Q1 2021 Nutrien Ltd Earnings Call
Greetings and welcome to the nutrients 2021 first quarter earnings call.
At this time all participants are in a listen only mode of <unk>.
<unk> and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would now 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 first quarter 2000 of 'twenty, one results and outlook on the call with US today is Mr. Mayo Schmidt President and CEO of nutrient Mr. Pedro for all of our CFO as well as our heads of our business units and other key members of our team.
As we discussed this conference call various statements, we make about future expectations plans and prospects contain forward looking information certain material assumptions were applied in making these conclusions 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 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.
Thank you Richard and good morning.
Thank you for joining the nutrient team today.
Share of news of our exceptional results and strong outlook.
The train of the portfolio of integrated and related businesses. The provide competitive advantages of our team is excited to execute our long term and board approved strategy.
This includes our 2023 financial and operational targets as well as of recently unveiled ESG targets and commitments.
We are dedicated to growing nutrient through superior operational performance and focus capital allocation to create shareholder value.
The very tight global supply and demand growth has led to strong pricing across virtually all crops and we anticipate of tight supply and demand environment, continuing through 2021 and beyond.
As we speak today.
As of responding by increasing seeded acreage and are focused on maximizing yields.
Truly an exciting time to be in agriculture, and as the world's largest provider of the crop inputs of services. We're also helping growers meet increasing global food demands we're focused on the challenges of ensuring food security safety and climate action.
We recently issued our new ESG report, highlighting how nutrient will focus on helping to transform the agriculture industry and three priority areas.
Feeding the planet sustainably environment and climate action.
Inclusive of agriculture.
We will be hosting the detailed review of our priorities key commitments and targets as well as our market leading carbon program at our ESG update in June.
Now turning to our first quarter results and outlook, we delivered excellent performance across all our business units our outlook for the second quarter is very positive as field work in seating are progressing very well and our expectations are for higher acreage in North America.
As the largest AG retailer in multiple countries. We are seeing firsthand strong interest of growers to maximize yields and we were fully prepared to serve them with a broad selection of crop inputs and services.
Our service offering includes our leading proprietary products are direct producer relationships, while feeling more than 3600 agronomists globally.
Input financing program and our investments in innovative digital tools.
Our nutrient AG solutions retail business delivered a record first quarter adjusted EBITDA of $109 million due to strong margins across virtually all product lines and geographies.
Retail sales increased 12% year over year, and gross margins rose to 22%.
Fertilizer margins were strengthened by the rapid rise in prices this quarter, although margins are expected to normalize in the second quarter as retails more recent fertilizer purchases.
Have been made at higher levels.
U S crop nutrient volumes were up just over 10% year over year, while total retail volumes were up 20% and gross margin per ton was nearly $15 per ton higher.
Crop protection margins in all geographies demonstrated year over year improvement this quarter.
The market has been fairly tight for certain products and regions due to the combination of the February freeze impacting production in the U S strong global demand.
Recent logistical bottlenecks, both international and domestic.
However, due to the strength of our supply chain.
Nutrient AG solutions is well positioned with product availability for our growers requirements for the season.
We also reported improvements across our retail metrics this quarter.
Total retail adjusted EBIT to sales surpassed 10% and was over 11% in the U S. While adjusted EBITDA per U S selling location increased to over $1 $1 million.
Retail lowered their cash operating coverage ratio of 60%.
We continue to see impressive performance in the utilization of our digital AG platform.
All metrics showing significant year over year improvement.
Yeah.
In potash our business continues to build momentum with near record sales volumes in the North American market for the first quarter and solid demand internationally.
Jen sites and the potash team are optimizing production across our six mines and progressing automated mining projects that will together improve safety performance lower cost and further reduce our carbon footprint.
Our cash cost of production was lower by about $3 per ton compared to the first quarter of last year. Despite an increase in the value of the Canadian dollar.
We achieved significantly higher potash sales volumes this quarter. Despite the extremely cold weather in February which slowed logistics and deferred offshore shipments shifting of about 300000 tons of our planned international sales into the balance of 2021.
Demand for our nitrogen products remains strong across North America with prices rising rapidly during the quarter.
<unk> and his team delivered strong operating results, achieving a 97% north American ammonia operating rates.
Despite downtime due to extreme cold weather events in February.
Sales volumes decreased year over year due to the lower starting in inventories due to a robust fall season in 2020 and reduced production in Trinidad.
Our phosphate operations posted a strong quarter with $97 million in EBITDA due to higher realized prices we.
We do expect margins to temper going forward as costs rise from the much stronger sulfur and ammonia prices.
Now turning to the outlook.
