Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the nutrient 2021st quarter earnings Conference call.
This time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you acquire any further assistance. Please press star Zero I would now like to hand, the conference richer Speaker today, Richard Downey, Vice President Investor.
Relations. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to nutrients conference call to discuss our first quarter 2020 results and outlook on the phone with US today is supposed to truck may grow president and CEO nutrient through Peter for our CFO and the heads of our three business units as we conduct this conference call Gorilla statements that we make about future expectations.
Plans and prospects contain forward looking information certain material assumptions were applied in making this conclusion from forecast. Therefore 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 are most recent annual report and DNA and annual information form filed with Canadian and U.S. security commissions to which we direct you I will now turn the call over to Mr. truck makers.
Thanks, Richard and good morning, everyone and welcome to nutrients first quarter 2020 earnings call.
Our management team is calling from various locations around North America, ensuring we are following social distancing protocols and we sure hope that you are listening in from somewhere safe as well.
You don't need to look any further than your local community to be reminded how important the agricultural industry is to our daily lives.
As grocery stores express lineups and empty shelves crop input companies like new trend were designated an essential or critical service by governments around the world for clear reasons.
Nutrients top priority is ensuring the safety and health of our more than 25000 employees globally and the communities in which we live and operate.
This is fundamental to nutrients culture and is that the heart of every decision that we have made to manage through this global pandemic.
Our co. Good response team has been working with World class advisors to develop policies practices and business continuity plants that can help safeguard.
All of our stake holders.
This commitment to our stakeholders extends to the $20 million of community investment program, where we recently increased funding to food related programs by a million dollars.
Additionally, we donated protective equipment to local health authorities and began producing hand sanitizer at select facilities to share with local communities.
New trend continues to produce and deliver crop inputs in a safe and efficient manner and cobot 19 has so far had limited direct impact on our operations or on demand for crop inputs.
I would like to take a moment the thank all of our employees for their commitment and dedication to conducting the they're very important work and some challenging and unusual circumstances.
Nutrient has a strong balance sheet.
A stable and growing dividend.
And we continue to expect to generate strong free cash flow.
Our first quarter results were in line with our expectations and we believe our first half earnings will remain similar to our expectations from the start of the year.
The current situation has highlighted.
I'd also highlight benefits from our recent investment.
In our industry, leading digital platform.
We've had tremendous engagement as the tool provides a more convenient highly efficient safe way to conduct business.
In the first quarter, we had over $200 million of orders come in through the digital platform of which 36 million was from our newly launched see that.
About 40% of our retail products that were available online were ordered through the digital platform nearly four times higher than our 2019 results.
We said that we have the world's best agricultural ecommerce platform and our numbers are clearly showing this.
We intend to build on these strengths and have allocated about $60 million in 2020 to accelerate new functionality and tools for our customers and our agronomist.
Also out of an abundance of caution we move very quickly to increase our financial flexibility.
First we enhanced our liquidity and cash position by increasing short term debt facilities in drawing upon available credit lines.
This ensures our business can operate efficiently through these unprecedented times and was done at the precaution for working capital requirements, facilitating sales and managing our capital structure.
At the ended the quarter, we had over 3 billion of cash on hand with access to another 2 billion of credit lines.
To date, we've added an additional one and a half billion dollars of committed credit facilities as such we are well positioned from a cash and liquidity perspective to whether any potential storm.
Our leverage remains within our targeted range of two to three times of annual EBITDA through the cycle.
Our single financial debt covenant of debt to capital is 41% well below the covenant ratio limit of 65%.
Second we deferred more than half a billion dollars of capital projects that don't have our safety reliability of our operations.
While we continue to adapt to the current situation nutrient strategy remains on course, and the company's and solid financial position with a strong balance sheet exceptional quality assets, a stable and growing dividend and ample liquidity.
Now, let's turn to the results for the quarter and the market update nutrient delivered $508 million of adjusted EBITDA and what is a seasonally slow quarter.
Retail sales were up 30% in the first quarter, despite lower crop nutrient prices this year.
60% of the growth was from acquisitions and 40% from organic growth, which was supported by strong performance from our extensive proprietary product line and our online platform.
