Q2 2022 Nutrien Ltd Earnings Call
Greetings and welcome to nutrients 2022 second quarter earnings call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to Mr. Jeff Holtzman VP of Investor Relations. Please go ahead Sir.
Thank you operator, good morning, and welcome to nutrient second quarter 2019 conference call.
As we conduct this call various statements that we make about future expectations plans and prospects contain forward looking information certain material assumptions were applied in making these conclusions and forecasts therefore actual results could differ materially.
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 commissions.
I will now turn the call over to Ken Seitz interim President and CEO Pedro Farah, our CFO for opening comments before we take your questions.
Good morning, and I will also welcome you to nutrient second quarter earnings call.
Before we get into the discussion of our results and outlook for the remainder of 2022 I would like to highlight three key messages.
First we believe structural changes to global energy agriculture, and fertilizer markets will provide a supportive environment for nutrient well beyond 2022.
Second we are accelerating strategic growth initiatives that leverage the unique advantages of our integrated business jet.
<unk> generate excellent returns on invested capital and enhance our ability to provide sustainable solutions to help feed a growing world.
And third we are committed to a balanced approach to capital allocation that supports growth and the sustainability of our business.
While also returning meaningful capital to shareholders.
In 2022, we expect to invest around 3 billion on sustaining and growth initiatives and distribute approximately $6 billion of capital to shareholders.
Pedro will walk through our plans in more detail later on in this call.
Now turning to our results and outlook.
<unk> delivered record first half earnings driven by the strength of market fundamentals.
The advantaged position of our global production assets and the excellent performance of retail.
We continue to progress our sustainability priorities.
Had excellent safety performance across the company, including strong engagement in our serious injury and fatality prevention efforts, which is the most important work we do.
Mutually in AG solutions had a record first half with adjusted EBITDA of nearly one 7 billion up 38% from the prior year.
The retail team delivered higher margins across nearly all products and geographies supported by the strength of our global supply chain and expanded offering of high value products and services to growers.
Crop nutrients and crop protection margins were very strong due to the strategic procurement in a rising price environment and growth in our proprietary nutritional products.
North American fertilizer volumes were down in the first half due to a combination of a very strong fall season in 2021.
Crop mix shifts and a condensed application window. This spring.
Fertilizer sales volumes outside of North America were up from the prior year, reflecting growth in our Brazilian retail network.
Potash adjusted EBITDA increased to $3 4 billion in the first half.
Ported by higher realized prices and record offshore sales volumes.
Potash production increased by more than 5% compared to the first half of 2021.
And controllable cash costs were relatively flat.
The increase in production reduced our per ton fixed costs, and largely offset the impacts of inflation.
Spot prices in Brazil, and southeast Asia were up significantly compared to the previous year and Canpotex continue to prioritize its available volumes to these higher netback offshore markets.
In nitrogen adjusted EBITDA in the first half increased to $2 2 billion as higher realized prices more than offset lower sales volumes and higher natural gas prices.
The delayed start to the North American spring season impacted sales volumes in particular ammonia and UAS and was a major contributor to the decline in nitrogen benchmark prices that occurred in the second quarter.
We had record phosphate adjusted EBITDA of 423 million in the first half as higher realized prices more than offset the large increase in ammonia and sulfur input costs.
In the second quarter, we recognized a noncash impairment reversal of $450 million, which was driven by improved market fundamentals and a more favorable view of phosphate margins.
Turning to the outlook global grain and oilseed inventories remained historically low.
Deal to reopening Ukrainian exports through the Black Sea would be a positive development for global food security. If there is a sustained increase to shipments.
However, analysts believe volumes will continue to be challenged by labor and logistical constraints.
In addition to ongoing military strikes in the region.
Ukraine's grain production and export levels are projected to be down dramatically compared to 2021, leaving a little buffer for any supply issues in other regions. This growing season.
U S growing condition generally favorable however high temperatures in July likely cap to yield potential and record high temperatures in Europe have reduced summer crop yields.
Crop commodity prices have been impacted over the past month by broader market volatility, but are still at 45% to 35% above the 10 year average.
And futures are trading at elevated levels on a multiyear basis.
In North America, we expect a strong grower demand in the third quarter for top dress nitrogen specialty nutritional products and crop protection products.
The crop was planted late but is maturing rapidly with the recent hot weather and we're planning for a normal application window. This fall.
In Brazil grow our margins are strong and soybean planted area is expected to increase by 2% to 4%.
Fertilizer inventories have been slow to move from port to inland positions as buyers look to purchase on adjusting time basis, but we anticipate strong movement over the next two months to ensure product is available for the upcoming planting season.
In potash so much of the focus remains on supply challenges in eastern Europe shipments from Russia, and Belarus were down an estimated 25 and 50% effectively in the first half of 2022.
Russian potash is not currently sanctioned by has been impacted by restrictions on financing activities that facilitate exports.
The impact of sanctions on Belarus supply has been more significant due to the loss of access to Tidewater pure Lithuania.
