Q1 2022 Nutrien Ltd Earnings Call
Improving the carbon footprint of our facilities.
Our retail business operates in seven countries across North America, South America and Australia.
These are key agricultural regions that will be called on to sustainably increase crop production and our team of 3900 crop consultants work everyday to provide innovative products and solutions that meet the needs of our grower customers.
I'm extremely proud of how our people have stepped up across the organization as we respond to this critical time for global agriculture, and do so in a manner that does not compromise our core values of safety and integrity.
Now turning to our Q1 results and outlook we.
We delivered higher earnings across each of our business units due to the strength of the market fundamentals advantaged position of our assets and solid execution by our people.
The year over year growth in earnings was further supported by recent strategic capital allocation decisions that included expanding our production capabilities and increasing the size of share buybacks over the past two quarters.
Nutrient AG solutions delivered record first quarter adjusted EBITDA of 240 million. Despite a delayed start to the spring season in North America.
Our per ton crop nutrient margins remained strong due to the timing of procurement in a rising price environment and continued growth in our proprietary nutrition nutritional products.
We delivered higher crop protection gross margins as growers engaged early to purchase product ahead of the spring season.
We strategically procured inventory of certain products in anticipation of tight global supply and our margins in Q1 reflect this effort.
Potash delivered $1 4 billion and adjusted EBITDA supported by higher realized prices.
Global demand was strong as buyers look to secure product in the midst of supply uncertainty from Belarus and Russia.
We increased offshore potash sales volumes by 8% compared to the previous year. However shipments were impacted by rail service interruptions during the quarter.
North American sales volumes were impacted by a delayed start to the spring season and were down compared to last year's very strong first quarter.
In nitrogen, we generated adjusted EBITDA of $1 billion, driven by higher realized prices and the cost advantaged position of our assets.
We experienced some unplanned outages during the quarter and sales volumes were also impacted by a slow start to the spring season.
Phosphate delivered record adjusted EBITDA of $239 million as higher sales prices more than offset the large increase in ammonia and sulfur input costs.
Turning to the outlook global grain and oilseed inventories were well below historical average levels entering 2022 and the conflict in Ukraine has led to further tightening of supplies.
Corn, soybean and wheat futures prices are 50% to 90% above the 10 year average.
And our trading at elevated levels on a multiyear basis.
Prospective crop margins are significantly above historical average levels as the increase in revenues from higher crop prices is more than exceeded the projected increase in input costs.
Weather permitting we expect planted acreage to increase in the key agricultural regions in which we operate with a strong incentives for growers to maximize production.
The North American spring planting season is behind the historical average pace, but there is still time to get the crop in the ground and our retail network is well positioned to deliver in a compressed season.
We are seeing strong demand in the regions, where planting has progressed and have all time high customer prepayments on account, which is a good indicator of grower intent.
Financial sanctions and other restrictions imposed on Russia, and Belarus have constrained potash supply with minimal exports from this region reported since early March.
These two countries represent approximately 40% of global potash exports and there is limited available production capacity in other regions to help fill the supply gap.
Therefore, we expect global potash shipments will decline to between 60, and 65 million tons in 2022, and we assume a wider than normal range given the level of supply uncertainty from eastern Europe .
Nutrient expects to ship record potash volumes between 14, five to $15 1 million tonnes with most of the growth projected in offshore markets.
We expect nitrogen markets to remain strong through 2022 due to lower Russian exports and volatile European gas prices that are currently setting the floor for ammonia and urea prices.
Chinese urea exports have been restricted in the first half of 2022, and we believe there is potential for restrictions in the second half if the government intends on maintaining the current discount for Chinese domestic prices compared to other global markets.
We are discussing these supply challenges in the context of 2022. However, we believe these issues could extend well beyond this year.
Sanctions on Russia, and Belarus have the potential to create more lasting changes to global trade patterns as customers prioritize reliability of supply.
We anticipate volatility in global energy prices due to greater supply uncertainty from Russia and.
And we expect some delays in the development of a new capacity from this region is access to financing equipment and other resources becomes more challenging.
We will closely monitor global market developments as we assess opportunities to increase our potash production capability beyond 15 million tons.
Increasing production on a sustained basis requires opening up new ground installing additional equipment and infrastructure hiring more people and securing outbound logistics.
These are decisions that require careful planning as they have long term impacts on our operations and our people.
We intend to provide more details at our virtual investor update meeting on June 9th.
I will now turn it over to Pedro to review, how we expect these market conditions to impact our 2022 guidance and our approach to capital allocation going forward Pedro.
Thanks, Ken.
Given the significant changes in market fundamentals, we have increased our 2020 to adjust the EBITDA guidance to 14, 5% to $16 5 billion.
At the midpoint. This represents a nearly 50% increase from our initial full year guidance in February we.
We expect earnings to be fairly evenly split between the first and second half of the year with the pace of planting.
Up developing lung.
<unk> have some impact on the timing of earnings between quarters.
We are projecting retail adjusted EBITDA between one eight and $1 9 billion of nutrient and crop protection margins are expected to be stronger than previously anticipated.
