Q3 2019 Earnings Call
Third quarter 2019 earnings call.
Time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
During this conference call is being recorded.
I'd now like to turn the conference over to Richard Downey, Vice President of Investor and corporate relations.
As we conduct this conference call very statements, we make about future expectations plans and prospects contain forward looking information.
Material assumptions were applied to making these conclusions forecast <unk> actual results could differ materially from those contained in our forward looking information.
Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report Mdna and annual information form filed with Canadian U.S. Securities commissions to which we direct you.
I'll now turn the call over to Mr. truck macro.
Thanks, Richard Good morning, everyone and welcome to nutrients third quarter earnings call.
Global agricultural industry continues to be impacted by challenging North American weather trade and uncertainty and short term dynamics our results this quarter and our outlook for the fourth quarter reflect these headwinds.
But we believe these issues our transitional and we remain optimistic on the outlook for 2020, so before discussing our results in detail I would like to provide a perspective on the business.
First on the AG fundamentals.
If you look past near term market headwinds.
The outlook is improving.
Grain and oilseed stopped the youth levels are declining and we expect a significant increase in U.S. planted acres next year.
Today U.S. farmers are looking at current prices closer to $4, a bushel in soybean around $9.50 per bushel, which is higher than at this point last year.
We expect improved farmer profitability in crop input demand next year, particularly after the weather induced reduction this year.
All this bodes well for our business.
Second let's touch on potash after a strong start to the year demand paused late in the quarter.
Buyers simply stepped out of the market in order to reduce inventories and wait for in India or China contract settlement.
In July we said no deal in China is better than a bad deal and that is exactly where we're at today. This is not the first time, we've been in a week waiting game and we will remain patient.
The recent India.
Potash contract will help bring price clarity and stability to the market.
After two strong years of growth for global potash markets and nutrient sales volumes, we now forecast global demand at 64 to 65 million tons. This year.
Which is a reduction of approximately 2 million tons compared to last year.
Majority of this decline is due to weather issues in North America weakness in palm oil prices in southeast Asia and customers waiting for the contract settlements.
These factors represent short term challenges not structural changes.
With potash affordability remaining high inventories expected to be pulled through the channel in the fourth quarter and first part a 2020, we anticipate a strong recovery in demand.
When that occurs new trend will be well position to ensure that our low cost product is available when the market needs.
Finally on retail.
We had a strong third quarter, making up for a lot business in the first half that was entirely due to weather.
In a tough market, our retail business has outperformed and we remain on track to deliver another year of growth.
We're also focused on transforming the industry through improved efficiencies scale and digital leadership, our digital tools and supply chain investments are enabling us to be more efficient serve our customers increased market share and be prepared to respond to shifting trends.
And the early performance indicators are very positive consider that in the third quarter, we had approximately 20% of north American crop protection product revenue come through our digital platform.
This is an incredible right considering we only launched this feature in January Furthermore, payments made through the customer portal reached $315 million since introducing this feature we're making big strides that we believe will reshape the industry and drive organic growth across our network.
Now, let's turn to our results for the quarter.
Nutrients adjusted EBITDA declined by 6% compared to the third quarter last year, due to lower nitrogen and phosphate prices and weaker potash volumes.
While we are not where we thought we would be adjusted EBITDA through the first nine months was still up 11%.
And we generated $2 billion in free cash flow, which equates to $3.44 of free cash flow per share.
Our cash production costs were in line with the previous year to date total.
And our DNA expenses were down 8%.
Retail EBITDA in the third quarter was up 64% as a late spring season push fertilizer in crop protection sales into the third quarter demand for application services also increased due to the condense season, highlighting the importance of infrastructure in service offerings to our customers.
Gross margin percentages increased across the major product lines due to an increase mix of higher margin specialty and proprietary products.
And strategic purchasing.
In the third quarter, we demonstrated organic growth as we grew our EBITDA per U.S. retail location and our Loveland products business continued to capture share for the year retail margins are similar to 2018 and our normalized comparable store sales are up 1.5% an impressive result.
Given the challenging spring application season, and the late mature and crop.
Turning to potash EBITDA declined by 14% from last year due to weaker demand.
Offshore volumes declined this customer stepped away from purchases drawing from available inventories following a strong first half.
North American sales, where the second highest total of third of any third quarter ever but trailed the record volumes shipped last year.
I realized potash selling price was down from the second quarter this year, reflecting lower seasonal summer fill prices in North America.
Pressure in the offshore spot markets and the true up of nutrients selling price the canpotex.