Belarus is reportedly shipping small volumes via container, which for a bulk commodity is a more costly and logistically challenging option.
We narrowed our global potash shipment forecast to between 61 and 64 million times in 2022.
We expect shipments to be constrained by restrictions on exports from Russia and Belarus.
Beyond to the existing existing supply challenges, we see the potential for delays in the development of new potash capacity from this region, which.
Which was projected to be the source of approximately 60% of new potash supply excluding nutrient over the next five years.
We expect nitrogen prices to strengthen in the second half supported by high European gas prices as well as restricted Chinese urea and Russian ammonia exports.
Okay.
European gas prices averaged close to $50 per <unk> in July , which equates to an ammonia cash production cost of over $700 per ton.
More than 20% of Europe's ammonia production is estimated to be curtailed and there are concerns over gas pricing and availability through the winter in Europe .
Many buyers had delayed purchases given recent market volatility and the.
Our seasonal resurgence of demand in the second half that could further tightened supply.
I will now turn it over to Pedro to review, our financial guidance and capital allocation plans.
Thanks, Ken first a few comments on our guidance, we expect a strong second half in our projected adjusted EBITDA.
In the region of 14% to $15 5 billion and adjusted EPS in the range of 15, 8% to $17 eight per share.
The midpoint of our adjusted EPS guidance represents a nearly three fold increase compared to 2021, reflecting both the increase in total earnings and the reduction.
Average shares outstanding.
Retail had a very strong first half we are now guiding to adjusted EBITDA between two one and $2 2 billion in 2022, which represents a 12% annual growth rate over the past five years.
We expect a more normal fall application season in North America, and anticipate per ton crop nutrient margins below the historically strong levels, we achieved in the second.
Half last year.
In potash, we narrowed our adjusted EBITDA guidance range and expect record volumes driven by strong demand in offshore markets.
As prices have been the most stable among amongst the three primary nutrients and we anticipate that will continue through the second half.
Our revised nitrogen earnings guidance range reflects the impact of low North American benchmark pricing and higher than previously forecast domestic natural gas prices.
Despite this change we maintain our constructive outlook for nitrogen markets through the second half of the year and into 2023.
We project cash from operating activities of approximately $9 5 billion, assuming a cash conversion ratio of 65% at the midpoint of our adjusted EBITDA guidance.
This ratio is lower than previously forecast due to a change in timing of working capital requirements. However, we expect this to result in a more favorable impact to our operating cash flow in 2023.
As Ken mentioned earlier, we have a balanced approach to capital location intend to own allocating approximately one third of our operating cash flow to growth and sustaining projects.
The remaining two thirds, we plan on returning to shareholders through dividends and share repurchases.
We are investing one three to one four and sustaining projects to ensure we maintain a safe and reliable operations.
As well as support.
Expanding production capability.
This is slightly higher than our previous guidance and reflects inflationary pressures on labor and equipment.
We believe that inflation on equipment and in particular, maybe a transitory.
We are allocating approximately $1 7 billion to advance high return strategic initiatives across all our business that we expect will drive earnings growth through the cycle.
Retail accounts for nearly 60% of the growth capital with acquisitions and investments focused on expanding our network and core geographies enhancing our digital capabilities and growing our proprietary products portfolio.
We have completed or announced 10 acquisitions. So far this year in Brazil, and Australia for a total investment of approximately $450 million.
Following completion of the two recent announced acquisitions in Brazil, we expect to surpass our stated target of $100 million of adjusted EBITDA by 2023.
Our portfolio of Brazilian acquisitions are performing very well exceeding our hurdle rate for this market.
In potash the majority of investment is related to underground mine development and additional mining equipment to support the accelerated ramp of our production capability to 18 million tonnes by 2025.
This is flexible low cost production capability that is unmatched in the industry and based on what we're seeing in the market as production that will be needed.
To meet global demand.
We estimate a capital cost at 150 to $200 per ton, providing a very short payback period or in other words, a low regret cost based on projected margins.
We continue to advance our low cost phase II nitrogen brownfield expansion projects and in May we announced our intention to build a $1 2 million.
John cleaner ammonia facility at our existing site in Geismar, Louisiana.
This project provides an opportunity to leverage existing infrastructure and access of Tidewater.
We believe this project can achieve attractive returns at mid cycle ammonia prices allowed nutrient to participate in the current and emerging in use markets to our merchant ammonia.
And play a key role in achieving our 2030 emissions reduction goals to be clear, we are not relying on additional volume or a price premium that may come with a developing over larger clean ammonia market. This will be an upside.
Finally, we intent on returning 6 billion in capital to shareholders in 2022, which equates to 13% of our current market cap.
Around $1 billion of this is our dividend, which was increased by four 4% back in February given the confidence in our operating cash flow, we announced yesterday, our intent to complete our existing 10% in CIB in 2022.
Completing the NCI vehicle lower our common shares outstanding to around 500 million by year end.
