Q3 2021 Nutrien Ltd Earnings Call
Yeah.
Good day and thank you for standing by welcome to the nutrient 'twenty 'twenty. One Q3 earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today.
Jeff Holzman. Please go ahead.
Thank you operator, good morning, and welcome to nutrients third quarter Conference call.
On the call today is Mayo Schmidt, President and CEO, Pedro Farah CFO, Ken Seitz Executive Vice President of potash.
Shelley executive Vice president of nitrogen and phosphate.
For retail, we have Jeff Darcy and David Alastair.
Also have Mark Thompson executive Vice President of strategy, and sustainability and Jason Newton, our head of market research.
As we conduct this conference 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 these those contained in our forward looking information.
Additional information about these factors and assumptions are contained in our current quarterly report to shareholders as well as our most recent annual report MD&A and annual information form filed with Canadian and U S Securities Commission.
I'll now turn the call over to mail for opening comments before we take your questions.
Good morning, and welcome to nutrients third quarter earnings call.
Our exceptional results this quarter highlight our team's strong execution.
<unk> competitive advantages and leverage the strengthening market fundamentals.
<unk> thousand 21 has been a remarkable year for global agriculture supported by strong demand and tight supply for most crops grain and oilseed prices are well above the historic average and food security remains a top global priority.
We expect crop input markets will remain tight as we move into 2022 due to the significant supply related outages and constraints that occurred in 2021.
What sets nutrient apart in this environment are the competitive advantages of our integrated model, our top quartile assets and the decisive actions we have taken across each of our business units.
In potash, we quickly ramped up production by 1 million tons to meet the needs of our customers.
This represents a portion of our low cost available production capacity and is optionality that no. Other potash producer has today.
Our low cost and strategically located nitrogen assets are generating higher margins and escalating feedstock costs.
<unk> curtailments impact producers in other regions.
Continue to make investments to enhance our nitrogen position, including strategically expanding our capacity and completing projects that will support the achievement of our <unk> emissions reduction targets and the commitments and are feeding the future plan.
Our retail team effectively navigated a number of global supply chain challenges by utilizing the scale of our world class network and strategic partnerships to supply our grower customers with the products and services they need when they needed it.
Efforts have resulted in impressive market share gains and margin growth in 2021.
Key to this performance into the dedication and focus of nutrient employees around the world I'm extremely proud of our team and supported our customers in this dynamic market while.
While remaining steadfast on our core values of safety and integrity.
Now turning to our third quarter results.
Adjusted EBITDA exceeded $1 6 billion in the quarter, an increase of nearly $1 billion compared to the same period last year.
Nine months adjusted EBITDA increased by 61% to $4 7 billion and we generated free cash flow of $2 8 billion over this period.
Retail delivered a record third quarter, driven by higher sales and increased margins with significant earning growth achieved.
And each of the geographies.
In which we operate.
Sales growth was supported excellent agriculture fundamentals and market share gains across all major product categories.
Due to our strategic inventory positioning and close connection with our customers via our 3600 Agronomists, we were able to capitalize on the strong demand for crop nutritional and fungicides in the quarter.
Adjusted EBITDA margins increased by one five percentage point, driven by strategic procurement and a rising price environment and stronger proprietary product results.
Our adjusted average working capital to sales ratio remains at an all time low of 12% due to strategic supplier management.
We have grown our retail businesses outside the U S with adjusted EBIT from these regions up $150 million in the first nine months of 2021 accounting for over 30% of total retail EBITDA.
We expect our proportion of retail earnings outside the U S will continue to grow over the next five year through both organic and inorganic growth initiatives, providing us with further diversity and stability in our earnings base through.
<unk> exposure to geographies that are critical to global agriculture production.
Our recent transactions in Brazil are performing quite well.
And we have a robust pipeline of targets and a strong team in place to execute our growth plans.
The potash team delivered a record third quarter with adjusted EBIT up 131% from last year.
Potash supply is tight and prices have increased significantly in all key spot markets.
We expect a surge to an annualized run rate of 17 million tonnes.
The fourth quarter and are on pace for a record production and sales in 2021.
Due to the flexibility provided by our low cost six main network, we were able to significantly increase production of granular grade potash in response to strong demand and higher prices for this premium product.
Canpotex increased shipments through its Portland, and eastern Canadian facilities in the third quarter to mitigate temporary restrictions on rail service to its port in BC.
Having access to multiple mines, an offshore port facilities is a significant competitive advantage for nutrient and underscores our leadership position in the potash business.
Nitrogen and phosphate generated nearly $700 million in combined adjusted EBITDA in the third quarter supported by higher selling prices across all product lines.
These results demonstrate the benefit of our lower cost nitrogen assets.
In market production facilities and extensive distribution network.
Nitrogen sales volumes were up 5% in the quarter, despite our production being impacted by weather related downtime and planned maintenance projects.
We completed two large nitrogen plant turnaround projects over the past six months.