New crop corn, and soybean prices and the cash margins of approximately 60% higher than this time last year.
While spot prices of approximately doubled.
The rally in crop prices highlights, the tightness and global supply and demand balances and the sensitivity to any potential supply risk in 2021.
Retail is experiencing excellent demand for products and services of the mood amongst growers is very positive.
We believe the final seeded acreage for corn and soybeans could be about 4 million acres higher than the USDA March intentions report.
Even at a higher U S seeded acreage, we expect to see a continuation of tight stocks to use ratios and strong crop prices in the next year.
We have increased our annual EBIT guidance by 400 million to four four to $4 9 billion in 2021.
The increase was across all business units supported by continued strength in crop and fertilizer prices and a very positive outlook for potash in the second half of the year.
We believe the potash inventories in the major global markets remained low for this time of year and the global demand will be 68 to 70 million metric tonnes.
We're expecting as much as the 20% increase in potash imports in Indonesia, and Malaysia. This year.
Exceptional demand in North America, and continued growth in South America and Asia.
<unk> is fully committed on volumes in the September and.
Anticipating that we will gain market share in the higher netback regions outside of China and India.
The recent in the recent increase in the Baltic dry freight index is expected to have minor impact on our offshore potash net backs.
Year over year Ocean freight rates of approximately $20 per ton higher.
We anticipate the impact of our international potash net backs will be less than $10 per ton in 2021.
Due to Canpotex long term freight arrangements.
We anticipate north American nitrogen and phosphate prices will remain firm through the application season.
Our realized nitrogen prices in the second quarter will be supported by the higher proportion of agri related sales.
We expect typical summer seasonal pricing of some moderation of nitrogen prices in the second half of the year due to an increase in global urea export availability from China of some new capacity coming on stream globally.
However, we continue to be constructive on the nitrogen market outlook for the medium and long term.
In closing, we believe agricultural fundamentals of positive momentum and nutrients exceptionally well positioned to benefit from the multiyear strength expected in crop and fertilizer markets.
We also see great opportunity, the demonstrate and benefit from our commitment to delivering products technologies and services to ensure we can collectively feed the planet more sustainably.
We are uniquely advantaged to collaborate with growers and industry partners to launch and scale of comprehensive carbon program that has the potential to accelerate climate smart agriculture.
The interest in the program is apparent as we are oversubscribed for our 2021 farm pilots.
Before we begin the question and answer portion of the call I would like to thank Chuck Magro on behalf of employees customers and shareholders for his contribution over the past 11 years and do wish him success with these next steps.
With that operator, I'd like to open the call to questions for our leadership team here today.
At this time I would like to remind everyone in order to ask the question. Please press Star then the number one on your telephone keypad.
Our first question comes from Steve Bernie from Bank of America. Your line is open.
Okay. Thank you.
Just following up on the last comment about the Chuck Magro any any comments on.
Why Chuck left or does this represent any change in the direction of the nutrients.
Well thanks for that question.
The board of directors and Chuck mutually agreed that Chuck stepped down after a decade of strong leadership and it was my honor to accept the role of the president and CEO for nutrient.
Regarding the nutrient strategy certainly out of front row seat and developing and working with the team as the chairman of the board.
The aspect of driving industry performance across all of our business lines I might also mention that when we go back to the value. That's been created through the M. O E of the merger of equals with potash Corp.
Net of debt committee from the board level. So it was really I think the board's thinking about the comp.
The combination of history in building value and focus on an existing strategy and taking the business to the next level.
Your next question comes from the line of Ben Isaacson of Scotia Bank.
Thank you very much.
And good morning, everyone.
Maybe a question for Keith.
There.
Potash demand has been very very strong so far the spring and Theres. Some concern that despite strong crop economics demand may be getting pulled from the fall and even from the spring of next year could you address.
Sure Good morning, Ben.
I think we've seen really a couple of consecutive of really strong application seasons.
In the U S. Starting with last fall, what's really ideal weather and and then continued strength in demand.
The spring if you look at where affordability.
Affordability of potash prices remain very attractive relative to where crop prices are still well below average from a.
The index relative to corn.
Corn costs, and we see that supporting.
The demand and I think as we look toward the summer fill period, which leads into the fall of 2021.
I think there's already interest building for some of our fill and we expect that the inventories through the supply chain will be relatively flow once we get to the.
And of the spring planting season, we know that as we look toward the fall weather is really important but the crop is getting in the ground at a good pace, which sets up well for the growing season.
And then as we get into next year, we think the supply demand fundamentals in major crops continues to look.
Wrong, which should be supportive of continued.
The strength in crop prices and affordability in the spring of 2022, which should continue to support of high levels of application rates and demand.