We plan on factoring in the significant reduction in share count and a decision criteria as we target sustainable and growing dividends over time.
Now I'll pass it back to Kent.
Thanks Pedro.
I would just make a few final comments.
The fundamentals for our business remains very strong and the challenge of feeding a growing world has never been more apparent.
Nutrient is uniquely positioned to safely and sustainably respond to this challenge through our close connection with the grower.
Our extensive global supply chain and our top tier production assets.
I am confident we can deliver due to the efforts of our talented people across the organization, who I would like to thank for their hard work and dedication to helping nutrient feed the future.
I'm joined today by members of our leadership team and we would be happy to take your questions.
Ladies and gentlemen, we will now begin the question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question. Please press the star followed by the number Tim.
Participants are asked to limit themselves to one question.
Your first question comes from Andrew Wong of RBC capital markets. Please go ahead.
Hey, good morning, and thanks for taking my question.
So just regarding the nitrogen guidance, obviously the market was.
A bit weaker into mid year than we all expected, but also like you've mentioned in the prepared remarks supply is very constrained with the high Nat gas situation that we're seeing in Europe .
We just saw urea move up about 100 Bucks last week.
And things can move pretty quickly in nitrogen. So just kind of curious what your assumptions are in the upper and the lower end of guidance range and are you maybe being a little bit conservative here, just because of what we're seeing today. Thanks.
Great. Thank you for the question, Andrew and yes, I mean, it's true that we had a fall application season and the strong fall application season in 2021 and of course, the late start to the spring, which led to some mix.
Shifts in crop mix and some prevent plant area, which led to lower application rates in their score some carryover from the spring season. So yes, we've seen some seasonal volatility here and yet it is a supply constrained market.
I'll hand, it over to first ray to provide some additional color just on how.
That volatility and how we've set our revenues.
Yes through the year.
Okay. Thanks, Ken.
Thanks, Andrew look as you noted.
The volatility was much higher in the in the first half than we had thought and that impacted our results, but as Ken mentioned, we had some really good application rates last fall we had the light start to the season. This year, we've had some supply constraints.
That said looking forward the fundamentals remain really strong.
Global demand continues to outstrip global production increases.
As you mentioned the EU gas pricing remains high leading to challenge than what's going to keep an eye on is the.
The conversion cost will remind you into sorry natural gas into ammonia and also.
The ammonium nitrate and you can see that.
Current pricing capacity.
SaaS get shut in in Europe .
Chinese export restrictions remain in place I think that any exporting about 750000 tons in the first half.
Our outlook is probably going to be around 225 for the full year.
Quite a lot down from.
Normal levels of three to 5 million tonnes.
In addition.
We're excited about the potential we see even aggressive low carbon so I think despite the volatility you saw in the first half we think I think.
We see a really good outlook for the second half and beyond.
So Jeff I don't know if you wanted to add anything.
Hey, good morning, Andrew.
Specifically talking about the outlook on benchmark prices as you say, we've seen significant volatility in the last couple of weeks with global global ammonia and urea prices and even urea prices coming up in North America I think if we look toward the fourth fourth quarter of the year.
We have sort of typical seasonal improvement in prices in the forecast as is normally the case.
Expect that constrained and tightened market.
That said relative to the current market conditions that that seasonal increase be route relatively modest and we certainly don't have included in the forecast are returned to prices.
They were in the first half of the year.
But if you look at where natural gas prices are today in Europe , and the impact that that's having on.
Production shutting down certainly marginal cost is even above where prices peaked in the first part of the year.
Okay.
Your next question comes from Jacob.
CIBC. Please go ahead.
Good morning.
Question is on.
Potash demand youre guiding down slightly for potash volumes in 2022.
How much of this is a reflection of farmers pushing back to higher prices.
Versus a compressed spring maybe comment a bit on the U S Summer show.
Program.
And then what.
What are your expectations for the second half.
For Brazil, given the rising inventory levels here are.
Expectation too.
Export more into the lower priced markets like China and India.
Great well, thank you Jacob.
The question and yes, maybe.
We'll do is just sort of go around the world.
As it relates to inventory, we're seeing and how we're expecting the balance of the year to unfold here. So it is true yes that we had.
Just mentioned that strong fall application season in 2021 and then.
The compressed spring and again some.
Shifts in crop makes sense.
Clients area, which led to lower application rates and so coming out of the spring. It is true that we had some carryover volumes on potash.
In North America, and so therefore down.
Between down some volumes.
That region now we just are closing our summer fill program and filling up our Q3 order book at the moment, but we don't expect those north American volumes, we expect a strong fall application season in the backdrop with the AG fundamentals is strong.
North America, but at the same time, we don't expect a recovery of those volumes in North America that said when we say that 61 to 64 million tons. We believe it's a supply constrained world and again with the backdrop of the fundamentals.
Growers in all parts of the world still incentivized to maximize yield and lay down the appropriate agronomic level of crop nutrients as you say in Brazil imports were up.
That part of the World.
For the first half and it's really related to first of all the conflict.
