Q1 2023 Nutrien Ltd Earnings Call
Speaker 1: But this product is moving through the channel in the second quarter as field work has accelerated.
Speaker 1: Seed sales and margins improved due to higher prices, increased crop acreage, and the strong performance of our proprietary seed lines.
Speaker 1: We completed eight retail acquisitions during the quarter in the U.S., Brazil, and Australia.
Speaker 1: In Brazil, our primary focus in 2023 is on the integration of acquisitions completed last year.
Speaker 1: We had good initial uptake for our Potash Winter Fill Program in North America, however volumes were down from the prior year as customers purchased on a just-in-time basis. Campotex sold record volumes to Brazil, driven by strong demand for the serfina planting season and lower imports from Eastern European producers compared to Q1 2022. Potash shipments to spot markets in Asia declined as our customers worked down inventory and contract settlements with India and China were delayed as buying patterns continued to evolve.
Speaker 1: Global potash prices were relatively stable to begin the year, but declined later in the quarter due to the lack of consistent market engagement.
Speaker 1: We adjusted potash production across our low-cost network and pulled forward maintenance activities, preserving the flexibility to quickly ramp up production when stronger demand re-emerges.
Speaker 1: Nitrogen benchmark prices were highly volatile due to a sharp drop in European gas prices, lower Indian urea imports and weaker industrial demand.
Speaker 1: Our North American nitrogen plants operated very well in the quarter and benefited from low natural gas costs in comparison to other global producers.
Speaker 1: Trinidad was impacted by gas curtailments of approximately 20%, which was in line with our previous expectations.
Speaker 1: We are progressing well on engineering work for our Guismar Clean Ammonia project and remain on track to make a final investment decision in the second half of 2023.
Speaker 1: Our phosphate business benefited from the stability of our feed and industrial product lines partially offsetting the impact of lower sales volumes and fertilizer prices. We completed maintenance and reliability initiatives during the quarter and are targeting utilization rates above 90% in the second half of the year. Turning to the outlook. Geopolitical and weather-related challenges continue to impact global agriculture commodity markets.
Speaker 1: 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.
Speaker 1: Agriculture is a seasonal business and there has been some near-term pressure on crop prices resulting from a record Brazilian soybean harvest and favorable planting progress in the U.S.
Speaker 1: Even with this recent softening, new crop futures for corn, soybeans and wheat are around 15% above the 10-year average.
Speaker 1: Growers are increasing acreage and have the incentive to invest in their crop, leading to strong demand for crop inputs as the planting season progresses in the northern hemisphere.
Speaker 1: To give you some context from a fertilizer demand standpoint, our second quarter US retail fertilizer sales volumes are currently up 40% compared to the previous year. With product moving rapidly through the supply chain, we have seen some spot shortages in the US in particular for potash and urea.
Speaker 1: This is highlighting the challenges that can emerge from just-in-time purchasing. Retail fertilizer inventories are projected to end the second quarter down significantly compared to last year, which supports the need for a strong summer refill.
Speaker 1: We expect second half global potash demand will be up significantly compared to the same period in 2022 with the majority of the increase in Brazil and North America which are the two largest markets for our potash.
Speaker 1: The timing of a new China contract remains uncertain, but we do not view this as a significant impediment to our recovery and global demand.
Speaker 1: Global trade flows have evolved over the past year and China's seaborne imports now represent only 5% of global shipments. For Nutrien it also represents a relatively small percentage of our total sales as we have shifted more volume to higher netback markets.
Speaker 1: On the supply side, Belarus has gradually increased potash exports through ports in Russia, partially offset by lower Russian production producer exports.
Speaker 1: We expect Eastern European potash shipments will be up approximately 15% in 2023 compared to last year, but still down 30% from 2021.
Speaker 1: We maintained our global potash shipment forecast at 63 to 67 million tons, which is well below the estimated trend demand of above 70 million tons.
Speaker 1: We expect increased demand as markets stabilize driven by growth in global crop production, lower channel inventories and the need to replenish potassium levels in the soil.