The Australian reef retail business performed extremely well and we're making great progress on integrating the real co business and we are well ahead of our plan synergy target.
By over 35 million Australian dollars.
We also continue to invest our growth strategy in Brazil, and now it's in the acquisition of Tech Agro, a leading AG retailer and soybean seed producer with this acquisition, we expect our existing investments in Brazil to contribute half a billion dollars of annual revenue.
In potash, our EBITDA declined this quarter due to lower selling prices strong north American sales volumes, largely offset weaker international volumes.
The increase in North American sales reflected the increase in ceded acreage and solid application rates supported by soil fertility requirements.
After several seasons have missed applications.
Offshore sales declined about 10% due to cautious spot purchasing and some international markets.
And we continue to be focused on our controllables reporting a stable potash production cost of $60 per ton.
Turning to nitrogen and phosphate nitrogen EBITDA was down due to lower nitrogen prices.
We grew sales volumes by about 300000 tons. This quarter supported by recent brownfield capacity expansions and we also benefited from lower North American gas costs.
Our phosphate EBITDA was down slightly from last year, while our industrial phosphate business performed well it could not fully offset the impact from lower debt and Matt prices compared to last year.
There are several factors that will support solid crop input demand. The spring in fact, we are seeing excellent crop input demand across North America, and Australia the season.
While crop prices have recently come under pressure from a slowdown in non food demand us farmers are still expecting the plan an additional 15 million acres. This year and planting is progressing well despite cobot 19.
We expect you at current acreage to come in between 90 496 million acres. This year slightly lower than the U.S. Da's March estimate at 97 million acres.
The harvest in Brazil is nearly complete and most growers have locked in profits on the current soybean crop indications are they've also forward contracted a greater portion of next year's crop resilient grower economics continue to be strong and despite some dry conditions. There we expect strong soybean acreage growth again this year there.
Also several recent support of U.S. government programs for agriculture, the U.S. Corona virus food assistance program will provide $19 billion in immediate and direct support to farmers and ranchers who have been negatively impacted by cobot 19, and in direct support of food purchase and distribution probe.
Grams Congress is also considering funding for ethanol producers and nutrient is working with our bio fuel partners to support this effort.
Also phase one of the U.S., China agricultural trade deal is being implemented as highlighted by recent corn exports to China and we believe the deal will be highly supportive for us growers.
However, no company is immune to the recent volatility for our business. We believe the uncertainty is is predominantly in the second half of the year, we have lowered our 2020 annual adjusted EBITDA guidance, the three and a half to 3.9 billion incorporating the risks as we see them today.
The biggest change has been to our potash business, where we've lowered full year EBITDA guidance by about $300 million.
Despite solid potash demand in the us cautious buying in international markets has weighed on global demand and prices.
The recent China potash contract is expected to add clarity to the market and should accelerate offshore shipments over the next couple of months. However, we've lowered our 2020 global potash shipment forecast by about 1 million tons to 65 to 67 million tons to reflect China market dynamics.
A relatively slow start to the year outside of the U.S. and expected impact from lower biofuel demand.
We are working with our cap with Canpotex to determine our next steps in terms of volumes and length of contract in China, but it does provide a floor and we have already seen more demand and higher prices in markets like Brazil.
In retail we maintained our 2020 EBITDA guidance of $1.4 billion to $1.5 billion, given the fundamental resilience of the business and what we are seeing so far in Q2.
This is despite an estimated $25 million to $50 million of FX headwind for our non us based retail operations as a result of a much stronger us dollar.
We are monitoring the increased risk in the second half of the year from impacts to parts of the food supply chain, including fruit and vegetables, dairy and livestock, which has the potential to impact crop inputs overtime.
In nitrogen some of our industrial customers are experiencing lower demand for their products as a result of cobot 19 impacts on the broader economy.
As such we've lowered our expectations for ammonia and nitrates demand in 2020.
And due to the current ammonia prices, we made the decision to temporarily curtailed production at one of our ammonia plants in Trinidad.
While a lot has changed over the past few months what remains constant is food security is vital.