Potash cash cost the product manufactured was $60 a ton through the first nine months of the year, maintaining our position as one of the lowest cost potash producers globally.
Nitrogen EBITDA was down 9% in the quarter due to weaker ammonia prices and slightly lower sales volumes. We continued to benefit from low cost natural gas supply across North America net cross our North American network with our overall gas costs declining 17% compared to the third quarter.
During 2018.
Production was down from last year due to some unplanned outages in the longer plant maintenance turnaround at our Redwater facility, which resulted in fewer tons source from our lowest cost Alberta plants.
In phosphate the market has struggled to find a floor price.
And the impact can be seen in our earnings for the quarter phosphate EBITDA was down 55% compared to the third quarter of 2018 with weakness in the granular phosphate market more than offsetting stronger industrial product prices.
Phosphate volumes were lower as we completed the conversion of our Redwater phosphate plant two in ammonium sulfate facility in the third quarter. This was an excellent strategic decision given that we generate dramatically higher margins for ammonium sulfate compared to the margins. We would have received from producing phosphate products at redwater with import.
It wrong.
We expect the challenging fertilizer market conditions to continue through the remainder of 2019, while there is strong underlying demand for a robust fall application season in North America. There is a risk of a shortened window created by the late harvest in both the U.S. from Canada.
The recent India potash contract settlement should provide offshores.
Volume support however, we do not anticipate a new China contract in 2019, given these conditions, we have reduced our potash volume guidance to 11.6 to 12 million tons inline with our revised global demand forecast short term production curtailments are expected to increase our fourth quarter.
For potash past the cash cost the product manufactured by approximately $15 per ton compared to the same quarter last year.
We have also lowered our annual adjusted.
Earnings guidance to $2 in 30 cents to $2.55 per share and our adjusted EBITDA guidance to $4.0 billion to $4.3 billion to reflect the reduction in potash volumes and continued pressure in the fertilizer markets for the remainder of the year.
2019 will be remembered for unprecedent in North American weather challenges and trade disputes, which effectively eliminated global demand growth for crop inputs.
However, as we look ahead to 2020, we do see opportunity corn and soybean fundamentals are improving leading to a 10% increase in prices from summertime lows. We expect total U.S. acreage to increase by at least 12 million acres in 2020, including 93 to 95 million acres of corn.
Based on these acreage changes, we expect U.S. crop input expenditures to increase by around 7% next year.
We're also seeing positive developments in a number of our key offshore markets Brazilian crop economics remain strong and growers are responding by increasing corn and soybean planting by an estimated four to 5 million acres. We expect this will lead to another record year for Brazilian fertilizer consumption.
Tom oil prices have improved by more than 30% from June 2019, lows supported by a tightening supply demand outlook and higher global soybean price.
We see this as a tailwind for such a southeast Asian potash demand in 2020.
Recall pro fundamentals are also improving in India by them.
By the most most favorable monsoon rainfalls in 25 years.
Global potash demand grew by approximately 4% annually since 2013 before taking a step back this year similar to previous years. When there has been a temporary pullback we expect global potash demand to recover next year to 67% to 69 million tons. The midpoint of this range represents a five.
Five year annual growth rate of around 2.5%, which is similar to the long term historical trend.
We will be ready to bring our extensive net or extensive and proven incremental capacity as global demand grows on the retail side, we have acquired some great businesses and we expect.
That will we expect will add significantly to our earnings next year, we closed the real co acquisition in Australia. The ended the third quarter. This business is well positioned to bring value to Australian farmers and we have a strong track record of growth in this important market.
And finally beyond growing the business, we will continue to prioritize returning cash to shareholders, we allocated $5.4 billion to shareholders through share buybacks and dividends over the last 21 months, which is unmatched in our industry. The stability of our retail earnings has supported growth in our dividend.
And we will.
And we will evaluate additional share buybacks on a compete for capital basis.
We will now open the call for your questions on the quarter and the outlook for the business. Thank you very much.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound Keith Please standby, while we compiled the culinary roster.
And your first question comes from a line of Jacob bout.
Good morning.
Can you comment on your confidence level of the.
2020.
Potash demand forecast for 60 769 million tons and maybe what are your thoughts on what are the assumptions in China and Brazil in 2020.
Sure. Good morning, Jacob So look the where we're looking at the potash business. If you if you step back and you look at the long term history, but the potash market has has been growing pretty consistently at two two and a half the 3% per year, but over that period of time, we have seen pullbacks in demand over the year.