Rob classes have risen materially since the beginning of the year and we expect Brewers will be incentivized to maximize yields.
Which typically contributes to strong in season demand for crop protection and specialty nutritional products.
Similarly, similar to previous years, we expect 60% to 65% of retail adjusted EBITDA will be generated in the second quarter.
We significantly increased our potash adjusted EBITDA guidance due to the expectation for higher realized prices and increased sales volumes.
Cost of goods sold per ton I expect it to increase in 2022, due primarily to higher royalties, which are directly tied to selling prices, excluding the impact of royalties natural gas and carbon taxes, we expect controllable cash costs will be comparable with the previous years.
As higher production volumes offset inflation.
Our increase in nitrogen adjusted EBITDA guidance reflects higher global benchmark prices and a very competitive cost position compared to producers in Europe .
We lowered our nitrogen sales volume expectation due to the plant outages that occurred in Q1, we.
We are taking a number of actions to enhance plant reliability, including incremental investments to protect our size from severe weather events and.
And expect higher operating rates over the remainder of 2022.
We expect to generate 10 $5 billion to $11 billion in cash from operating activities, assuming a cash conversion ratio of approximately 70% at the midpoint of our 2022 adjusted EBITDA guidance range. This represents a slightly lower conversion rate that we assume in February .
The increase in input prices is expected to translate into greater working capital requirements in this period.
The majority of our cash flow is expected to be generated in the second and the fourth quarters due to the seasonal working capital profile of retail.
Priorities support investment capital remained very consistent with our long term strategy and what we communicated in February however.
Given the potential for increased cash flow, we are evaluating the viability to accelerate a few high return growth opportunities.
We announced a 1 million ton increase to our potash production capability in March which will require a small incremental capital investments for mine facing equipment and mine development.
Our scan already mentioned, we are closely looking at the potential to further ramp our potash production capability.
<unk> 15 million tons.
We are evaluating opportunities across our nitrogen business that would enhance the product mix and improve the environmental footprint of our facilities, including expanding our leading low carbon ammonia position.
In retail there is a strong pipeline of acquisition opportunities in Brazil, and the U S and we will maintain disciplined approach as we evaluate these opportunities.
In terms of capital.
In terms of investment capital our focus is on initiatives that enhance our proprietary product business.
And digital capabilities, which are key drivers of retail organic growth.
We committed to a minimum of 2 billion in share repurchases in 2022 and year to date, we have allocated nearly 740 million repurchasing approximately 9 million shares.
At an average price of around $81 per share.
Given the strength of our projected cash flow. We believe there is potential for additional shareholder returns as the year progresses.
We will provide a more aimed depth update on our capital allocation plans at the Investor update meeting on June nine.
I will now pass it back to Ken for final comments.
Thanks Pedro.
The importance of global agriculture to help sustainably feed a growing world has never been clear.
It is increasingly apparent that the supply issues currently impacting agriculture, and fertilizer markets could last well beyond 2022.
Nutrient is responding in the near term by utilizing the full extent of our integrated sustainable agriculture platform to provide customers with the products they need for the upcoming growing season.
And we are thoroughly evaluating our longer term plans to ensure we deliver the greatest value for all our stakeholders.
I'm joined today by members of our leadership team and we would be happy to take your questions.
We will now begin the question and answer session I would like to ask a question. Please do so by pressing star one on your phone and Kendra Scott.
<unk> followed by the number one on your telephone keypad. Please note to limit yourself to one question. If you have additional question you May press Star, one again, and we will try to address it.
At the end of the presentation if time permit.
Please standby, while we compile the Q&A roster.
Your first question is from the line of Andrew Wong with RBC capital markets. Please go ahead.
Hey, good morning, Thanks for taking my questions.
So the sanctions on Belarus and Russia.
They are probably the biggest change that we've seen in the potash market structure.
The breakup of BPC in almost 10 years ago.
And these effects seem to be relatively long lasting.
Can you just talk about how the Belarus, Russia situation.
Changes your longer term view on the market and.
And I'd be curious as can you had a pretty.
Good to see that canpotex to kind of see some of the market changes over the past five or 10 years I would be curious your thoughts on where we are going forward. Thanks.
Yeah. Thanks, Andrew Yeah. So absolutely. It is the case that we watch this terrible tragedy unfolds.
Eastern Europe and thinking about.
People in the region every day.
We are watching the impacts that sanctions are having first as you mentioned on Belarus, and Russia, as well and while potash itself is not sanctioned and Russia, certainly enabling activities for export of anything out of Russia at the moment are challenged whether it's banking or shipping or.
Or insurance and so on so and then of course with Belarus. The sanctions were there prior to this conflict and having really no access to tidewater being shut off from the ports in Lithuania. So as these things have unfolded as you say, Andrew we're looking at duration and how long this might.
I'll, let long this might last or the longer longer term implications for four.
For potash.
