drilling should be significant. The work we are performing and investments we are making to grow Trio are predicated on the strong cash flow per ton that we earn on it. The superior cash flow we generate from selling Trio is a result of the demand for specialty Potassium, Magnesium and Sulfate fertilizers, which has clearly separated itself from the MOP market. Looking into the second half of the year it appears potash pricing has compressed from second quarter level, but our perspective is for prices to remain in the tight range around current levels in the United States. The market is competitive and the spread between pricing here and around the world has somewhat narrowed, which we believe has substantial to soften imports into the United States. We believe that we will continue to achieve a price premium to other North American producers as we have for more than a decade. We also expect to see our potash cash operating cost coming down meaningfully from the second quarter level providing more cash flow per ton opportunity in the second half of this year and for 2016. I have a clear vision of where Intrepid stands and what remains to be done to earn the desired returns and to create increased shareholder value. Recognizing that there will be variability in production and cost as we continue to make modifications Intrepid will emerge a much better performing company from where we started several years ago. Intrepid expects to extend its cash flow per ton opportunity by continuing to expand low cost solar solution production producing and selling more higher cash margin Trio tons and gaining even more efficiencies at our conventional potash facilities by increasing reliability. We are not looking to make another sizable capital investment; rather we are perusing opportunities in bite size pieces. We have prioritized for opportunities to pursue those with a highest margin potential in a thoughtful sequence building systematically on what we have already put into place. Now Brian will update you on the financial results and the outlook.

[Brian Frantz:]

Thanks, Bob and good morning everyone. Our second quarter adjusted EBITDA was $15 million and totaled $47 million for the first half of 2015. This compares to $29 million and $45 million in the same period of 2014. Our adjusted loss per share in the quarter was $0.08 and we earned adjusted net income per share of $0.01 in the first half of this year. We recorded a lower cost to market adjustment in the second quarter of approximately $5 million compared to last year’s second quarter LCM of $1 million. Lower production at our conventional facilities gave rise to elevated cost, which relative to pricing resulting in LCM adjustments in the second quarter. As we continue to work through the optimization efforts at West and East and with the expected price environment, we expect to have additional LCM adjustments in the second half of the year. We generated free cash flow of $36 million for the first six months of this year, up from $11 million in the same point in 2014. We had $124 million of cash and equivalence on hand as of June 30th. We continue to expect to be cash flow positive for the full year and keep our balance sheet strong in light of current product prices. Looking at Potash results, we generated $103 per ton of cash flow in the second quarter and $123 a ton for the first six months. Our average net realized sales price for the second quarter was $358 a ton, which is down $4 from the first quarter, but up $29 from where we were a year ago. Potash sales volumes for the first six months were down compared to last year. Agricultural sales were impacted by wet spring weather and light summer fill purchases as inventory levels of many customers were higher than expected as they exited the spring. As anticipated, sales volumes to our industrial customers in the oil and gas market reflect the decreased drilling activity. Potash cash operating cost were $224 per ton in the quarter. Costs were elevated not only due to lower production levels at our conventional facilities as Bob noted, but also as a results of the timing of low cost solar production during the second quarter. Harvesting at HB was completed earlier in the second quarter. In comparison we harvested HB later in the second quarter last year. We expect to reduce our cash operating cost by $27 a ton from the second quarter result to the midpoint of our second half outlook. This improvement results from our expectation of harvesting more solar tons in the second half of this year and progressing towards additional efficiencies at our conventional mines. We generated $161 of cash flow per ton for Trio in the second quarter, an increase from the first quarter as well as year-over-year. We achieved an average net realized sales price of $383 a ton, which is $16 higher than the first quarter and $33 higher than last year’s second quarter. Cash operating cost were $185 per ton in the second quarter. The outlook for potash cash operating costs and total cost of goods sold is unchanged and we still see the fourth quarter as a lowest cash operating cost quarter of the year. We have lowered our potash production range for the second half of this year to reflect the optimization work currently underway. We’ve widen the sales outlook for potash in the second half to allow for the timing of purchases related to the fall season. Production and sales ranges for Trio in the second half have been lowered modestly to accommodate the enhancement at East that I just mentioned. Trio cash operating cost and total cost of goods sold ranges have been modified slightly as well. The range for cash paid for capital expenditures has been modified to include some additional Trio initiatives. We still expect to pay very little cash taxes in 2015 and 2016. On a long-term basis, we expect our effective tax rate to be in the mid-30% range. However for 2015 we expect an effective tax rate of around 60%. This effective tax rate is really not that meaningful other than for modeling purposes. It’s driven by the estimated level of depletion deductions relative to the levels of taxable income. Operator with that this concludes our prepared remarks and we’re ready to take some questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question today comes from Mark Connelly of CLSA. Please go ahead.

