Q2 2021 Nutrien Ltd Earnings Call
Greetings and welcome to the nutrients 2021 and second quarter earnings call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
This conference is being recorded.
And now I'd like to turn the conference over to Richard Downey VP of Investor Relations.
Thank you operator, good morning, everyone and welcome to nutrients conference call to discuss our second quarter results and outlook on the call with US today is Mr. Neil Smith, President and CEO of nutrient and Mr. Pedro for our CFO and we also have the heads of our business units Ken size for potash free solely for nitrogen and phosphate for retail we have Jeff <unk>.
<unk> and Mark Thompson, who leads our strategy and sustainability group and of course, our head of market research, Jason Newton and.
As we conduct this call various statements that we make about future expectations plans and prospects contain forward looking information certain material assumptions were applied in making these conclusions and forecasts. Therefore actual results could differ materially from those contained on 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 MD&A 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. Mayo Schmidt.
Well, thank you Richard and I do want to pause to comment before I get into my prepared remarks.
Nutrients team and I do want to wish you and your family all the best and your planned retirement, which will occur of course later this year and certainly recognize you and thank you for your 25 years of service and nutrients.
You bet and outstanding member of this team for many years and and enjoyed and exceptional career.
I appreciate it and then you will be missed.
No you are very pleased to be passing your torch over to Jeff Holzman.
So many of you already know is our vice president of Investor Relations.
So good morning, everyone and welcome to nutrients second quarter earnings call.
And I will recap the actions our teams have taken to fully benefit from excellent agriculture fundamentals and the demonstration of the advantages of our global integrated business structure, which together allowed us to execute on delivery of record performance for the quarter and for the first half of the year.
This morning, and will also provide and update on the outlook and decisive actions that we've taken that allowed us to increase our annual adjusted EBITDA guidance to a midpoint over $6 billion for 2021 and increase of over 33%. Furthermore, we will illustrate the momentum that.
We will expect to carry forward well into 2022, and how the nutrient and team are enhancing our unique market position to drive value.
So first of all I would like to thank all our employees for the dedication and commitment they demonstrate each and every day and support of our grower customers and the more than 40 countries that we serve and as we work to feed a growing world.
These efforts were especially apparent through the busy application seasons on her.
There are approximately 3600 crop advisers are working directly with our grower customers as we produce and safely deliver nearly 30 million tonnes of potash and nitrogen and phosphate globally.
Myself the board and all employees are very proud and how our potash team has responded to increased production significantly for more flexible reliable low cost 6 main network and the second half of the year to ensure our growers around the world have the potash they need to meet the ever growing demand for food.
Yeah.
So now turning to our results our first half adjusted EBITDA was over $3 billion up 36% over last year's level, we delivered excellent results across all businesses geographies and for most products and services.
<unk> driver was impressive team execution with our well positioned assets higher prices for crop and fertilizers and robust global demand and our business also generated notable free cash flow of $1.9 billion and the first half of the year.
Yeah.
Nutrient AG solutions, our retail operations achieved a 24% year over year increase and adjusted EBITDA for the first half of 2021.
In fact, almost all of our retail metrics showed significant improvement and we are on track to meet or exceed our longer term targets ahead of schedule.
When we look across our nutrient businesses, we generated a combined 1 billion and adjusted EBITDA and the second quarter.
Year over year potash earnings up 48%.
And nitrogen and phosphate businesses up 45%.
The increase was due to continued focus on managing costs, making operational excellence core to everything we do supported by stronger pricing.
Our wholesale marketing and sales team execution was outstanding and.
Our team matured, we did not get over committed too early and optimized our retail distribution system.
We evaluate our retail business on our first half and second half basis, representing the spring and fall application seasons and the first 6 months of this year, we witnessed strong year over year performance across all geographies and the majority of our product shelves.
Adjusted EBIT and the first 6 months in the U S, Canada, and Australia were up.
Over 20% driven by organic growth, while our South American teams EBITDA was nearly double last year driven by their strategic acquisitions.
Yeah.
By product shelf, the biggest increase and earnings was for our crop nutrients for ton margins benefiting from well placed inventories and a rising fertilizer price environment as well as record sales volumes.
Volume for crop protection and seed were higher year over year, helping drive a significant increase in gross profit.
The increase was also due to improved proprietary product performance across all geographies and products with profit from all proprietary products up on average of 13% year over year.
We also delivered excellent retail performance relative to our long term targets adjusted EBIT percentage of surpassing 11, 4% compared to 10, 3% and the first half of last year, partially supported by strategic fertilizer procurement.
For working capital as a proportion of sales and cash operating coverage far exceeded our long term targets and our average EBITDA per location and showed significant year over year improvement.
The ongoing progress and these metrics is made possible by our continued focus on meeting growers' needs. While also rationalizing our network optimizing working capital and expanding our proprietary product line.