Many of US have come to expect that food would always be available at the grocery store. The current situation is a stark reminder, that this is something we can no longer except as a given.
As always new trend is there to support our customers to ensure they have inputs they need to supply world food through this challenging time.
Nutrients integrated model is designed to perform well despite economic volatility. This is supported by our people our strategy the quality and mix of our assets and the importance of the demand for food and crop inputs.
We have a strong balance sheet stable and growing dividend and significant free cash flow generation potential. We remained focused on long term value creation, which includes continuing to grow our business to feed the future and returning capital to our shareholders. Finally, we are committed to leading the way in.
Sustainability for our industry, we issued our 2020 Sq report in April highlighting our approach and future plans and I'm pleased to announce Charlotte Hillenbrand recently joined our leadership team as executive Vice President of stakeholder relations and will be our chief sustainability officer, She brings except.
We will experience to the role and makes nutri in one of only a small group of companies in the fortune 500 to have a see us so at this level.
Given our position as the world's largest provider of crop inputs and solutions are accepts the technology, our deep relationship with growers. We are in a unique position to take a leadership role in innovative and sustainable agronomic practices and we have every intention of doing that with that operator, I'll turn it over for questions.
Thank you as a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound our house Keith.
Limit yourself to one question per person, please standby will be compiled acuity roster.
Our first question comes from the line of Jacob bout of RBC. Please go ahead. Your line is open.
Hi, good morning.
So we're seeing some strength spring for us corn.
Concerns on clubs and ethanol demand meet demand and further.
Ramp in trade wars here.
How should we be thinking about.
The formal response input demand.
In the second half 2020 and into 2021.
Yes, good morning, Jacobs, So I'll turn that a question over to Mike Frank He's closest to it and then I'll give you a couple of high level questions. After that so go ahead Mike.
Yes, good morning, Jacob obviously.
New crop corn right now is futures are around 330, a bushel.
Which is down from about $4, just a couple of months ago.
It does change the economics, obviously, you for grower customers in the us.
So I think as they think about the economic threshold for products like.
Fungicides and insecticides, there is a bit of a change in calculation. So you know look we're we're seeing extremely strong demand out of the gate, our first quarter was strong.
As Chuck mentioned, we're running strong right now in our second quarter.
We are seeing intentions to follow through on on the planting of 90 496 million acres of of corn.
Fertilizer sales have been Ruby strong theres been more pre plant herbicides. This year. So so so far everything is gone well I think from a retail standpoint, but I do think once we get into the summer months, depending on what commodity prices do what kind of programs come out from.
The government that that will have some impact on how farmers think about finished finishing off the crop.
And just a little bit more so obviously, when when corn approaches $3 and beans that $8.
If you step back you look at just basic farmer economics growers that have rented land. There are underwater. If you have your own land at your own lens, you, you're still making up a margin on it but it's not a great margin. So in other words, what what we think will happen is of course these pricing levels are not sustainable and.
Over time, you'll start to see acreage shift.
Which I think we'll be natural and be healthy for the market, but what we also think will happen specifically this year as Mike mentioned is there is a lot of government support programs right. Now. So we don't think it to liquidity issue from a farmer perspective in fact their behavior right. Now is one of of getting the crop in and investing quite well in the crop but.
Over time at these prices persist and we don't have the government support programs. We will we would expect that we would see acreage shift to tighten up the supply demand and all of that we believe is healthy for the market.
And our next question comes from the line of PJ Juvekar from Citi. Please go ahead. Your line is open.
Hi, good morning.
Thank you talked about.
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What do you think.
Yeah.
Yes.
Okay.
What are you.
Yes.
CPJ, we're having a hard time here you can you just repeat your question, maybe get a little closer to the Mike.
Hello.
Hi, that's better PJ. Thanks.
I'm sorry.
Sorry about that.
Did you hear my question I should not repeat.
And our view extending any credit to growers and if you guys can you give us some more details about expected.
Potential bad debt et cetera. Thank you yes.
Yes. Thank you.
Chuck and thanks BJ. Thanks for the question.
We have not seen yet abnormal behavior and of course pretty much like your question we are.