Want to thank the teams at Borgia and Red water for their efforts. These are critical sustaining projects that will enhance our safety efficiency and reliability for our sites over many years to come.
In addition, we completed the first phase of our nitrogen expansion projects that were started in 2000.
2018, and expect to fully benefit from this expanded capacity in 2022.
These are projects that were completed on time on budget and we expect will generate very attractive returns on investment.
Now turning to the outlook for the business.
We have prepared a few slides in the presentation posted to our website to help frame our view of the market and expectations going into 2022.
Global grain and oilseed inventory is well below historic levels and crop prices and grow our margins remained strong. We expect this will support crop input spending in key regions, where we operate.
And North American sentiment remains positive and growers are investing in their soils and actively preparing for next year's crop.
We have seen a strong start to the fall application season due to the relatively early harvest and favorable yields in most regions.
We expect this robust demand to continue in the fourth quarter weather permitting and a retail network is well positioned to meet our customer needs.
We expect growers to maximize planted acreage in 2022 as projected U S corn and soybean margins are approximately 16% and 35% respectively above 10 year average levels.
The planning the chances start to shift before spring, we anticipate future markets will respond to ensure adequate acreage.
Growers in Australia experienced a second consecutive year of historically high crop yields and margins driven by ideal weather and higher AG commodity prices.
George in Brazil are making good progress on planting their soybean and corn crops.
The acreage is expected to be up five to 7 million acres.
Strengthened Brazilian AG fundamentals is fueling demand for all crop inputs.
While with fertilizer consumption projected to grow by more than 10% in 2021.
Similar to our third quarter results, we expect to generate exceptional retail fertilizer and crop protection margins in the fourth quarter due to strategic purchasing in a rising market.
While we expect strong agricultural fundamentals next year, we anticipate retail fertilizer margins will return returned to more historic levels.
As it relates to global fertilizer markets.
Supply is very tight and prices moved significantly higher throughout the year.
While there is potential for reduced demand in some markets due to limited supply availability we.
We believe there is a number of factors that could contribute to an extended period of market strength.
Some of these factors our unique each nutrient but overall we expect.
Support from higher agriculture, commodity and energy prices limited new capacity additions and low channel inventories.
In potash global demand has been very strong while supply was impacted by mine flooding New project delays and limited availability of most producers.
Other than nutrient to meaningful increase production.
We estimate inventory levels in most major markets are below average due to record consumption and limited product.
<unk> ability.
Additionally, buyers are dealing with the potential impacts of U S European trade sanctions.
Belarus, which is impacting vessel chartering in U S dollar denominated transactions in other important markets.
Prices have moved up in all key spot markets with Brazilian and granular potash prices transacting above $750 per ton and recent tenders in South East Asia awarded at $600 per ton.
We expect contract negotiations with China, and India will progress during the fourth quarter.
And the new contracts will reflect prevailing market conditions.
We are equipped and prepared to meet this demand.
The nitrogen market has been impacted by the combination of soaring energy prices in Europe, and Asia cloud outages and Chinese government ordering fertilizer producers to halt exports until June of 2022.
European gas prices have been trading at around $30 M. M Btu equating to ammonia production costs of approximately $1100 per ton.
This has resulted in at least 40% of European ammonia production being shut down and has increased the need for imports.
We expect nitrogen markets will remain very tight through the first half of 2022 and there is limited new nitrogen supply expected to come online over that period.
We plan to increase our nitrogen production next year by approximately half a million tons through higher operating rates and the benefit of our recently completed expansion projects.
We are now fully committed on potash volumes for the remainder of the year and the majority of our nitrogen and phosphate volumes are booked we expect a normal two to three months lag in our price realizations and anticipate the increase in benchmark prices over the past few months will position us for a very strong.
Start to 2022.
We project full year 2021 adjusted EBITDA.
In the range of $6 nine to $7 1 billion for 2021, which at the midpoint represents a $3 3 billion increase in 2020.
The increase in earnings and free cash flow is providing the opportunity to advance our capital allocation priorities.
We repurchased two 4 million shares in the third quarter and returned $900 million to shareholders. So far in 2021 through dividends and share buybacks.
We plan to significantly strengthen our balance sheet by reducing our long term debt by approximately $2 billion over the next six months.
This will provide flexibility to deliver on future growth opportunities and return of capital to shareholders, while reducing our finance costs by approximately $50 million per year.
We remain focused on growing our retail business through tuck ins and acquisitions.
Building out our network in Brazil.
We've announced five transactions in Brazil since the beginning of 2020 and have a good pipeline of accretive opportunities in this market.
We're on track to achieve our target of 100 million in run rate EBITDA from Brazil by 2023 and deliver attractive returns on investment.
After completing a successful first phase of nitrogen brownfield expansions. We've started the second phase of projects that are expected to add half a million tons of production capacity over the next few years and improve the energy efficiency of our plants.
Total investment is estimated at $260 million, providing for some of the lowest cost most efficient expansion tons in the industry.