We also reported $1.6 billion and digitally enabled sales and the first half of the year nearly double the same period and 2020 and process approximately 1 half a million and grow our payments through our system.
We also continue to grow our retail business in Brazil, and recently announced an agreement to acquire Terra Nova and the fourth value enhancing million acquisition and the past 18 months with this transaction, we operate 33 branches and Brazil and are well on our way to generating $100 million and run rate EBITDA by 2023.
Our retail team continues to demonstrate exceptional performance across the board and and all geographies and which we operate.
Our potash group performance has been outstanding.
And and his team responded to market conditions and have fully delivered commitments to our customers, while taking action to increase sales and production significantly to ensure our customers have the product they need.
We are the only producer globally with the capability to respond.
We delivered record volumes and the first half of 2021 and are on track achieve a full year record.
We are focusing all time high global potash consumption and 2021.
And due to exceptional spot market demand and the U S and Brazil, and Southeast Asia, where we saw a significant market recovery. This year. The demand is positioned canpotex to place greater emphasis on these higher netback markets compared to contract markets China, India.
Overall, we project to produce nearly 14 million tonnes of potash and 2021 in fact by the fourth quarter, we anticipate nutrients and search potash production to approximately 17 million tonnes on an annualized equivalent basis.
We will continue to be proactive and flexible with our operating rate.
Race teams and nitrogen and phosphate delivered excellent results and the first half capturing much stronger prices and for nitrogen and achieved a 92% and ammonia operating rates, despite increased turnaround activity and weather related challenges.
Phosphate margins this quarter reached an impressive $195 per ton and nitrogen margins averaged $182 a ton.
Both were up almost 60% year over year, despite higher input costs.
We continue to benefit from the brownfield expansion projects completed over the past few years, which are both expanded production capability and increased product mix flexibility.
These results also demonstrate our ability to leverage the competitive advantages of our extensive production and distribution network to execute on emerging market opportunities.
For the near term outlook, there is a wide range of crop conditions across North America.
Crop maturity is generally ahead of normal which bodes well for the fall application window, we may see some pullback on fertilizer applications and severe drought areas such as Western Canada. This fall.
Overall, and North America, we expect solid crop input demand supported by continued above average crop prices and.
Australia very favorable weather conditions also continue to support strong crop input demand.
Some ongoing weather challenges in Brazil have impacted yields for certain crops. This year, but the outlook for next season is a further expansion and seeded acreage, which will support demand for all crop inputs.
For fertilizers.
Current price environment as a result of robust demand for all nutrients driven by supported agriculture and industrial market fundamentals.
We expect these market dynamics will continue to support prices in the 2022.
That said fertilizer affordability is something we watch closely but even at todays elevated prices most for most fertilizer to crop price indices are close to average levels and grow our margins continued to be very favorable in the 2022.
We expect global potash demand in 2021 to be at record levels between 69, and 71 million tonnes and global inventory levels in key regions to remain very low.
There is no news at this point about a potential contract with China or India. However, we continue to believe that China will need to negotiate a new contract before the end of the year as their inventories continue to draw down as Chinese domestic demand has been seen as robust.
<unk> is already fully committed right into November and we will continue to focus on higher netback regions.
We believe the future outlook for our company is excellent.
We expect crop prices and we remain well above historic levels fertilizer markets to remain tight we will also benefit from our ongoing commitments to operational excellence execution, a keen focus on cost and and inventory management continued value added growth and a strengthening return on investment.
As such we raised our consolidated annual adjusted EBITDA guidance by more than 1.5 billion for over 33% and our EPS by nearly 70%.
This is due to stronger earnings outlook across all business lines and executing on our competitive advantages.
We believe this positive earning outlook will continue into 2022 further strengthening our balance sheet.
We will maintain our discipline and compete for capital approach, which includes the potential for further investment and the business deleveraging of the balance sheet and additional returns to our shareholders.
Our purpose is to help growers and crews increased food production and a sustainable manner. There is no. Better example of this commitment that our responsiveness of our team to quickly and safely bring on and additional 1 million tonnes of potash production to improve access of this important nutrient for growers globally.
These actions also deliver significant financial value for our shareholders as the increase in production accounted for approximately 25%.
Of the 900 million increase and our potash adjusted EBIT guidance for 2021.
Another example of executing in line with our purpose is our feeding the future plan and 2030 sustainability commitments, which includes our ongoing focus on improving carbon outcomes.
We are reducing the carbon footprint of our facilities, making great progress on our industry, leading carbon program at the farm level and our recent announcement on a partnership to develop for marine vessel that is powered by low carbon ammonia as a fuel.
Nutrient and is committed to ensuring our strategy and operations remained world class and successful over the long term, which is supported by strong integration and management of ESG risks and opportunities and to our strategy and our execution plans.
We believe the outlook for nutrient is exceptional.
With crop and fertilizer prices anticipated to remain well above historic levels in the 2022.