As a reminder, at the one we will have the opportunity to ask one question. Your next question comes from the line of Adam Samuelson with Goldman Sachs.
Mr. Samuelson your line is open.
Yeah.
Your next question comes from the line of Andrew Wong with RBC capital markets.
Hey, good morning, So just a question for me, maybe just looking across the business.
A lot of work done to improve operations and reduce costs over the past couple of years.
Are there any areas within the business that you feel could see further improvement in maybe just highlight some of those areas for us that'd be great. Thanks.
Sure terrific question.
Certainly.
Absolutely agree with you and I was certainly a key participant and there's strong board of alignment on the other changes, but I really think as we think about moving forward really of focus on the structural advantages that we have in retail in our production businesses I think it's a really unique opportunity to put a fresh set of eyes with leadership team on taking the business of the next level and more.
Specifically to your point.
But I think an internalization of operational benefits between the business units focusing on pipeline margins facility utilization areas around logistics transportation, which I've.
Got it quite a deep background in and also working capital and I do think we're really focused on our structural advantages we think about how we.
The focus the organization on our proprietary the scale of our transportation and then I would say the cemetery and balance within our system, which in my view, we can enhance the pipeline utilization of products and growth and creating profitability. When we can find opportunities for growth both organically.
And through acquisition and making sure those are profitable in the first full year of operation.
Your next question comes from the line of P. J <unk> with Citi.
Yes, hi, good morning.
As growing sort of flushed with cash do you think they will upgrade the in the of seed and chemical purchases to preserve yield.
And maybe of I think you said that you expect maybe 4 million more acres than what it was D of suggested.
Do you think debt most of that goes towards corn, given the corn is now at $7 and what's the upside from debt. Thank you.
Sure. Thanks. Thanks for your question I'll make a comment and I'll ask Jeff to our suite of join me here.
The higher crop nutrient sales prices and volume from really strong America.
North American spring application seasons, what's what's been driving our increase in gross margins were quite positive about as we look forward and the opportunity and Jeff would you like to further comment you've you're on the ground and have a great sense of the planting this year and the intention.
Yes, sure Thanks, Mayo and good morning P J.
P. J I agree I mean look theres a lot of optimism out in the network today, especially with our customers.
We see people like to use the term swinging for the fences.
To do everything in their power to maximize yields.
In 2021, no matter, what the crop is corn, soybeans, cotton and wheat and various other crops with it as far as maybe trading up on the seed side of things I.
I don't see so much trading up on the trade side of things at the trade side of it is more determined by pest pressure and but what we do see as we increasingly see our growers using technology to trade up on the germ plasm sat and being able to match the best the best Germplasm parcel.
Go to the different so that they have on their farm our digital agronomy platform is allowing us to really utilize those two going forward but.
Look we're going to see growers really for the inputs to this crop this year.
If I look at our nutritional proprietary nutritional business.
Seeing that today with some of the infer applications that are being made but again with the very best germplasm out there and we think theyre going to do everything they can to protect this crop as we go through the season all of it.
We expect plant hail fungicides to be very strong as well as we get into the as we get a little bit deeper into this growing season.
And the P J just too.
And so the second part of your question on acreage, we would see the potential growth to get to that 4 million acre level is relatively even between corn and soybeans, the roughly 2 million acres of each corn and soybeans.
Okay.
Your next question comes from the line of Joel Jackson with BMO capital markets.
Hi, good morning welcome.
Welcome to rest.
The rule pack nutrient.
So a couple of questions. So just maybe falling from Jeff's answer earlier.
With higher crop prices and farmers training up on germplasm is that a good thing or bad thing for the diner growth might be see Donegal grew share of this year.
Farmers are less price sensitive and then second on potash.
<unk>.
Well the strategy going forward would be the same when it comes the price versus volume might be trying to push more tons out how might this change if we get some more tonnage coming on.
And Russia and Belarus.
Jeff do you want to take that first question and I'll take the potash. Please sure absolutely and again good morning, Joe Hey in respect to the germ plasm, Joel absolutely not thats not a negative to dawn of grow in any way our germ plasm no matter what the crop is.
It relates to down to grow as the can compete with anything out on the marketplace as a matter of fact, if I look at our share through the quarter with.
With data grow I see our shares increased growth corn, soybeans, cotton and canola, which will be under the proven side of things but.
No we don't take a back seat when it comes to the data growth and.
If you look at our yields as it relates to those by crop we compete with anything out on the market and depending on the geography and some of those markets, we actually have leading germplasm in those areas.
Maybe I'll turn it back to you.
Thank you. Thank you, Jeff when we think about our potash, we're certainly focused on price over supply.