<unk> started impacting things until obviously after February so.
Shipments into Brazil were up 30%, 37% year over year, and we're seeing high port inventories as they prepare for their planting season weak. We know that though was port inventories will be moving in land and are moving in land and we also know that with those port inventories at the moment, they still only have about 50% cut.
<unk> for their planting season, so we know that the Brazilians will be back in the market buying for their big planting season.
Yes.
We go to China, we know that inventories are significantly down their imports were down 11% year over year in the first half and we put port inventories at sort of one time $1 8 million tonnes. So those are five year lows reported inventories and its really related to the fact that.
As the lowest priced market in the world to China, maybe not getting the volumes that it needs and the same is true for India, which again shipments down about 30% to 70%.
In the first half compared to last year and inventories in that country are 550, 600000 tons I mean, they're very very low and again, just not getting the volume given where pricing is at.
And then finally I'd just say in southeast Asia those prices migrated up we've seen in the first half strong palm oil prices and so.
We saw actually convergence price for standard grade similar to what.
What granular product that was selling for in Brazil. So in other words strong demand, but we don't believe that southeast Asia will get the volume they need either this year just to due to supply constraints.
The last thing I'll say Jacob.
One of the things we are seeing is for those places that have inventory like North America due to the delayed spring like results import inventories at the moment, we see growers just sort of waiting at these price levels to just in time purchasing our last minute purchasing yet again, we know what the strong backdrop of bank funding.
We fully expect that.
There'll be compelled to lay down crop nutrients, but it will be a supply constrained market.
Yeah.
Your next question comes from Joel Jackson of BMO capital markets. Please go ahead.
Oh, hi, good morning.
Staying on potash.
Where you think pricing is going to play out what your book looks like.
We've seen some other of your competitors talk about.
So I'm expecting a price decrease in the third quarter from realized perspective.
Play around with what's going on with spot prices in the Nextgen in China, India and other things.
What do you expect for pricing in the third quarter into the fourth quarter, what you have booked.
Yes, good morning, Joel and thank you for the question yes.
I would say is potash among crop nutrients and certainly compared to nitrogen and it's been a little bit more stable in terms of pricing.
Have seen.
Slight softening.
And again, just some seasonal softening here.
As a place like Brazil compares routes season and we're in this.
Window, where we're heading on the northern northern hemisphere into a fall application season, which we expect to be a wide open season, and all those things. So as we head into Q3 and Q4, we're looking at pricing in all of these markets and saying that's probably there is some stability there at the moment and sort of forecasting net price.
<unk> will remain at around these levels into the balance of 2022, I mean of course, that's not true necessarily for India and China with.
Very low.
Any country inventories will they be compelled to negotiate a contract sooner rather than later in 2022 that could be possible, but for the for the spot market's like I say, we're sort of forecasting.
In and around these levels for the balance of the year.
Your next question comes from Steve Byrne of Bank of America. Please go ahead.
Yes, Thank you I'm interested in.
What level of fertilizer buying your retail business has made for this this next crop year.
Clearly the wholesale side of your business is pretty Bulled up about.
Pricing for nitrogen and potash in the fall as your the retail side of your business.
The agreement and.
No loading up.
And aggressively buying.
To capture that margin.
This fall and next spring it seems like there was some of that captured in the first half of this year.
And maybe a similar similar comment on crop chemicals, you clearly on the on the retail side of the business clearly captured margin on crop comes with that because of you.
Purchasing well in advance of the inflationary.
Ron earlier in the year.
Alright, well, thank you Steve for the question and yes.
Retail group has been.
Successful strategically procuring in this rising price environment and as you say reflected in our first half results.
In our retail business now heading into the second half we are seeing perhaps a moderation on that as you say, Steve just given.
Some leveling off of crop nutrient prices, but at the same time.
Retail business procuring for what they see is what we see is.
An open window for a fall application season, and it's also true that we very strategically secured.
<unk> chemistry in the fall of last year.
And.
You know that's part of the success in the first half of 2020.
'twenty, two as well, but I'll hand, it over to Jeff <unk> to provide.
More color on that so Jeff over to you.
Good morning, Steve and I'll take it.
In the two categories, maybe we'll start with fertilizer purchasing and.
With the late start that we got to the spring one of the fears I had what was going to have a really tight window for fall application. This fall.
But with the weather developments, we've seen over the last month. This crop is really progressing really nicely and we're seeing the maturity dates move up quite a bit so.
Much more encouraged it we could have a lot more open window for final application.
Than I had anticipated when we got this crop planning for this year.
As you know we move a significant volume of nutrients throughout the year and we're always layering product again, we're starting to fill our ships now.
Our anticipation of the fall.
And we think that.
We think that growers are going to number one land prices remain very hostile balance sheets are extremely strong.
Right now, we think that cash margins are going to be good again.
What yield thoughts out too.