No. Other company has more advantageously positioned across the value chain to be a catalyst for positive change and the global crop production system and help growers around the world feed a growing world.
So I want to thank you for joining the nutrient team today and we're all looking forward to your questions.
And at this time, if you would like to ask an audio question.
And number 1 on your telephone keypad.
And that is star 1 for our questions.
Your first question comes from the line of Ben Isaacson with Scotiabank.
Thank you very much and congrats on the beat and raise.
Question for mail and Pedro So youre going to generate 665 billion of EBITDA this year and even if prices moderate a little bit.
And do something similar next year and that's a lot of free cash flow to generate especially considering you don't have any major capital projects and <unk>.
That context, and rather than talking about your compete for capital philosophy can you give us some actual goalposts in terms of what you have planned how much debt reduction do you want to see over the next 18 months you have a buyback authorization do you expect to be finished that within a year from now and how much of your earmarked for M&A and retail whether it's in the U S or Brazil.
Thank you.
Yeah.
Sure happy to comment on that and then Pedro and I've had have those good discussions and actually quite frequently and it's it's an outstanding year with and it gives us a number of opportunities, including both strategic and also as you mentioned and buyback relative to our strategic and.
<unk> and so what I'll do is I'll ask Pedro appeal, just run us through some of the options that we have in front of us and we're very pleased to be able to have these choices.
Yes, Ben and.
Nice.
Talking to you again.
Hi.
Your point, we will continue our disciplined capital allocation approach.
Which will involve.
Basically system assets and on this 1 we we kind of guided to a little bit more expenditure as we were a little bit depressed in the past due to COVID-19 restrictions that we couldnt.
And do what we needed to do and our different facilities.
We have increased the dividend earlier this year.
And and we are looking into the balance sheet now that we are above mid cycle prices and terms of opportunities to delever that very much will depend on how much we will do will depend on how we look through the cycle.
And we'll likely and positioning ourselves to have flexibility and the future. So I don't have a specific number for you as we are looking at our various options for the future but in terms of.
And compete for kind of 2 approaches as you mentioned.
We do we do have options there too.
Both organically and Inorganically and we are already starting to deploy debt you haven't seen us do some acquisitions.
And Brazil, we're also investing somewhere and our ESG projects for nitrogen and we'll continue to look at those and the future and we are as you pointed out we can see.
And you'll have view and CIB option that we will be considering together with all the other ones. So.
It is.
Fluid.
Environment here, so we're going to be analyzing our options and we will come back to you with more specific.
Points as soon as we have them and we can tell you and a more a day.
Dale.
Your next.
Question comes from the line of P. J <unk> of Macquarie.
City.
Yes, hi, good morning, I was wondering if you can just talk about level of inventories and the retail channel.
And VK and where do we stand post to the similar.
Jeff would you mind, taking that question for us please.
Sure be glad to talk.
Talk about inventory and 2 different capacities.
About crop protection and I think you won't be more specific on the A&P case side of things and I guess, if we look at the end of quarter, 2 were probably a little bit higher from a revenue perspective, what we've got and inventory today on N P and K about $150 million higher and the U S than last year, that's planned as we're starting to low.
And <unk>.
Today for what we anticipate to be a good fall application season, and trying to get some product.
Look at how much product we have to move through our system. We have to get a really early start from a logistics and supply chain side of things with it and then if you look at that higher inventory that you also got to give.
And do you have credibility from a standpoint of where we're looking at higher product pricing and we were looking at a year ago and.
Well on it but we feel really good where we sit right now from an inventory perspective on it and.
We basically plan to have a pretty normal fall application season.
David I don't know, if and when I add anything else to that.
No, Jeff I think and thank you hit the utility side of things quite well on crop protection and we were just getting ourselves well positioned for.
For our upcoming fungicides sprays.
Jeff I think that's it.
Your next question comes from the line of Steve Byrne with Bank of America.
Yes. Thank you just wanted to hear.
And if you had any visibility on where you think third quarter realizations could be and potash and both offshore and North America do you have debt deals ability through canpotex on how much is already sold forward and at what price.
Why don't I, just make a couple of comments and I'll ask Ken to comment as well, we certainly expect to see relatively limited new supply and the next couple of years and the majority of it is going to come from the.
Former Soviet Union producers, particularly Euro Kim.
And then of course, there's the issue around the belarussian political sanctions. So we think we're very well positioned we are sold out for a period of time here and are continuing to look at the strong prices and Ken do you want to fill and some of your thoughts on that thanks Mayo and yes. Thank you Steve for the question.
And we do have visibility through Canpotex and fact, they just released a few weeks ago that they are committed into November and now so.
The remaining volumes to be committed and in the year are shrinking.
And in North America. Similarly, we're committed right through October and again uncommitted volume is relatively small compared to what we're doing for the year. So with respect to third quarter realizations and we can fall a benchmark prices and theres always a lag between what to add and.