And we also look at the the increases we are thinking about the next 10 years. The two two to two 5% growth and that could produce as much as 14 the.
20 million more tons of demand over the course of the next 10 years to work quite positive one about price. The secondly growth in that market and we will continue to focus on that and as we see right now we're fully committed on our offshore sales volumes through August.
As Ken Seitz may want to comment here jump in Ken, but he's certainly been focused on the.
Of the opportunity in these markets two of price and Thats why it is concentrated on certain markets.
Yes happy to Mayo, Thank you and Joe just maybe reiterate what <unk> said and that is nothing changes for US. We believe we have a good strategy.
Obviously, focusing on net backs.
Continues to be the case that we have this flexible my network and will meet demand in the market, where where it is and we demonstrated that in the first quarter.
With our six mines and our significant structural advantages throughout North America be it supply chain and our 300.
The warehouses and then internationally by Canpotex and Youre looking at the balance of the year things look very positive and so we're going to stay the course.
EMEA.
Yeah.
Thank you.
Your next question comes from the line of Michael Picken with Cleveland Research.
Yes, good morning, most of all night.
Okay, and if you could just talk a little bit about.
Where you are with respect of lending you of Trinidad plant.
Any kind of planned turnarounds that you have versus some of the other facilities over the remainder of the year and how we should be thinking about the cost structure.
And the business going forward.
Yes, sure Michael So let.
Let me just starting in the North America, you will have noticed side of the.
Cost copies of steady increasing utilization rates.
As a result of thinking of some of the <unk>.
Synergies that we got out of the merger. This year, we've got two lots of turnarounds. During the last couple of years of also been trying to take care of.
Some large end of life issues, where equipment is coming up to 40 to 50 years of service.
We have two large turnarounds where in one at the moment at Borger, Texas and.
And we have another one starting in the couple of months in Red water.
That's pretty normal for us to have one turnaround of year in the use of Montana round in.
In Canada.
The unusual thing about this is there a bit larger than normal because of the end of life issues that we talked about coming out of those of you expect to see an increase in production capability and the continued increase in reliability.
I'm trying to get a little bit different story today, we have full classes.
At the moment all four of them are actually running.
Two of them, however of running at reduced rates.
We have of turnaround plan for one of the two the plants down there.
The.
Starting from in a few weeks' time.
And then another smaller monitoring around the later in the year.
Kind of that will be that youll see.
Us produce and level of equivalent to about three plants.
Of course of the.
Rest of the course of the year.
And that's of course dependent on gas supply.
Your next question comes from the line of Jacob bout with CIBC.
Morning, all.
Perhaps a bit more color on your strategic view.
Specifically your thoughts on how Youre prioritizing investment in wholesale versus retail and it does it makes sense to keep them together.
Value created by by splitting on park.
Okay. Thanks for that question.
I think that when we think about the internalization that we're focused on between the two between the different operating units that would be the pipeline margins of the facility utilization logistics and transportation in that supply chain is just critical for success and you know when we think about the cemetery and balanced in our system. We think about the research and development, we have to generate a propriety.
Garry seed and then the ability to take that seeds of the ground and supported by all of our wholesale fertilizer and I think this is really a unique opportunity to put a new again of fresh set of eyes on how we drive more of that internalization within the system and so we actually believe that we're stronger together.
We also know that we have to set ourselves up to be advantaged structurally when we look at region or countries to make sure that we're not only competitive within particular zones, but also through asset throughout the transportation logistics network as well. So we think there is strength in the operating.
The teams together and we're going to really be focused on that internalization over the next of course of time.
And look at our structural advantages.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
Thank you too.
Two quick ones first on the 300000 tonnes of potash that was delayed.
You mentioned the debt it would be delayed into the balance of the year. So I'm. Just wondering are you now holding that product back.
These of the rising price environment and expectations that you would get it get prices Fort later on or will it actually just flow through.
In.
In <unk> and the.
Then secondly, just the right.
I notice there was a very light buyback in the quarter. So just wondering if there's anything specific to that just given that you raised the buyback.
The quarter, thanks very much.
Ken do you want to pick up potash in the bedroom.
I can pick up the buyback portion of Kennedy.
You bet yeah. Thanks, Vincent so yes with respect to the 300000 ton that really was just related to some challenges with the.
With supply chain and logistics in the first quarter and it was weather related.
We had some cold weather in February and then.
On the coast, where we load the vessels and so we did the first those 300000 tonne Canpotex did and it's really.
Kind of split spread over Q2, Q3 and Q4.
That's not to say that our salespeople are watching the rising potash price environment and timing of sales accordingly, they definitely are.
With respect to those 300000 tons, it's really just the deferral into the balance of the year.