We continue to progress on previously announced de carbonization projects that are expected to reduce cotwo equivalent emissions by approximately 1 million tons by the end of 2023.
Additional free cash flow beyond these identified opportunities will be allocated on a compete for capital basis, and we will maintain our disciplined approach.
Our board our leadership team are focused on taking decisive actions to ensure we are positioned to deliver superior long term value for our stakeholders.
We continue to track very well.
Compared to our long term goals and we will provide an update on our targets, our strategic plans and capital allocation projects and priorities at.
At our next Investor meeting in June of 2022.
And with that the nutrient team is standing by and looks forward to your questions. Thank you.
Okay.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from the line of Vincent Andrews of Morgan Stanley.
Thank you and good morning, everyone.
May I was just wondering if you can talk about you mentioned, the 17 million ton run rate in potash in the fourth quarter and maybe you can just talk about sort of what's your expectations are for potash production in 2022.
And in particular, whether that run rate is sustainable or if that's just something that could be achieved quickly in a short period of time, but you can't just keep doing it all the way through next year. So if you want to add more capacity for next year, It's a little more of a complex decision. So maybe you could just help us understand how those dynamics take shape.
Sure I'll be happy to address that very very good question. One is our run rate at 17 million tonnes has been due to the very quick reaction that we had and I think you'll remember when we understood. There was a loss of production on that Friday night, our potash team led by Ken Seitz was able to over the period of the weekend identify and.
Another 500000 tons by labor and mechanical machinery et cetera to be able to address that and then frankly in another <unk>.
72 hours was able to continue that study and that analysis and undertaking come up with another 500, and that's really what that is is that standby production that we've been talking about for a number of years.
Feel it is sustainable you know only affected by turnarounds necessary maintenance and.
Then we would do at our mines, but we think about the flexibility and the automation that we have in the six mines that we have in that.
That ability to address the demand and what I'd like to do is just take a second and ask Ken to talk a little bit about his ability to not only sustain the 17 million tonnes, but also look towards other opportunities Ken yes. Thanks, Matt. Thanks, Vincent for the question. So just just to clarify the 17 million times.
Annualized run rate is something that we're doing in the fourth quarter and not suggesting that over the course of 2022, we'd be able to sustain a 17 million ton run rates, we don't have labor or mining machine sitting at the face looking.
Looking for that big of an increase in production, but what we have done in 2021.
Is ramped up with labor and with mining machines for that extra million times. So that it was as we head into 2022, we're expecting stable global demand. That's a great thing for the market and we expect that from a production and sales point of view will this year will produce around 14 million tons and we'll preserve capacity to do it.
A similar thing in 2022 that we did in 2020 and 21 in other words to ramp up production again, perhaps by another 1 million tonnes over over this year's production rate. So it we're preserving that capacity strong global demand next year, but just to clarify that 17 million ton run rate is for the fourth quarter only.
Your next question comes from the line of Christopher Parkinson of Mizuho.
Great. Thank you very much for taking my question.
To the best of your ability can you quickly comment on how you believe nitrogen trade dynamics will evolve just given the situations in both I'd say broader Europe as well as China as it sets up for the first half.
2022, and then also just for China, and just what's your opinion on the intermediate to long term.
Export tonnage.
If any at all thank you.
Ray do you want to take that question. Please yes. Thanks.
Luke.
Not Trojan.
Trade is tight and we will continue to be so.
It was tied at the start of this year and was exacerbated with Mitchell energy prices spiking.
Now I think outlook for energy prices to come back to more normal levels in the next six to 12 months.
In the U S that would be.
$3 $3 50 in Europe.
$8 range or something around that.
Even so.
While that's been happening.
Demand is continuing to grow.
Just to put some perspective on this.
The global mining market is about 170 million tonnes.
Of which about $20 million traded.
That market has been growing at 1.5% to 2% per annum for the last 30 years.
<unk> is continuing to got that pace.
Every year is two to 3 million tons of additional demand required.
To be supplied by the market that demand is continuing.
Despite the fact that there's been some curtailments this year in Europe, because the high energy prices. If you look forward for the next three years Youll see that there are some projects coming on that those projects did not offset.
The growth in demand so we expect to see good tight market in nitrogen.
Next year and beyond.
Now to Jason and he's got to some additional color you'd like that.
Okay. Thanks rates, yes, just to touch on the the trade flow question. It is.
Interesting and dynamic market to try to you.
Project at this point the situation in Europe with with.
With respect to the shutdowns that have taken place.
That's obviously in the short term it's been supportive for ammonia.
Ports flowing into Europe.
Longer term, we expect that ammonia production will need to come back on we're going to be bid into the market by higher prices.
But in the meantime, we're losing nitrate production and a result of that will be more positive.
Urea imports into Europe, and that's why we've seen strength in global urea prices led by.
Addiction prices in terms of the Chinese exports.
2021 exports between four five and five 5 million tonnes.
And we know that in the first half of this year the exported about $1 7 million tonnes and that will be down.
And in 2022, just given the export restrictions.