And we're coming to the conclusion as we said in the opening remarks that these these could last well beyond 2022, and hence our looking at our own capabilities accordingly, but I'll I'll hand, it over to Jason Newton, our chief economist just to provide a little more color.
Yes, good morning, Andrew I think in terms of the overall supply demand impact.
As a really large potential for supply constraints in 2022, just given as Ken mentioned, the restrictions on belorussian shipment to Tidewater and.
All of the different sanctions impacting Russian production.
In terms of quantifying the impact if we compare to the sort of base operational capability.
Belarus is around 13 million tonnes operational capability in Russia around 15 million tons, we think belorussian supplies will be down around six to 8 million tonnes. This year in Russia in the range of $2 6 million tons.
This year going forward.
It will take some time to rebuild those export capabilities and.
We believe <unk> will continue to be more most restricted going forward as they have the need to rebuild or build port capacity, which takes time, especially in the face of sanctions.
And then we also know that that region makes up about 60% to 70% of the capacity additions that we expect to come forward over the next five years.
And we believe those will also E.
Delayed going forward so in any case.
Do you have a tighter supply demand outlook going forward then we would have previously.
Yes, so thanks, Jason and maybe Andrew then finally your question about Canpotex and that vantage point.
It is the case that really growers around the world with what's happened with commodity prices or incentive to lay down appropriate crop nutrients and then you layer on that some of the challenges that Jason just described and you can imagine that canpotex their phones are ringing.
As people look for alternative sources of supply could it be that global trade routes or disruptive I think we're seeing that today, but suffice it to say that certainly from a global demand perspective canpotex.
Has homes for potash and for increased levels of potash and that's what's driving it as we said in our opening comments.
Looking at the potential to accelerate our ramp up of potash production.
Your next question is from the line of Chris Parkinson with Mizuho Securities. Please go ahead.
Just to add.
Quick corollary of that question, just given the outlook and the potential longevity of the let's say the current situation and the shortfall.
And <unk>.
Even if growers in certain regions scape obligations, presumably nutrients are still being removed from the soil on annualized basis. There are a lot of things to consider a very simple question what will it take for you to eventually make a decision to ramp even further I understand obviously, there are economic considerations longevity songs.
So forth and.
The remainder of that question would be I mean, who else even has the capacity to make a dent in that shortfall between 2022 and 2024 is there anybody else that EQT, even remotely make a dent in that from your perspective. Thank you.
Great. Thanks, Chris I'll start with the second question and just say that no. It is going to be a challenge if we believe these.
These supply challenges are going to persist through 2022 and into 2023.
If there was additional capacity put in the market it would already be there because the incentives are certainly there for producer to produce will also say that some of the new volumes that would've been coming would be coming to the market or out of that region out of Russia, and thats, whether its euro kenmore.
Sure.
Belarus with their Petrocaribe project, and we can imagine that those those projects are also challenged it today so.
If we look at the ability to flex production.
A lot of it resides with nutrient hence over the last two years, 70% of the new production that has come to the market has been has been from nutrient and our ability to add 20% to our own production volumes over the last two years with respect to your question what does it take to ramp further of course, we're looking at that right now, but it goes back to.
<unk>.
<unk> adds assessing the duration of this impact in what will what it will actually the impact on the market in terms of trade patterns and ultimately restrictions potentially to certain parts of the world and we know thats going to happen. This year, hence our 60 to 65 million ton.
Guidance range, where we expect that there will be demand rationing much different demand destruction, but but demand rationing. So we where there is an acceleration case for our volumes. We're looking at that today, we will have more to talk about at our Investor day on June nine.
Yes.
Looking at that accelerated case in the context of a drawn out challenges from production from Eastern Europe .
Your next question is from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes, thanks, good morning, everyone.
Maybe just continuing on on that same line of questioning could you just talk about maybe internally and within Canpotex and in the broader North American logistics system, where you see.
The bigger bottlenecks too.
To increasing capacity, obviously, there's about 3 million tons of.
Staying in <unk>.
Processing capacity, that's still idled in advanced squamous has a bunch of it in some of the other mines as well, but as you think about beyond that.
Whether it's ports, whether its railcars, whether you think it is.
<unk>.
New mining machines, just help us think about.
What the key bottlenecks from a time perspective would be and where the Baker capital kind of requirements would come to to think about the 3 million tons that you have still potential internally built and even beyond that.
Okay, great. Thanks, Adam.
That's a great question, because we obviously look at this.
Our capacity is not just at the mines, but right through to the discharge ports for the customer and so where are the bottlenecks I mean today, we would say that we're looking very closely at long lead.
Time items from a procurement perspective, and so that would be things like mining machines, which.
In order to accelerate our ramp up we would need to put minor.
Mining machines on order.
And.
Downstream of that we would say that we're convinced we have to put in place, but the rest of it we had built that capacity exactly as you say.
Capacity advanced <unk> and our other mines, where we have the infrastructure in place with the <unk> shaft sunk and we have no capacity to ramp up production as well so capital associated with with production at the mine, but downstream of the mining machine.
Is immaterial as we look beyond.