And again some of the federal I think just to comment on the on the buyback of of course, nothing really changed in our capital allocation we continue to.
Use of to sustain our first class assets.
And then we kind of of provided a dividend increase in the first quarter.
And we look at everything else on a compete for capital basis. So we made some kind of of choices of course, we also preparing for.
A very strong spring season here, so what you'll see us is.
Looking at the best return for debt capital at that point in time of.
Of course, we approve the and CIB and got approval from the board for a reason so we are considering the guidance on option, but that option will be exercised.
In light of all the tradeoffs between organic and organic and shareholder distributions in the future.
Yeah.
Your next question comes from the line of John Roberts with UBS.
Thanks Welcome Neal.
You talked about the CEO change, having something to do with taking nutrient to the next level does that imply the 2023 targets laid out at the last Investor day may not have been enough or are you thinking about something else. When you talk about the next level.
I think as the combination of things and thanks, John for the question really we're putting a fresh set of eyes with leadership teams on our operational excellence, we think about as I mentioned earlier, our structural advantages we have.
Throughout the sector of globally today and to a greater degree of taking full advantage of those and enhancing that pipeline of utilization of products. So we really think that as far as we think about those targets. Those are of course going to be driven by a combination of the advantages that we have in the marketplace and of our execution. So the focus on the leadership team.
Here is going to be both on execution and when we think about even the wonderful business of retail that we have today.
Imagine when we think about the sites that we have across North America, and Brazil that we cant buy new and unique opportunities in those businesses. So that's the area that we're going to really be focused in on.
Your next question comes from the line of Mark Connelly with Stephens, Inc.
Thanks, I was hoping you could talk a little bit more about the performance of the Brazil business and how urgently nutrient thinks it needs to grow that strategically you know my sense is the listening to Chuck.
<unk> wants to be a lot bigger and more impactful there.
We certainly do and we see an opportunity of being more impactful in.
We think that is as we're looking at and progressing in that particular market theres unique opportunities as it develops so we've got a keen focus on that area and that will continue we expect to see.
Both in earnings there as well and of course, we have an expectation of a bit of a higher rate of return in that market, particularly with any levels of risk being different.
In different countries as such so Pedro do you want to make any comments about that.
Just say that we have capability for.
Corporate develop from the expansion so M&A expansion in Brazil, very rich pipeline.
So we have many paths to growth in Brazil, we will like to grow in Brazil, as we kind of of stated many times before but we will do so in a disciplined basis so well.
Take our time to get the best assets.
And we're very encouraged by the performance of the existing assets at this point in time, which gives us more confidence about our strategy in the future.
Your next.
Question comes from the line of Duffy with Barclays.
Yes, good morning.
Couple of questions just around China, and potash I mean, if you look.
China has obviously been buying a ton of corn and soy kind of price and different and that stands really juxtaposed to what they've done with potash, where it seems like you are fighting over nickels and dimes around pricing.
Can you square why they would be.
So tight on the potash side when that can actually affect the internal corn yields versus buying a lot of.
The global product and then just the follow on to that is as you sit here today, how do you see the contract developing with them.
On potash this year.
I might just comment to start with the draw Kennan here.
When we look at the change that we've gone we've gone through the tariffs of the U S is applied in China.
Through that which created the obviously an extension of the Brazilian exports into that market and then the African swine flu and the recovery from that and then the.
It's a combination of that swine flu recovering and secondly, as China building strategic food supply.
Driving a lot of this demand and we do expect to see it continue Ken.
Ken would you like to comment further.
Yeah, you bet Mayo share and thanks for the question. So yes. It is the unique year with respect to the contracting process in China of course.
That contract with one of the Big International suppliers was on the heels of an agreement with with India at the same price level at the $2 47.
Chain Chinese inventory levels quite closely at the moment.
Exactly as you say Duffy because demand in China will be strong this year end.
We will continue to be strong going forward inventory levels at the moment of about two 5 million tonnes, that's down from about $3 7 million tons. This time last year and important to note debt of that $2 5 million tonnes. One 5 million is the so called the strategic reserves, so really only 1 million tons sitting at the port that sees that.
Usable.
If we look the inland at the Qinghai Salt Lake.
Believe that those inventories were depleted at the end of last year and continues to be the case, so inventories level of our low to your point.
The Canpotex has said that it is committed right through to the end of August and so it remains to be seen.
How the contracting situation will evolve in China with this very strong demand and with inventory levels coming down.
So yes, I think it plays into the timing around a discussion for a new contract or a new price level in China.
And again that range remains to be seen as we watch watch the strong demand and the depletion of inventories with with frankly suppliers targeting other higher netback markets in the world as opposed to sending as much potash to China and you see that reflected in canpotex those numbers as well.