Monitoring very closely because we are we're expecting some of the credit to be withdrawn from from banks, but so far.
The the both the request before this work rather have been mobile and the theme.
Has being normal so the liquidity it seems to be adequate for our customers. We have not seen an increase in the overdues. So delinquencies as a matter of fact, even after a bad year like last year was which would have record that whether we were able to improve.
Our our collections, our delinquency and we actually reverse some of our reserves. So so far so good but we will them thing.
Very alert as we go forward if the situation changes, but so far.
That seems to be adequate liquidity and we intend to continue to extend liquidity to our customers.
Thank you and our next question comes from the line of Adam Samuelson of Goldman Sachs. Please go ahead. Your line is open.
Yes. Thank you good morning, everyone.
I was hoping to get a just a little bit more color I'm on the potash kind of outlook and and the changes in you did trim down your.
Your your expectations from a per market growth.
Which makes sense I'm just trying to think about the producer response and it just it would seem that the guidance implies both yourself and other producers are going to take.
More meaningful downtime again in the in the second half of the year as they did last year I mean, there's at least a million tons of new capacity.
Coming in the market between between Eurochem and cane us and some of the stuff SQM has come in.
On and I'm, just trying to make sure.
Im reading that right and how your how you're thinking about the production outlook this year.
Yes, good morning, Adam So we did as you rightly point out lowered our view that.
The demand for potash this year will be down about 1 million tons and really the driver for that is.
But biofuel demand, so, especially from palm oil or will we believe is going to reduce demand in southeast Asia of course, the China situation in China contract now has provided.
Some clarity to the market and we're starting to see.
Increase in demand and slightly higher prices as well and other markets. So thats a good news, but we're just that at the pricing levels that we saw China settle we're not sure we're going to want to put a lot of demand into China in the second half of the year. So we pulled back at least a firm up from our perspective sales.
A demand from that market and then.
On the previous question you know if you think start thinking about $3 corn, we're having a very good application season right now.
But that will be determined what happens in the United States in the second half of the year for the fall application season. So when we roll it all up its our view is that the market is going to come off about a million times.
And then if you look at our our guidance from a production perspective in sales perspective.
We've we've reduced our sales book as well I simply because of global demand is going to slow down, but but I think it. We so we're still expecting to sell more than we did last year and and so we will balance the supply that we're going to have with the market demand like we normally do and right now what I'd say is that we're seeing decent movement.
And so far in the first from the first quarter. We saw very good movement of potash and Thats continue in the second quarter, but there is more risk in that second happened we've tried to reflect that in our annual guidance.
Our next question comes on line of Ben Isaacson of Scotiabank. Please go ahead. Your line is open.
Thank you very much.
You guys have talked about so weak industrial demand for nitrogen.
And on the supply side, we're seeing a coal prices move lower can you talk about how.
The supply and demand is shaping up for the rest of the year and what's marginal cost right now thank you.
Yes, so a very fairly can answer those questions for you then.
And so look I don't think it's too early to two coal exactly what's going to happen on the industrial so I think on the agricultural suggesting a very strong spring.
Sure we were up 300000 tons year I view in the first quarter, that's continuing in the second quarter.
The maybe there are some industrial products out there.
Hard to GDP.
If there is a recession coming out of kind of at 19, we might see a falloff in those.
I think it's too early to give an indication of what we expect to happen.
Obviously, we will move product around.
Right some softness in industrials in the third and fourth quarter. It may impact egg prices in the third and fourth quarter.
I will do my best to Tron move.
The industrial product, we haven't pneumonia.
Products into the aquaculture market, where we can.
Talking on if you want to add anything.
No look I think you captured it then look with the general slowdown in the broader economy. You know he just got stands to reason that there's going to be less industrial production period, and that's going to have an impact on industrial demand for nitrogen and nitrates and and so we've tried to factor that in and we were looking at.
At our sales, but for the second half of the year. If the economy starts to come back in the second half of the year, then we probably won't have that the impact that we're expecting.
Based on what we see today and a slower recovery assumption and the second half of the year from a general broader economy.