And benchmark prices are being reported at and what we're realizing and that has to do with it 2 to 3 months lag on contracting and delivery and.
And I'll also say that and this rising price environment and time as those reported prices are based on daily traded volume. So it does it could take a few weeks for for prices to firm up at that level as well. So yes, we do have good visibility and certainly we're expecting and strong third quarter.
Your next question comes from the line of Jacob bout.
CIBC.
Good morning, My question is on on.
Potash demand and also going back to your inventory levels I guess first.
Spot pricing for potash, we're back to levels not seen since 2008.2009 are you seeing evidence any evidence of demand destruction and then maybe you can just you talked a bit about the U S. But what are you seeing in some of your other key global markets for.
Potash inventory at the retail level.
Well. Thanks. Thanks for that question, Jason is with US today, and I think and offer some really valuable insights into your question.
Yes, good morning Jacob.
As we look around the world.
Demand and net inventories I guess starting with the.
Spot markets, we think that what's being sold is being applied to ground and of course as we look at that day.
U S market the weather during the fall season is extremely important to to drive.
Driving the fall demand and and where.
Our inventories and up but as Jeff said, we're expecting.
Hi, good engagement and and just given the affordability right now and does the stage of the crop which is at or ahead of average we would expect on a normal.
Application season, and then as we look at the contract markets.
And we're really seeing because they are priced out of the market at current levels inventories being drawn down both at portion within the domestic market and you can see within China that domestic prices are havent had been really firm and and almost keeping pace with the Brazil and <unk>.
Spot market, so evident and settlement of a really tight.
Supply demand balance there and maybe pass it to Ken if he has any other comments and I think you've summed it up well, Jason and heading into the fall here and assuming we have a reasonable fall, we're expecting inventory levels to be low which is I think and critical point so.
And you know what that 1 million tons committed through October and November and certainly homes for the balance of our volume.
And lower inventories at the end of this year.
Yes.
Hey, Jason and I might add 1 other component to it and we talked about whether we've talked about timing of harvest and I think it's been mentioned a couple of times just feels like its moving ahead, a little bit for maturity standpoint, but the other big factory yield and if we look at what's being and predict it from a yield standpoint.
We're looking at trend line yields or something right at that level and so what that tells me is we're going to have a real strong removal rate.
And this crop comes off we'll obviously be out with our agronomy staff and field doing massive amounts of solar and testing and and such with it which should drive.
Again should drive demand for the fall.
Your next question comes from the line of Jeff Zekauskas with J P. Morgan.
Thanks very much.
And there really wasn't any change in crop protection margins.
Why is that why shouldnt pricing be better and better.
Costs and what's your outlook for that business that sub business and.
And your retail operation over the coming year.
David do you take that question you leave that for our group. Please.
Yes, Thanks, and Jeff I appreciate the question.
And I think our our CPE sales volumes and our margin stayed fairly stable through half 1 really on the backs of <unk>.
Acreage expansion as well as some of our strategic purchasing and our long term relationships with suppliers.
The crop protection industry as a whole continues to be pressurized from a generic perspective, and we continue to monitor that globally and look to strengthen our proprietary position to move margins and the right position I think.
Going through half 1 our upfront margins on a proprietary business and strong and we will look to continue to make progress moving forward.
Your next question comes from the line of Adam Samuelson with Goldman Sachs.
Yes, thanks, and good morning, everyone.
I was hoping to see.
You get some color on retail performance and the first half and.
And specifically in the disclosures there.
And same store sales adjusted for movements and fertilizer pricing and FX was up 1% on a year on year basis and I.
I guess I'm trying to square that with the reported results and the segment overall, which look quite good but for 1 up 1% on an organic basis. It doesn't actually seem like that much and the context of the market that we've been and is that a pump.
Function of weather and Western Canada, and California is there any additional color there because I would've thought there wasn't more evidence of share gain and benefits.
And benefits from our proprietary products and their reported sales number there.
Well thanks, Adam for the question and let me just start with saying, we're very pleased with the 2021.
Selling season, you are correct of the Canadian crop has really been dry and that area and we might see some really strong follow through and next season from them, but we continue to build momentum and seed and we do expect and likely to grow between half and full share point on seat across the 4 major crops.
And that share growth and acreage increase we didn't see a lot of shifting between crops or brands, but David do you want to fill and some of that with the and your area.
Yes, no I think mail you hit it well I mean and the <unk>.
Context, and seeds, it's a major priority of ours to grow share as well as look to strategically.
Gain more of our customers' overall business across our 4 strategic crops canola cotton and soybeans and corn is Mayo said, we're seeing strength and those share gains going through this.
First half preparation underway heavily for 2022, as we speak and I think some of the underlying themes and soybeans was there was some price pressure relative to some new herbicide tolerant trait launches, but overarching Lee.
Our teams worked well through that and gain strength going into this next selling season.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
Thank you and good morning, everyone.