The mine gate and downstream from there, yes, it's true that <unk>.
Times are going to require more railcars and we are going to require port capacity is the good thing is that Canpotex has invested there Neptune facility Portland facility, and our east coast facility and in New Brunswick, which gives them sufficient port capacity today to wrap up so it really becomes a discuss.
<unk> about ordering railcars, which we can do and.
Then I would say with respect to our North American business.
Distribution, we feel very well positioned there we have our Hammond facility, we have our over 300 warehouses.
Across North America, and again railcars to get it there so.
As we ramp up production North American supply chain intact will be looking to offshore, but but by ICANN protects we certainly see a path there.
Your next question is from the line of Joel Jackson with BMO capital markets. Please go ahead.
Hi, good morning, Ken and everyone.
I had a couple of questions on Jupiter two parter youre.
Your Canpotex partner Jason.
Jason guidance overnight that.
They are expecting but at $50 a tonne realized price increase in Q2 sequentially from Q1, you obviously have a lot of pricing that's linked together. So first I wanted to see is that kind of what you're guiding to as well as in Q2, and then as a second part of that newer midpoint guidance.
Core EBITDA for the year are you assuming that current potash prices stay where they are for the year or what are you assuming in the base case.
Yes, so with respect to.
Our margins compared to.
What mosaic might've said on their call I mean, I think it's fair to say that out of Capex you can expect something similar and then.
North America, we would we would go our own ways and so and wouldn't talk about that.
Because thats gone financial but yes, I think generally draw you can say that it would be similar with respect to our pricing assumptions.
And what we're saying for the midpoint of EBITDA guidance I'll hand, it over to Jason Newton.
Yes, good morning, Joel I think you've probably read.
Fairly closely into where the midpoint of the guidance be reflected b b based on prices remaining relatively in line with where current prices are.
Your next question is from the line of Jacob bout with CIBC. Please go ahead.
Good morning.
Going back to late 2008, 2009, we used to talk about being able to skip a year for potash application.
What is your sense of the amount of potash and soils in your key markets like U S, Brazil, China and India.
Versus historical I mean, maybe you can comment on.
Where you see inventory levels right now in those key markets as well.
Great. Thanks, Jacob well I would say that given the price of.
Commodities and certainly.
The most recent price increases growers have incentives to maximize yield and so as such we would say that.
Nutrients in crops soils, and then depending on region would be sort of an average to below average levels and again, we would say that.
That growers are heavily incentive today to lay down the appropriate crop nutrients with respect to inventories.
Also an important question Jacob we would say that today entering the year inventory levels were sort of.
Average or below average historical rate.
Levels, but it is the case now it certainly it's true for potash.
With the North American spring season delayed we still have plenty of time to get that crop in the ground, obviously and we expect those inventory levels to come down and that is true internationally as well, we look China Southeast Asia, and Brazil, entering the year with reasonable inventories, but expecting those to come down and for potash.
Actually true given that we are just now starting to see the impact of this conflict in Ukraine, Obviously, Russia was delivering potash out of the region up until the latter part of February .
Now some of these challenges that are persisting so we expect.
Inventories.
Certainly for potash to come down and be pressured then for the balance of 2022.
Your next question is from Vincent Andrews with Morgan Stanley . Please go ahead.
Thank you and good morning, everyone. Just a question on retail as it relates to I guess two things one.
How is retailing and position itself for inventories at the end of the North American season, and kind of also I guess asking you about how you think summer fill will progress in the different nutrients and then if you could also help us with why crop protection margins you anticipate improving.
From here.
Good yes.
Thank you Vincent and yes, I mean with respect to inventory is it something that we're watching very closely at the moment.
And watching progression plan.
Forget progressing throughout North America, we entered the season with inventories the way that we would in previous years and.
As Jeff charts, he keeps saying intending to and the spring season with inventory levels low but Jeff.
Can I pass it over to you for the discussion of both inventories and crop protection margins.
Sure sure Ken and good morning, Benjamin Yes, I'd reiterate what can just say is I can't think of any year that I wouldn't go into that I wouldn't plan on trying to target myself to be near empty.
Once we come into that June and July timeframe across all of them are nutrients and then obviously once we get once we get into that July August timeframe, we'll start positioning ourselves again for.
What we anticipate to be another foe.
Another strong follow market as well and look we try to position ourselves from an inventory standpoint in season, which will always try to position ourselves to be in as close to <unk> as we can.
Whether it's.
Whether it's crop nutrients seed or crop protection I think your second question was in reference to our strong crop protection Martin.
I guess I'll start off addressing that as that last fall, we anticipated that there would be a tremendous amount of supply constraints around numerous crop protection products and so.
We started building inventory last fall anticipating that the supply constraints will be real coming into 2020 as we.
Positioned ourself early and built inventory adventure, we built inventory at some pretty attractive car.
<unk> positions us well and as you saw in the first quarter, we had a pretty significant improvement on crop protection, probably the highlight of our first quarter.
I think we're about 400 basis point increase in.