[Mark Connelly:]

Thank you just a couple of things. Obviously over the last several years you’ve had big and small projects and the same Amax project is going to tie into HB, I am just wondering whether you’re anticipating meaningful operating disruptions whether we should be expecting big bumps in earnings as that tie in starts to happen?

[Bob Jornayvaz:]

Mark this is Bob. I think what you’re going to see is that those are going to be very gradual on the solar solution side. Tying those in shouldn’t have any production disruptions at all on the solar side. It’s very different on the conventional side than it is on the solar side. So as we tie those projects in there shouldn’t be any disruptions. Because you don’t have to turn off the mill it’s just, it’s a very different set of circumstances that’s why we’re so excited about the bite size pieces that we can add on solar side.

[Mark Connelly:]

Okay that’s helpful. And next question is, you had warned us earlier that weather was going to shift the mix from conventional and solar and it did, but it looks like we underestimated at least I underestimated the cost impact pretty significantly. Can you tell us whether they were big impacts, bigger than you expected or am I just doing a lousy job?

[Bob Jornayvaz:]

No, not at all. I think the impacts that you really see are from the lost conventional tons and then the timing on the timing of when we harvest certain ponds at different facilities. And so what we’ve really tried to stress over and over and over is to focus on an entire year as it relates to our solar system. But we did have issues at the conventional mines. Also we took certain parts of the mines down to as we are changing out the crushing system, as we redesigned the thickener system at West so that it could be more sequential in how it’s operated and as we’ve done plant testing at East to try to run the Trio side independently from the potash side.

[Mark Connelly:]

Okay, that’s helpful. And just one last question, Trio has obviously been a bright spot for you for the last years, as you think about the expansion of production, are we going to see bumps in the Trio side bigger than we’ve seen because we really haven’t seen many negatives there at all?

[Bob Jornayvaz:]

I guess one of the points that we would like to make is that the entire specialty market or call Trio as specialty product if you look at SOP, if you look at the keys are right that’s come into the country if you look at our ability to sell Trio and the expanded geographic demand that we are seeing for Trio in all the potassium, magnesium, sulfate, non-chloride markets you are seeing pretty significant market expansion, new markets created and new demand. And so that’s we find exciting is that rather than the MOP market, this other market has clearly bifurcated and separated itself out in a very distinct fashion. It’s a growing market, it’s an under supplied market and it’s a very, very difficult market to actually produce. Ours is the only langbeinite deposit in Southeast New Mexico in the world. If you look at the SOP production that exist around the world that’s either manufactured and the cost structure is going up on SOP, but they’ve been able to maintain significant margins, and so we see the same thing in our Trio pricing. So it’s very indicative of a very under supplied market and it’s a geographically diverse market. So I don’t know if that answers your question or not.

[Mark Connelly:]

No, it’s really helpful. Thank you very much.

[Operator:]

The next question comes from Chris Parkinson of Credit Suisse. Please go ahead.

[Christopher Parkinson:]

Perfect, thank you. Can you just... you kind of touch down this in your prepared remarks, but can you just offer a little more color on the longer term targets balancing Trio versus conventional East? And then you mentioned some increases this year, but can you just help us think about any potential incremental capital costs post ‘15 just anything there would be appreciated?