Historically when export restrictions have been put in place we've seen a weighting of exports from China are more in the third quarter of the year, which we expect to be the case next year, and we need to see to balance supply and demand likely somewhere in the 404 to 5 million ton range of exports from China going forward.
So without that supply the market will be relatively tight and we know the urea supply demand balance after 2022 Titans globally.
Your next question comes from the line of Joel Jackson of BMO capital markets.
Hi, good morning, everyone I'll come back to the potash production.
Commentary you gave so if I understand what you said you produce about 14 million tonnes of potash. This year and you expect to maybe produce 15 million tons next year, that's a million tons more obviously and your canpotex partner suggested that demand for potash macro next year about one 9% that's about 1 million tonnes. So if I understand that.
What youre, saying all of this is true are you implying that you would expect to get all of the incremental demand and extra in potash being almost Erik a lot more other competitors off more or do you have a higher demand growth forecast in that one 5% or is it something else Im off base. Thanks.
Yes, it's Ken here Joel Thanks for the question. So yeah, just to clarify we're preserving that production capability again, we have.
We have stable global demand, we think heading into 2022, we know that inventory is really in all of the markets that we serve are quite low at the moment and of course, we have the supply related issues in the market. So it's just to say that we have this network of six low cost mines and.
We want to preserve the capability to do what we did in 2021 and potentially do that in 2022, and so again, it's a yes.
We're just formulating our plans now for 2022, as we're watching the China and India situation in inventories depleting their contract likely to come our way if not later this year early next.
In formulating our plans, but again, it's just preserving that capability among our network of six low cost mines.
Your next question comes from the line of Ben Isaacson of Scotia Bank.
Thank you very much good morning.
Perhaps a question for Ken and Jason and I apologize if it's another potash question.
We're hearing farmers mode and growing worldwide about high prices, which is nothing new.
Potash, we while we havent seen any evidence of demand destruction, yet, perhaps a bit of weakness in India.
But we haven't really seen demand destruction, but we know prices will eventually soften so.
That context can you actually run through what your expectations are for 'twenty, two Ken you mentioned stable demand.
Is it possible to see growth in various regions next year and in terms of pricing do you expect to see the lower prices in one year from today.
And key potash markets would you be satisfied that Brazil was $600 in a year from now thanks, so much.
Hey, good morning, Ben.
Comment on that the demand expectations.
Point your direction to slides 19, and 20 in the deck, where we do have a couple of slides on grower economics and I think.
You hinted at it and we're seeing.
Definitely some some resistance in terms of seeing that the higher prices at the grower level, but if we look at the underlying.
Economics.
And especially in market driven markets like the U S and Brazil.
Still really positive in fact significantly higher than they were a year ago at this time when they were when they were pretty.
Pretty strong so we wouldn't see.
In advance of spring any demand destruction in the spot market.
And we've seen the market for crop prices.
The strong and we'd expect it to remain strong through the growing season in order to attract sufficient acreage to.
Our balanced global crop supply and demand I think we've already seen some rationing isn't a major contract markets in India is a great example.
Imports are down year to date because of constrained supply and what that means is that.
The inventories as we go into.
2022 are relatively tight and we expect that to present a tailwind in demand, but at the same time was non market economies like India are sub Sahara Africa, or just more subsistence farming thats, where we think the supply constraints will start to speed to some demand rationing.
Your next.
Comes from the line of Stephen Byrne of Bank of America.
Yes. Thank you for your your potash pricing net realized price mine gate was in the low three hundreds in the quarter.
<unk>.
When was that.
Essentially booked.
How many months back and maybe more importantly, as you as you look forward to your forward sales in fourth quarter and more importantly in the first half of 'twenty. Two would you say your your forward sales are more or less than they would have been historically.
Hi, Stephen Yes, Ken. Thank you for the question, yes with respect to the lag that you are seeing in realized prices versus posted benchmark prices given the sort of rapid run up in and potash prices in nearly all of the major markets over the course of the last.
Several months and that lag is to be expected and it could be that Vale.
Volumes are contracted two to three months.
Prior to them being lifted from our minds, which is when we recognize revenue. So that lag is something that we experience all the time.
And certainly.
Familiar to to our realized price versus versus revenue recognition, but I can tell you as we head into the fourth quarter. Here. We are fully committed all of our volumes are committed to our customers and as we head into Q1, we are now placing volume volumes into Q1 and I can tell you that we're placing those volumes.
At certain posted benchmark prices and so.
That lag will catch up to the market and.
To the extent that debt.
Prices are stable and Youll see that gap close so.
Q1, starting to commit volumes at posted prices.
Your next question comes from the line of Michael Picken of Cleveland Research.
Yes. Good morning, My question on retail if you could talk you mentioned that.
And you're benefiting from some of the Mark ups in fertilizer and crop protection prices that may not continue for next year, but if you could talk just in terms of your expectations for volume growth in retail organically and then also just do you think that there are going to be any products on the chemistry side, most notably like quite pathetic.