May I just wanted to ask you on potash you referenced to 17 million ton run rate that youll reach a on a product perspective, and the fourth quarter.
How should we think about that production run rate going into next year, and I guess I'm asking sort of juxtaposition of you obviously have the capability.
You mentioned affordability and being sensitive to that but then there's also potentially maybe less belorussian tons coming into the north American market, which you obviously.
Advantaged and 2 from a distribution perspective, so I recognize that's a few variables, but but maybe just philosophically how are you thinking about how much you want to produce versus how high for potash price you want to see on a go forward basis.
Yes, Thanks Vincent.
Let me start with I think and important comment that we expect global demand to continue to grow by 2% to 3% a year or so if you do the math on that over the next 989 years is 14% to 23 million metric tons and that's why I would say that Ken and his group for thinking about you know as we've talked about the annualized run rate of about 17 million tonnes.
By the fourth quarter. So we really look at this as the opportunity for our shareholders, but at the same time, there tends to be value destruction. When we get to these higher prices and when we have Brazil sitting at 680.
And you get to a level of some level of concern whether they'll simply mine the soil. So I think the additional for us the additional production.
Capability can be further leveraged in 2022, but I think that if the market needs. It and then we also have a good line of sight to about another 5 million tons of low cost brownfield.
Capacity, so we're going to continue to invest and already low cost position that we have and leading the industry and that with our flexible my network.
And so our focus is time is going to be on our potash operations and how we are positioned to service the market while being price sensitive.
And we're enjoying some prices and we want to continue to enjoy these prices and thats how were going to think about servicing and our growers to keep them in the game and price Accordingly, and Kim do you want to add anything to that.
Thanks, Neal and thanks.
Vince and yet just a couple of comments, maybe everything that obviously Mayo said on the fundamentals and expectation of strong demand.
Obviously through 2021 by 2022, as well and I think a critical point is 1 that we've discussed already and that is inventory levels and inventory levels at the moment and multiyear lows and with a reasonable fault and we expect that to continue on the supply side and we havent seen any new announcements of additional production other than our own and if there were to be announcements.
At these price levels that would have happened already.
Mosaic, we expect will be back, but I think it is true that while debt situation in Belarus.
And the consequences of sanctions are a bit on known at the moment. It does create some uncertainty so.
Exactly as you may have said.
Our customers are asking for it in 2022, we will be therefore them and we can surge production beyond 2021 levels.
Your next question comes from the line of Mark Connelly with Stephens, Inc.
Thank you I was hoping you could help us understand what part of your retail portfolio is is being the most impacted and California, so far and it and assuming this drought continues how does that impact progressed, and how and how meaningful is it.
Jeff do you want to take that please for the California market sure be glad to yes, if I look at the California market.
From an impact standpoint, we haven't seen a dramatic impact obviously.
You already have all of those crops are irrigated.
We're all reading it what the reservoir levels are there and they're very alarming right now I think the biggest impact might be might come later and we're getting into a fall planning season, now and a lot of it for planning is going to depend upon how much water. They go on a release for those growers to use with those plantings we're seeing some.
Indications that day that they will be down and obviously when you're in a very hot and dry conditions that really doesn't create a lot of disease, especially on a permanent crops. So I would say partly on fungicides been affected at the west more so than than anything our business is actually.
For him very well considering the circumstances that we've been and out there, but I think we'll start to see it a little bit later in the fall as we get into follow on planning and then hope.
And hopefully we can get some of these reservoirs late levels up later in the fall and winter with some snowfall that's conducive to our business going into 2022.
Your next question comes from the line of Joel Jackson with BMO capital markets.
Hi, good morning, everyone.
Maybe you could talk about when you gave your guidance range for both EBITDA for the year and.
And for potash and it maybe because it's a very interesting comment a lot on this call and talk about topics right now there's a lot of them on.
Uncertainty and a couple of moving parts. So I wanted to know when you think about the high and the range of lowering the range and what are your assumptions youre, making on some of the bigger source of uncertainty so and I'll fall, whether you talked about it's dry and in Western Canada and fall lenders always important for <unk> and sanctioned and they are sanctioned.
And seem to be staged.
You asked for Europe, and I really respect and what are your assumptions around our bpc's abilities.
Mosaics, having production problems, but then the production you raised your volumes and maybe <unk> production problems arent as bad and they found a way out of it.
And then you've got maybe on the nitrogen side do you have to make an assumption around whether they'll actually be Chinese fertilizer and export restrictions are or it's just flopped. So.
And when you think of all those assumptions what are you seeing for the high and alone and <unk> ranges.
Thanks, Joel Let me, let me just make a couple of comments and you've got a lot of good questions and there and you talked about volatility and thats the commodity business that we're in.
The fundamentals for US are that we do expect to see strong follow through and and regardless of what happens with the Belo Russians I think we're still going to be and very strong position. It's just sort of creates an amplifier for combination results and the potash that we're capable of bringing on is to your point I mean, we delivered a new company record with an adjusted EBITDA of 3 <unk>.