And really that's because of of inventory getting built up in the system, which in the potash world, We really can't see with great clarity.
But the last five years, if you just look at the last five years of the potash market, it's grown that closer to 4% per year.
So was this pull back really expected not really but I don't think we can you even say it was a surprise. So when you look at 2019, there were two really key drivers that pulled back to the the expected demand now one is north American weather, which we've talked a lot of boat and the second was palm oil pricing being so low.
Low in southeast Asia. So when we look forward to 2020, we expect both of those to correct themselves, we're going to assume normal weather in North America and when we look at our as you recall, we bought a company called waypoint.
Last year, which is the largest soil sampling business.
In the United States and the data that we're getting from that is really quite fascinating and what it is showing us is that there are some areas that are quite potash deficient in North America, which shouldn't be a surprise considering that the weather we had in the spring and even in the last fall. So we do think the underlying demand in North America is going to going to rebound next year.
When it comes the Palm oil we are seeing prices that are up there is an increasing demand for bio fuels in Asia, and so all of that bodes well for a rebound next year in southeast Asia.
The other markets that we're expecting to grow next year of course, Brazil, just more acres put it being put into production.
And then of course, India, which I mentioned had good range this year.
China, our assumption would be more flat to this year.
But if you look at the aggregate of all of what I've. Just described it is our call today that we would be at the 67, the 69 million million tons for 2020 up from the 64% to 65 and if you just take that number and you go back five years that would put us back on trend point of about a 2.5% annual growth.
Both rate. So we are pretty confident with the 60 769 million tons today.
Okay and your next question comes from the line of Vincent Andrews.
Thanks, Good morning, everyone.
I was wondering can comment on what do you think you'll start.
Your potash assets back up and as we think about shipping number for you for next year, how should we thinking about the interplay between your production shipments given you probably are carrying some inventory into next year as well.
Good morning, based and I'll hop Susan Jones answer your question.
Good morning, Vincent Yes, we did announce curtailments in September due to the temporary softness in the market and just to be clear we are.
I have not up curtailed production completely we will continue to.
Filled the pipeline and as we always do we move our product into the at U.S. market in time for season. So what you've seen in Q3 is that we've moved what was a very robust fill program into the U.S. retailers in time for their season as that starts to deplete we will continue.
To refill that with the expectation that it will be sold for the spring for robust expected spring application. We also will continue to move our product outcomes. The statue on to the ports ready to move in to that international markets for the spring season.
And your next question comes from the line of Ben Isaacson.
Thank you good morning.
Yes, Peter CEO came out a week ago, and said that their board gaining confidence and in potash and my question is do the two part question. When you make curtailment decisions like you've made recently are you focused only on the current environment also in terms of what the implications are too but.
Central New entrance and then the second part about question.
You have about 6 million tons of spare operational capability you talked at your Investor day about potentially up to another 5 million funds.
Each piece potentially around the corner is there room, Paul about possible next decade. Thanks.
Good morning Bad.
So look yeah, what we're looking at.
Our production profile, we're squarely focused on just global demand.
Our our role is really to meet the demand of our customers. That's what we plan to do given the headwinds we saw this year.
Based on on weather and then the contract negotiations in India, and China, We felt it was prudent to pull back on the supply.
But when we when we do our long term planning, we're looking at demand growth in the potash markets.
And how we can best meet that with the highest quality lowest cost tons.
To your second comment you're right. So right now we would have about 6 million tons of underutilized capacity and we've been very clear with our plans, we're going to put those tons into the market as a global demand for potash probes. We have we have a great network I, we're investing a lot of money into automation and to drive our cost even lower.
I mean, we're just seeing some term terrific progress in that area, but we also because we pre invested over the last 10 years or so with all these this capacity we have built the lowest cost path when it comes to capital to increase our capacity by an additional 5 million tons and this is really important because.
These 5 million tons, we don't require to think of shops, we don't need. Another mill. These are pure brownfield expansions in the existing six six mine network, which will be some of the lowest cost tons on the planet and right now the engineering assessments that we're doing look really promising.
So we're excited that we can bring another 5 million tons into the market as demand grows along with our 6 million tons and I think that that will will set up our shareholders. Just brilliantly for the next 10 to 15 years of incremental capacity as demand grows.
Occupancy Susan here just in addition to what Chuck is saying with respect to monitoring demand. We obviously are looking at what's happening with new supply coming into the market and you recall last year, we did move in extra million tons into the market. They issue here, we want to make sure that we're able to be nimble quick and move.