And margins there and a lot of that is we got some growers that are buying earlier as well anticipating some of these shortages and our people have done a good job of moving our cost as our <unk> crop protection products.
Have increased his way OLED, we would expect to see that continue somewhat throughout the.
2022 spring and into the second quarter.
Your next question is from Ben ICF Olson with Scotiabank. Please go ahead.
Thank you very much and good morning, I just wanted to come back to the Russian potash situations. So we're seeing Russian potash show up not just in India, and China, but we've seen it.
Come to the U S Europe , Brazil Southeast Asia.
And of course, while there was significant disruption.
To Russian fertilizer trade flow in March can you talk about what <unk> looks like coming out of Russia over the last 234 weeks.
Do you see Russian potash coming out at a rate of 50% to 375% of normal I know you spoke about the Europe potentially being down 2% to 6 million tons, but can you just talk about what youre seeing right now in terms of what's coming out of the market.
Yes, Thanks, Ken Yes. Good morning, So we are seeing an impact and on the ground impact at the moment exports coming out of Russia, and while yes.
Unlike the Belo Russians, perhaps the Russians do have some access to markets and so an example of that would be rail into China, which we expect to continue through 2022 and that could be over the course of the year, maybe a $1 million and have done so.
Example of certainly our outlet for the Russians they have their own domestics.
Demand, which they are satisfying but I'd say at the moment, Ben what we're seeing is an impact across export markets.
The Russians need to access by a tidewater about a half a million tons a month at the moment is what we're seeing.
And so whether that persists through 2022 remains to be seen but.
As you say in the last month or so what are we seeing on the ground and that's what we're seeing.
And that is helping to inform the ranges, Jason Newton talked about earlier.
Your next question is from Michael <unk> with TD Securities. Please go ahead.
Thanks, another question around the potential to accelerate your ramp up of potash production beyond the 15 million tons. So you talked about some of the bottlenecks associated with bringing on additional production earlier in the call wondering though.
If you were to decide to move forward.
Can you talk about how quickly you could bring on additional production and how we should think about capex associated with with incremental tonnage.
Yes, Thanks, Michael and so yes, I mean again.
We're looking at that all of this at the moment and again expect to talk about it in more detail at our Investor day in June .
But suffice it to say that.
I'll wrap up to $8 18 million tonnes, we can bring it on in increments of.
Production in increments of capital with off ramps for <unk>.
Some of this capital so that's the path that we were planning at the moment are testing to plot at the moment and testing our assumptions around all of that I'll, just say that.
Certainly as we think about that that profile for volume increases we're talking a.
A few years not decades or anything like that with respect to the capital associated with it again, we're looking at that but I would say that given the off ramps.
And capital as we move up our production volumes.
Immaterial, but its certainly highly economic production in the context of.
Where we see the potentially see the market growing balance of 2022 and over to 2020.
Okay.
Okay.
Your next question is from Steve Byrne.
Bank of America. Please go ahead.
Yes, I think so like to drill into the retail business here.
Just curious what you're seeing in that business in terms of.
Of grower application rates. So far this spring has there been much of a cutback in P and K application rates.
Our growth has been more of your.
Your your variable rate technology.
You know when we put it down where they really need it so what's the magnitude of the drop there and any comments about.
The sharp drop in.
NOLA urea is not just because of the channel doesn't need anymore and.
Thus, it's kind of irrelevant.
Great. Thanks, Steve and so with respect to the first question on retail the short answer is no.
The growers again, given the backdrop and the AG fundamentals.
Wrong incentives, there, but I'll start with Jeff Tarr C to provide some more color on that one and then with respect to.
A quick question about <unk>.
About nitrogen will pass it over to Ralph So Jeff.
Yes, sure and good morning, Steven Yeah Tan.
To answer your question and follow up with <unk> comments, there number one you mentioned variable rate and.
Steve We don't we don't do really today, we don't do a lot of blanket rates.
P and K a lot a lot of it or the majority of it is variable rate most all of our application equipment today, you setup, where we variable rate and as you will know we do a lot of it we do extend some solo testing in running that analysis, the waypoint analytical to come back with a proper prescription for nutrient.
H and so from that standpoint, as <unk> said, we havent seen cutback in rates.
Obviously last fall, we had a tremendous run last fall and Thats, probably what slowed some things up in the first quarter a bit and if I look back at those rates last fall. They were very strong rates and I think in the environment that we're in today. Steve. These growers are going to give themselves every opportunity to maximize add on yields we are.
Also think that once we get in season, we think our foliar nutritional products.
We're going to be at a very high demand and we bridge stepped up production in those areas as well because we think these growers will be.
The dish crop throughout the season, we've seen a lot of demand for our in for.
Papa products as well, Steve So I think we're still in.
In a very strong environment.
Unlike anybody else here I'm ready to see this crop gets put in the ground and.
It looks like next week next week talking to our climatologist looks very strong, but we're going to be able to make a lot of planning progress.
Going into next week. So we're anxious to get that started and get things going and are key and I'll go back to you on the urea question.
Great. Thank you, Jeff and Ray over to you. Thanks, Ken.