<unk> that might be tight that it might impact the number of acres that are planted either in Brazil or the U S. Thanks.
So we've got David ulcer, and Jeff Garcia on their fallen it Jeff If you would comment first and then follow up with David Please.
Yeah. Thanks, Michael Mayo mentioned early on in his comments that we would expect retail margins to.
Especially on the commodity fertilizers, MP 8-K to return to something more of a historical nature.
Going forward, but I'd also like to point.
Pulling out the fact that it when you look at our margin on a per ton basis.
As it relates to fertilizer, our proprietary nutritional products make up 30% of that and.
We've had an outstanding year in 'twenty, one with our proprietary nutritionals that we actually expect to see some growth in 'twenty two.
With those products going forward, which kind of supports the margin side of things when you look at.
Product specific Michael and how that might relate crops in such look we we dealt with those challenges throughout 'twenty, one we actually werent alerted to them until about March of this year and if you look at where we are today and David can comment after I finish here, but we kind of know.
What are challenges might be in 'twenty two.
And the advantage. We have is we got about a six month head start on that and so as you know we have a very close relationship between our agronomist in our growers, where we've already started we started to process two months ago was sitting down with our growers and when we when we detail out our solutions that we build for them.
We are building solutions to circumvent what we anticipate some of those issues debate.
We think it creates an opportunity for us in 2008 with that David I'll, let you speak specifically to some of those chemistries.
We're paying close attention to from an inventory standpoint.
Yes, Michael Good question, Jeff you nearly nailed all of it.
It's really due to the scale of of nutrient Ax solutions and strategic partnerships that we have in the industry and our multi sourcing strategy from a supply chain perspective, we weathered the storm quite well in 'twenty, one and put ourselves in position to be ready to be.
Be ready for 2022, as Jeff said.
We're much more on the front foot relative to understanding what the situation looks like Hurricane Ida obviously, you put a little bit of a.
A challenging position in place on glyphosate some of the energy crisis is going wrong in China continue to put some constraints on certain active ingredients with phosphate as you mentioned Michael is one that was.
It was challenging in 'twenty, one is going to be a challenge in 'twenty. Two we know from our seed sales there no more area that will be enabled for the use of <unk> and therefore put constraints on supply as Jeff said, our supply chain organization is is that is directly connected to our sales organization.
We have tight communication. So we can help our economists best position.
Our current supply situation as well as bring forward other agronomic solutions to farmers as Jeff said to meet the needs whether its in weed control.
These control or insect control.
Your next question comes from the line of Adam Samuelson of Goldman Sachs.
Yes, Thank you and good morning, everyone.
So maybe a question on capital allocation I'm, just thinking about profitability, where it works tracking in the second half of this year and where it would look to be tracking in the first half of <unk>.
Next year.
EBITDA and the cash flow generation here is very sizeable youre buying back stock you've talked about a $2 billion reduction in.
In long term debt over the next six months, but can you help us think about kind of what the internal kind of capex opportunities would look like where what inorganic or scope or size of inorganic opportunities that might be out there versus.
And acceleration of of cash returned to shareholders I'm, just trying to think about how these kinds of prices and cash flow kind of get deployed over the medium term.
Sure no. Thanks for that question, you know I think what I would point to in Poland Pedro here in a moment, but when we think about our integrated platform. We have a number of avenues several to drive value for shareholders and I think that quite frankly, that's evidenced more pointedly this year than ever before.
Leading to execution.
We've been growing the business strategically you've seen us down in Brazil, and then in the past obviously, Australia has worked out very very well meeting our return standards and it's driving value through our entire cycle because when you think about the vertical integration we have between the supply chain in terms of production all the way through the retail and the agronomist in the field.
Providing the guidance to the producers to our farmers.
Ultimately make them successful in the soil chemistry, it puts us in a really good position.
Think about stroke.
Strategically how we want to allocate capital in any one of those venues, which we is even David and Jeff have just articulated how close we are to every sale of every chemical and every fertilizer. So Pedro I'd like you to maybe take a take a crack at that yes, no. Thank you Megan and thank you Adam for the question.
As you put it out this is.
This is a good problem to have right now, especially the strength of our our earnings and we have already distributed quite a bit of a cash flow. This year and you would have noticed that we have done some share repurchases. So far but they are in addition, a number of different <unk>.
Opportunities for investment in the business as <unk> has mentioned.
Diversification of retail and we continue to have a very robust pipeline in Brazil.
We also have expanded in the past 1 million tons.
In nitrogen.
The additional <unk>.
Free cash flow that we have are going to allow us to not only do what you mentioned is the delevering of our balance sheet, which creates options for us both investments and further.
Shareholder returns through the cycle.
But also continue with the same.
Investments.
In retail decarbonization of nitrogen we have just completed a successful.
As one of nitrogen and that added about a half a million ton.
Nitrogen that we're now embarking on a second.
Phase four nitrogen with another half a million tonne those projects.
Very.
Profitable.