[Bob Jornayvaz:]

I think we bumped up our capital range just a touch this year because we’ve been testing some new equipment that on all the rounds of test have worked. So we went ahead and ordered sort of the up sized fine langbeinite recovery system that’s being built, that’s been designed and built and being added on to in the third and fourth quarters of this year, that will immediately begin to recover fine langbeinite that we are losing. So it should have pretty significant immediate cash flow, I just don't want to give you the numbers right now. We’ve said very consistently that as we make technological progress that we will inform you on our successes as it relates to the technological processes and then we will try to come in and fill in the blanks with what those numbers look like after we’ve achieved the technological success. So we just don’t want to get ahead of ourselves in giving you very specific guidance in terms of those numbers. But the very meaningful rates of return on the investments that we will make around the langbeinite side.

[Christopher Parkinson:]

Okay, that’s very helpful…

[Bob Jornayvaz:]

And they are well tested technologically.

[Christopher Parkinson:]

Alright, certainly fair. And then also you mentioned in 1Q that you hadn't realized the full benefit of Mosaic or telling it MOP production at Carlsbad, can you just comment on any of the regional trends that you saw evolve specifically throughout the second quarter in your key markets?

[Bob Jornayvaz:]

I would say the one thing that is both good and bad is the extensive amount of rain and flooding that occurred in the State of Texas that’s a great market for us. And where we had been experiencing drought, we experienced flooding in the months of May and June, which I think delayed some of the consumption that we’re going to see in that very localized truck market. So if you look at Eastern New Mexico, the entire State of Texas, Oklahoma, Missouri we saw a very, very wet spring. So I think there is a lot of pent up customer demand there from what we’re seeing and talking to customers. But it’s beginning to dry out and we’re seeing the benefits of that. So when we came from drought to significant amounts of rain, it happened right in the middle of the spring season. So I guess that’s the most color I can give is that we clearly believe that we’re going to pick up those opportunities, but I hate to blame it on the weather, but to some degree the weather does need to cooperate and we did see pretty extensive flooding throughout the entire State of Texas.

[Christopher Parkinson:]

Perfect, thank you.

[Operator:]

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

[Adam Samuelson:]

Thanks, good morning everyone. Maybe just continuing the questions on East a little bit and Bob, can you help us thinking about the timing of when a decision could be made, to really push more towards Trio only at East if at all and I mean help us think through some of the - what are the milestones that you have to accomplish in the second half of this year or early ‘16 that would make you more comfortable and potentially making a decision?

[Bob Jornayvaz:]

Well first I don’t know that we’re really talking about Trio only in near-term, what we're talking about is product optionality. So building a bypass around as you know right now the Trio comes off the tails part or the back side of the potash plant. So building a - right now we’re mining at a mixed ore body where we have areas that have very high grade langbeinite, areas that would have high grade langbeinite and low grade sylvite in areas that have high grade sylvite and low grade langbeinite. So we’re looking at ways to either campaign those products, run them independently of each other so that when the plants are running they’re producing at optimum rates potentially independently of each other. At the same time we’re mining down to our third and fourth ore zones which are untapped and very high grade pure, no I wouldn’t say pure, but langbeinite only mineralogy. So we’re doing a multitude of things to be able to run the plant with optionality first and we continue to make great strides on fine langbeinite recovery as I said earlier the bump in the CapEx range from 40 to 50 to 45 to 50 was for one very - well really two specific areas fine langbeinite recovery and then an ability for us to capture some immediate salt sales coming off our HB, which will increase our byproduct credits there. And we’ve got customers waiting for that extremely high quality salt that we produce off of HB. And so two capital items which will generate cash flow virtually immediately.

[Adam Samuelson:]

Okay. And how long does it take before you could reach those langbeinite ore zones?

[Bob Jornayvaz:]

I’d say 12 to 18 months.

[Adam Samuelson:]

Okay. And then in the prepared remarks you alluded to some steps to get to a fully optimized cost structure at West, can you help us think about what that West cost structure actually looks like, it looks like when you’ve taken all the actions that you've done both this year and really the last few years.

