Q4 2022 Nutrien Ltd Earnings Call
At any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on February 16, 2023 at 10, a M. Eastern time I would now like to turn the conference over to Jeff Holzman, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to nutrients fourth quarter 2022 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 from these contained in our forward looking information.
Additional information about these factors and assumptions are contained in our quarterly report to shareholders as well as our most recent annual report MD&A and annual information form filed with Canadian and U S Securities Commission.
I will now turn the call over to Ken Seitz, President and CEO and Pedro fire, our CFO for opening comments before we take your questions.
Good morning, and thank you for joining us as we recap our full year results and discuss the outlook for our business going forward.
2022 was an unprecedented year on many fronts.
Your political events, most notably the war between Russia, and Ukraine contributed to significant supply disruptions across agriculture energy and fertilizer markets.
The supply shocks were most pronounced for global fertilizer markets, leading to higher prices increased volatility and major shifts in buying patterns throughout the year.
Nutria and delivered record earnings and cash flow in this environment due to the advantages of our world class production distribution and retail network.
We invested $2 9 billion to sustain our assets and grow our business, while returning $5 6 billion in capital to our shareholders through share repurchases and dividends.
We progressed, our sustainability priorities and most importantly continued to achieve industry, leading safety performance across our business.
Nutrient Ax solutions had another very strong year generating adjusted EBITDA of $2 3 billion.
This result was driven by higher sales and gross margins across nearly all product categories and regions, where we operate.
The growth and relative earnings stability provided by our retail business is an advantage that differentiates nutrient from our fertilizer peers.
We completed 21 retail acquisitions in our core geographies with a focus on expanding our network in Brazil.
This region is one of the fastest growing agricultural markets in the world and we see further opportunity to expand our network and provide whole Aker solutions to Brazilian growers.
We made significant progress on our sustainable agriculture initiatives that are a key component of meeting the 2030 commitments and are feeding the future plan.
We tripled the acreage enrolled at our carbon pilot program compared to 2021 and are seeing excellent engagement from growers and strategic partners across the agricultural value chain.
Turning to potash, we generated adjusted EBITDA of nearly 6 billion in 2022, highlighting the importance of having low cost operations that are backed by a reliable supply chain.
In the first half we sold record offshore volumes in response to increased demand from our customers and achieved higher realized selling prices.
As we anticipated potash volumes in the fourth quarter were down from the prior year as buyers in North America, and Brazil limited purchases and drew down inventory.
We adjusted our production plans accordingly, and pulled forward some maintenance activities. During this downtime preserving the flexibility to quickly ramp up production and stronger demand re emerges.
Our nitrogen earnings were supported by higher global benchmark prices and the advantaged cost position of our assets.
Nitrogen sales volumes in the fourth quarter were impacted by lower production volumes and cautious buying from both fertilizer and industrial customers.
The majority of the production losses related to Trinidad gas curtailments and extreme cold weather events that caused outages at our north American plants.
We completed emissions abatement projects at three nitrogen sites that represent a major step towards meeting our goal to reduce cotwo equivalent emissions by 1 million tonnes by the end of 2023.
Okay.
In phosphate, we delivered higher earnings due to increased selling prices in particular for our high value feed and industrial products, which more than offset a reduction in sales volumes.
The structural shifts in the market over the past year highlighted the importance of being nimble and adaptable and an uncertain global environment.
We will take the learnings from 2022 as we advance our plans for 2023 and beyond.
Now turning to the outlook.
The global grain stocks to use ratio is at its lowest point in more than 25 years, and we expect it will take multiple cropping cycles to restore stocks to more adequate levels.
Crop commodity prices are trading well above historical average levels, and we anticipate increased planted acreage and crop input demand in North America and Brazil.
In potash sanctions on Belarus, and restrictions on Russia have been in place for about one year and over that time as the volume of potash export it has not materially improved.
Belarus supply in particular remains constrained with shipments in recent months reported to be down more than 50% from the prior year.
This illustrates the importance of having a reliable access to tidewater ports and the challenges associated with reworking distribution channels were for a bulk commodity like potash.
Further we continue to believe projects that were under development in Russia, and Belarus will be delayed.
These expansions comprised about 60% of the projected supply entering the market over the next five years outside of our own increases.
We are forecasting that global potash shipments between 63 to 67 million tons in 2023, which is still well below our unconstrained demand estimates of approximately 70 million tonnes.
In North America, we believe retail potash inventories are down 15% to 20% compared to the prior year.
Following a healthy fall application season and limited restocking.
This estimate is based on the view of nutrient AG solution inventories and our assessment of broader retail channel inventories.
We had a good response to our winter fill program that was released in January although we are still seeing some level of buyer caution.
We expect an additional wave of buying to meet demand for the spring season.
This place to the strength of nutrients, leading production and distribution network in North America.
Brazil has been the most active potash market to begin the year and prices have stabilized following the significant destocking that occurred in the second half of 2022.