And we are coming at a very good time as well and for potash, we still have opportunities as well for next gen initiatives.
Additional projects for cost reduction.
Well and Brown brownfields are coming at this point in time at virtually no capital so there will be.
I'll until we actually have to even use capital there. So anything over in addition to that we will apply on a compete for capital basis I think we have.
And off in <unk>.
<unk> programs right now too for the foreseeable future, but we will be coming back to everybody within our plants and next June.
For the sort of the excess capital that we might have at that point in time, and how that aligns with our growth initiatives.
Okay.
Your next question comes from the line of Steve Hansen with Raymond James.
Yes, good morning, Thanks for the time.
Just curious how proprietary products play into the capital deployment strategy here.
Thinking back to the 2019 acquisition of active grow for example, I'm wondering if you might also be targeting similar type deals.
Or perhaps even if there might be specific capabilities or products that you might be looking to target in Brazil.
Hey, good morning, Steve.
Mark Thanks for the question.
So Steve as you noted the proprietary products.
Business has been a very attractive platform.
For nutrient and nutrient AG solutions in particular.
We spent many years you know over the past decade in North America building out that model of building, our Loveland products business, which is our specialty chemistry and specialty nutrition.
Lines and then as you noted.
Completed the acquisition of <unk>, which is performing very well a few years ago and we've taken a similar approach to Brazil as well so you've seen us.
<unk> several years ago to provide us with a platform in nutrition and we also completed the acquisition of Tec Agro, just recently, which provided us with a really attractive soybean seed platform in Brazil, and that's a real differentiator for us when you think of how we've added value through core retail does.
Tribunal in our business, but also bolting on specialty products and services that really provide that full acre solution for growers with the portfolio that we have we feel we've got a great organic growth opportunity and expanding the penetration of the existing loveland products portfolio. The <unk> portfolio and then the Brazil Act.
Positioned as well as we continue to grow that netware accounts. So a really good organic opportunity that doesn't require further capital investment but of course as we look to.
The geographic expansion of the retail business over time, it's an area for us it's extremely high margin differentiated test at the farm gate. So we will continue to look opportunistically in that area as it is a core strategic fit but we're very happy with what we've got today and obviously, it's contributing in a meaningful way to our growth.
Yes.
Your next question comes from the line of Jeff Zekauskas JP Morgan.
Thanks very much.
Yes.
They're high natural gas prices in Europe, Eastern Europe and Russia.
How much and capacity do you think is offline on glue.
Global basis.
And.
In the phosphate area, what do you think China phosphate exports.
It will be in 2022.
Good morning, Jeff if we look in.
In Europe itself.
The capacity of ammonia in western and Central Europe is about 20 million tons.
And we think there's about 40% offline.
So that equates to a roughly 8 million tons of ammonia.
<unk> currently offline and that would exclude Ukraine and theirs.
Additional.
Capacity in Ukraine.
Also.
<unk> offline at the current time.
As we look toward 2022 in terms of phosphate exports from China.
We expect China to be somewhere.
Nine 5 million tonnes of exports this year.
They the exportable five little over 5 million tons in the first half of 2021 and given that the.
Constraints right now in terms of export restrictions, we wouldn't expect them to be at that level next year and so.
It's been early to to estimate where those will be in 2022 and still uncertain, how those export restrictions will.
The applied they certainly need from a supply demand perspective need.
<unk> of exports keep moving from China, but but exports in the range of eight 9 million tons.
Similar to where they were in 2020 is likely a realistic level given.
The increased constraints.
Your next question comes from the line of Jacob bout CIBC.
Good morning.
Wanted to go back to that discussion on retail organic growth.
And I think the same store sales were up a little bit more than 5% year to date.
How sustainable is this and can you talk a bit about what you've been seeing this year I know you hinted out supply chain, certainly helped but how should we be thinking about that.
Normalized perspective.
Illumina.
Maybe just first comment that we continue to see opportunity in this market.
I would say out achieved our expectation in terms of our ROIC on those but what I'd like to do them as probably pass that along.
The next bill here look at that Jason.
Mark.
Yes, Jacob maybe I'll just make a few comments this is mark and I'll have Jeff comment from our retail business. So.
Terms of the organic growth that we've delivered in that business. This year.
Yes.
The print was very attractive and strong I think thats part and parcel of the strong fundamentals that we have seen generally in agriculture in the market. We've seen strong growth in demand for crop inputs, which of course believes our performance from a same store sales standpoint, I think as Jeff and mail both alluded to in the prepared commentary and some of your earlier remarks.
We've also seen share gains across input shelves and made up some attractive continuing to build our leadership position in the market.
Expanding market share across several of the shelf, Jeff maybe I'll pass it to you to provide a little bit more detail.
Yes, sure Mark Jason Thanks, and look we're not when I look at this business and organic growth is tremendous focus for us.
Both 2020 in 2021, it will again be at the top of the radar in 2022, and if I look at this past year I think we've mentioned we've had great great success with our proprietary products when I look a little bit deeper into it we saw growth in all four ships. This past year with proprietary products or add a bunch of crop protection.