Your next question comes from the line of Stephen Hanson with Raymond James.
Yeah, Good morning, guys.
Mayo nutrient that has been a clear industry leader.
On the digital strategy of frontier in recent years I noted. This is the platform sales of doubled in the first quarter here can you, perhaps just speak to the digital strategy in particular going forward and how you see that changing if at all I appreciate it. Thanks.
We'll be happy to thank you one we've had good success in rolling out the the Canadian digital strategy.
That has been over the course of the last year and as we think about moving forward. We've been working robustly on the the U S strategy and how we will roll that out we are seeing some.
Really good.
The progress and the payment of receivables on the digital platform and we're seeing a growing demand from producers that are willing to order and do their own input and we're supporting that Fortunately we have the 3600 agronomists and also the the support staff behind that that are able to assist farmers. So for us it's a matter of of com.
<unk> of <unk>.
Enhancing that digital platform experience for our producers, while also helping them with their planning needs in the farm with precision agriculture, and if you think about below all of that is.
Our ESG support that we have and sustainability and we look at even thinking about not only digital rolls into our total pilot acreage target of 100000 acres, which we were oversubscribed on the non the carbon the Graham. So there's there's many whether it's the financing that we do more of the planning we do whether it's fertilizer receipts.
And then of course of the input in the receivables. So we're quite positive about it it's a big effort. It's across the company is requiring focus at every level of leadership.
Your next question comes from the line of <unk> Patel with Exane.
Just a question of nitrogen firstly, Jeff and the expectations or guidance on the cards and you didnt timber and how that might impact the market.
The <unk>.
Mentioned.
The.
The whole millions of tons for Chinese.
The exports this year.
Just curious what sort of scenario.
It's about $5 million.
Now I'd like to ask Jason to address that question, you've got to create great experience of that are adjacent please.
Yes. Good morning, Great question in terms of the Indian tender.
We're seeing some of the offers come in today. It certainly is something over the past.
Couple of weeks it has provided support to the.
The international urea market I think that leads well into talking about the Chinese export situations. So we've bumped our forecast of Chinese urea exports to between four and $5 5 million tonnes.
The top end of the range of be inline with where exports were last year.
What drives getting to the top end of the range is the delay in.
And commissioning and the ramp up of.
Some of the the urea projects that we see coming on stream in the second half of the year. In addition to continued.
Strength in demand from India, and that is a bit tied as one of those.
You re of projects as is in India, We know the Indian production year to date is down about 500000 tons, but.
As projected to be up on the full year. So of that doesn't happen. There is upside in Indian import demand and and that flows directly through to the Chinese urea export expectations.
Okay.
Your next question comes from the line of Lee with Goldman from.
I can't quantify here that.
There are a lot of time, they often kind of welcome aboard the new role.
Just a question on.
Maybe expanding a little bit on the digital side do you right now in terms of the.
Strategic plan do you see.
It's kind of been more moving towards like trying to get the farmers onto the digital platform, but do you see opportunities too.
The new stable recurring revenue stream through your digital platform somewhere in the future of like what's your thoughts around that.
Well I think its certainly possible as we extend expand on that experience and digital laggan.
Not only there is going to be efficiencies for the producer, but we're going to realize from efficiencies as well and whether it's a <unk>.
Prepaid or paying receivables, we're seeing some acceleration of opportunity in those areas. So I agree with your point I think a number of those things are to be discovered we havent rolled out the U S. Although it's under planning and development right now we've got a very robust approach to the U S. So it's going to be about a keen.
Fusion and of course, we've had the experience in Canada, we were able to adjust to some of the challenges that we experienced in Canada.
Feel good about the platform that we're operating right now.
Do you have a follow up question from the line of Adam Samuelson with Goldman Sachs.
Yes. Thank you good morning apologies for multiple earnings calls this morning.
Was hoping to get a little bit more color on your view on the nitrogen market as we think about the second half of it.
Seems like ammonia prices in the seaborne market.
Has topped out the may contract for the Tampa rolled over.
We are seeing Chinese urea exports pick up and I'm, just trying to get a sense for if there are lower prices in the second half.
How far.
Part of we think they are actually going down given the grain price environment of the demand and cost curve dynamics that we have.
Thanks.
Thanks for the question. Obviously, we spent a lot of time thinking about what might happen second half I think let me just step back from it and look at the macro.
Supply and demand.
Think about where we were 2012 through 2018 of this level of.
A lot of supply in the market prices are down.
2018 forward, we're not seeing.
The sign of the amount of projects coming online the <unk>.
Overall nitrogen market is about 150 million tonnes globally.