We forecast a strong rebound in Brazilian imports in 2023, and more normal seasonal buying patterns with demand increasing in the second and third quarters.
Global nitrogen prices prices have softened due to the sharp drop in European gas prices and by our deferrals.
We anticipate that north American nitrogen prices will firm as we approach the spring season, due to higher corn acreage and the impact of increased U S offshore exports in the second half of 2022.
We believe that there is a significant amount of nitrogen that will need to be levered delivered over the next few months to meet demand for spring application in the northern hemisphere.
I will now turn it over to Pedro to review, our guidance assumptions and capital allocation plans for 2023.
Thanks, Ken and good morning.
Based on market conditions that can just highlighted we expect to deliver historically strong earnings across each of our business segments in 2023.
Starting with neutral in AG solutions, we anticipate a recovery in fertilizer sales volumes and a reset in per ton margins similar to average values achieved in 2021.
We are seeing strong prices for most crop protection products and forecast margin percentages in line with historical average levels.
The midpoint of our 2023 retail adjusted EBITDA guidance range represents a 10% annual growth rate since 2018, reflecting the strength of AG fundamentals and strong execution of our strategic growth initiatives.
Our potash sales volume guidance of 13, 8% to $14 6 million tonne tonnes assume increased demand in our key markets of North America in Brazil, and continued global supply restrictions, we have maintained the flexibility to increase sales volumes to around 15 million tons in 2023.
Hi.
If we see stronger engagement in the market.
As demonstrated in the past there is tremendous economic value in having the capacity to meet surges in demand and nutrient has an unmatched ability to deliver when this occurs.
Our nitrogen guidance reflects the recent decline in benchmark prices and assume some strengthening prior to the spring season.
We expect higher nitrogen sales one is in 2023 due to strong demand and increase operating rates at our North American plants.
We are forecasting Trinidad gas curtailments of approximately 20% similar to the impact in the second half of 2022.
Cash from operating activities is projected a five five to $6 5 billion in 2020.
Our conversion ratio. This year is impacted by timing of cash tax payments related to our record earnings in 2022 without.
Without this impact our conversion ratio would be estimated at around 75%.
Which is more in line with our run rate expectation. This is the basis, we will make capital allocation decisions through this cycle and can utilize the strength of our balance sheet, if necessary to normalize timing related fluctuations in cash flow.
We remain confident in the long term outlook for the business and plan to invest approximately $3 billion to sustain our assets and advanced high return strategic growth initiatives in 2023.
In retail our focus is to strengthen our network in Brazil in the U S expanding our proprietary product offerings and enhance our digital capabilities.
This is very consistent with our retail investment priorities in the past.
In potash, we continue to progress the ramp up of our existing low cost potash capacity, but have adjusted the timing to optimize capital expenditures in line with the pace of projected demand recovery in 2023.
We will maintain a flexible approach and now expect to reach 18 million tons of annual operating capability in 2026.
We have the advantage of bringing on this capacity in increments at a very low capital cost per ton and continue to believe there is significant value in having flexibility to increase production when the market needs. It.
Our nitrogen investments focus on concluding flight low class brownfield expansions decarbonization projects and advancing front end engineering work for propose geismar clean ammonia plant.
Went in and making a final investment decision on this project in the second half of the year.
Finally, one of our plans for returning capital to shareholders.
We completed our 10% in CIB in early February and have purchased more than 150 million shares since the beginning of 2018, reducing our number of shares outstanding by approximately 23%.
Over this period, we have also demonstrated the ability and commitment to provide a competitive stable and growing dividend through the highs and lows of this cycle.
Moving forward, we intend on factoring and the changes to the share count as a part of the decision criteria for future per share dividend growth.
Yesterday, our board of directors approved a 10% increase in our quarterly dividend and authorized a new 5% share repurchase program. It provides optionality for additional share repurchases in 2023.
I will now pass it back to Ken.
Thanks Pedro.
I would just make a few final comments.
Outlook for our business remains strong global grain and oilseed inventories are tight structural supply issues persist and demand for crop inputs is expected to increase in 2023.
We will remain disciplined in our capital allocation approach as we position the company to serve the needs of our customers, while delivering long term value for our shareholders.
Finally, I would like to thank our nearly 25000 global employees for their hard work dedication and focus on safety over the past year.
It is through your efforts that we delivered record results in 2022 and position the company for success in the years ahead.
We would now be happy to take your questions.
Okay.
Thank you ladies and gentlemen.
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One moment. Please for your first question.
Your first question comes from Andrew Wong with RBC capital markets. Please go ahead.
Hi, good morning.
So actually I wanted to ask a bit about the potash strategy here and just how how many market conditions affect both your shorter term kind of production decisions and the longer term wrap up path.
Like what kind of signal do you need for demand and pricing for raising production and ramping up capacity and do you kind of tend to wait for some of these signals to show up first or.
You maybe increase production as you might expect some of these signals to show up on Scott.
Luckily it a little bit more on that thanks.