We think that there's going to be different <unk> less demand for our industrial nitrogen, which could have a spillover effect into the AG markets.
Thank you and our next question comes the line of Steve Byrne with Bank of America. Please go ahead. Your line is open.
Hi, Good morning says look washer on for Steve.
Talked a little bit about youre the strength of your online platform earlier I wanted to ask how do you think Kobin 19 may have accelerated interest in this platform and do you think this is relatively sticky in that cut your existing customers start using that more often in subsequent years and could that present, maybe margin our market.
Share opportunity for you.
Thank you.
Good morning, Luke Ah, Yes, so Mike Frank can take that question.
Yeah. Good morning loop. So when you think about corporate 19, Firstly I would say.
Having a trusted relationship with our customers is more important than ever.
You know, even though we've seen significant uptick in the use of our digital tools.
It's also clear that having a deep relationship with our customers, where we we know their fields, we know other priorities.
It makes a huge difference now obviously, we do think that the digital platform, which is beyond.
Simply E Commerce, it's also about planning the field.
Providing sustainability metrics providing.
Field specific insights on on weather and and moisture conditions.
This all comes together in a tool that our customers are getting a lot of utility from as well as our salespeople and in fact, if anything I think it's driving a deeper relationship between our field sales team and our customers and so we really see these things bidding together.
And you know the outcome will be.
More efficiency.
And ultimately it will drive organic growth in fact, we think we're seeing that already.
Because it's providing more convenience for our customers obviously allows them to deal with us in a very safe manner today from a corporate 19 standpoint.
And in convenience and scalability for our sales organization. So.
The investments that we're making have definitely paid off and you know as you can see from the slide presentation Theres a number of enhancements that were also bringing through the rest of the year that are also going to continue to drive the stickiness of the platform.
And our next question comes from the line of Chris Parkinson of Credit Suisse. Please go ahead. Your line is open.
Thank you very much.
You just said, it's a little but just for the diving into can you talk about just your outlook for the M&A strategy the retail M&A strategy for the remainder of the year.
And into 21 in both the U.S., Brazil, just any updates on your thought process. There and then just also the correlated that you know how do you feel your us competitive positioning is.
In terms of the digital AG supply relationships versus some of your larger peers. Thank you very much.
Good morning, Chris Mike Frank Why don't you take those.
Sure ill also let me start with the M&A side.
So firstly, what what we're seeing right now is that the acquisitions. We made last year are all performing very well.
Rocco as we've talked about.
Is off to a great start the integration is well underway and the synergy capture plan is also.
Clearly available for us and so our world Cowen, Australia, which really does transform our business in Australia is performing very well.
After grow which was a large acquisition last year in the US is also performing extremely well.
We have announced in Brazil, a couple of acquisitions. This year agro Sema is an acquisition that closed in the first quarter.
It's also off to a great start our agriculture business, which we.
Closed last year is performing well and we recently announced.
Another acquisition, a larger acquisition of a company called tick agro.
We expect that to close here very soon as well, which is not only a retail business, but it's also has a very substantial proprietary seed business.
Now going forward.
Typically on tuck ins that especially in the US there's there's more activity in the second half of the year.
So depending on how the cobot 19 situation plays out I think that could have an impact on our ability to do due diligence and and closed deals and so we're we're watching that we're having a lot of conversations right now with perspective.
Targets and so we do think Theres a pipeline available and there is also more targets in Brazil, as well, but when you think about Brazil, we've talked in the past about having eventually about a billion dollar business in Brazil with the acquisitions that we've made including tick agro when it closes now we'll have a business that will have a run.
In rate of about a half a billion dollars and so we're we're already well on our way in Brazil. So that's on the M&A front in terms of digital AG I would say were.
Well out in front of the industry from a retail standpoint.
We are really the as Chuck mentioned in the opening comments, we're really the only national company that has a platform that combines ecommerce.
Digital insights at the field level.
And tools that our sales organization can really leverage to create scalability and convenience for our customers and so I would say, we're we're well out ahead of the rest of the industry from a digital AG standpoint.
And our next question comes from the line of Steve Hansen.
Raymond James. Please go ahead your line is open.
Yeah, Good morning, guys.