And the first half of the year, which is a 36% year over year. When you talk about the performance and the earnings perspective on our.
And our significant increase in guidance with our full year.
EBITDA as you would know as 6 to $6.4 billion, so thats up 70%, but we do see the ability to follow through with this crop I mean, all the signals. When you look at the markets for trading flat. There is a demand for corn to be delivered and the nearby yet at the same time the deferred I mean, there's not a there's not necessarily a big and burst there really demonstrating strong corn.
Prices, even not only through this new crop, but into the next new crop. So we really see a real opportunity here.
To sustain these prices for an extended period of time and we get into these type of cycles. I mean, it's hard to tell when they and they and they and dramatically and quickly, but if you look at the supply and demand, particularly the supply right now is on the low side, we've got <unk>.
And countries that are almost down to there.
Level of food security and <unk>.
Terms of what they have and their inventories, both and crop and in terms of the crop inputs and we're already seeing that with China, where are they with what you were asking there.
Producers their production system and would withhold and look at focus internal to the system.
I'm happy to ask some of our leaders here to contribute Kim do you want to chime in a bit and then perhaps ray if you want to make a comment or the back over to Jason Okay. Thank you.
Yes, great. Thanks, Seo and Joel I agree there are a number of moving parts and the potash business at the moment and we've talked about some of those on the call today.
But I believe the net effect of those moving parts is that it's created an opportunity for us this year.
And a 1 million tons and I.
And I think that is really a demonstration and testament to our capabilities here.
For 2021, we're committed with Capex through November and domestically through October so and large parts of the table set for US we do have some uncommitted volume. So if we look at our guidance range is that they are and opportunity to do some additional volumes.
And moving inventories to higher levels.
But also price price continues to affirm and many markets and so and.
And the ranges, but I will say that the confidence level and those ranges.
Yes.
And so I'll, let Jason talk net Chinese exports to Asia, and just domestically here in North America on.
Pricing has remained.
Could we thought that there would be some some reset it hasnt happened and we think the fundamentals are solid we think the pricing momentum.
And through second half across the suite of nitrogen products.
And we've committed and out through the third.
Third quarter minutes.
So that's consistent.
Is that pretty close pretty pretty low.
At this point, so we're pretty comfortable and that the range of government action.
Yes, sure and just to follow up on the Chinese export situation. We've seen several attempts by the Chinese government to pressure the domestic state on enterprises and now.
This week, we've seen that the industry Association and several industry Association step in and and put pressure on members not to export urea and phosphate I think we'll have to wait and see what impact that has I will say if you look at what action and the global urea market has taken on and we've seen a little.
Of.
Prices come off of the highs over the last week the market doesn't believe that the restrictions will hold so I think if there are restrictions to come into place that's incrementally positive from.
And where we are today and.
It certainly seems from mentioned.
Mentioned from a food security standpoint, and priority is on supplying the Chinese market with the fertilizer they need and if the informal restrictions don't.
Don't work, we've seen in the past that more formal restrictions are put into place to take that action, which would also be positive.
Your next question comes from the line of John Roberts with UBS.
Hi, Good morning. This is Lucas film on onto Jon I, just wanted to go back to Rachel on for Ken.
And so youre sort of EBITDA per location. There is now sort of about 15% above the 2023 targets on a year to date basis.
And it looks like Youll, probably get on to exceed the target there for the full year to spot and the first half weighting.
So does that is that telling us that the U S. Retail locations are temporarily over earning in the current environment and we should expect that to kind of trend back towards centered here $1.1 million target or do you need to think about sort of raising the target share or any other factors we should consider.
So let me be just before I call and Jeff Let me just comment that the retail performance certainly delivered record results and first half we've had double digit growth and both revenue and margins and of course, you would know where supply and over $500 and farmers year round.
We're certainly pleased with the progress we've made in this area, we're going to be focused on driving value from when we think about the proprietary we have over 2000 proprietary seeds and and that's supported by digital tools and services. So I think we're going to see real strong momentum in that area, Jeff or and then followed by David If you wish.
Would you like to fill and more of a local.
<unk> please.
Yes, sure and look we don't get too many opportunities to go backwards.
Really pleased with our performance this year in the marketplace I think what Youre seeing is youre seeing is really hit our stride and leveraging off of our platform and retail and too many times, we think about just.
Crop protection seed and fertilizer, but when I look at our retail platform. Those are the center pieces, but what I look at what we've invested in and what we flagged ourself with whether it's nutrient and financial whether it's on digital technology and it's our best in class proprietary business as to job and David and his group do what.
Supply chain and logistics I think we're hitting our strides.
Across all of those areas and we're really able to leverage off of that.
We've had a really strong year with our proprietary products group is maybe I was mentioned several times a day and if I look at and our growth. This year, 85% of that growth has come across what we call our differentiated are focused products and.