These growers are really adapt it now to want to get a real head start on their nutrient applications and most of them don't want to put it out to the spring if I can help it. So if we get a good if we get a good open follow I'm going to anticipate that we're going to have a lot of movement as it relates to E&P.
<unk> K and <unk>.
Indications today are and I don't put a lot of weight.
Crop acreage intentions today, but everything points that we could see another two to 3 million acres of corn next year and that's going to put more emphasis on I think we want to get some fall nutrients applied as it relates to the crop protection side of the business. As you mentioned, we had a tremendous first half with our crop protection.
Business are.
Revenues were up 16, 5% and our gross margins were remarkable is up 43% and a lot of that Stephen we were very public about that in our past calls that we started layering product Dan last year really just as quick as we got out of the crop Chem summer season.
We anticipate a lot of supply chain constraints, and I think youll see us do something.
Fairly similar though that this followed as well because as we're talking to our strategic suppliers that are going to be a number of products that are going to be constrained again going into the 'twenty three season. So we've got as you know we've got an excellent supply chain asset base, we're able to move product in quickly.
Back out, but we'll use some of those same strategies that we had last year in getting ourselves positioned to be able to service our growers going into the 20.
23 season again, the same way around our proprietary side of our business, we had extremely strong proprietary print first path.
We got a lot of momentum going with that side of the business.
I can't tell you how many supply chain constraints, we get.
Past year, and keeping our manufacturing plants going and such but we feel like we're going to position ourselves nicely, although upcoming season as well.
Okay.
Your next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Yes, thanks, good morning, everyone.
I was hoping to maybe keep going on the discussion on application rates and demand and I guess, just looking at your retail crop nutrient business in North America.
The first half of your volumes were down 21% year over year, if we do kind of LTM theyre down 14.
I guess I'm, just trying to get a sense of.
How much do you think applications, especially on P and K, but even on.
Maybe nitrogen in some cases because of the way the spring played out where we're below were below normal do you think that's a pretty accurate representation of the market.
Over the last 12 months.
And I guess, along those lines as well.
And in a rising price environment for the last year that those price increases have kind of abate.
Abated for now how should we think about kind of the per ton margins on non crop nutrients.
In the back half and into next year for.
Maybe have a little bit more stability on the pricing side.
Well good morning, Adam and thank you for the question, yes. So we would characterize the first half more as just the compressed season.
In.
No.
The strong fall in 2021 in terms of application rates and again, that's compressed spring, which we just didn't see it.
Crop nutrients go to ground and therefore, some carryover and that's really the story of this spring.
In North America.
I think I'll just hand, it over to Jeff Jeff you can just carry on.
With the discussion we just had as it relates to application rates and then heading into the balance of the year here as it relates to certainly.
Some moderation.
In.
Yeah.
Margins on crop nutrients, but I mean, we haven't grown organically as well and you can see that reflected certainly in retail as a results as it relates to our supply chain as it relates to the expansion of sales through our digital channel and certainly our proprietary products, but Jeff over to you to provide some more color.
Yes, Adam Thanks.
Look actually I think the story when you start looking at tonnage and rates and things like that affect story actually goes it goes further back than just a strong fall of 'twenty one.
You have to remember that we had to record falls from an application rate standpoint, both 2020, one I know in.
In my career in this business I've never seen two falls as strong as those two back to back and so when you look at coming into.
We have we have an ability in North America, we don't have the same ability in Latin America, Australia, but you have an ability to bank some nutrition with the sole types that we have here in North America and so when you look at coming into the 22 planning season and I think.
We said, we've forecasted our tonnage would be back in the spring.
So 22, but when you look to the fact that you got into a late planting season.
And growers lot of these growers had their crops of forward contracts and you got to a point, where they said you know what.
Bob had heavy heavy applications, particularly from a P and K standpoint, the last two follows we.
We do solo testing on all of this so so we kind of know what's available there for the crop. They got an urgency most of them had an urgency to want to get in and get that crop planted and then we've taken what we got in crop and we've seen our foliar nutritional Reagan's increase this spring quite a bit.
Because of that so that's one factor as you look at it. The other factor is when you look at crop ships and when I look at crop ships I look specifically geographically, where those crop gop's take place and so if you look at corn, where we lost corn to soybeans, we launched that in a big and a big percentage.
Our basis in the South and we have a tremendous retail network in that in a tremendous retail presence in that area and so when you shift when you shipped a couple of million acres of corn to soybeans from a nutritional demand standpoint that changes significantly.
And we came into this season, thank you and we plant somewhere between 92% 93 million acres of corn, if I go by what USDA has today, we're more we're more around 89 million acres.
Planting corn and stuff. So there is a we've lifted the factors, but there are multiple factors that were involved and then once you get in season with it I'm sure. There were some growers they cut some range back, but they cut their rates back because they felt like they had carryover and so one thing I always point out with <unk>.
Year to date as Luke just on to see if we take court they have $150 an acre investment in the seed and seek treatment.
And include and what they have infer there are no growers out there is going to make that kind of commitment to cost.