Yeah, Good morning, Andrew and thank you for the question.
So yes, obviously through 2022, we saw movement in inventory and some of the reactions to the supply side challenges related to <unk>.
Going sanctions against Belarus and of course this conflict in Eastern Europe , which has created export challenges out of Russia.
And so as we looked at the impact not only in the near term.
Some of those supply disruptions, but also as we mentioned the impact on new projects that are under development and 60% of the new production coming to the market. We believe it is delayed we believe that those sort of underlying supply challenges will persist and we believe that that will persist.
Into the certainly near term and into the medium term as well.
And the other side of the equation with these very strong AG fundamentals. We believe that we are heading into a strong spring application season in North America, but that also not all demand fits into the calendar year and again with some of these movements on inventory. We're just looking at the needs of our customers.
And as we said throughout 2022, we will look at those needs will look at the evolution of those fundamentals and we will pace our investments in that wrap up accordingly.
So again looking at 2022 and the movements there 2023 strong demand, but then pacing out those investments we thought it prudent to take some of our off France pace pace, the ramp up of potash production and meet the needs of our customers. So that's what we're doing these <unk>.
<unk> are spread across across dozens of projects at four mine sites. So we do have that flexibility. We do have that optionality and of course, we'll be watching the signals in the market from our customers also just finally say that.
Of being nimble.
We can we can.
Execute against these capital programs and we do not have long lead time items here, where we really need the signpost to be showing up years in advance in fact, we can watch the signposts and the Martin more near term and again execute against our capital plans and ramp up potash production.
Your next question comes from Jacob bout with CIBC. Please go ahead.
Good morning.
Our question is.
Just on.
This cautiousness that you've seen in the first quarter.
And the risk there could be a snapback in fertilizer markets in the U S.
The spring season.
We get into some supply chain issues and overheated markets.
Yes, good morning, Jacob Yes that is.
Actually what we're seeing at the moment that you can point to nitrogen.
We typically typically have a seasonal lull this time of the year.
And we see that in potash as well, but recognizing of course that when farmers get out on the field is going to meet needs to be a significant amount of volume that needs to move through the channel.
So at the moment, yes, we see.
Cautious buying the reality is that the fundamentals have improved for the farmer because the backdrop on the AG fundamental side is strong and of course fertilizer prices have come off so that affordability is improvement I'll hand, it over to Mark Thompson, our chief commercial officer to provide some more color sure hi, good morning, Jacob I'll, maybe make a few car.
Comments, and then perhaps have Jeff talk about the inventory positioning and network at the retail level as well.
From a producer standpoint.
I think what you've pointed out is absolutely correct we have seen.
And in the channel, it's a little bit different on potash and nitrogen I think from a potash standpoint, the inventory destocking process, we expected to see in North America, particularly in Brazil through the end of Q4 really didn't take place.
A north America standpoint, we saw inventories as we assess them at the customer level down in that range of 15% to 20% and I think Jeff in the nutrient Ax solutions team to corroborate that trend.
Our winter fill program that was put out early in 2023 had a good response, we felt about 70% of the program, which would be modestly below historical levels and I think that reflects the overall caution that youre talking about of course, Jeff will be able to talk about the expectation, we do see strong grower demand coming.
But really there is this cautious approach because of price volatility that's delayed some of that purchasing and <unk>.
Assuming that we do see strong fundamentals emerged.
Right.
Strain on the supply chain I think this is an area in potash in particular, where nutrient is exceptionally advantaged our terminal network and distribution assets as it relates to potash I really unparalleled in the North American market. So we are set up very well to deliver.
When that spring demand breaks I think the same would be true from a nitrogen standpoint in nitrogen. The channel is probably about average purchases relative to historical levels, but again, we have seen some grower caution.
Our network is positioned to meet that demand.
Got it good portion of the second quarter order book that we've intentionally have uncommitted at this point to sell into what we expect to be firmer fundamental so notwithstanding.
The caution you've talked about we think we are very well positioned but I'll pass it to Jeff to maybe comment on the retail level position yes.
Obviously agreed with Colombia, it's bought by Ken and Mark.
If I look at our inventory levels today in our AG solutions business were a bit below where we would historically be on inventories and you got to go through it by product, particularly with potash.
But I always go back in when I look at the fundamentals and what I think which will be demand driven.
I'll go back first to prepay in the fourth quarter, we had very strong prepay for my customer base in the fourth quarter.
If I look at our seed book to date, our seed book is very strong as well so what I'm absolutely convinced of is we're going to plant a big crop.
Globally.
Around these commodities.
We also have the ability to look we do extensive solo testing and so we've got our ability to look at it and see what the so what fertility levels look like.
If I look at a product like potash, obviously about 40% of that was tested say were below some standard of where we need debate in order to maximize yields so to say all of that Jacob It probably gets back to where you started this thing is that we anticipate a lot of buying for the spring and Youre right we could.