[Bob Jornayvaz:]

Well Brian I’ll let you answer that.

[Brian Frantz:]

I mean the goal is to get it back where it was several years ago. Adam I guess the way I would think about it is as we’ve talked about these conventional assets and the solar assets. West has some significant opportunities as you also know that it produces a large chunk of our total production. So as we put in some additional changes there late in the second quarter when we did our annual turnaround related to the thickener system that we have and some other the crushers that Bob referred to earlier. Now as we ramp that up here in the second half of the year we should be able to see some significant reductions in our West cash cogs as we go forward which will then have a meaningful impact for the full year.

[Bob Jornayvaz:]

And part of the problem in the conventional facilities as Mark asked his question when you modify, when you upgrade, when you tie something and you have to take the plant down in its entirety stop the whole system to tie things in. And so we took this opportunity in sort of the soft second quarter market to make as many of these changes as we could and I am not going to say on the fly, but to get them in as much quick as we could.

[Adam Samuelson:]

Okay. And if I could just squeeze one last quick one in, account receivable dip down pretty significantly in the quarter, any color on that I would guess maybe late quarter sales were lower and so you just collected on the nearly quarter sales and there was nothing to fill in that pipeline in June, but any other color would be helpful?

[Brian Frantz:]

Yeah, Adam this is Brian. You hit it right on the head as that sales volume typically slows there in the quarter obviously receivables go with this. So nothing out of the ordinary other than what you referenced.

[Adam Samuelson:]

Okay, that’s helpful. Thanks.

[Operator:]

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

[Andrew Wong:]

Hey guys, thanks for taking my question. So the realized prices in the second quarter may held relatively steady on a sequential basis for the first quarter, but we saw some weakness in the benchmark potash prices, can you just talk about what helped the realized prices in the second quarter? And then maybe your prices expectations for the second half?

[Bob Jornayvaz:]

Well, I think one of the reasons is we sold forward a little bit more aggressively at the end of last year and into the first quarter. We also had - we picked our spots where we sold into in terms of what we’ve seen in terms of summer fill program is it didn’t appear I would say going into May the major Canadian producers were going to have a fill program and then one Canadian producer decided to introduce a fill program and then we saw another one follow soon. I think to some degree the farmer is not engaged in the market right now. So we’ve seen some pushing on a rope if you will. We believe Intrepid's strategy is to be more patient. We think that farmers are clearly going to farm in the fall and make their decision in the fall and there was a lot of noise around let’s be honest there is more inventory in the system than there was last year at this time. So trying to give you as much color as I can. We’ve had a very just I would say average summer fill program it’s definitely not robust but that’s because we just don’t have farmer engagement yet nor should we have. It’s just not the time of the year where farmers are interested in talking or buying their potash. Kelvin I don’t know if there is anything you would like to add that?

[Kelvin Feist:]

Yeah, maybe I'll just touch on the second half a little bit. Retailer are layering in a little bit, but compared to last year where they really stepped up if you remember last year they were concerned about transportation issues and making ensure they had their material, I would say today they’re not concerned about a distribution shortfall some type. So they are layering in some to get started to Bob’s points there was additional inventory that they carried out of the spring season. So they’re feeling more comfortable that way. And so I think overall they are kind of taken a small position and waiting to see what the farmers are going to do. Now as Bob suggested we believe the farmers can step up here at some points we know that they’ve removed a lot of nutrient over last few years and that should drive them to put on the appropriate rates here this fall at some point. So we’re comfortable with the demand side once it get started.

[Andrew Wong:]

Okay, great. Thanks.

[Operator:]

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

[Joel Jackson:]

Hi, good morning. Just talked a little bit some of the competitors in the summer fill program maybe just elaborate we’ve seen Agrim [ph] start to ramp on there, Sansquay [ph] extended mine and introduced still, there’s a lot of talk going on with about the Russians maybe just talk a little bit what you’re seeing out of the Canadians, out of Agrim out of other - whatever that’s changed or any difference this year than another years? Thanks.