Nutrition and seek treatment.
Revenue increases of 14% gross profit of 21% in that segment.
I look at it from a pure market share standpoint, as Mark just said.
We feel like we grew our market share in all three of our primary shifts their fertilizer crop protection and seat and.
Seed and fertilizer somewhere between 40, and 50 basis points and look see there's been a major focus for us from an organic growth standpoint.
As a matter of fact, that's our largest opportunity going forward from an organic growth standpoint is to grow our seat shelf.
We've got an initiative in place it's a five year initiative, we got off to a great start this past year and we expect to increase that even more in 2022, and that's one of the areas Jacob that theres not a supply concern.
All indications in talking with all of our major suppliers.
Is that the seed shift theres going to be in really good shape.
We actually think we have an opportunity to trade up.
When it comes from a trip from a trait in variety standpoint in 2022, just because of some of the issues that we've seen this past year around disease in corn, rootworm pressure and things like that.
We're also in an excellent position with both are down and grow and proven varieties as well as it relates to availability for 2022 and we had.
Just tremendous results and what we're seeing coming out right now so I feel I feel really good about the organic growth opportunities that we still have.
In the U S.
Even stronger in Canada in that market, and obviously, Rob and what he's doing in Australian market.
Increasing our propriety business, there as well with it so we feel real good from an organic growth standpoint, and I think youll continue to see that increase over time.
Your next question comes from the line of P. J <unk> Citi.
Yes. Good morning, just a couple of quick questions first for on can you talk about sort of the.
Price mix in seeds, what are the <unk>.
Price cuts, indicating this year and where do you see that going.
And to the growing season, and secondly for Mayo on potash.
You ramped up your potash production about 1 million tons and I guess you have at least three.
3 million tons of low cost capacity left.
When would you like to activate that capacity if this tightness continues.
Particularly in light of the Jansen project, that's coming online in say five to seven years. Thank you.
Thank you Jeff I'll, let me take the first half, which was I think directed view and then I'll be happy to start on the second.
Yes, I think from a seed standpoint, and pricing standpoint, we saw modest increases.
That were released late summer early fall.
And we would expect those increases to obviously carrying into the 'twenty two season, we're just getting started.
Really heavily with our fall booking.
Of the <unk> business, but I think we're probably pleasantly surprised the way the increases came out.
Some indications were that maybe they'd be a little bit heavier.
And then they were but there have been increases across across all the major lines proceed and modest and I think it speaks well for what we want to do in 2022 as far as increasing increasing our share David you might have a few more comments on the C pace.
Yes, Jeff P. J thanks for the question.
And you look at seed price cards, particularly across corn and soybeans as Jeff said.
Probably a little surprised on the modest increase we on average sort of 3% to 7% across both corn and soybeans and in terms of our own proprietary brands, we look to lead and look to follow and be at the top end of that range. So as Jeff said teams route in the process of book and see now farmers are in the <unk>.
Process of finishing up harvest stand.
Our momentum into 2022.
And then coming back to your good question on 2021, potash production and I'll ask him here in a second but.
And to your good question, we are on pace to deliver 1 billion tons of additional sales and as Ken indicated earlier that would be reflected in our guidance of $13 six to $13 9 million metric tons and that really is supported by as I mentioned in my remarks, six low cost mines were truly gives us that competitive advantage, but I think as you look forward.
There is probably additional downtime we took in quarter three and that was you know we had COVID-19 restrictions, but the main network is operating very effectively.
Doubt, we'll expect to take some additional downtime in 2022, because theres always the need to catch up on additional maintenance projects and then when you think about the Jansen project and we've commented on that at least a number of times in the past is if you look at the next nine years and the growth of 2% to 3% in potash demand. So that takes us between 20 to 24 million.
Tons of extra demand in the marketplace. So we really do think that one.
When Matt Johnson project comes online, maybe seven years, maybe nine years with $4 5 million tonnes that.
The market will easily absorbed if not looking for more production. So can I don't know if you want to add anything to that.
Yes, I think just consistent with what Youre, saying there Mayo this year of close to 14 million tons of production preserving an additional million tons for next year. The market is growing two to two 5% average annual growth rates, we expect to maintain market share.
And so yes, we will be increasing production eventually to 18 million tonnes, but recalling also that we have an additional 5 million tons of very low cost brownfield capacity after that about $500 per tonne. So.
We'll be pacing our growth as long as our customers are calling for potash.
We'll be there to provided India that comments on Jansen nothing to add their mail couldn't agree more.
Your next question comes from the line of John Roberts of UBS.
Thanks, and congratulations on a nice quarter.
Alberta is promoting carbon sequestration, we've had recent blue syngas plant announcements by air products and Dow and then we also had the blue ammonia project in the Gulf Coast do you expect nutrient to be pursuing bigger sequestration related projects than what you currently have underway.
John I appreciate the question.