We could have some supply chain constraints of product then start moving from my perspective within our retail organization not feel strongly because we've invested very heavily in our supply chain, but growers just been a little bit slower in a lower cost environment to come in and commit particularly as it relates to nutrition.
Your next question comes from Joshua Spector with UBS. Please go ahead.
Yeah.
Hi, Good morning, this is Lucas Beaumont on for Josh.
So just focusing on potash sales. So could you just let us say how much of your first quarter order book is locked in currently and what prices are sort of locked in at at the moment.
Are you expecting any sequential move up in pricing from where it is now kind of baked into your guidance. Thanks.
So yes, good morning, and I will just say that.
Just echo what.
As Mark shared about our our fill program where in North America, we were 70% subscribed and feel good about our position here in the first quarter offshore canpotex as well committed into the first quarter, we wont comment on prices, we don't comment on prices.
We're guiding this year to $13 eight to $14 6 million tons for the year. We do believe it's a supply constrained market. So that we're saying shipments of 63 to 67 million tonnes.
And this year in.
And so that.
Depending on how the year unfolds and certainly depending on the timing of India and China contracts again, we're preserving capacity sales capacity at 15 million tonnes again, depending on the timing of some of these settlements.
Your next question comes from Joel Jackson with BMO capital markets. Please go ahead.
Hi, good morning, everyone.
I was interested in your comments on retail are expecting similar margins in 'twenty three as you did a couple of years ago.
And it's about 350 $350 million contraction retail earnings in 2023. So can you talk about when I think about $350 million lower earnings 23, how does that shake out for commodity prices versus volume versus other things and again, partially offset by some of the M&A you've already done and then how do you get retail <unk>.
<unk> that are in line with the last couple of years in a lower commodity price environment, we are not getting inventory gains.
Yes, good morning, gentlemen, thanks for that yes, so we have been growing by our retail business, both organically and Inorganically and so that's certainly a refresh fully reflected in our view of 2023, but.
But as you say we're also.
Expecting a bit of a reset as it relates to.
Nutritionals as it relates to fertilizer and those those fertilizer margins, but also as it relates to crop chemistry, but I'll hand, it over to Jeff <unk> to provide more color.
Also most about rise up last year and retail was in basically in the North American market.
And as Pedro talked about in his commentary, we expect the reset of margins in our North American so almost all of our reset will comment on North American market.
Acyclic fall into two buckets, it will fall in the crop chemistry bucket and the fertilizer bucket and basically what we're doing is we're going back and anchor in our self to 'twenty one.
And if I look at both of those two categories.
On a margin per ton basis for FERC Lazar, we're going to be slightly above where we were at <unk> 21 for our projections for 'twenty, three and our crop chemistry.
Gross margins are going to be basically in line with where we were in 'twenty. One. So obviously you talked about earlier.
We caught some appreciation in both of those two categories really over the last 18 months and we don't expect to see that same appreciation in 'twenty three as Ken talked about things that we do.
We're constantly trying to grow our share of our proprietary business and.
Last year, we had an exceptional proprietary year Bob.
Revenue was up over $400 million, our gross margins were up just under $175 million and so.
New product launches contributed about $10 million of EBITDA, what I'm excited about when we look into 'twenty, three and again the ability to expand our margins past historical.
We will be launching two new six new plant nutrition products.
In Australia will be.
Launching six new crop protection products in the U S and seven new products in Brazil. So we're going to we're going to continue to emphasize our proprietary products and look at margins our margins will still be in my opinion very attractive.
From a from a nutrient standpoint from a cost and from a crop protection standpoint again, when you look at it all and historical basis.
We expanded our margins last year had plant nutrition.
Substantially and we look to continue that growth in 'twenty three as well. So we have a lot of labors that we could both as it relates to that.
Your next question comes from Ben Isaacson with Scotiabank. Please go ahead.
Thank you very much and good morning.
My question is about global potash demand.
Had 70 million tons in 'twenty, one about 60 million tonnes in 'twenty, two and you're calling for about a rebound about halfway and the question is why arent, we getting back to 70 million tonnes.
Countless from what it sounds like channel inventories.
<unk> soil inventories are either average or below normal farmer affordability.
For potash has improved not just because potash prices are lower but because nitrogen and phosphate prices are lower as well we had light demand last year, we had a drought last year.
You talk about caution in deferral, that's more of a timing issue. So why are we not getting back to the full 70 million tons and if it's just because it's supply constrained and why are you going down from the 50 million tons you talked about in November to roughly 14 million tonnes now thank you.
No those are great observation has been thank you.
So we would agree with you that if we look at the unconstrained demand that we would see on the planet given this very strong backdrop that we see with the AG fundamentals and certainly the way farmer affordability has improved with the softening of price that if on an unconstrained basis, we would be at $70 million.
<unk>.
But we do believe given these.
Pretty extreme supply side challenges that that ship ins. This year would be in the 63 to 67 million ton range.
But the reality is that that doesn't that doesn't all fit perfectly within the calendar year. So that if we look at 2023 and we look at inventory levels around some of these major markets certainly we've seen destocking.