[Bob Jornayvaz:]

Well I think Joel you hit it on the head. I think you accurately pointed out that there was one Canadian producer that came up early. Overall it’s a competitive market right now. We saw fill program introduced that just didn’t get a lot of response. So to us we described it as pushing on a rope right now when that’s not Intrepid strategy. I think the river has cleaned up a little bit. But it’s still very competitive. I don’t know if I am answering your question or not, I think in your question you described the situation well.

[Joel Jackson:]

Okay, thanks a lot. Second question would be what you are talking about you are not necessarily going to go to Trio only production at East, what would have to happen if you have a successful decoupling of the circuits should be able to do Trio and potash separately? What would have to happen for potash production to be stopped at East?

[Bob Jornayvaz:]

Well clearly there would have to be a place where no longer generates positive cash flow. But as long as our production at East, our potash production has the ability to generate positive cash flow we are going to produce it and service those customers. The product that comes out of our East is a great market for us in the feed and industrial markets as it currently exist. But we have the ability to take our solar tons and to take some of those 60% tons and turn them into 62% tons at that HB mill. So we built into the HB system, the ability to upgrade those tons to continue to participate in those what have been those great markets those industrial and feed markets. So we are just trying to create as much optionality as we can, we’ll always be mining in those areas. So the ability to not necessarily run the potash circuit at East and produce significantly more Trio tons at any given period in time creates an optionality that we don't currently have, when that plant goes down both sides of the production stream go down. And the ability to - as I said earlier bring building that optionality I think it’s just going to make us much more reliable on both sides and as we get into a much higher ore grades on the langbeinite side, it just allows us to produce significantly more it given the success we’re having in fine langbeinite recovery and polarization we are just very comfortable that that’s the market where we should continue heading.

[Joel Jackson:]

Thank you for that.

[Operator:]

Our next question is from Neil Kumar of Morgan Stanley. Please go ahead.

[Neil Kumar:]

Hi, thanks for taking my question. Can you talk a little bit about your industrial sales for the quarter and whether prices are pressured given the reduced drilling activity and how do you see industrial pricing shaping out for the remainder of the year?

[Bob Jornayvaz:]

Potash pricing doesn't increase the rig count. And so we’ve learned well that there is no reason to affect pricing on a product that’s not going to stand up a rig. So our pricing has remained pretty stable. Our volumes are clearly down on the industrial side in the oil and gas side of our market, but we haven’t seen any reason to take pricing down because it’s just not going to stimulate demand. So we’ve seen very firm pricing on the industrial side, but significantly reduced volumes. So on the frac jobs that we are servicing and on the wells on the lower rig count that is operating. We’ve seen very little price erosion on the industrial side and we don’t see any reason for us to take a hit when we are not going to stimulate demand or stand up a rig based on the price of potash.

[Neil Kumar:]

Okay, thanks.

[Operator:]

Our next question comes from Sandy Klugman of Vertical Research Partners. Please go ahead.

[Sandy Klugman:]

Thank you. Could you guys get us on your thoughts regarding the timing of potential cash distributions to shareholders I know we’re obviously seeing a lot of volatility in the potash market, but your balance sheet does remain very strong.

[Bob Jornayvaz:]

As I'm sure you do Sandy we watch the oil market, the copper market, corn and soybean markets strength in the dollar. We continue to remain very aware of the worldwide market and the volatility in the commodity markets. And so I think it’s prudent and appropriate to maintain a very strong balance sheet and to watch the world economy and the world commodity market. And so we talk about it every day, we look at it every day. I think that we continue to get more clarity on what the worldwide markets look like and pricing stability we can bring that back to the forefront where we had it in the fourth quarter of last year before we saw the collapse in the commodity market and pricing. So I think we’re going to continue to be extremely prudent and make sure that we can run this company with significant liquidity and fulfill all of our obligations on a timely basis and run the company in the most prudent fashion that we can.