Per acre basis, and then come in and say why would greatly reduce my E&P NK levels, knowing that shouldnt affect yield at the end of the day. So our growers much more sophisticated in that manner, but we do a lot of solo testing, it's pretty much our applications today or based on science and thank you all.
Also ask a question around margins and look we did have tremendous.
<unk> tonnage was down I think our gross the gross margins on a per tonne basis were up like 68 Bucks year over year, which was.
Which was amazing and when I look even deeper into that and I look at that.
Nutritional contribution that our proprietary nutritionals made with.
With 38 books of our margin this year.
In the fertilizer shale versus the $39 versus 28, a year ago. So again, we had a tremendous step up what our proprietary nutritionals.
Face of the fact that they got they went ahead and put the planners into field they decided they treat crop more in season.
There may be in the past so.
Feel good about where were the nutritionals went out of it.
Feel good about how growers are making decisions based on that and every one of them out there and a high commodity price environment or or shooting for the top ends of yields.
Your next question comes from Steve Hansen of Raymond James. Please go ahead.
Yes. Good morning. Thank you for the question I just wanted to follow up on some of the remarks earlier around potential contract discussions through the back half of the year, you or do you Wanna, perhaps elaborate a little bit more on sort of the timing and expectations around.
Contract discussions with China, and India, and maybe perhaps the timing of those and just any general sense you cannot price now that's a harder one.
Yeah, well, thank you, Steve and yeah.
Yeah.
I think as everyone is watching inventories and those parts of the world.
It is true that certainly in a place like India, we're seeing demand rationing ware.
Potash is simply not going to ground based on availability so.
It's not sort of traditional potash application rates dwindling inventories in country. So yeah that said in a place like India. As you know as I mentioned earlier, it's only 550000 tons sitting on the ground in that country, So very close to zero. So.
It's hard to say exactly when.
India will be back in the market.
But if we say that there'll be some reasonable nutrients going to ground and we provided those ranges.
In the deck that we provided for this for this call well then you would expect that sometime this fall and maybe later fall it would be back talking about the new contract and then similarly with China.
Where.
Again port inventories, it's sort of a five year low and when we say one seven months.
Todd and sitting with.
Recall that one $5 million of that or the so called strategic reserve. So.
So very low inventories in China, and we do expect that China will lay down some volumes as well.
And this fall season so.
Like India again, we expect it to 2022 events, where they will have to come have some discussions about new volumes at a new price what that price will be in those contract markets. Its a great question Steve.
I'll go around the world and we say, where our standard grade markets trading today.
We've seen southeast Asia trading at up to $1000 a tonne that's moderated somewhat.
Standard grade are those are some of the biggest standard grade markets in the world trading at those levels I expect.
Therefore that the Chinese and Indian contracts will have to come up significantly.
Your next question comes from P. J <unk> of Citigroup. Please go ahead.
Yes, hi, good morning, I have a question on seeds.
Bye.
What does strong conditions. This spring seats seed sales were up only 4% can you break that down between price and volume because I think the expectation was that price would be up mid single digits.
And then looking forward what are your what are your pricing expectations for next year, given the higher input input costs for seats.
Great well. Thank you for the question P. J I'll pass that one over to Jeff Darcy.
Yes, P J and look when you look at it from a revenue basis and again when you have crop shifts. So if you look at corn.
An acre again, I've said anywhere from 125 to $150 an acre.
<unk> sale in corn seed any shift that to somewhat being youre shifting you're shifting it from a 50 to $60. So basically you've cut the revenue have it too.
When you make those ships with it if I look at our seed portfolio.
Very happy where we are through the first half.
On the <unk> side of the business I might add this past year, there was very little price increase some see going into the 'twenty two planting season with it but.
Look our proprietary business was very strong through the first half we grew our seed margins about 30% on our proprietary business, we were up on revenue and margins really across all regions as it relates to the.
C portfolio and we've got an awful lot of momentum going and believe it or not we've started as policy campaign here in the last week and so we've got a lot of momentum going into that now you talked about seed pricing going forward and I think that we will see most of our states flowers. It may be missed that window last.
Year to raise prices I think we will see something significantly different.
Going into the 'twenty three season, I think canola, we're probably likely going to be up 5%, 10%.
Corn could be up as high as 10% pricing going into 'twenty, three and indication that soybeans.
Be up from 8%, 10% going into 'twenty three so we're going to see we're going to see a rise in seat couch coding in going into this new <unk>.
This new crop year, we were particularly strong or Madonna grow kraushaar, cotton and soybean and rice portfolio in rice was I introductory year about down the road $2 63, which we've had.
A tremendous amount of success in getting that in as well. So we think when this when this is done and the numbers are the numbers arent done for the year, but we think we will see a market share increase across our portfolio. This year.
Your next question comes from Christopher Parkinson of Mizuho. Please go ahead.
Great. Thanks for taking my question, just kind of a corollary of a bunch of these questions on potash.