And in North America, and Brazil, but we are watching inventory levels in China, which would be $2 3 million tons. Today, So certainly getting getting below historical averages and in India for example, where for all intents.
Inventory levels are low, but yet at the same time still haven't seen here we are into the middle of February I haven't seen a contract and so as that contract is delayed when we look at 63 to 67 million tons 70 million tons of unconstrained. It just doesn't fit within the calendar year and hence we're working hard now to.
Plan, our volumes to meet the needs of our customers here in 2023, but of course looking into 2020 for now as well.
Your next question comes from Steve Byrne with Bank of America. Please go ahead.
Yes. Thank you Jeff Tarr. So you mentioned an increase in fertile soil testing and 40% of them were were below adequate levels in potash. My question for you is for those growers.
That are looking at data like that are they likely to return to maybe a normal application rate could they potentially go.
No higher than where they were in 2021 and would you expect a similar situation.
Other parts of the World, maybe maybe tap into your your.
Channel down in Brazil, and Australia are you seeing this trend of bill.
Below normal potash levels in soil in other regions as well.
Yes, Steve Good question Ed.
Obviously I have a lot more visibility into those results in North America as opposed to Brazil, because as you would know we own one of the largest.
So all analytic lay ups.
America Wakeboarding analytical so great. We have a lot of data that we can power through to look at that and we provided interestingly enough. We provided that data for each of our divisions and even down to the county level, where we can assimilate. This data I think if I look back to the <unk> Steve.
We actually had a very strong fall application.
Both P and K.
North America, and I was quite satisfied with the range.
I think growers will usually.
And I do agree as these products become more economical if we had a lot of product banked and so over the last couple of years, you've got the last three follows all three been record volumes in North America and.
So I think as the product becomes more affordable.
I would I would expect to see some rates increase.
Across these products I was doing some math today.
These growers are spinning up to $150 an acre over their hybrid corn varieties and these varieties are very temperamental with A&P K levels and so I don't think growers are going to risk any yield.
From that standpoint, as we get into Brazil, you talked about Brazil, and as you know those sold you're not able to bank nutrients like we can across the corn belt. There. So it's more but just in time market.
Ken and I and Pedro we're just in Brazil last week and.
And we had a chance to visit which growers as well as our our people as well and the safford.
Season looks strong, it's a little bit slower, but it's slower because whether it's related to weather. So again, the economics and the fundamentals are strong there I think the growers will give the prop.
All the juice at an age to maximize out on yields.
Yes.
Your next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
So a question on on potash demand and really outside of North America, and great thinking in the different parts.
Asia.
And the the view you have.
On channel inventories in the key importing regions Southeast Asia in China, and India to it that would inform kind of an importer behavior.
That seems to be.
Kind of mirroring that kind of slowness in tentativeness that youre seeing.
Or have seen in the U S.
In Brazil, and Brazil, and then a second question if I may just on the growth investments that you alluded to for the year. There was a discussion on the retail side about digital.
I was hoping you could just elaborate on what that actually encompasses especially where that would seem to be a capital expense as opposed to an operating expense. Thank you.
Yes, good morning, Adam Thank you for the question so.
We can certainly do.
Market by market.
Discussion about inventories and yes, Siemens Destocking again in Brazil.
And we can talk about India, China, and Southeast Asia, I'll hand, it over to Mark Thompson did provide some color there and then we can go to the digital question, where yes, we are seeing substantive growth on.
On digital.
As it relates to putting dollars through that platform and certainly the type of investments, we're making there but.
Mark over to you.
Yes, Thanks, Ken Good morning, Adam So maybe just.
Cover a bit of ground that Ken and I have talked about already again, I think from a Brazil and in North America standpoint, the destocking process throughout Q4. It did take place I think largely as we had anticipated in November we've talked about North America, estimating down 15% to 20% and the channel relative to the end of 2021 at the end of 2012.
Two from a Brazil standpoint, we estimate that Brazil would have ended flat slightly up after our historic surge in first half imports and equally historic drop in in second half imports into Brazil. So we estimate Brazil, probably ended between 181 9 million tons at the end of 2022 and inventories relative to <unk>.
One 7 million tons and done some deep dives studies on that market.
Property at that number and obviously have seen really good engagement to start the year in Brazil, and some stabilization as well to your question on India, China Southeast Asia. Other markets, maybe we can just do a little bit of around the world I think from an India standpoint, again, India ended the year at historically tight inventory levels.
And as a result, we expect theyre going to be the first to settle.
To China from a contract standpoint.
Inventory levels were about 130000 metric tons to support which would be about flat to 2021. So again, we view the impetus as being strong for India to settle a contract in the relatively near term.
From a Chinese perspective, we estimate that China would have ended.
Just over two 5 million tons at the end of 2022.
That would have been up modestly from the prior year, but again below average levels and we also estimate that those inventories have been drawn down to some degree. We now estimate there are about $2 3 million tons I think importantly in all of this from a Chinese perspective.