Going into the market to make sure there's stability of price and we can obviously meet the demands instantly out in the field.
Thank you.
Your next question comes from the line of Don Carson.
Thank you.
Chuck you mentioned that I think on slide 23, you see a six or 7% increase in input spending next year, how would you characterize that between say fertilizer crop chemicals and seed and if you could also just expand on you know you're very strong crop chemical results. In Q3 was that all just catch up from a late season.
It was there some other changes going on.
Good morning, Dawn hub, Jason Newton answer your questions. He's our chief economist and then we can have Mike Frank talk about crop protection in retail.
In the quarter for hedges.
Yeah, Good morning Dawn.
Look at the.
Crop protection or the.
Crop input spend this year, where we saw the biggest declines was in seed because of the loss of both.
Corn and soybean area as we look forward to next year that 12 million acre, increasing corn and soybean acres really.
Benefits seed, we'd also expect to see a higher crop nutrient and particular crop protection spend.
Next year.
But there is some offsetting the crop nutrient type because prices are lower today than they were a year ago.
Don Your question relative to our results in retail in Q3, so a big part of it was catching up from the delayed season, and so we saw especially in the crop protection side of the business strong demand for four herbicides into the month of July which is kind of unusual but we also had a good fungicide season.
But in addition to that we continued to gain share in the marketplace our supply chain.
Performed very well there was a strong demand for custom application, which we have those services and so you know in crop protection side of the business, where we have really good point of sale data for the entire marketplace. We're seeing that we're we're picking up about 1.3%.
Market share in across the us market in in this year and so.
Those results really helped drive and fuel our Q3 earnings.
Thank you.
Your next question comes from the line of Andrew Wong.
Hey, good morning, Chuck maybe could you just fried some thoughts on capital allocation plans over the next six to 12 months.
Obviously, some are cash is tied up right now on working capital just seasonally.
Sure that gets freed up as the move through the spring. So could we expect something maybe early next year.
Good morning, Andrew Yes, so look here's how we're thinking about capital allocation for first of all we were quite pleased with the cash generation of the company I mentioned in the prepared remarks that in the first nine months, we've generated about $2 billion of free cash flow. So even in the market conditions that we saw this year with the difficult.
Whether in such a company is still generating very significant cash flow and we also have a very strong balance sheet.
And so when we look at it we believe we have just a lot of options to to allocate capital to grow the company and to return capital to shareholders and if you recall, we've returned a total of about $5.4 billion in it with a combination of dividends and buybacks since.
Since January 2018, and really what we try to do with our capital allocation strategy is invest for long term value creation now with that though we do believe that we have some op options and opportunity to continue to invest to grow our business, primarily our retail business, but we're looking at all options right now.
Given where we are with with the market fundamentals and trying to make some decisions on how to create some value for shareholders, but we have lots of opportunity and maybe I'll just turn.
Turning the few for a few comments over to pay Joe on capital allocation, yes.
The only thing I'll add to this is that.
We have being.
A lot better managing working capital in retail our inventories this year, it's actually lower than last year at the same time.
With with higher sales and greater market share so that has been.
Very good for us and just worried about dividends because our dividends are still pretty much well funded we have ample room to continue to fund growing is stable dividends out of our retail cash flow. So that provides us a lot of stability in terms of outreach dividends going forward.
Your next question comes from the line of Steve Byrne.
Yes, I'm, assuming that your retail customers almost all by fertilizer from you, but curious what would you say the percentages of those retail customers that buy.
Crop chemicals and seed from you.
What would you say the direction of change of those two metrics has been and I'd like to you to hear your view on how you you see your digital program driving.
Further penetration of those two verticals.
Good morning, Steve I'll have Mike Frank answer the question for if.
So Steve.
Our customer base today, as we look across our three shelves of fertilizer seed and crop protection. You know obviously, it's a mixed bag some customers by only fertilizer somebody only seed somebody only crop protection.
And of course, some by all three shells from us, but clearly we do see the digital platform as a tool that can help us grow our share of wallet and grow our penetration across all three shelves Blair customers. You know if you just step back and think about where we're at with our digital journey over the last year and a half we've really been building.
A foundational capabilities, we launched the platform in July of 18, we launched our ecommerce capabilities in January of this year and as Chuck talked about on the call. The adoption of the tools have been extremely strong and we've been really pleased with how the adoption in the use of the tools have ramped up what's really exciting.