Chuck your comments earlier on the trying to potash settlement and seen.
The price point might be a little lackluster relative to your expectations I think you.
Might be hearing to volumes away from there.
Turning to fend for how you guys feel about the pricing environment that there will be the demand, but maybe just give us some context around spot market behavior, you could seeing after the settlement and why you think prices that price opportunity might be better elsewhere relative to the bar picture in China. Thanks.
Yes, so thanks, Dave.
Look I think that the price in China is too low.
I'm not going to makes a lot of words around that.
China tap their strategic reserves during the negotiation the country can do that when you're negotiating with the country and that provided them with leverage also the fact that and this is no surprise to anyone on the call that there's there's excess capacity of potash and the market right now.
So where we are right now as we're trying to get our head around and we're working with cap and text to determine our next steps, but given how unattractive the prices for nutrient it's going to be difficult for us to provide a long term commitment at these price levels now what it has done though it's pretty clear now that that.
The theres been clarity in the market, we're seeing a pickup now in demand in good other markets like Brazil and prices have also started to rise in those core markets. So I think there's there's two things about the China contract. One is we don't like the price and we'll have to determine what we do.
And it comes to the length of the contract in the volume, but the other markets are starting to pick up because there is now some clarity in the global market. So there's some good news to that as well as best I, probably leave it there since we don't have a an arrangement with China, yet, but those would be my my thoughts.
Appreciate it thanks.
Our next question comes from the line of Michael Picken of Cleveland Research. Please go ahead. Your line is open.
Yeah. Good morning, I'm, just wanted to touch base a little bit on.
How the retail business is going to be approaching filthy then presumably with a good.
Spring season, you'll probably end with fairly low inventories I would imagine on most fertilizer products, but I'm just wondering given the uncertainties in the back half of the year, how retail thinking about participating in fill this summer.
Yes, Mike Frank why don't you take that question. Please.
Yes, so Michael we're very focused on working capital and.
We're also watching of course, if there is going to be appreciation in the fertilizer.
Markets and so right now based on our commitments for the spring and summer months will we expect that we'll be going into the fall season.
Right now with empty sheds, and so well positioned ourselves.
With the ability then to to restock.
For the fall season ahead so.
Look there has been very strong demand.
In Q1 alone you know our tons were up almost 30%.
And all of those tons went went on the ground and we continue to see strong demand here in Q2.
And so.
We're going to have our powder dry going into the fall season to our refill our our fertilizer sheds and I would say, it's the same from a crop protection standpoint, we're we're committed through the spring and mostly through the summer right now.
But we anticipate that theres going to be significant de inventorying in our total working capital from both a crop protection on a fertilizer standpoint.
Our next question comes from the line of Joel Jackson of BMO Capital markets. Please go ahead. Your line is open.
Hi, good morning, Chuck.
Martin Joel.
Chuck your Canpotex partner put out a different incremental potash demand forecast this week only expecting about a million tons of fewer growth.
This year and then when you are obviously a lot of your sales are tied canpotex together. So if that scenario plays out would you expect nutrient.
More bear case never played out would you expect to have little or no potash volume growth yourself. This year, considering the tons inventory built in New York, Holly and the new tons in Europe, China, and some other players and have more buying this year. Thanks.
Yes, so we.
We certainly don't communicate or discuss our views you can clearly see that there are different.
And certainly from a nutrient perspective, we would stand by our numbers in terms of 65 to 67 and as such when we look at that and we look at our customer commitments and and the demand that we're expecting we were pretty transparent with our planned sales Joel So I'll leave it there to say that we are expecting.
Slightly weaker market than we thought in February for the reasons I've already outlined but still a growth year over year and as such when we see good global growth year over year, we expect our sales to be up year over year as well.
And our next question comes from the line of John Roberts of Yes. Please go ahead. Your line is open.
Yes. Thank you Im glad you also well you're partnering Canpotex also made the case that 2016 makes for a lot of parallels with the current potash market do you have with you on that.
Certainly I don't know.
I think maybe what I'll do is I'll pitch it over to can who is sort of running Cabot techs at that point and he'll have the probably the best perspective, So Ken why don't you take that question.
