Intrepid Potash Inc (IPI) 2015 Q2 法說會逐字稿

Thank you for standing by. 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.

Thanks, Barack. Good morning, everyone, and welcome to our call today. I will remind you that part of our discussion will include forward-looking statements as defined by US 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 Cofounder, Executive Chairman, President and CEO; 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 Q&A. With that, I will turn the call over to Bob.

Thank you, Gary, and good morning, everyone. Last year and into this year, we have 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 most potash mines worldwide.

Growing our solar capacity is a wonderful opportunity. We have capitalized on this opportunity, utilizing our expertise to (technical difficulty) -- 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 costs -- cash operating costs 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 built HB infrastructure.

As an update, just this month we obtained all the required permits that allow us to begin injecting brine according to our timeline. 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 uptime across the conventional plants through 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 have 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 while also increasing reliability. We are ahead of schedule with this upgrade and it 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 most 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 functionality, we are performing plant tests to produce Trio independent from potash.

On the Trio side, we're making advancements in converting standard and finesize material into premium size Trio. 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 our core hole drilling show to 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 are in 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 a tight range around current levels of the United States. The market is competitive and the spread between pricing here and around the world has somewhat narrowed, which we believe has the potential 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 the our potash cash operating costs coming down meaningfully from 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 pursuing opportunities in bite-sized pieces. We have prioritized for opportunities to pursue those with the 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.

Thanks Bob, and good morning, everyone. Our second-quarter adjusted EBITDA was $15 million and totaled $47 million for the first half of 2015. The compares to $29 million and $45 million in the same periods 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 the lower cost for market adjustment in the second quarter of approximately $5 million compared to last year's second-quarter LCM of $1 million. Lower productions in our conventional facilities gave rise to elevated costs, which, relative to pricing, resulted 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 2014. We had $124 million of cash and equivalents on hand as of June 30. We continue to expect to be cash flow positive for the full year and keep our balance sheet strong in light of current potash prices.

Looking at potash results, we generated $103 per ton of cash flow in the second quarter and $123 per 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 field 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 costs 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 result 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 costs by $27 a ton from the second-quarter results 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 costs 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 the lowest cash operating costs quarter of the year. We have lowered our potash production range for the second half of this year to reflect the optimization we are currently underway. We have widened 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 costs 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. We are ready to take some questions.

(Operator Instructions) Mark Connelly, CLSA.

Thank you, just a couple of things. Obviously over the last several years you have had big and small projects, and this Amax project is going to tie in to HB. I'm just wondering whether you're anticipating meaningful operating disruptions or whether we should be expecting big bumps and earnings as that tie-in starts to happen.

Mark, this is Bob. I think what you're going to see is that those are going to be very gradual on the solar solutions 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 should not be any disruption because you don't have to turn off the mill.

Right.

It's just -- it's a very different set of circumstances. That's why we are so excited about the bite-size pieces that we can add on the solar side.

Okay, that's helpful. 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 to impact pretty significantly.

Can you tell us whether there were big impacts, bigger than you expected? Or am I just doing a lousy job?

No, 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. So what we 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 and how it is operated. And as we've done plant testing at East, to try to run the Trio side independently from the potash side.

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

I guess one of the points we would like to make is that the entire specialty market, I will call Trio a specialty product, if you look at SOP, if you look at the kieserite that has come into the country, if you look into 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 is what we find exciting, is that rather than the MLP market, this other market has clearly bifurcated and separated itself out in a very distinct fashion. It's a growing market. It's an undersupplied 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 exists around the world, it's either manufactured and the cost structure is going up on SOP. But they have been able to maintain significant margins.

So, we see the same thing in our Trio pricing. So, it's very indicative of a very undersupplied market and it's a geographically diverse market.

I don't know if that answers your question or not.

That's really helpful, thank you very much.

Chris Parkinson, Credit Suisse.

Can you -- you kind of touched on 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-2015? Just anything there would be appreciated.

Well, I think we bumped up our capital range just a touch this year, because we have been testing some new equipment that on all the rounds of tests have worked. So we went ahead and ordered sort of the upsized fine langbeinite recovery system that is being built, that has been designed and built, and being added onto 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 any 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 they are very meaningful rates of return on the investments that we will make around the langbeinite side. And they are well tested. They are well tested technologically.

Certainly fair. And then also, you mentioned in 1Q that you had not realized the full benefit of Mosaic curtailing its 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?

Well, 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 is 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 are 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's a lot of pent-up customer demand there from what we're seeing in talking to customers.