Rating as we kind of go into this next phase is we're adding more and more value added tools onto the platform.
In the next month or so we're going to be launching our crop planning tools, so where we'll sit down with our customers and plan their farmed field by field.
Using insights to drive the best Agronomic practices, we believe that these types of tools and value added parts of our digital platform will help us grow our penetration across our customer base.
With respect to see fertilizer and chemistry, and so it's very exciting.
And we're just at the beginning of the journey, but but we've already had strong results, yes, Steve just a couple other comments. So there are some slides on.
The performance of the digital platform starting on page 14 of the slide deck and let as Mike mentioned, so where is it is early days, but the progress in the uptake that we've seen has exceeded our expectations.
It's clear that this is going to be a leading platform and there's strong demand for it.
And I'm just pleased with how how our customer base is sort of adopting to the new tools and I think that the opportunities here are quite significant for our retail business, but not not only our retail business, but also.
To transform the industry over time.
And if I make can I squeeze in one on urea NOLA prices in the last month has fallen hard and I just wondered what's your views were on that as it.
Slug of exports out of China or cost curve related.
We would welcome your views on that.
Okay, well have a straight Sally who who heads up our nitrogen and phosphate business answer the question.
I think it's a lot of what you mentioned one of the issues here is that because of the delayed planting has been delayed harvest.
Like fed large application in the full.
We had pretty good inventories getting the quarters slugging. It out so that's been a bit of trade down there and all of its course on this process decline I don't think that don't think there I think that they'll.
The other way pretty quickly so as we start to the.
Application pickup in the field.
Thank you.
And your next question comes from the line of Christopher Parkinson.
Hey, guys. This is lukas spend going on for Chris.
Just wanted to dig a little later on the Chinese potash contracted for could so have you had any ration casual customer conversations and if so it doesn't look like to be das theres kind of narrowing.
Post duration global contaminants or is it really just to tell the Russians and the Russians so leaving those discussions any.
More detail on your thoughts would be great. Thanks.
Good morning, I have Susan Jones answer the question.
Good morning, Yes, what we know right now is.
Port inventories are still remain quite high and what we're expecting to see is as we move into the spring season, and just as a reminder of the Chinese new year. It's fairly late this year. So it will be coming near the end of January as they're ramping up for their spring season, they're going to need to have our product in place to put.
By for their farmers. So certainly there is demand in the region and we have customers that certainly our team to prepare for the spring season, but we first of all need to see the inventory depleting the ports and we expect that to west start to move as we move into spring season, and I'll just add one other comp.
Comment, though the India contract is provided.
All the clarity the market needs.
So when I look at this site you know I think what we're going to see is now that there has been a marker set with the India contract and you have.
The soil issue that we've talked about in North America, you've got growing demand in Brazil, I think it's only a matter a time, where where you're going to see an increase in demand. The supply demand fundamentals are tightening in potash and I think all that bodes well for for a pretty good 2020.
Alright, thank you.
And as a reminder, please ask one question to allow participants to ask questions and your next question comes from the line of Joel Jackson.
Good morning.
Chuck if I look I know you can we take for half of the equation, but if I look at you and your Capex partner Medac overnight you've lowered.
You lowered your potash around about 2 million tons applications for this year you in mosaic have together larger individual potash sales about 140 million tons. So basically if I take your aggregate guidance nutrient medac have taken all the pain from lower volume this year.
So can you maybe comment on that and.
Are these low 60% operating rates sustainable is it something you're willing to do.
Seeable future or.
At some point maybe the question, we what is the threshold, where you can't really stand it certainly for for too long.
Yes, John if I understand your your question. So look I, we see it slightly differently than that.
In fact, we're trying to match our supply with our customer demand Thats, where it starts.
I don't think that it's much more complicated than that we felt that that given that we didnt want to put any undue pressure on getting the wrong deal in India or China. We thought it was a prudent short term decision to to.
Curtail our production and all we do as we look at what's best for our customers and our and our organization, but look we read the same press you do so theres been numerous other curtailments because I assume there that they're looking at the same order books with their customers. So I don't see it as a cap at techs led.
Or not led issue I think that what we saw this year was up a pretty unusual set of circumstances, where the U.S. market curtailed because of weather, we saw the southeast Asian pull back from Palm oil.
And of course, we saw the contract negotiations drag on a bit.
And every supplier kind of looked at their order book and decided what was best for them that's exactly what we've done.
Now if you're asking about our network. So look we have six mines and we've talked about having a underutilized capacity.