But it seems as though that the Russians have figured out how to utilize their port systems and get some product out there, perhaps a little bit better than expected, but prices are still basically holding in it seems that <unk> are kind of at the lower end of that in terms of normalized export rates.
In terms of everybody trying to evaluate this over the next two to three years in terms of how tight the SD will actually be what's your updated detailed assessment of that shortfall.
Into next year into 2023, I mean, how much can both countries really ultimately figure out to get more tons 23 versus <unk> 22 and.
And just perhaps your major considerations. Thank you.
Yeah, well thanks, Chris for the question and yes, there is certainly a lot of moving parts and.
We're all seeing reports of various forms of shipment or not coming out of Russia, and Belarus, our estimate is that.
For the first half of 2022, Russian exports are down about 25%.
It's a pretty significant number and then what.
Belarus still not having access to tidewater.
We estimate that their first half shipments are down 50%, so really quite significant out of that part of the world and again recalling that.
Shipments out of Russia at least werent constrained in the first two months of this year.
As we look forward what for the balance of 2022 and into 2023, what might that look like.
Yeah for 2022 again, we expect the Russian shipments could be constrained by up as much as that 25% full year.
And then similarly with Belarus for 2022, we expect.
Experts could be constrained by 50% to 65% compared to 2021 level. So again really quite significant our assumptions for 2023 show that out of Russia at least we'll see more volume coming in you know some some channels will be developed.
After all Russian potash is not sanction is just that.
Financing activities and those things are making it somewhat difficult at the moment, but for 2023.
Coming out of Russia.
Think that the.
Production might be down.
In a range of say, 5% to 20% from 2021 levels and then out of Belarus again, much more significant because of these challenges.
Getting to port and so Belarus or assumption for 2023 is maybe 30% to 50%.
Reduction down from 2021 level. So that's what's in our assumptions in our numbers I know that.
Chris We see reports for example.
Belarus looking at shipping volume is via containers through.
The ports are in St. Petersburg in.
A lot of us stock.
I can tell you I have experience with that from Canpotex, that's a real challenge.
There are only talking about two to 3 million tons. So it's actually the volumes are relatively small, but even for 2 million tonnes. That's 80000 containers of potash.
At the load port those you need to tip off a container and stuff them full of potash and even more challenging than the discharge port they need to be equipped to tip those containers and empty them. So I think it remains to be seen how successful that will be but even.
If they are fully successful, it's only two to 3 million tons, which by the way they have to do in order to meet the bottom end of our range.
So that's at least how at the moment, we're seeing things unfold and hence our view that.
The fundamentals for products Youre going to mean remains strong rate through 2022 rate through 2023, and then it's going to be.
Fly constrained market.
Your next question comes from Vincent Andrews of Morgan Stanley . Please go ahead.
Alright, Thank you and good morning, everyone. I'm wondering if you can just give us an update on sort of how your digital strategy in retail is progressing any new initiatives.
Or just sort of benchmarks.
As well as maybe what youre seeing competitively if your larger competitors are advancing our strategies as well.
Great. Thank you Vincent and yes.
Here we are.
Just past the middle of 2022, and we have.
Pretty much surpassed.
Yes.
Through our digital platform.
In 2021, so just over $2 billion and we're on track to meet our target of $3 billion of cells through digital and you know a lot of that has to do with all of the work we're doing on digital agronomy.
And its success out in the field, but.
I'll hand, it over to Jeff <unk> to give you a little more detail and color.
Yeah.
Yes, Vincent thanks.
As Ken mentioned, we are.
We continue to make a lot of progress as it relates to our digital initiative, our digital platform. Our people in the field are really engaged in what we call a digitally enabled sales as Ken mentioned, we put but over $2 billion.
Through AD category year to date and.
Are people getting really comfortable with using these tools what I'm excited about is this fall we will release, our echelon two point out.
As it relates to digital and that's pretty much around our precision agriculture and.
I think thats, where the real value capture is.
For our business and our industry.
Our growers are getting more and more keen to using these digital tools.
And our agronomists, particularly.
This gives them a heck of an advantage in being able to look at look at our growers look at it on a bought deal basis and Mike.
Mike recommendations that just use a lot of data and the simulation to make to build the best crop solution going forward that allows our growers to maximize ROI and it also allows us an opportunity to capture margin as well with it and so where it's.
It continues to be.
Work in progress and I don't think we'll ever I don't think we'll ever see it not be a work in progress as new technology comes along.
We're really busy out trend to map as many of our growers feels as possible.
As it relates to that and again like I mentioned earlier, we've started our fall sales campaign and a big part about falls seat campaign right now is.
Being able to use our seats electric which is embedded in our digital platform. This helps our agronomist Mike.
Make the best decisions going forward for our growers on what germplasm, we want a place in which fields.
And again to give our growers best opportunity for ROI. It is also our digital platform is also core to our platform around sustainability and carbon and it'll play a very very essential role in that.
We had great pilots last year as it related to carbon sustainability, and we've been very public and committed that we're increasing those those acreage by three X. This year and so that platform plays a significant role and as you know sustainability carbon are going to play an increasing role going forward.