Their strategic reserves for drawn down by about 1 million tons. In 2022, we have the view that those would need to be rebuilt throughout 2023, and I think important to the inventory equation in China is also production in.
We view that Chinese production levels in 2022 at around 7 million tons are likely not repeatable. So we expect that number to drop as well in 2023. So again I think a good backdrop from an inventory standpoint in China, and then just to round things out in southeast Asia, Our view would be currently that Malaysian inventory.
These are relatively balanced and in a good spot in Indonesia is very close.
You see Indonesia, probably coming into balance here over the next couple of weeks in fact, and we expect very good engagement from both of these markets as we get into Q2. So of course the catalyst for this will be continued movement of product and liquidity in Brazil, which we've seen but also the settlement of contracts, which will provide price discovery for these international.
Markets to begin to Paul So as Ken said all of these things don't fit perfectly into a calendar year, but we do believe that once we see contract settlement in this engagement reemerge that we are going to hit a very strong run rate for global potash demand. So.
I'll just pass on question on digital capital expenditures.
Yeah. Thanks.
<unk>.
We do continue to invest in our digital platform and we think that our digital platform is essential to the total platform that we run at IAG solutions business and you know what.
If I look at our focus today, which is centered around becoming the most customer focused.
Being able to provide the most customers focused sustainable solutions to our growers and.
And digital is going to play an absolute central park in the decision making process.
And this requires a lot of data generation and it requires a lot of data mining and <unk>.
For instance, if I look at our seed shelf and the growth projections that we have around C. A lot of that growth and our handle part of growing our share in that seat business is going to be able to is around mining data collecting data and being able to provide that data back to our growers in a really timely fashion.
Also we just finished.
Just finished a tour around our complete.
AG solutions business.
Basically since the second week of January and nowhere have we banned and not any pharma group have we talked to that to <unk>.
Discussion there has not been around sustainability and sustainable solutions going forward in agriculture, and I can tell you that youre not going to have a sustainability platform without a digital platform you've got to have it be able to collect your data you got to be you got to have it to be able to validate that data as well.
Crop basis. So we do feel very strongly about this and we're very committed to it and very committed to it being a central part of our platform.
Your next.
Western comes from Christopher Parkinson with Mizuho. Please go ahead.
Very helpful chart on page 25 in terms of your expectations.
Yes for production across the various geographies can you sit on a little bit more on how this flows into your high end the low end of Europe potash guidance in terms of.
If if demand first turning towards the high end of your let's say global range is that are those tons, mostly going to be coming I assume presumably from canpotex and.
And what what would be your baseline expectation for the growth in North America once inventories normalize between you and the other North American producers just any general framework on how that flows into the high and the low end of the potash guidance would be very helpful. Thank you so much.
You bet, Chris Yes. Thanks for the question Yeah, we have the big the big supply challenges are the ones, we talk about and that's putting a range on what.
We believe it could happen in 2023 out of Russia, and certainly out of Belarus, with the nimble flexible supply being our own but I'll hand, it over to Jason Newton to provide more detail.
Thanks, Good morning, Chris Yes, as we look at the range that we have for potash shipments globally.
Top into that range in particular is.
Strictly by the level of <unk>.
Production globally, and so that's really what.
What cap side out and if we look at the range we have for shipments from.
Hello roofs in Russia.
Respectively.
<unk> to be down 40% to 60% in 15% to 30% versus 2021 levels and so that really constrained the top end of that.
The shipment range.
And similarly, as we look throughout that range given that wide.
Level of uncertainty and shipments from that Russia and Belarus.
There's a number of scenarios that can develop within that range that leads to.
The potential for higher production from nutrient swing producer within that.
At that level. So it really continues to be a supply.
Constrained environment in 2022, notwithstanding the slow start to the year, which also limits the production and as we look forward and we show in the slide deck as well.
The range of shipments going forward, we don't see potential midpoint of that range of shipments getting back to trend levels until 2025, and if we look back over the last 20 years, there hasnt been a period of more than two consecutive years, where shipments are falling below trend levels. So if supply becomes available we would expect.
Good afternoon.
Your next question comes from Jeff Zekauskas with J P. Morgan. Please go ahead.
Thanks very much.
You commented on soil testing for potash in the United States.
Did you also look at soil testing for phosphate.
As phosphate under applied.
And in the first quarter of 2023 have you hedged your gas in the United States and in Canada.
Or is it more free flowing and you can get the benefits of the guests decreases.
So.
With respect to soil sampling and phosphate.
Levels in the soil short answer is yes, we do we do look at that and I'll hand, it over to Jeff Tarr seem to provide that color and then talk about hedging for gas I'll hand, it over to Pedro.
Yeah, we look when we were doing a solo testing where not only tested if being K were tested for micro nutrients as well.
And the sole so they're very very comprehensive.
Testing, we do see a trend that similar to the potash potash kind of stuck out to me a bit.