I guess the stock.
We would think that low carbon ammonia will be an important part of that.
Global efforts to Decarbonize.
And if you think about agriculture.
NGL changes with that.
The Marine transportation will power generation Hodgkin carrier.
Lighthouse minus Sydney fits.
Into that into that puzzle.
There are different technologies available out there from electrolysis through to the competency frustration.
You talked about and so we are in an interesting position here, we've got some competitive advantages.
Particularly if you look at a couple of thoughts we have so let me start with Geismar.
Anna we already due.
Sequestration there so we have an existing pipeline side you have existing.
<unk> ships with company.
Due to the sequestration for us.
We've got deepwater access.
So if anybody is able to build low cap in the mind yet.
Part of that global recapitalization that we certainly haven't had.
<unk> position, so we look to top that.
Obviously, there are some technical discussions to be had.
Around which technology to choose coupled with the sequestration.
And then there's the commercial discussions to be had as well.
We already have about a million tons of low carbon production.
Got it.
Net in that regard we're ahead of that competitiveness.
Also had the output side.
Around.
Edmondson locations at Red water and sports Saskatchewan.
So we're certainly in a position that if you have to tie into <unk> as well. So I think the answer is we shouldnt be looking at this I think we've got an advantage position and when we're ready to talk about some definitive projects will be back half.
Your next question comes from the line of Andrew Wong RBC capital markets.
Hi, Thanks for taking my question just wanted to go back a little bit on potash.
Quickly.
And I wanted to ask the potash inventories. So there's been a lot of concern from the potash buyers around the Russian sanctions.
And maybe the potential for limited availability coming out of there.
Any sense on the impact on prices in the recent purchasing activity. So.
In your view is there any buildup of inventory from these.
You shouldn't be buyers of how these concerns and we will.
We have been active in the market and is there any possible.
Risks that if the sanctions arent a strict that there may be some overhang afterwards thanks.
Let me just start to comment by.
Just clearly potash consumption is far exceeding shipments in many of the key regions around the world and that of course is leading to a drawdown in these global inventories and when we think about China port inventory between two to two three to $2 5 million metric tons, which includes their strategic reserves, which they begin to already begin to auction. So.
They haven't been able to sustain those elevated levels of support and it is reflecting on that I think some of the global benchmark in weather adjacent or Ken would like to further comment.
Yeah.
Thank you Mayo touched on the Chinese situation, we also see.
Extremely low inventories right now and in India, which as mentioned earlier.
Be it a tailwind as we move into 2022 in.
In Brazil inventories really are right in line with where they had been over the past couple of years and we'd expect them to fit.
<unk> finished the year in line with where they have been right now they are about $1 6 million tons.
And in the U S. We're just in.
The midst of the fall application season, the supply chain is and it's been good at it.
Supply and we expect a strong fall application season, just given the early harvest, which tends to lead to.
Carryout inventories at the end of the year. So overall, we haven't seen a buildup in inventories globally and in some markets, especially the contract markets, we've seen them come down pretty significantly year over year.
Your next question comes from the line of Adrian to mono.
Aaron Berg.
Hello, Good morning.
Question about nitrogen.
When is it fair to expect.
<unk> total Sullivan who's done this problem, you'll phase two expansion.
And.
All in all we will have one extra.
On the call nitrogen when this could be achieved so can you give more color.
Alum, which products that would be directly tied to them.
Yes, Adrian certainly so the first phase of our brownfield expansions were announced in 2018. This when we started them.
So its taken US this time to get these in place.
So they will help us get production up to about $11 3 million tons next year.
As Pedro mentioned, we have started on phase two.
Projects, that's another half a million tons.
Can I expect most of those online by the time, we get through 2024.
So if they're telling me finish the five year plan, we should be pushing close to 12 million tons. Now in addition.
Yes.
Expansions are targeted on.
Downstream products from mines, so while there is some small ammonia.
There are some ammonia.
Increases the that's to help us produce more urea and <unk>.
<unk> would be in those products, where we feel the market is growing.
We need some added flexibility to improve the profitability.
So thats the expenses in addition to those expansions we've been working quite hard on reliability improvements and so over time, you should see capacity utilization has increased.
Drawing our pulling against those two.
<unk> increased 10 rounds that were having some appetite.
We had a couple of the largest ever turnarounds with them.
This year at <unk> and at Red water, that's because the plants are 50 years old and as we get into the turnarounds now we're seeing.
Increased scope of work as we try and.
To replace these components are 50 years old and keep the plants.
In top condition. So working against this we got the age of the plants, but then we've got the expansion projections I mentioned half a million tons now Hoffman in terms of the time, we get into 2020 and there might be further we.
Sydney items looking at additional expansions beyond that.
As I said, the downstream products predominantly say <unk>.
Hi, Pat answers your question.
Okay.
There are no further questions at this time presenters do you have any closing remarks.
Thank you operator Investor relations team will be available for any follow up questions.
This concludes today's conference call you may now disconnect.
Okay.
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