But it's beginning to dry out and we're seeing the benefits of that. So it -- 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 have clearly believe that we are 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 some pretty extensive flooding throughout the entire state of Texas.

Perfect, thank you.

Adam Samuelson, Goldman Sachs.

Maybe just continuing the questions on East a little bit, Bob, can you help us think about the timing of when a decision could be made to really push more towards Trio only at East, if at all? And help us think through some of the -- what are the milestones that you have to accomplish in the second half of this year, early 2016, that would make you more comfortable in potentially making that decision?

First, I don't know that we are really talking about Trio only in the near-term. What we are talking about it product optionality, so building a bypass around -- as you know, right now the Trio comes out of the tales part or the back side of the potash plant.

So building a -- right now we're mining in 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, and then areas that have high-grade sylvite and low-grade langbeinite. So we are looking at ways to either campaign those products, run them independently of each other so that when the plants are running, they are producing at optimum rates, potentially independently of each other.

At the same time, we are 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 are 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 55 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. So, two capital items which will generate cash flow virtually immediately.

Okay, and how long does it take before you could reach those lang-only ore zones?

I'd say 12 to 18 months.

Okay, and 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 structure actually looks like? So it looks like when you've taken all the actions that you've done both this year and really the last few years?

Brian, I will let you answer that. The goal is to get it back where it was several years ago.

Adam, I guess the way I would think about it is is -- as we talked about these conventional assets in the solar asset, West has some significant opportunities. As you also know, 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 areas, the pressures 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.

Part of the problem in the conventional facilities, as Mark asked his question, is that when you modify, you upgrade, when you type something in you have to take the plant down in its entirety, stop the whole system to tie things in. So we took this opportunity in sort of a soft second-quarter market to make as many of these changes as we could -- I'm not going to say on the fly, but to get them in as quickly as we could.

Okay, and if I could just squeeze one last quick one end, Accounts Receivable dipped 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 earlier quarter sales or something to fill in that pipeline in June, but any other color would be helpful.

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

Okay, that's helpful. Thanks.

Andrew Wong, RBC Capital Markets.

So the realized prices in the second quarter, they held relatively steady on a sequential basis in 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 price expectations for the second half?

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 a summer fill program, is it didn't appear, I would say going into May, that the major Canadian producers were going to have a fill program. And then one Canadian producer decided introduce a fill program. And then we saw another one follow suit.

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 form in the fall and make their decisions 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 I'm trying to give 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's anything you'd like to add to that.

Maybe I'll just touch on the second half a little bit. Retailers 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 sure they had their material. I would say today they are not concerned about a distribution shortfall of some type. So they are layering in some to get started.

To Bob's point, there was additional inventory that they carried out of the spring season, so they are feeling more comfortable that way. So I think overall they are kind of taking a small position and waiting to see what the farmers are going to do.

Now, as Bob suggested, we believe the farmer is going to step up here at some point. We know that they've removed a lot of nutrient over the last few years and that should drive them to put on the appropriate rates here this fall at some point. So we are comfortable with the demand side once it gets started.

Okay, great, thanks.

Joel Jackson, BMO Capital Markets.

Could you just talk a little bit about some of the competitors in the summer fill program? Maybe just elaborate. We've seen Agrium start to ramp on their Vanscoy expanded mine and introduce fill. There's a lot of talk going on with the Belarusians. Maybe just talk about what you are seeing out of the Canadians, out of Agrium, out of wherever that's changed or anything different this year than other years, thanks.

I think you hit it on the head. I think you accurately pointed out that there was one Canadian producer that came out early.

Overall, it's a competitive market right now. We saw a fill program introduced that just didn't get a lot of response. To us, we'd describe it as pushing on a rope right now. That's not Intrepid's strategy.

I think the river has cleaned up a little bit, but it's still very competitive. I don't know if I'm answering your question or not. I think in your question, you described the situation well.

Okay. Thanks for that. 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 circuit, to be able to do Trio and potash separately, what would have to happen for potash production to be stopped at East?

Well, clearly there would have to be a place where it no longer generates positive cash flow. But as long as our production at East -- our potash production have 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 exists. 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 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 will 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 of 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, bringing -- built in that optionality, I think it's just going to make us much more reliable on both sides.

And as we get into our much higher ore grades, on the langbeinite side, it just allows us to produce significantly more. And given the success we are having in fine langbeinite recovery and pelletization, we are just very comfortable that that is a market where we should continue heading.

Thank you for that.

Neel Kumar, Morgan Stanley.

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?

Well, potash pricing doesn't increase the rig count. So we've learned well that there's 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 frack jobs that we are servicing, and on the wells -- on the lower rig count that is operating, we have 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.