Again, we look back and the investments we've made and.
And the plant nutrition business and companies like ACA grow and aggregate and those products are really given us a really great solution offering to our customers, it's giving them a great opportunity for return on investment and.
And our agronomist are out really really pushing no solutions hard with our customers from an operational excellence standpoint, I don't think that everything and it doesn't matter, where you are and the cycle.
On the day, we continue to scrub our business. We continue to look at opportunities to rationalize that business I think we basically rationalized 70 retail branches and North America over the last 3 years a lot of our Greenfield efforts that we've put together out there to date or around Mike and our business more.
And going forward. So I think we got a lot of things we're hitting on there is no doubt we had some tailwind coming into this year, but we think a lot of the gains that we've made this year or sustainable and.
And we're going to work better as hard and as diligently as we can going forward David I don't know if you've got any additional comments.
Yes, Jeff I mean, I think you nailed it well and the only 2 things I can add to your commentary is to your point on proprietary products performing outstanding.
Particularly in our nutritional space grover's willing to spend on products that have on high return on investment nutritional business trending well and I'd say lastly in the context of our strategic suppliers and the relationships. We've built there both in terms of new products that they're launching how and how we're looking at.
Together and full end to end solutions as Jeff has talked about relative to nutrient financial our digital assets and then obviously, our agronomic capabilities on the farm. So only net growth relationship through our local agronomists has been key to so.
Jeff that's what I would add.
Your next question comes from the line of Andrew Wong with RBC capital markets.
Hey, good morning.
Quick 1 for me and.
And we've heard a lot of talk recently about inflationary pressures.
And on all commodity producers is <unk> seen anything like that yet.
And in terms of ramping up the production and deposit production and Saskatchewan for there.
Any issues with.
Hiring people back.
On the labor shortage issues or pricing issues or anything like that thanks.
Thanks for that Andrew I'm going to pull and Pedro here and you may wish to make a comment first yes, Andrew and thanks for the question, Yes, we have seen some inflationary pressure.
Pressures.
Across as we as we kind of a scale of production and I'll do what I would say that as we also kind of a ramp up on volumes that has been an offset on.
And volume against those inflationary pressures so I think in balance we do not for you.
Does the advantage at this point and time and cycle.
But perhaps I think most of those will be self by potash. So maybe I will ask a scan and we'd like to.
And any comments there maybe.
Thanks, Pedro and Andrew maybe just with respect to human resources obviously.
We don't keep the additional people standing around to produce and.
Million tonnes of potash. So we have been hiring but we're finding success and that so we've been we've been able to get the human resources and individuals we need.
To wrap up production as our confidence level is quite high.
<unk>.
Your next question comes from the line of Stephen Hanson with Raymond James.
Yes, good morning.
And I can appreciate the prior commentary on your potash search capability and and recent decisions to add a million tons of production and I'm. Just curious on whether you would contemplate on adding another 500000 or perhaps more in the near term.
And as opposed to waiting just given the price levels were already at it just strikes me that high prices can create longer term problems and so just trying to understand what the decision and vector might be in terms of adding new production sooner versus waiting into next year and any limitations, maybe just on the operational side of that as well.
Yes, Thank you, Steve and Ken Seitz here and so yes.
We did have a look at the opportunity and the market and frankly, what our customers were asking for and and that led to the conclusion that a million tons of extra production was appropriate.
Long talked about 18 million tonnes with a capability on an annualized basis. This year alone will demonstrate and 17 million tons of debt.
So we have the capability and certainly with enough lead time, we can get there again for 2021, we thought that what our customers are asking for led to that 1 million tons for next year could we surge additional production and the opportunity is there and are and what you.
They're asking for it.
Yes.
Your next question comes from the line of Michael <unk> with TD Securities.
Thanks, and another question on the planned increased potash production and the second half.
I guess first off can you talk about which mine do you expect that incremental production to come from is that all expected to come from vanscoy or are there other mines and the mix.
And then secondly, how do you expect potash cost and production in the second half of the year do evolve as a result of that increased production and.
<unk> shipped and the mind mix.
Thank you, Michael and Ken Seitz here again, so yes, you are.
Correct at Vanscoy is playing an integral role and that additional million tons, but were also getting additional tonnes from Corey and land again and so the work that we do is 1 that says and what is the market calling for what can we produce and what's our most low cost and efficient path to production and that combination of.
Vanscoy corium on lending and Lindsay answer.
With respect to our own cost if we looked at this and look at the full year. There is an opportunity for us here with additional volumes to <unk>.
And our cash costs down and that said there is an offset this year with the strengthening Canadian dollar.
And given that we report on our cash cost and production.
And U S dollars on and Canadian dollar basis, I can tell you that production levels and production costs will be at really competitive levels first quartile for sure and probably similar to last year's.
Your next question comes from the line of Michael Picken with Cleveland Research.
Yes, good morning, a couple questions on.