[Sandy Klugman:]

I think that’s fair. If I can shift to another question, if you could offer your thoughts on the company’s use on potential consolidation in the Potash industry? If you have any thoughts as to how would impacts the broader industry in the Intrepid in general more specifically I would be interested in hearing those.

[Bob Jornayvaz:]

There is obviously we’re all well aware of the Potash Corp and [indiscernible] and we don’t have any insight on that and really not in a position to offer an opinion. I guess if you have a very specific question I'm happy to try to answer it, I think to the degree we see some consolidation I think it will be beneficial for the industry, but if you got a more specific question I'm happy to answer it.

[Sandy Klugman:]

No, I think it was just more general thoughts my view is that greater consolidation a lot of those benefits would accrue to smaller producers such as Intrepid, I was just curious to see if that rational ran through the company?

[Bob Jornayvaz:]

No we think consolidation is a good thing and we'll watch from the sidelines to see what happens. So really just don’t have more color or opinion that I’ll offer you right now.

[Sandy Klugman:]

Okay, thank you very much.

[Operator:]

The next question comes from Don Carson of Susquehanna Financial. Please go ahead.

[Don Carson:]

Hey Bob, I want to go back to a previous comment where you thought the second half pricing would remain at current level, by that do you mean sort of the summer fill levels we’re seeing is kind of $345, $355 a sure ton corn build by your competitors or you’re talking more about what your second quarter pricing was?

[Bob Jornayvaz:]

No we’re talking about current levels that we’ve seen. We try to be clear that we had seen erosions in the ag markets sort of post second quarter going into the Southwest fertilizer. And so those are the levels that I was referring to.

[Don Carson:]

Okay. And we're seeing unlike last year when product was tight we're seeing a lot more price protection by some of your Canadian producers, are you having to respond by doing more contingency sales or kind of forward price guaranteed sales, can you comment on that?

[Bob Jornayvaz:]

We’ve more chosen to stay out of the market and not participate in very many if many of those arrangements, that's not our style of marketing. And so you're right it exists. Kelvin if you like to give some color around that.

[Kelvin Feist:]

Yeah, Don I think the only comment that I would make there is that there is lots of people asking for various things. We feel like we're getting very close to 4 or out of floor in the market on these prices. So the need for one of those types of tools is limited right now in our view. I think that the key here is seeing some demand at the farm gate and all the way through the retail and that will really drive the market forward in terms of the demand side. So I guess that’s our view in general and I guess our view is with regard to price protection is if we don't have to do it we won't.

[Don Carson:]

Okay. And Kelvin just a follow-up. What was your view in terms of industry Potash consumption for the fertilizer year ended June 30th I mean you commented clearly that wet weather reduced the volumes, but just wondering how significant industry factor it was?

[Kelvin Feist:]

Yeah I guess we don't have all the data in just yet but I guess our sense is we were impacted specifically in Texas as Bob mentioned. And I would say to some degree in Missouri because of the very wet weather that we saw there as well. Other producers were probably impacted by the Eastern corn belt in different areas than we were because we participate less there. The reality as we know that retailers are coming out of the spring with more inventory. So that tells us the demand that the farm gate was somewhat lower. But I don’t have a specific number if it was at 15% what was the number; I guess I don't have that just yet.

[Don Carson:]

Alright, okay. And Bob I was going to ask for a prediction you've Wendover have to cancel speedway for two years in a row now. So when is the rain going to let up?

[Bob Jornayvaz:]

It's not so much... I wouldn't say that was really about the rain. And so if you dive a little deeper but I don’t know I guess if we could do that, the politics, the racers on.

[Don Carson:]

Okay. We can go offline on that then.

[Bob Jornayvaz:]

Yeah.

[Don Carson:]

Thank you.

[Operator:]

Your next question is from Brett Wong of Piper Jaffray. Please go ahead.

[Brett Wong:]

Hi, thanks guys, thanks for taking my question, I appreciate it. I know you mentioned some factors in the prepared remarks that would help some core pricing at current levels as you look into the back half of the year. But with higher inventories exiting the spring and soft demand can you talk to that expectation in more detail and why we won’t additional pricing decline?