Great, thanks.

Sandy Klugman, Vertical Research Partners.

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

Well, as I'm sure you do Sandy, we watch the oil market, the copper market, the corn and soybean markets, the 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 in the world commodity market. And so, we talk about it every day. We look at it every day.

I think as 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 are 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.

I think that's fair. If I could shift to another question, if you could offer your thoughts on the Company's views on potential consolidation in the potash industry, if you have any thoughts as to how it impacts the broader history and Intrepid in general, more specifically, I would be interested in hearing those.

Boy, are you -- there is obviously -- we are all well aware of the Potash Corp. and KS Steele 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 consolidation, I think it will be beneficial for the industry. But if you've got a more specific question, I'm happy to answer it.

No, I think it was just more general thoughts. My view is that greater consolidation, a lot of those benefits would accrue to a smaller producer, such as Intrepid. I was just curious to see if that rationale rang true with the Company.

No, we think consolidation is a good thing. We will watch from the sidelines to see what happens. So I really just don't have more color or opinion than I would offer you right now.

Okay, well, thank you very much.

Don Carson, Susquehanna Financial.

Bob, I want to go back to a previous comment where you thought the second half pricing would remain at current levels. By that do you mean sort of the summer fill levels we are seeing at kind of [$345 to $355] a short ton corn belt by your competitors? Or are you talking about what your second-quarter pricing was?

No, we're talking about current levels that we have seen. We tried to be clear that we had seen erosion in the ag markets, sort of post second-quarter going in the Southwest fertilizer. So those are the levels that I was referring to.

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

We have more chosen to stay out of the market and not participate in very many, if any, of those arrangements. That is not our style of marketing.

And so you're right, it exists. Kelvin, if you'd like to give some color around that.

Yes, I think the only comment that I would make there is that there are lots of people asking for various things. We feel like we are getting very close to a floor or at a floor in the market on these prices. So the need for one of those type of tools is limited right now in our view.

I think 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 that if we don't have to do it, we won't.

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

Yes, 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 think some degree in Missouri because of the very wet weather we saw there as well. Other producers were probably impacted by the Eastern corn belt and different areas than we were, because we participate less there.

The reality is, we know that retailers are coming out of this spring with more inventory, so that tells us the demand at the farm gate was somewhat lower. But I don't have a specific number if it was 15% -- what was the number, I guess, I don't have that just yet.

Okay, and then Bob, I was going to ask for a prediction. We've seen Wendover have to cancel Speed Week for two years in a row now, so when is the rain going to let up?

It's not so much -- I wouldn't say that that was really about the rain. So if you dive a little deeper, but I'm not going to go into that, the politics or the racers on (multiple speakers)

Okay, we can go off-line on that then. Thank you.

Brett Wong, Piper Jaffray.

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

Well, we've already seen decline from second quarter to -- I will just call it that period from the end of June to the Southwest Fertilizer Conference that has occurred. So I think once we -- we do feel that the farming community and the vast amount of farmers that we talked 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 removed from the soil, so we are 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?

Yes, I think just with regard to the global markets and probably US plays, it's a much flatter world today in terms of the premium that we used to get in the US. So I feel like that we are in a pretty good position. I don't know if we will see less imports or not. But the reality is there is less of a premium here, so maybe slightly less attractive, relative to other markets around the world.

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

Once again, we've got tremendous access to the farming community like I'm sure all of you all do when we hear diverse stories. We believe that a good chunk of the 2015 corn and bean crop got hedged. We feel like they had two very strong opportunities, two rallies throughout to go in and hedge at higher prices.

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 suggested that a lot of farmers that are sophisticated enough took advantage to lock in some pricing. We did see probably a higher hedging going into the 2016 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 2016 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 the our market 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. Kelvin, anything more you want to --?

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

Thanks.

Operator:

Steve Byrne, BAML.

Bob, I was wondering if this new Trio milling process that is separate from MLP would enable you to work through historical tailings that might have recoverable levels of Trio that

have been sitting out there for a long time. Is there an opportunity there to mine that?

No. There really isn't. I wish there were, but there's not. And I just want to be clear that it is not really a new milling process. It's the ability to bypass the pot ash plant. So in other words, we take our existing lang plant and as we come up from underground it's our ability to bypass the pot ash plant and take higher grade lang product and take it straight to the lang plant.

We've made modifications 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 quarters. So I want to be clear on that, but in terms of our ability to mine the langbeinite tails, we had figured that one out yet. So we are certainly open to ideas on that if you have got some.

Okay, thank you.

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

I want to thank everyone for taking the time to dial in. 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.

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