Phosphate reduction wasn't quite as much as.
As we saw a CRO so stage, but still we saw significant amount that we're under some desirable level there, but again, we're doing this testing in.
We're writing scientific prescriptions for the crop and the variety of the hybrid and such and so we obviously, we could take these test and do a lot with as far as building our solutions out.
Going forward and this is not something new we've been doing this testing for a number of years, but we have we've seen the testing increased over the last three or four years caused growers more PNR agronomist board can again to making such base decisions on what we deliver.
Maybe just the spear drew I'm going to comment a little bit on the hedging from a financial standpoint, our best of traveling to talk about the commercial standpoint, too because we are essentially.
Both financially and commercially hedge in terms of gas, but from a financial standpoint, we have been.
Our hedges have been somewhat immaterial I would say less than 10%.
Ebb and flowing.
Through that we see greater opportunities to hedge at this point from a financial standpoint, since we are reaching us until levels kind of a low levels here. So we're looking more closely into data at this point in time, but they have not being that material up until now so I'll pass it on the traveler because a good.
Portion of our production is hedged but commercially so yeah. Thanks for the question and the high level. We are in the range of about 20% that's naturally hedged with some of the industrial con.
Contracts that we have both in North America, and obviously in Trinidad as.
Pedro alluded with some of the seasonally low pricing that we're seeing right now both in North America in Canada and U S.
Valuation opportunities to hedge vendor lock in some of that that position here going into the remainder.
Your next question comes from Michael to home with TD Securities. Please go ahead.
Thank you.
Ken I know you said you don't.
Intend to comment too much on pricing, but when we look at the 2023 guidance. You've provided are you able to talk at all about what you've assumed in terms of realized pricing for both potash and nitrogen.
At the high end versus the low end of the guidance ranges you provided.
Yes.
Michael Yeah, I can speak in general terms to say that we're sort of looking at potash pricing where it is today. So you can point to for example, sort of 500 to 520 in Brazil.
And.
Thinking about that as a bit of a benchmark and sort of flat pricing, let's say throughout 2023 from those levels.
<unk>.
With all of the dynamics, we just talked about we could see volatility around some of those numbers, but that would be our assumption today.
As it relates to nitrogen we do.
<unk> firming in price from the levels that we're seeing today and it's for all the reasons that we talked about.
Your next question comes from Vincent Andrews with Morgan Stanley . Please go ahead.
Hi, guys. This is <unk> on for Vincent Thanks for taking my question.
So you've guided 2023 down across all your major business segments with the exception of phosphate at the midpoint I'm wondering if you could help me bridge between 2022 and 2023, what's driving the relative strength, there, especially as it looks like the underlying commodity fertilizer prices are going down on a year over year basis.
Yeah, I think what I would say well is just what we've talked about on this call and that is that the big impact has been we've seen just the softening in commodity prices from peak 2022 levels and so if we're if we're comparing across our <unk>.
Business.
Nutrient business potash nitrogen.
That's the story is.
Our net backs if we're talking about margins in retail, it's really that reset on crop nutrients and crop chemistry.
It is offset by higher volumes across.
And TK side, it is offset by higher volumes, but again, we have this netback.
And then finally I'll just say again, we do have this timing thing going on where not everything fits within the calendar year.
Your next question comes from Steve Hansen with Raymond James. Please go ahead.
Oh, yes, good morning, thanks for the time.
A question for perhaps Ken or Mark I was just hoping you could speak to the opportunity for continued synergy extraction from the integrated business model.
Does defined nutrient now we obviously saw an intense focus on synergies.
In the early years post merger just curious whether you could comment on there is another round of synergies to come or whether that's more of a secondary focus at this point. Thanks.
No Steve. Thank you for the question and yes, we certainly do see opportunity in fact.
We created.
This structure in 2022 to establish.
Commercial <unk> within nutrient that Mark Thompson, our Chief commercial officer, who is heading up and yes.
That is.
We are seeing opportunity, there and that's evolving but I'll hand, it over to Jeff and to Mark to talk about exactly yes. So some of those opportunities, we're seeing and as you say, Steve what the synergies might be.
Yes, I'll make a few comments and then I'll turn it over to Bart <unk>.
Market.
I have worked very close together over the last several months and.
From a from a retail perspective, I mean, the two buckets that outlook in ore.
Number one logistics and what can we do to take some cost out from a logistical side of it and a lot of cases up upsides organization using some hussein carriers at different rates and so how do we get more efficient and from that standpoint, how do we touch product less.
And we do today, and then overlaying a footprint of our assets together.
From a terminal storage standpoint, and how do we better utilize those assets.
Think of anybody better than bark.
The deep through those opportunities with myself and.
That's what we plan on doing going forward, then Mark I'll, let you get a little bit more granular in some of that sure. Thanks, Jeff and good morning, Steve. Thanks for the question, Yeah, I wholeheartedly agree with everything that Jeff said I mean, we both believe and I think the executive team believes there is more opportunity in the integrated model to continue to extract value for shareholders.