At the moment from growing at one five to $2 5 million tonnes a year.
So I force.
We will scale ammonia plant is weak.
So we've seen that tightening now we're expecting it to tighten a little earlier.
But you saw that last year's second quarter, we saw the decline due to COVID-19 and the industrial demand has dropped about 20%.
We've seen that industrial demand come back and come back strongly.
And so.
They might will be able to reset as we get out of the spring season, we are expecting a very strong spring season, but there's always a little bit of a reset of summer. We just don't think its kind of be as marked as we've seen historically and we certainly think that the process through the back half of a substantially above where they were.
Similar period last year.
Okay.
Your next question comes from the line of Steve Byrne with Bank of America.
Yes. Thank you for the follow up here.
The gross margin expansion.
<unk>.
Total is your sales in retail is.
It is intriguing.
My understanding is his.
Historically, the relationship was wholesale could move tons into the retail channel.
The way of moving product off season, but retail.
Susan of when to when that product would be priced and want to lock it in.
Can you comment on whether that is still the case.
Yes because of that.
The fertilizer price inflation during the first quarter was.
Robust.
So the question is.
When did your retail channel essentially lock in the purchase pricing for the fertilizer that was sold in the quarter and per well.
More importantly, the.
For the second quarter sales of that I'm sure of that are going on the ground right now.
Was the volume locked in.
Earlier this year was well.
Representing the.
A nice margin expansion just simply on price.
Thanks, Steve for the question I'll pull and Jeff here, but let me just start with this isn't unique to the agriculture sector certainly with Mike.
<unk> record and handling Youll see chemicals fertilizers, and the internalization of the demand there is going to be the internalization that we do between wholesale and retail, but we also are uniquely positioned to be able to trade and transact outside of our own system to two peers in the marketplace and Thats one of the things that we look at in terms of the balance of our system as to where our wholesale.
Located the transportation logistics and sales program between the two so we do have that real unique opportunity to look both internally and externally to maximize our margins. So Jeff would you like to continue the to comment.
Sure sure of Aon.
Hello, Steve Yes, it looks the youre familiar what our network in my first remark would be that.
Move as many tons of fertilizers, we moved through our network.
End of the fall of the end of the spring we at the start well well ahead of time of putting the inventory in our share and we did last fall.
We were able to obviously take advantage at the time of some lower prices.
And as we came into this first quarter as you've seen with our numbers, we were able to take advantage of some of that inflation that we saw all of those fertilizer tonnes and.
Our guys have done a great job out there of.
Trying to the prices close to replacement as we can obviously, we're we're running out of that inventory all of that.
What I would call that first turn.
We're actually having the buyback into the market some of the day.
And I think in the second quarter, Youll, obviously see more normalized margins as it relates to AUM from the per ton basis.
I'll also add Steve debt.
We've worked really hard on our proprietary nutritionals and those kind of figure into that margin per ton basis, and we've done a lot of great work with the AG, the Gro products and things like that that are also contributing to that margin as well.
But and again as I've mentioned earlier, we've seen rate increases as well as these growers of really optimistic about given the crop JV chance to maximize yield.
And look we will we will start we'll start another month month, or so getting ready for the fall fertilizer season, and obviously, we're going to have to layer of lot of product because we're going to anticipate with the strong prices, it's going to be strong demand again this fall as well.
Your next question comes from the line of John Roberts with UBS.
Thank you you are targeting 29% of retail margin from proprietary products. In 2023 can you get there organically and is there any particular category that is expected to drive that increase.
Jeff do you have that one please.
Yeah, Yeah, I think we can get the organically we made we've made numerous investments and acquisitions of net.
Prior to your side of our business, whether we're talking about crop protection nutritionals or seat.
With our proven and dawn of grow brands of C with it and look we've got now two.
I think of fantastic start through the first quarter.
With our proprietary business our revenues are up the GP as of yet we see especially in the environment of high commodity pricing, we see a lot of we see a lot of our products like our nutritionals that are in very strong demand to date.
Crop protection segment as well is positioned very nicely.
So these markets and again I look at I look at things like our adjuvant surfactant markets.
We measure them on a metric on the percent of crop protection and we see nice increases there as well. So I think we've got a really good trajectory to get to that metric that we talked about in 2023 of it I don't to be honest with you I don't think it takes a lot more investment say from an acquisition.
I know, we're working all the things that we can day to make our manufacturing and logistics side of it more efficient going forward and I think those normal investments that you're making that side of the business but.
We're extremely optimistic about about debt side of the business and the.
The portfolio that we built and we want to utilize that.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
Thanks for the thanks for the follow up I just had a question on your comments in retail crop protection.