Steve look glitz.
Differentiate between some short term occurrences in the market versus the overall.
Supply and demand situation. If you think about all of the money all of the nitrogen products ammonia urea UA in global supply and demand.
The supply is tight.
I think we will see continued.
Solid pricing through the rest of the year.
For all of those products and the problem with urea at the minute of course and my colleagues had mentioned this is the slow start to the season with crop pricing where it is.
Pharma is going to try and maximize yield here.
They are not skimp on the nitrogen products as enlightened. Upon therefore, we just need to see to see go on the ground.
You can start and then we'll see that product start stop moving and we will see.
Correction upwards the recent pricing.
Your next question is from Jeff Zekauskas with J P. Morgan. Please go ahead.
Thanks very much.
If it turns out that potash demand is 60 to 65 million tons for a couple of years.
But assuming that capacity from Russia, and Belarus can come back online.
What do you think demand would be after a period like that would we go back to 70 million tons or would it be more elevated.
And secondly, why do you think the Chinese have constricted phosphate exports so much.
They don't need to construct it that much to supply more phosphate too.
Their internal farmers.
Yes, great. Thanks, Jeff ill pass that one over to Jason Newton can provide some color on both phosphate and potash questions.
Sure Good morning, Jeff on the potash side, we look at where.
Friends potash shipments would be.
This year that probably actually in line with where they were Australia hasn't really strong here of demand. So.
If we were unconstrained in terms of supply, we probably be in that 70 million ton range in 2022.
So looking forward at one $5 million to $2 million.
Tons per year.
You're moving out to.
70, 475 million ton Mark in the next four to five years, which I think regardless of what scenario unfolds its likely to continue to be a supply constrained environment in that period of time, we've looked at a number of scenarios and different ramp ups and different.
Changes over the next.
Four to five years and in most cases youre getting back to the current trend type levels of demand in 'twenty four 'twenty five just given supply constraints in the market.
And then on the phosphate question.
The Chinese government over the last year or so has definitely taken.
Put it put a higher priority on domestic food production and food security and maintaining low fertilizer prices.
Domestic farmers and so while they have definitely sufficient supplies. The export of 10 million tons of <unk> in 2021 still we would expect the <unk> sports somewhere between six and 7 million tonnes of VIP and MLP this year, but there's a big discount in the domestic market for both.
Phosphate fertilizers and for urea versus where the international market is and as we look towards the second half of this year that is.
It's something to watch is I think the government of China is likely to want to continue to maintain a full.
<unk> low.
Fertilizer prices for Chinese growers and with that disconnect between domestic prices and international prices. There may continue to be restrictions on exports just too cheap.
Mastec market disconnected.
Your next question is from P. J <unk> with Citi. Please go ahead.
Yes, Hi, good morning first question on sort.
So the Chinese urea outlook.
Historically produced services there in China would take advantage of higher global prices.
Export more are you seeing more discipline in China or is it related to coal and environmental issues.
And then second a quick one on retail and retail.
Just on seat Youre, both sales and gross margins were down which was surprising given that price schedule. It off. So can you just shed some light on that thank you.
Great. Thanks P. J, yes, with respect to Chinese urea I think it goes back to the question of domestic supply once again, where we've seen the Chinese.
Scott in exports in favor of domestic market and that certainly and for the first half of this year and could carrying onto the second half, but Jason do you want to provide some more color around Chinese urea and then we'll head over to Jeff <unk> to talk about retail seed sales.
Sure Good morning P. J in terms of the urea situation.
Typically and we've seen this over the last couple of years, there isn't a lot of excess supply in China in the first half of the year.
Any way because the domestic.
Use period, but with the.
<unk>.
With the export restrictions in place.
Believes that exports in the first half of the year will be less than 1 million tons. I think is 300000 tons for the first quarter of the year.
And the Big reason for that is the export restrictions with the government's restricting the volumes of exports historically when exports has been restricted in the first half we've seen a strong movement of volumes to bonded warehouses in advance of the export restrictions being removed.
You may not see that as much this year because.
There are export inspections in place that our.
Purposely.
Delaying the time it takes to move product into those warehouses. So it might even further delay the start of the export season in July .
And Jeff over to you for a discussion of our retail seed sales.
Sure P. J. Thanks for the question look on the seed side of things obviously, the first quarter is a very quiet quarter for us and it depends on really what the last two weeks of.
Of March due from a weather standpoint, I think we've talked about it numerous times today that we got off to a slow start and.
So I have us about flat, maybe just slightly up seed revenue for the quarter.
And slightly down on margins.
Maybe 50 basis points Thats, all a timing issue.
Right now P. J I think once we get rolling into the season start getting this crop planning, we will see all of that pickup we had about a 50.
50 basis point share increase in seed in North America last year, we we we plan this year to maintain that.
Maintain that share gain and we have plans to grow organically in our seat business, Brian significantly over the next five years. So no concern right now just mainly a timing issue and just need to get to players in the field. Thanks.