[Bob Jornayvaz:]

We've already seen decline from second quarter to - I'll just call it that period from the end of June to the Southwest fertilizer conference that is occurred. And so I think once we do feel was the farming community in the vast amount of farmers that we talk to that we are going to see relatively firm demand in the fall. The global markets are still very significant; we had a tremendous amount of nutrients moved from the soil. So we're not seeing any decrease in what we call application rates, this could be a much more function of acres. Kelvin do you want to add some additional color?

[Kelvin Feist:]

Yeah, I think just with regard to global markets and how the U.S. played. It's so much flatter world today in terms of the premium that we used to get in the U.S. So I feel like that we are in a pretty good position. I don't know if we'll less imports or not. But the reality is there is less of a premium here. So maybe slightly less attractive relative other markets around the world.

[Brett Wong:]

Okay, thanks. And on the aspect of strong demand in the fall, obviously we’ve watched grain prices here move lower recently after that short rally at the end of June. Any expectations as we see grain pricing in current levels that as we entered harvest what that will do for fall application?

[Bob Jornayvaz:]

Once again we've got tremendous access to the farming community. Like I'm sure all of you all do and we hear diverse stories. We believe that a good chunk of the ‘15 corn is being crop got hedged. We feel like they had great - they had two very strong opportunities, two rallies throughout to go in and hedge at higher prices. I mean there is a dollar difference between soybeans a week ago and today and we had record trading in terms of soybean and corn contracts. And so all of our contacts suggest that lot of farmers that sophisticated enough took advantage to lock-in some pricing. We did see a probably a higher hedging going into the ‘16 crop than we would normally see. I don't know that it's that significant as a percentage of the crop, but it's definitely a much higher percentage of farmers that went ahead and began to hedge into ‘16 than what historically we hear from farmers at this point in time. So we have every indication. I don't think I used the word strong demand, I think I used the word firm we would differentiate in that just a steady. We just don't see our markets being that detrimentally affected in terms of farmer demand. We see it being firm and rational we don't see it - I would not describe it as being strong and robust. So Kelvin anything more you want to...

[Kelvin Feist:]

Just maybe the last thing is traditionally the farmers can get their harvest off. They would love to break up the busy spring season. So they have an ability to do that and they are comfortable that the price of fertilizer is attractive to them and we think it is on a number of different nutrients today. They would go ahead and apply this fall and breakup some of that work load. So we are expecting that in the areas that have a good crop coming we expect that they will do that and we're well positioned to supply their needs in those markets.

[Brett Wong:]

That's very helpful guys, thanks for the color.

[Operator:]

The next question is from Steve Burn of BAML. Please go ahead.

[Steve Burn:]

Hi Bob, I was wondering if there's new Trio milling process that separate from MOP would enable you to work through historical tailings that might have recoverable levels of Trio that have been sitting out there for long time, is there an opportunity there to mine that?

[Bob Jornayvaz:]

No, there really isn’t, I wish there were, but there is not and I just want to be clear that it’s not really a new milling process; it’s the ability to bypass the potash plants. In other words we take our existing lang plant as we come up from underground it’s our ability to bypass the potash plant and take higher grade lang product and take it straight to the lang plant. We've made modification to the existing plants, I don't want to give the impression that we built a new langbeinite mill, but we have made significant improvements over the last couple of quarters. So I want to be clear on that, but in terms of our ability to mine the langbeinite tails we haven't figured that one out yet. So we're certainly open to ideas on that if you got some.

[Steve Burn:]

Okay, thank you.

[Operator:]

There are no further questions at this time. I'll now hand the call back over to Bob Jornayvaz for closing comments.

[Bob Jornayvaz:]

I want to thank everybody for taking the time to dial-in, and we really appreciate your interest in Intrepid. We look forward to speaking with everybody in the near future. And thank you again for your interest.

[Operator:]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.