Where you talked about sort of the favorable application conditions.
I just wanted to understand whether you bad debt that was allowing for farmers to do some field work that might have taken place otherwise in <unk> or whether it was leading to greater application rates or potentially of potentially both.
And then on seed.
I don't think this has been discussed yet, but you talked about the elevated competitive environment in the U S is that outside of soybeans and it doesn't sound like you're seeing that in your whatever the competitive issues that sound like youre seeing it in your proprietary seed business.
You want me to take debt Mayo, yes.
Please and if you'd like to bring in David That's terrific also but please continue yes, yes, I think on the on the crop protection side of it you have to take yourself back to last fall and yet the compare yourself against both 19 and.
<unk> 19 of 'twenty, where we really had late we had late harvest in 18 and 19.
The last fall with getting an early early harvest in really good conditions, we were able to get most of our souls prepared but theres 21, proppant season and that makes a tremendous difference.
As you've come into the season I think you would've seen that this past week with the planning process that we were able to make growers label to just drop right in and start the historically of farming practices and that really.
Bodes well for the crop protection side of the business because there are a lot of chemistries. We use there we call it of burn down of capacity or really desiccating weeds that are up prior to the planning. We're also able to get in and put a lot of our pre emergence type of herbicides.
All of these acreage on this acreage as well.
As it relates to that versus if you come into a year, where you need to start the spring with a lot of tillage you do that you do that mechanical mechanically versus organically with crop protection chemicals and such and.
The from the seed side of the thing the side of things that relates to cash.
Competition on it I would say that competition is more keen.
One of the soybean side of things as it is.
Versus corn and cotton.
For that matter, but.
So would say its not anything thats really unusual that we might not see during a normal course.
The year, we've got we've got some competing right now on the soybean side expand versus enlist and that create some competition as well David I don't know if theres anything you want to add to that.
Please jump in yeah.
Yes, Jeff in events of good question and particularly on the seed side I do think the introduction of the.
The Ht platform of the three probably getting sort of north of 30%. This year has offered a new COO.
Competitor in the marketplace, but also in terms of of our platform put us in a great position to offer to growers.
Choices not only from the generic perspective, but also from an <unk> perspective, and so Jeff everything you said about crop protection clearly spot on but in terms of seats. The introduction of this new.
New HD platform is offered this opportunities.
Yes.
Your next question comes from the line of Andrew Wong with RBC capital markets.
Andrew Your line is open.
Okay.
Okay.
Sure.
Your next question comes from the line of Adrian to Magnum with Bahrenburg.
Hello, Good morning.
One question with the Porsche and assumed the young same goes true would.
Would you be willing to help from price cooperation both with BHP at some point or how do you see.
The stage thank you.
Thanks Adrian.
We're certainly focused on our business and driving the most value for shareholders.
We do expect to see long term potash demand continue to grow.
They'll obviously be a competitor and I'll leave their decisions and economics to them, but when we think about our system. We are the world's largest soft rock miner in potash producer by capacity, we've got a tremendous network of flexible of.
Mine's six low cost mines are automation has been going remarkably well and our proven track record and I think the other thing I think about two with our potash business.
As you know getting the Tidewater, Ken and his team have done a tremendous job of now historically it was great success in the in the industry loading of 100 car trains and Ken's loading 200 car trains going to Tidewater. So it's the combination of the internal and external infrastructure and were really well balanced in our system. So the idea of.
Obviously challenges of cooperating with competitors, but at the same time, we are focused on price and efficiencies and.
And can you may wish to.
The comment further but the automation programs youre, bringing in taking your cost of about $3 was really quite impressive.
Yeah, no. Thank you Mayo and Adrian.
Look I mean, we make our own decisions independent of what other what our competitors are doing we just maintain that we have the <unk>.
<unk> 5 million tons of available capacity ready to go into the market and brownfield opportunities significant brownfield opportunities beyond that debt.
From.
Production costs, but also the development cost would be the most competitive in the world. So we feel pretty good about both our position and then you layer on some of the advantages that <unk> just described including as Mayo said.
Some of the work that we're doing on our mine of the future we have all of our mining machines.
With operator, not present equipment that are the largest potash mine in the world at <unk> and.
And we're outfitting the balance of our minds as well and that's just one example of.
Of several projects, we have on the way to get better reduce costs improve safety. So we feel pretty good about.
Our trajectory and where we're heading with our decision making.
There are no further questions at this time I would now like to turn the call back over to Richard Downey for any additional or closing remarks.
Thanks, operator, thanks, everyone for listening today, it's got any further questions Investor relations is available to respond to any areas of interest and have a good day bye bye.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect your lines.
Okay.
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