Speaker 1: I will now turn it over to Pedro to review our guidance assumptions and capital allocation plans for 2023.
Speaker 2: Thanks, Ken. Good morning. Our revised school year guidance reflects changes in fertilizer benchmark prices since mid-February and our expectation of a more stable market going forward.
Speaker 2: In retail, our initial guidance assumes a reset in crop nutrient and crop protection margins compared to the extraordinary levels achieved in 2022. In North America, demand is accelerating as expected, but we have seen fertilizer margins temporarily drop below normalized levels.
Speaker 2: as we work down higher cost inventory.
Speaker 2: We expect to end the spring season with very low inventories and for North America crop nutrient margins to recover in the second half. We could still see below normal margins in Brazil in the third quarter as grower purchases are not likely to accelerate until closer to the spring planting season in September .
Speaker 2: Turning to potash, we assume North American prices remain firm through spring and then follow a typical seasonal pricing pattern.
Speaker 2: Offshore prices have moved lower in second quarter due to the lack of consistent buying. However, we forecast prices to stabilize in the second half as demand increases.
Speaker 2: We lower our 2023 potash sales volume guidance to 13.5 to 14.3 million tons due to the delayed contract settlements and slightly higher export volumes from Eastern Europe . We have adjusted our production plans accordingly and will maintain a flexible approach to our potash ramp up.
Speaker 2: facing the timing of capital expenditures with the expected recovery in demand.
Speaker 2: The investments completed to date have provided for greater production flexibility and increased our autonomous mining capabilities.
Speaker 2: These are important initiatives that enhance safety and reliability while supporting the low cost position of our potash mines.
Speaker 2: In nitrogen, we forecast a normal season reset for urea and UAN prices following screen.
We expect an increase in global ammonia prices during the second half as prices are currently trading well below the estimated marginal cost, which we do not believe is sustainable over an extended period.
We are assuming US natural gas prices will average around $3 per MMBtu in 2023 and Western Canadian gas below that level, continuing to position our nitrogen assets at the low end of the global cost curve.
Cash from operating activities is projected at $5 to $5.8 billion in 2023, a relatively small decline compared to our previous forecast. As we have stated before, one of the benefits of our integrated business is the countercyclical impacts on cash flow.
We project large increase of working capital with a reset in fertilizer prices and our cash conversion ratio would have been even higher this year if not for the timing impact of cash tax payments.
We continue to deploy a disciplined approach to capital allocation that balances our priorities of maintaining a strong balance sheet, investing sustainability in growth of the business and providing meaningful return to shareholders.
While our cash flow allows us to fund all of our strategic projects and we have a strong balance sheet to cushion the volatility, we will continue to review our investments to ensure they provide the best return on investment through the cycle. We allocated $900 million to share repurchases in the first quarter and intend to remain opportunistic.
taking advantage of our existing NCIV.
We announced a 10% increase in our dividend per share in February that aligned to the significant reduction in share count over the previous 12 months.
Since 2018, we have reduced our outstanding share count by 23% and increased the dividend per share by 33%, demonstrating our commitment to capital returns through the cycle.
I'll now pass it back to Ken.
Thanks Pedro. I would just make a few final comments.
The fundamentals for our business remain strong.
We anticipate increased fertilizer demand in the second half of 2023 and supply issues that emerged in 2022 have yet to be resolved.
Following a period of unprecedented volatility, we expect fertilizer prices to stabilize near mid-cycle values, reflecting the strengths of underlying market fundamentals. We are generating strong cash flow from our integrated business and will remain disciplined in our capital allocation approach as we position the company to serve the needs of our customers.
and deliver long-term value for our shareholders.
We would now be happy to take your questions. Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number one on your touch-tone phone. You will hear a one-tone prompt acknowledging your request. Your first question comes from the line of Ben Isaacson from Scotiabank. Your line is now...
and how our channel inventories in those regions. And if I can just sneak in a really quick one, on the Q4 call, when you talked about your 5% buyback, the stock was about 80 bucks and now it's about 60 bucks. Has that changed your philosophy in terms of how aggressive you'll be when it comes to buybacks? Thank you.