On the nitrogen business.
For 1 gig narrow kind of the range of your guidance on what type of volume capacity could we be looking at in 2022, and what is kind of your turnaround schedule look like for the rest of the year and.
Nitrogen and then into next year as well.
Michael Thanks for that I'm going to ask Ralph to comment they've had a great year and I know he's keen to participate here so ralph over to you and Michael Thanks for the question I appreciate it.
So look at it.
As far as volumes go.
Had a few.
Lodges and.
Normal turnarounds. This year, we finished the 1 on Volga and it was the largest 1 was EBITDA.
And third.
And third and way through at Red water again, largely on moving on this is because by site soon.
Close to 50 years old and it's going to take care of some.
Major items.
I'd say going into next year, we should see volumes up over 11.
Probably closer to 11, 3 and 11.5 and we've also got some of the brownfield expansion projects coming in.
And you're coming in with finished them on our books and that will help us and as well and of course, we're trying to continue and addition to the brownfield expansions and the tendering on schedule. We are on and continue that work on increasing reliability of the sites just to point Tonight, when we talk about and reliability numbers. They include the planned outages that we have to take and if you think about.
And normal ammonia plant.
You've got to allow that 3% for planned outages on an average basis. So the maximum that you could see us reporting at some point is about 97 and youll see that over time trying to get towards $95.96, which would make us best in class.
Your next question comes from the line of Duffy Fischer with Barclays.
Good morning couple more around nitrogen maybe 3 parter. So 1 on the UAE on anti dumping what's your view on the validity of that claim to if it is favorable for the U S producers what impact would that have either your wholesale business or re.
<unk> kind of and the intermediate term and then 3 if it is favorable would that open up any opportunities for you to invest and a different footprint around nitrogen.
Well good question I'm, not really sure I can comment on it I will tell you that.
And are answering questions that come from trade Commission.
As we did we and mosaics countervailing duties.
This.
And as we did and mosaics countervailing duty case, we're not actively participating and this 1 just answering the questions that come through with take a neutral stance on it okay.
Your next question comes from the line of Rick and pedal with Exane BNP.
Oh, Thanks for taking my questions just 1 left for me on Vito.
You were able to hit the 10, 5% launch and yet to date and that some volume.
And I guess, the lower and if youll target for 2023, and just curious if you could update us on I guess what the.
And the roadmap is to hitting that target on an annualized basis and by the given your hits and the 10%.
Now, whether we should be a little bit more aggressive and what we're shooting and you guys can can do that.
Yes. This is Pedro.
I think we are.
Very pleased obviously with the progress to date and what we have been able to achieve and.
And even though we need to look at this through the cycle. We are planning to update all of our targets as we go.
And for next year, and and probably half on a year.
For Investor Day, we'll be refreshing all of those targets. So that's right on the progress that we have made today in retail and others.
On the parts of the business and.
Accelerated so we're pleased about that but we need to reset and now for the future.
Yeah.
And your next question comes from the line of Adrienne connect with Bahrenburg.
Hello, and good morning, Thank you for taking my question.
With regards to <unk>, but he didn't deal and you just explain the rationale and why we will bring you in terms of market share on locally and.
And if it was related.
So it's actually very deep and by doing the Qualcomm. Thank you.
Thanks, Adrian and I'm going to ask spring and Mark Thompson here head of our business development group and the sustainability. Thanks Mark.
Yes, Thanks Adrian for the question. Good morning, So I think your question on pertaining to the recent announcement of the acquisition that we signed and Brazil now is Terra Nova and so.
As <unk> said in his commentary.
We continue to build out our focus on constructing a comprehensive retail model and Brazil similar to what we have and the U S and across North America and around the World. We've made very good progress and as Mayo said.
Have now announced for acquisitions in the last 18 months that are helping contribute to our footprint there with respect to Terra Nova specifically.
For the 9 branch business operation very attractive footprint in the region of <unk>. We also do have a presence.
And this region and so this will continue to strengthen our footprint.
Whereas in the U S. We have a very strong market share 20, plus percent, which gives us strong competitive advantages, where and the very early stages of our potential opportunity in Brazil, and so all of this does give us a good foothold and market Theres a lot of room for us to continue to expand our model and country both with retail.
<unk> acquisitions, but also as Jeff described earlier, bringing our integrated model that involves proprietary products and full Aker solutions for growers. So we're optimistic about the opportunity and continuing to look for value enhancing acquisition opportunities in Brazil.
Thank you. This does conclude the Q&A portion and I will now turn the call back over to Richard Downey for closing remarks.
Thanks to everyone. Thank you for joining us this morning, and if theres any follow up questions Investor Relations is always available to to help you out.
Have a good day, thanks for joining us.
Thank you. This does conclude today's conference call you may now disconnect.
And.
Moving on that.
Okay.
And then.
Yes.
Yes.
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Okay.
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Non-GAAP.
And then.