And really develop competitive advantages for the company and so I see those as Jeff said falling into a few different categories. I think three primarily I think the first is really on optimizing the procurement sourcing relationship.
And sales relationship within the company and as the retail network continues to grow globally throughout nutrients as we continue to expand volumes and our production business. It does open up new opportunities to look at how we sell and procure within the company to optimize value throughout cycles. I think a great example of that is in the fourth quarter that we just saw in our historically volte.
It'll period now Im looking at our supply chain, Holistically and being able to forward placed product something that the nutrient AG solutions and nutrient team work done to ensure that we're maximizing channel margin for the company I think a second category that Jeff mentioned and explained very well.
Is around network optimization.
TD Enel vendor management and all of these areas that we can really optimize the wave product is moving around the network and look at storage and distribution.
Across the nutrient enterprise and then I think lastly, a real opportunity around <unk>.
Specialty products growth.
Think Jeff has talked this morning on the call about really.
Evolution in thinking at the grower level and the need for specialty nutrition, a more sustainable products. We've got great products inside of nutrient like ESN and map MST and really continuing to work together on a network basis to put those products in our customers' hands. So this is something that's ongoing over time and I think can continue to add value to the company.
As we move forward.
Your next question comes from P. J.
<unk> with Citi. Please go ahead.
Hi, This is Patrick Cunningham on for P. J. Good morning, what are your expectations for seed prices of the season and then for your own dining aristide's, what's the market share currently.
The expectation to grow market share this year. Thank you.
Yes. Thank you for the question Yeah, we're certainly constructive on seed and.
I'll hand, it over to Jeff to talk about that yes.
Yes.
I'd say that overall and here. We just finished in 'twenty. Two we had about a 30 basis point increase in market share across our total portfolio.
If I look at the seat price book for 'twenty, three we've seen somewhere between a <unk>.
But let's say depending on the crop somewhere between a 6% to 10% increase in seed prices year over year and.
Being reflective in the 'twenty two season, mostly companies chose not to have any price increase at all so we were expecting an increase for 'twenty, three and again somewhere between that 6% to 10%.
Standpoint look Donna grow continues to be an integral part of our seed strategy and.
We continue to work to strengthen our portfolio.
Either through proprietary breeding or through our strategic relationships we have.
With our suppliers.
We've had.
Major successes this past year, particularly with rice, which is our data rose to 63 line.
The proprietary.
<unk> Plaza bread within within our business.
And we've had a lot of success there while we continue to have success with our proven canola brand and.
You mentioned data grow we would think our share increases would be in line with what we saw across our broad portfolio.
Your next question comes from Richard <unk> with Wells Fargo. Please go ahead.
Good morning, Thanks for taking my question.
Yes, just quickly on the potash strategy I just wanted to touch on so the decision to delay the ramp up to 18 million tonnes.
Potentially by 2026.
As you ramp up or is it based on the assumption that you get unconstrained demand of 70 million tons at some point.
And then as a follow up so if we see.
Things continuing to remain constrained on the 63 to 67 million tonnes can.
Can you continue to defer the ramp up I guess is there any issues related to that in terms of equipment orders or site preparation that type of thing.
Yes. Thank you for the question, Richard and I'll start and then I'll hand, it over to Chris rental is just to talk about optionality that we have.
As it relates to the ramp up but it's just to say that and just echoing Jason Newton comments earlier, we believe that we are going to be supply constrained environment here for a few years and what.
What's the reason for that well, we do see demand growing I mean for all the reasons, we've talked about the fundamentals are strong but but.
Are we back half over the last 20 years potash demand has grown has been growing at over two 5%.
CAGR and so in an environment, where demand is continues to grow unconstrained demand continues to grow but yet we have these supply side challenges, we will be in a supply constrained market and hence our view of meeting the needs of our customers wrapping up potash production, but I'll I'll hand, it over to Chris Ryan was just to talk about again some of the Optionality that we have.
As it relates to the nimbleness of our ramp up capital program, Yes.
Yes, good morning, Richard Thanks for the question. So yeah as you mentioned and as we mentioned last year. When we first announced this ramp that we.
We had already built in numerous off ramps that we could trigger if market conditions changed a little bit from El al assumptions and so.
This plan to ramp up 18 million tonnes involves dozens of projects mainly across four of our potash sites and equipment, that's mainly related to underground operations mining machines and conveyor belts.
So yes. We are these are not as Ken mentioned in his opening remarks. These are not long lead time items and again, if things were to change materially in terms of timing, we could we could delay.
The purchasing of some of this equipment, but again the longer term outlook.
Outlook that we have and the need that we believe the global market is going to have for 18 million tonnes for nutrient.
Is still intact and we're really just delivery.
Delivering on what we'd already explained when we first announced the ramp.
There are no further questions at this time. Please proceed.
Thank you operator, and thanks to everyone for joining us today investor relation team is available for any follow up calls.
Eight day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
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