We feel fairly confident right now that the decisions that we've made are appropriate decisions for the 2020 plan that we have.
And so we're very comfortable going forward with that plan and Susan already mentioned on the call today that that she will make decisions about wrapping up our supply overtime, but look we're always looking at the optima the optimal.
Network to ensure that we had the lowest cost in the meet our supply, but we also believe and we saw last year that demand can increase quite rapidly and last year. We were the beneficiary of it right. So the market grew and we got probably the highest percentage of that growth, where where our sales hit over 13 million tons.
Last year, and that's because we had extra capacity.
In our network and so we're we'd like that we believe that if that happens again that we want to be ready to put the tons into the market and Joel if you take a look at our five year market share average.
We're estimating for our volumes this year at the midpoint are actually slightly above that we absolutely are maintaining our market share and intend to do so as we go forward.
And your next question comes from the line Jonas Oxgaard.
Hi, good morning.
I think last year around this time, you you talked about the rising input costs from China, but he said you'd secured pretty much all the inventory you needed for 2019. So here we are in its now lapping Chinese cost doesn't seem to have gone down any how should we think about your enrollment.
Variable cost were 2020.
And is there a possibility to raising prices to compensate for it.
Good morning will have Mike Frank.
Good question, while Mike Frank address it.
Good morning Jonas.
So yes coming into 2019, we did have higher crop protection industries in particular.
In anticipation for a rising costs and we did see rising costs throughout the year, especially in the first half the put pressure on on margins as we were reordering some products.
I think even as you look at our proprietary margins, we've had an impact because of rising cost out of China.
Both from a third party supply standpoint, but also within our proprietary business now going into.
Into 2020, you know as we talk to suppliers and talk to a whether it be third party suppliers of our major crop protection products or even for proprietary products business, we're expecting probably more of a normal price increase in that two 2.5% range. So we have the inventory coming into the fourth quarter.
For this year of crop protection were down.
Over 10% in our crop protection inventories.
Which we think will put us in a good position going into 2020 in so look if you I think for further evidence if you look at our crop protection margins in the third quarter, you'll see that they bounced back to kind of the normal range and so once we got into the busy season.
We were able to pass along the price increases or the cost increases through to the farm gate and that would be our expectation going into 2020.
Thank you.
And your next question comes from the line PJ Juvekar.
Yes, hi, good morning.
So drunk.
Good discipline in potash market, you know shutting down capacity are curtailing capacity when the markets are slow.
You know why not use of same discipline in the phosphoric market through the fostered market is oversupplied would you be willing to cut back on capacity.
Thank you.
Good morning, PJ looked at the dynamics are completely different in my view.
Phosphate is in my opinion in a structural oversupply and so for us to try to do something.
In the market.
I think others would just increased capacity and it would be low cost tons out of north Africa, or or the middle East and it would be a few tile game. So I don't believe that the industry structure.
I don't I believe that there's there's still new capacity coming online.
And phosphate is very different than potash and our view the phosphate businesses in a structural oversupply and in that situation, it's very very difficult I think.
To really try to.
Have a supply led price driven response.
Your next question comes from the line John Roberts.
Thank you could you update us on your progress in building out the retail in Brazil and is there any prospect for deals there that might accelerate that are the price is still just too high.
Yes, Mike Frank can answer the question. Good morning, John We continue to look at the opportunities for acquisitions or across Brazil.
I would say, we've we've accelerated our our AR or look at the opportunities that are in the marketplace right now and we think there are a number of interesting opportunities.
Nothing to announce today, but we would expect going into 2020 that Brazil will be high on our list of opportunities to acquire some retail footprint and really transformed our retail done in Brazil today. The retail industry is extremely fragmented in Brazil, and we think we can bring a new and value added approach to retail that really makes it.
Difference for farmers there. So we're excited about that and stay tuned we think there'll be opportunities as we enter 2020.
Thank you.
Your next question comes from the line Jeff sockets.
Hi, Thanks very much.
Can you compare your digital platform.
In retail to barriers field view.
Why do farmers use your platform, where do they use fieldview his skill to positive for you or negative for you or neutral in your opinion over time.
Good morning, Jeff will have Mike answer the question.
Jeff I would say the platforms are very different and so you know what bears fieldview platform, it's really around visualizing your planting and your harvesting doing some analytics on on on fields based on.
Your specific field and in our platform today's Ruby our retail platform that allows us to engage with our customers in what we call it an omnichannel way and so.