In the future of agriculture, and I don't think anybody out there is better position.
Nutrient and nutrient AG solutions is to capture that value going forward.
Your next question comes from Josh Spector of UBS. Please go ahead.
Yeah, Hi, I was just wondering if you could share some thoughts on China, and specifically anything youre seeing on production of nitrogen and phosphate.
No worries and export constrained environment right now given the limitations there, but is there any signs of an inventory build or change in production strategy that couple of shadow any shift into next year.
Well. Thank you for the question, Josh and I'll pass that one over to Jason.
Sure Good morning, Josh.
Yes, we've seen I think to some extent.
The industry in China, both from a nation production standpoint, and and phosphate.
Get surprised to some extent by the extended restrictions on exports that have taken place and so.
For the second half of.
2022.
Urea exports are really <unk>.
Constrained and restricted by the government.
On phosphate.
Export quotas have been put in place, which will reduce export volumes prior to that.
In the year urea production actually was up year over year. So despite the fact that.
Exports are down significantly in the first half of the year down from over 2 million tons last year to just over 700000 tons. This year, our production rates were up which.
In park points to higher domestic use but I think to your point also.
Domestic inventories rising and we've seen operating rates decline.
Since those added restrictions have come into place and domestic Chinese prices are declining so that's the <unk>.
Fred between the domestic Chinese pricing export price has widened as a result on the phosphate side capacity utilization rates have definitely decline, they're estimated to be below 50%.
And Thats one of the factors in phosphate plants produce low sulfur demandingly.
Dramatic decline.
And sulfur prices as a.
And part of the reduced demand from China.
As we go into 2023, the big factor to watch will be how international prices.
Perform versus the domestic market in China that the government in China appears to want even targets.
Lower prices for our Chinese growers.
Thank you very much and good morning.
Your competitors increasingly taking advantage of nitrogen export opportunities.
Moving products outside of the U S.
Their system, obviously has set up a little bit different than yours. As you look forward over the next five plus years and of course, you're building a new plant in.
In the U S. Gulf do you see yourself able to take advantage of export opportunities for nitrogen not just on the clean ammonia side, but really for <unk>.
Overall nitrogen.
Yes.
Good morning, Ben and thank you for the question I'll pass that one over to Rafe selling.
Yes, Ben.
The answer is yes.
And what I'd point to is the fact that we've been exporting will UA in.
This year, we've done previously.
Also actively looking at.
<unk> for exporting more ammonia instead of urea and <unk>.
Sure.
The work, we're doing with brownfield expansions is too.
Give us more flexibility.
To export.
When those activities.
Those opportunities okay. So the answer is yes, we would.
Are you doing it now and we are planning on expanding our capability of exporting in the future.
Operator, we have time for one more question.
Your next question comes from Michael <unk> of TD Securities. Please go ahead.
Great. Thanks for taking the question my question relates to potash demand in the rationing. We've seen this year you narrowed your 2022 global potash shipment guidance and Youre still looking at a <unk>.
Meaningful year over year decline in global potash demand this year due largely to the global supply constraints.
I know you haven't given guidance for 2023, but I'm wondering if you can share any thoughts you.
You might have on what the supply driven pullback of potash demand. This year likely means for potash demand as we look out to next year, and then how that might feed into the pricing outlook.
Great well. Thank you for the question, Michael and yes, there is a number of moving parts. There. Obviously, so many words, we just talked about as it relates to.
Challenges in Russia, and Belarus, but at the same time.
We ourselves as you know our increase in production.
So I guess, a number of moving parts, but I'll pass it over to Jason Newton just to provide a little more detail on our assumptions.
Sure. Good morning, Michael I think Ken touched on a little bit earlier as well as we look toward 2023, our expectation for belorussian suppliers would be pretty much in line with where the ranges. This year just given.
The expectation of continued port restrictions.
There are for Russia also I think just given what we've narrowed our range. This year, if we look year over year, we expect them to be down.
Two to 4 million tons. This year, we probably widened the range a little bit going into 2023 button in that.
Same.
Sort of range.
The one factor to watch for in 2023 is that neutral and we'll have additional volume too.
Insert into the market and so there is potentially increase supply.
Available that will.
If you think about the range of shipments would increase that range of shipments next year.
Probably in the range of one to 2 million tons versus this year's levels, but we know.
That because of the demand rationing that's occurring.
This year there is one.
Will you be pent up demand and so any surprise to the upside African supply perspective, we think will be absorbed particularly as we look at agricultural fundamentals.
Strength.
And demand.
Should that continue into at least the first half of 2023.
There are no further questions at this time I would like to turn the conference back to Jeff Holtzman for closing remarks.
Okay. Thank you for joining us today Investor Relations team is available for any follow up questions have a great day.
Ladies and gentlemen. This concludes your conference call for this morning, we would like to thank everyone for participating and ask you to please disconnect your lines.
Okay.
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