Yes, I don't know that my answer so much better than years, Chuck and that is okay. We sit here at the beginning of a.
First quarter behind Us in 2020 in yes, we're seeing some stability in the market as Chuck said with China contract, we're seeing prices up in Brazil. So that's kind of analogous to what we saw in.
In 2016, but at the same time I think as the year unfolds. There is some real unknown. So that have been talked about on this call. It.
And a bio fuels being one so I.
I think you'll have to ask.
It was it further both your comparisons to 2016 I think it's suffice it to say that will just stick with their view here of curtain guidance that chuck's been talking about 12.1 to 12.5 million tons.
On the on demand that's in that sort of 65 to 67 million ton range and.
Avoid to full comparisons to what happened in 2016.
Yes, John maybe objects and news on aligned with our Chief economist.
He studied this stuff for a living so Jason you have any further thoughts.
Yes, John the one thing I'd add I think I think there are a number of paralleled in terms of what we see in demand in spot market. So if you look at Brazil. For example has been drawn down inventories and we think there's some.
Pent up demand, there, which is similar to what the case was.
In 2016 I.
I think also similar to 2016, we got down to similar pricing levels, and we know there's a you're approaching a marginal cost.
Quite a few producers that are a cash negative at or below our current prices are so that's.
Lots of payments.
As with the kids in 2016.
And the markets quite a bit bigger today than it was in 2016 as well.
I I get from a different to.
Standpoint, and that is a big one is feed the uncertainty regarding palm oil biofuels as I've mentioned them and overall economic uncertainties, we look forward.
Second half year.
Our next question comes from the line of Vincent Andrews of Morgan Stanley. Please go ahead. Your line is open.
Hi, This is army Rosenberg on for Vincent Thanks for taking my question.
Im just wondering looking at your guidance. If you could just help us frame up what gets you to the high end of your your sales ton range is for for both potash and nitrogen. Thank you.
Yeah. So at a high level, if you look at the guidance range.
When we set our guys back in February we were thinking of the impact of course of Kobin in North America and at that point oil prices were 50 Bucks. So literally it's a different world today and then of course back in February corn was over 350.
So the way, we think about the guidance range right now is that we've factored in the risks that we see them.
And we don't we don't expect to see a significant increase.
In terms of price recovery, whether its nitrogen or or potash, but to get to the higher end to that of the guidance range. We wouldn't be at the higher end of our so I think about I'd be shape type recovery, that's what we wouldn't be considering when we think about the high end of the ranges that.
Industrial demand would start to see some some return bio fuel becomes economic again, and you start to see demand for biofuel pulling through a corn and ethanol and then of course potash in southeast Asia. So that's sort of some of the color that that we would articulate.
For the top end to the guidance ranges is that you start to see.
The the economy open up and then along with that will become the leavers in the connection that we have to the AD complex.
Our next question comes from line of Jonas Oxgaard of Bernstein. Please go ahead. Your line is open.
Hi, This is Jackson coolest on for Jonas Thanks for taking my question guys.
So two quick questions if you don't mind.
The first is that several crop inputs companies have indicated that strong early demand has caused farmers to pull forward purchases from the second quarter into the first have you seen this in your retail business and if so can you quantified the impact and the second question is just can you talk about what projects you delay to achieve your $500 million in.
Planned capex reduction and what you would need to see to resume activity there. Thanks.
Okay, well have Mike Frank answered the pull forward question, then we'll have Pedro for our answer the projects question. So go ahead Mike.
Sure Jackson, So you know you're referring to obviously the.
The suppliers to retail talking about.
Pushing a little bit of inventory into the channel in Q1, potentially because of both covert in anticipation of a larger market and I would say you know what we did with our suppliers is is we pulled forward our product set that we anticipated we were going to need based on the the the larger acreage and in our.
It's really really good weather and the range that they got that really set up a much better year in Australia, if anything about the retail side of the equation our side, it's really hard to pull forward.
Fertilizer and Kim sales because those will go on the ground most of our our Tim as bulk a lot of its custom applied and the same with fertilizers really theres very little ability for farmers to store fertilizer. When you look at our seed sales you know our seed sales were up about 11%.