Your next question is from Stephen Hanson with Raymond James. Please go ahead.
Yes, good morning, Ron.
Two part question on your export logistics for potash if I may.
First outside of the short rail strike I'm, just curious if there was any limitations.
You might have faced in the period on export volumes.
They did improve modestly year over year, but were still well below 2019 levels.
And secondly, one of Canpotex is logistics partners has been talking recently about the potential to move potash by a direct line haul street to the U S. Gulf for export to Brazil. Just curious if you think that plan has any merits.
What kind of infrastructure would be needed if that was the case.
Yeah. Thanks, Steve So with respect with respect to export logistics and.
Limitations.
Canpotex I mean again just go back to sufficient.
Sufficient port capacity and access to Tidewater here in North America, and it becomes a question of rail and I think you're rightly pointing out that there were some rail disruptions in the first quarter of this year. There was some impacts from the CP strike, we were largely able to mitigate those impacts by favoring.
Volumes that travel on the CN, but we also some other thoughts on that you know there have been some other labor disruptions associated with the.
Covid still and challenges with rail companies.
Staffing from time to time, so we had a little bit of that and then we had some weather related events in the first quarter as well that made it a challenge to get to the west coast with our potash now that said.
First quarter, while the volumes were a little bit down compared to last year, we expect to fully recover those volumes and the balance of 2022 and so we cope with these things every year.
And yet we expect to recover the volumes with respect to accessing the Gulf to transport volumes.
Overseas certainly these things are all possible I think it's fair to say it becomes a question of cost.
So long journey by rail and so for us and our supply chain, we feel particularly advantaged today, because we do have.
Sufficient access to Tidewater, where today, we think we can head west and two two.
So our Neptune facility and Canpotex is Neptune facility in Vancouver, and in Portland, as well, so but the shorter answer is yes.
Can arrange the rail and you can get terminal facilities on the coast and then get ships in a deepwater port yes.
You can transport potash.
Your next question is from Michael Picken with Cleveland Research. Please go ahead.
Yes, good morning, I wanted to talk about the nitrogen side of the business. If you could talk a little bit about just what do you see India in terms of what they need in the coming months and then also if you could talk about how much capacity you think is offline.
In Europe , right now and then moving forward, where you see your Trinidad apps running throughout the year. Thanks.
Great. Yes. Thank you yes. It is the case that we see some.
European volumes offline, we think.
For the quarter here, where you know, maybe maybe 6 million tonnes at $35 gas those European plate prices require that ammonia price of about $250 and so it is the case at the price of the Tampa ammonia is above that today, so European clients have some incentives, but I'll hand, it over to first the race to <unk>.
But all of the color around that and then over to Jason.
Yes, so look.
We've been watching this question you've seen some huge variations in the price of gas paid in Europe .
And Ken's right I mean in February we saw about 6 million tons shut in.
<unk> went up to 16 25, we saw a lot of that capacity come back online.
I think what you need to keep an eye on here is what's happening with.
The international ammonia pricing in the European gas prices.
With European gas pricing unlikely to be much below $30 for the rest of the year.
You need to have menu pricing will add between 100.
Alright.
So just keeping on that as you go through the year.
Globally, let me just make this point here.
The ammonia market has continued to grow consumption continued to grow to $2 5 million tons a year now in the last two years and if you look forward. The next two to three years the amount of production coming on line is well below.
That growth in annual consumption. So the market has been tightening it continues to tighten when you have shocks like the pricing we're seeing in Europe .
Unfortunately war, Ukraine it adds to the.
Compounded issues in regards to India, specifically I'm going to pass that to Jason and I think he's got a much clearer picture of what's happening there and the detail. So it's just an idea.
Yes. Good morning, we've seen a really strong start to the year in India imports in the first quarter are up about three times.
First is where they were a year ago. So over over 3 million tons of imports and we expect imports to be in the range of eight to 9 million tonnes. This year compared to 7 million tons last year. So I do expect an increase in imports in India.
In 2022.
Will be interesting to watch there is starting to tender again ring of DRC up tender for $1 5 million tonnes was recently announced.
And as we get further and especially into the second half of the year with the supply constraints look like more claims are made available for those tenders.
Your next question is from Joshua Spector with UBS. Please go ahead.
Yes.
Yes, hi, Thanks for taking my question I guess, just a little bit of capital allocation I mean, a lot of conversation on potash expansion and you have some nitrogen things in the work just wondering given the improvement in performance in the phosphate side of things is that something that deserves additional investments or Conversely is now a time to look about strategic options.
For that business.
Great well. Thank you Josh sorry, yes, so I would say that our capital allocation priorities and discipline has not changed.
As we head into Investor day, we'll certainly be talking more about.
Capital associated with.
Acceleration everything we've been talking about on the call today, but I'll hand, it over to Pedro.
And just provide some more details on how we're thinking about capital allocation today.
Thank you Joshua I think we are.
Our position in terms of for us.
Has not changed so we are we.
We are running for cash we're doing very well and have made good improvements.