They can manage their account they can order products they can pay their bills and more and more as we move into the future. They can also get access to a broadening the information. So this year, we partnered with BSF on some of their digital tools that are now available through our platform. The same with Lindsay irrigation and so we've got to open architecture, where will come.
Thank you to look for partners that can bring value added insights to our customers that they can get access to our portal and so I would say you know, which will bear with who we work with very closely as both a seed and crop protection supplier.
We do work with them longer climate platform. It is part of how we engage with our customers as well.
So I would say, they're complementary but they are very different.
Great. Thank you so much.
Your next question comes from the line Mark Connelly.
Thanks.
So as business moves through that digital platform even faster.
That imply that your bricks and mortar footprint has to shift or does it mean that your distribution channels have to shift faster I'm, just trying to give a sense of what it means to your overall distribution and logistics that farmers are embracing this new way of doing business. So much faster than you thought.
Good morning, Mark go ahead, Mike.
So mark.
Again, I think when we talk to our customers they really value a local supply chain. They highly valued the relationship they have with our sales agronomist and so we think that that's really important normally today, but into the future. The digital tools are just one more element to what we can bring to add convenience and value to our customers.
No we do believe that with time and as we build out our greenfield builds we can serve a larger area through fully operational.
Retail facilities and so as we look at supply chain. We do we do believe that there is.
More efficiency that can be gained by leveraging our scale.
And really looking at our entire asset base from a bricks and mortar standpoint to say whats the lowest cost away that we can bring a product to our customers farm gate and so that's something that we're looking at we do think there's opportunities through the digital.
Interface, but again, we're going to have a large presence at the local level, where we're supporting local communities and we're there to serve our customers. Yes, Mark just another comment on this so we think it is important that were in the local communities, but we may not have fertilizer are all of our products in the community.
And the supply chain is being evolve right now you've heard us talk about the hub and spoke model for years.
With the digital tools, we think thats going to give us just a bit more insight to have a better planning accuracy. When it comes to where these products should be and and when and so that's where we think that the benefit will come it will be in in a working capital optimization overtime.
That's super helpful. Thank you.
And your next question comes from the line Adam Samuelson.
Hi, Thanks, good morning, everyone.
I was hoping to get a little bit of color on the ammonia market and your tread operations. If you could just how you see them the merchant ammonia market playing out over the next six to 12 months, especially given weakness and the fossett markets and any comments you could have on your gas cost in your utilization and turn it that'd be helpful. Thank you.
Okay. Good morning, Adam go ahead, Rick Yes look so I mean, you're aware that in Trinidad we got you guess contracts. They started in the first of January you see that more into those are tied though to the price of mentioned.
Ammonia, so as a tempers come down the price of gas to the true that plan has come down as well.
I think if you just step back from and look at the global macro I think we're pretty bullish around the supply and demand fundamentals.
The market itself is about a 150 million tons as nitrogen totaled.
It's growing at one of the half to 2% view that means one of the half to two and a half million tons of capacity needs to come on each year.
If you stop and you look at the projects in the pipeline.
We'll see that this year net additions are about zero. Then if you look forward to 2020, 2021, 2022, net additions listen 2 million tons and may be less than 1 million tons each of those use.
Yep.
From episodic too that the overall.
Market is tightening the nitrogen.
Should be good return to that.
As mentioned before the guest pushes the OSFI than we see in the us, but there's still competitive.
Compared to the rest of the will leaving with you to where it is.
Okay.
Your next question comes from the line of Michael Picken.
I was wondering if you could talk a little bit about Europe plant turnaround schedule and nitrogen to the next several quarters. You mentioned you had several unplanned outages. If you could talk about how long each one is going to be down and what it was second fourth quarter and into 2020 that'd be great.
Okay. Good morning, Michael go ahead rich, yes, so look.
Couple of things, we actually had some very large planned outages in the third quarter, which led to some of the volume reduction. The biggest one that was redwater redwater is a plant that is 50 result, and the turnaround. We did this year was one that has been planned for some time to replace a number of end of life pieces of equipment in fact this tender.
Remains the biggest turnaround the sauces ahead history at some point, we had three and half thousand people to dive working.
It's done it was on budget on time.
I've got three most of all of the.
End of life issues that were acquired today, it's running will Trinidad as you know for various reasons and most of that was related to the making sure. We had a supply contract we could live with we deferred maintenance on two of the should that plans.
For over seven years, so to that to the plants affect capacity into the turnarounds now.