In the first quarter and again, that's consistent with our expectation of a larger market. So we didnt see a material I'll pull forward. We did see good weather we saw good weather in Australia, we saw good weather and much of the U.S. that allowed us to get.
More fertilizer down.
And more crop protection on the ground and so that really is what drove our 30% increase in revenue quarter over quarter.
Pedro take the capital program Josh.
Thirdly, Thanks, Alan Johnson.
What we are delaying is the two types of investment number one is the investments that have a very long payback typically.
Associate with the productivity gains.
And we are favoring shorter payback type projects at this point in time.
The other one is there is a natural delayed because of timing on some other projects that we have so.
Supply chain issues with critical equipment.
For the meaningful social business thing as we execute on those projects and to preserve social business thing we cannot implement the projects at the time that we had originally planned. So those were kind of the sliding into next year I'm not is kind of the bulk of our 500 dollar delay.
Our next question comes from the line of Jeff Zekauskas of JP Morgan. Please go ahead. Your line is open.
[noise] mining it took the Jeff how are you.
Good.
But it's a question.
North American potash.
And it has two parts like the first one is this.
Could lower corn acres in 2021 have any impact as to how much potash.
North American pharmacy, you might want to buy on at the end of the or in the fourth quarter and not be I'll, just think about that.
And.
The second question is on North American potash pricing that is.
Price the first quarter was taken out of $96 a ton FOP. It was quite it would like to 26 and I was wondering if you could just talk about that trajectory for potash prices domestically in April and May. Thank you.
Okay. Okay, it's best to have Jason Newton I think our economists just answer those questions.
Yeah sure so on the lower corn acreage I think obviously.
Corn acreage is expected to be lower which we would expect to be in 2021. It will have a negative impact on a on overall pent up demand and nutrient and in general but.
It is important to note that there is.
On that and we'd expect that a lot of the lot corn acreage would be replaced lightweighting and so.
If you take a a million ton a shift from from one product the other it.
Worked out to about and a lot.
40000 tons of upon on for corn, but you gain a 25 or 30000 that back in terms and so I mean demands, but it's not it's there's an offset with the soybean supply or for fall demand, what really drives a farm level fall demand as weather.
So that's probably the biggest driver of the second half, but we would expect.
The retail end of the supply chain to be cautious with inventory.
As we go into the second half the year, which is what impacted our outlook in that.
Time period.
In terms of the potash prices.
The U.S. market really followed a what happened in the rest of the world. Although prices have held up better and in fact price in the U.S. Gulf War at a premium or what was the case in Brazil, but prior to the recent Brazilian and prices started to increase we have seen over time that the U.S. Mark.
It has lagged a little bit behind where the rest of the world is and as we look into the second half the year, we'd expect nor normal seasonality facilities and through the summer and then and see how demand develops in the fall.
Yes, maybe just a couple of other comments at the at the highest level in terms of our view of potash pricing going forward, whether its 22021 or 2022. So look our view is constructive we believe that what we're seeing right now part of it is is the economy and the code.
19 related part of it is we have new capacity coming into the market, but generally speaking the demand has been growing quite nicely on average and we would expect that if potash demand continues to grow globally at that two and a half per cent per year level.
Once we see.
The cobot situation in the oil prices stabilize a little bit you're going to see the supply demand for potash tightened quite readily and as the market that supply demand starts to tighten I think you're going to see prices fall. So we're quite constructive on potash still it's a it's a a market though that is.
Had a tough year and in terms of 20 or 2020, and I think what we're seeing right now in terms of of the China potash contract settlement at the levels that it did we are starting to see some.
Constructive behavior in the market when it comes to.
Increased demand and price momentum and I think longer term, we expect that that will continue because we do see that demand for potash overtime will continue to grow.
And there are no further questions in queue at this time I will turn the call back over to check macro CEO.
Oh, Okay, well. Thank you all I think that with all the questions in the queue look IR is available for any follow ups that you have I really appreciate the interest in the company and I hope that you're all well in safe that take care and we'll talk soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.