But we are not yet prepared to allocate any cash too fast in the future for investment of course, we are sustaining all of our assets for reliability and safety there.
Our.
You pointed out our capital.
Allocation, it's going to be we're going to have more options and degrees of freedom where regionally.
Spoke about $4 billion being excess cash in the prior.
On the prior call.
We decided to allocate that $2 billion for share buybacks and another $2 billion will come back at the middle of the year and talk about it.
We know obviously, you're starting from a higher position.
So we are likely to be at a multiple of that $2 billion and what we are doing is the body of work to see as Ken pointed out before what additional investments within this strategy. We are willing to accelerate those that have high return and payback in a number of you.
I touched on of course, all the opportunities and potash, we also have opportunities in.
Low emission.
Ammonia and <unk>.
We have for the continued opportunities in retail that we have spoken before so.
We come to the June IR day.
<unk> and June 9th we're going to be able to kind of provide a more complete view of that including what additional opportunities do we have for shareholder distributions. So all of that is going our experience.
So far in terms of our capital allocation has been that way.
We distributed.
A lot of our excess cash I mean up into 'twenty, one we distributed <unk> $9 billion $5 billion of which were share buybacks or dividends in the $5 billion of.
The buybacks were $55 a share and just this year another $740 million at $82 a share. So this strategy seems to be working and as we pointed out we think that we may.
We may have a different mid cycle earnings position that will continue to support.
That strategy so.
More to come in June benign, but thats kind of how we were thinking so far.
And our final question is from Adrian Tamayo with Barrington Burton. Please go ahead.
Hello. Good morning. Thank you for taking my question I had one on Brazil, and how do you see the competitive landscape evolving in the country because of Russian companies.
Hi, Sheryl with local distribution.
Distribution market.
Would this hello somehow easier than many in the country.
More things Michelle when Youll see that on the ground at the moment.
So, yes, if I if I understood correctly Adrian the question is about the competitive landscape in Brazil and in Russia.
Russian fertilizers being supplied to that part of the world and what we're seeing there.
Yes, so we have obviously a growing retail network in Brazil, and we've been focused on continuing to grow that we continue to see opportunity there.
And certainly watching that competitive landscape, but I'll hand, it over to Mark Thompson talk a little bit more who heads up.
Our M&A work in Brazil, and then maybe over to Jeff <unk> to talk about our operations there so mark.
Yes, Thanks, Ken Good morning, Adrian So I think your question was really on.
How the competitive landscape is shaping up in the distribution part of the of the Brazilian market structure and so obviously there is multiple layers to the market structure in Brazil in terms of ultimately how growers are served and as you've noted the fertilizer distribution segment of that market has become relatively consolidated and there has been some.
<unk> of assets by some of the Russian fertilizer companies and competitors in that space. As you know our business is really more of a direct to grow our high touch high service model in that market.
Obviously, we've been quite forthcoming about our strategy that's been in place for multiple years about growing our presence in Brazil in helping growers to be more productive and boost yields and adopt more technology in the company in the country pardon me. So in the past few years we.
We've obviously completed.
Acquisitions, we've deployed about $300 million in enterprise value in the country and we've built one of the largest multi region businesses in Brazil today.
And really it sort of segment, that's one level closer to the ground and where the consolidation in the fertilizer distribution space has been so we now have over 50 locations. We've got over 10 experienced centers, we've got fertilizer blending soybean seed production and nutritional formulation.
Directly in the country and as we look forward from an M&A standpoint in Brazil, we see a healthy pipeline ahead of us notwithstanding the fact that we are building a large presence there and have already begun to amass one we're still only about 1% to 2% of the AG retail market in Brazil. So it's a very.
Tractive growth market for us and leaves us a lot of room to run going forward as as that part of the industry continues to consolidate and professionalized. So maybe ill just hand, it over to Jeff <unk> for any more comments that you might have.
Yes, Mark those are great comments, and really not a lot more to add except the fact and I think you said it and I'll say it again as it continues to be an extremely attractive growth growth opportunity for nutrient AG solutions as it relates to retail.
Look we've had dual strategies there mark talked about the acquisition opportunities. He also referenced our experience centers that we're putting in and which is Canada.
<unk> go to market type philosophy in that business Andre Ddos that leads that business for us is very experienced in that market and as.
As we looked at to add some some new opportunities. There I think we will look at them a little bit more asset light than what we think of our market share in North America that was experienced centers, our hub and spoke type centers, where growers can come in and get the latest knowledge and technology and the new product is might be shipped from our <unk>.
<unk> point in standpoint, but we just we are gaining confidence by the day and our strategy in Brazil, and our go to approach. There. We're excited about what future holds for us there.
And that ends our question and answer session I will now turn the call back over to Jeff Hoffman for closing remarks.
Thank you operator.
Wanted to remind everyone registration for our June nine Investor update meeting is now open on our website I would also like to highlight that Jason Newton, our chief economist will be hosting a market update call and Q&A session on June eight.
Thanks for joining us today and have a great day.
This concludes today's conference call. Thank you for joining you may now disconnect.
Yes.