But not surprisingly over the last couple of views as a result of is pushing that turnaround schedule back. So we have had increased outages.
We hoping the the turnarounds that they.
We are undergoing that will fix dies and we'll see a return to bid a utilizations and reliability numbers as we've seen across the rest of the system. When we've gone through them, we've kept up in maintenance and just.
So for you to plan going forward the way I think about our network now as we basically have four plants in Canada for in the U.S. Some foreign Trinidad. So you can imagine if we're on a four year turnaround cycle one plant in each of those jurisdictions need to go down.
Every year for planned maintenance.
Which means that you should see a consistent amount of nitrogen supply out and nutrients network and that will keep our plants.
With high reliability and safety standards that we we want to have those plants. So that that's the way I think about it is just you're going to have three plants per year go down and the volumes will be about the same because we're on a four year turnaround schedule, Yes look and said anything that is that there's been a bow wave of end of life activity.
Through the majority of it and we now getting into a pretty steady state as Chuck said with one plant in each system will be down a cheap.
And your next question comes the line of Duffy Fisher.
Yes, good morning.
A couple of questions around retail so the 12 million potential acres next year that 7% volume increase.
What percent of your retail business will that hit or should we kind of build that into would be one and then too. If you do get that kind of demand often times that leads to.
Crude pricing environment. So should we expect if we get that 7% volume increased prices, particularly in seeds in AG Chem can move higher next year and then just to last one is.
Can you talk through what the pest pressure looked like this year around North America to set us up as a baseline to next year, where we kind of below above or kind of normal pest pressure this year.
Good morning, Duffy go ahead, Mike.
Duffy so when we look at.
The acres next year for the most part we think it's going to be corn and bean acres.
Based on our market share if you take it all way through to EBITDA a million acres of corn is worth approximately $6 million to us and a million acres of soybeans about 3 million. So that kind of helps you kind of frame the the value depending on where the acres come.
You know with respect to demand, we do expect a high demand year and just like we got into the the high demand season. In Q3. This year. We saw margins stabilize now we wouldn't expect margins to go over the historic low levels, but we think that.
The.
Our historic margins on on seed and crop protection will hold as you can see in fertilizer, we had a very solid year from a margin perspective, we think that will also hold and we continue to sell more nutrients on top of NPM K and that's also a margin builder for us and so yeah I would say, we're you know what as we look forward to.
2020, the acreage that are going to come in our definitely going to be high value wafers, because theyre, they're corn and bean acres were well positioned in that part of the marketplace and when things get really busy depending on how the fall plays out.
That's what our supply chain and our infrastructure really deliver you know with respect to your last question on on pest pressure.
We did have a.
Good year this year, both in fungicides and even insecticides were up a little bit. This year were 2018. So we did see solid pest pressure again, the the window was tight and so we were there to serve our customers with custom application equipment and opportunities and and that will bode well for us and so.
We would expect the seemed to happen next year and in fact with the extra acres.
That will translate to what we think is shaping up as a very strong 2020 for us.
Great. Thank you guys.
And your final question comes from the line of say Lee.
Hi Fi here.
Chuck Eco gas prices not to gas prices have been.
Extremely low levels history suggests they won't stay that way forever.
Could you comment on your outlook can strategy around natural gas in Alberta.
Good morning file have a re accelerate just give some comments.
Yes.
Look.
I think you continue to see Ico below Nymex I think there's an oversupply the continues that it's not into connected with the.
The U.S. system LNG exports continue increase but not as much I think you will continue see ico.
Trading below Nymex for another five continues at least I think at some point it will come up the Interconnects get done and you get enough LNG being traded you should step seat trading on non expect I think as a whole we're expecting nomics and I'd code to continue at similar levels through next year, Yes, probably just a couple other.
Comments. So look we are bearish on gas, especially in Canada, where we can't build pipelines.
So there's a lot of gas theres, a lot of low cost gas.
And so certainly when I look at our network being a third in Canada and a third in the U.S.. We do believe that we're going to sit quite comfortably on the low end of the cost per for the foreseeable future and even when you look at LNG and whats under construction, we don't think Theres a material impact of the supply demand of gas.
So I think from a from an overall long term competitive position I think we like our position and that's why even we would consider investing in in a little bit of expansion money, it's not not greenfield of course that doesn't make any sense, but in our in our plants in Canada, U.S., just to optimize energy infrastructure as well as well.
I don't feel times.
Okay. Thanks.
I'd like to thank everyone for joining us for the call today and I always available for any questions you might have after the call here. Thank you.