Yeah, good morning Ben and thank you for the question and yes absolutely we sort of walk market by market on potash as we've done in the past and so maybe I'll hand that over to Mark and probably augmented by Jason and then on the share buyback question I'll hand it over to Pedro. So thanks Ben. Yeah, good morning Ben, this is Mark. So maybe I'll just do a bit of a flyover on some of the key markets and then I'll pass it to Jason to talk about specific timing of applications.
We are seeing trade flows shift structurally and really the biggest things there that we see is that North American production is becoming more important and a bigger proportion of buying in markets like North America, Brazil and Southeast Asia. Former Soviet Union production is disproportionately moving into China. And then third, production out of Laos is increasingly finding markets.
right spot in Q1. Capitex had record shipments into Brazil in Q1. We did see a recovery there and we do expect a rebound for the remainder of the year and buying to accelerate to meet their seasonal means as we move through the second quarter and into the second half. From an India standpoint, obviously there was contracts signed with major producers and suppliers recently. One of the big items that we're waiting for there, while we have seen some of those contracts offer money that help Bohke & fail died in 2016. but it has come to
that were higher cost from 2022 continue to be worked down. We did see some re-engagement in buying following the Indian contract. Inventories are normalizing and we are starting to see fresh purchases. And again, we would expect those to accelerate through the second quarter and into the second half. And then I think finally on China, from an inventory standpoint today, we would see
I think what we've seen over the past 12 months, certainly from a China perspective, is that while the contract markets have historically been benchmarks or events that the global markets look to, in a year like 2023 with these trade flow shifts, we think China's seaborne imports are only gonna represent about 5% of global shipments. So.
We expect that this is going to be a trend, that these contracts will be of less significance to the global market over time, and really a smaller part of the picture.
So finally, in North America, as we've talked about, because of the lack of field activity in Q1, we had a seasonally slow Q1, but really in April things have picked up substantially. I was just in the field last week with our team, and as Ken said, product's moving extremely well.
We saw one of the biggest drawdowns in the last five years, month over month, between March and April in our customer owned inventories, and certainly saw inland production of potash moving very well at our distribution terminals. So, I think from a timing perspective, I'll just let Jason talk about some of the specifics on that.
Sure, thanks, Mark. Just to start with Southeast Asia and the timing of shipments and applications in that market, it is a region, particularly as we look at Indonesia and Malaysia, where there's a long lead time between purchases and applications, and that's part of the reason why the high-priced inventories are holding up there. Asmod is having a difficult right to trade okay?
large volumes purchased early in the second half of last year that flowed in through the end of 2022 and carried over into early 2023 and start to see applications in late Q1 and those inventories move lower through the second quarter of the year in Southeast Asia.
In Brazil, in terms of the timing, we did see unusually strong imports of potash in Brazil in the second quarter of last year, which really led to a buildup in inventories in that market in front of Q3. We expect more normal levels of imports into Q2 and then a seasonal normal.
volume of imports coming in late Q2, early Q3 in front of the applications for their spring season in September .
Maybe, Ben, just to address your last question about the buybacks, so we intend to remain opportunistic in the market. As we mentioned before, we already, since MOE, bought 23% of our share count, we do have a very strong balance sheet that allows us to take...
was $7.7 billion. Our free cash flow per share was $3.4 per share. And if we jump now to a kind of a similar year, I'm excluding 2022 because of course it's like an anonymous year, in 2023 we have a kind of a midpoint of our guidance of about $7.3.
in our free cash flow per share is 4.7. So that's a almost 40% increase in our free cash flow per share. So we think that strategy is paying off. We intend to use the balance sheet. And if we see value, we'll be opportunistic about it.
Your next question comes from the line of Jacob Baut from CIBC. Your line is now open.
about from CIBC. Your line is now open. Good morning.
My question is on normalize EBITDA and how are you thinking about that? If we go back to your investor day last year, you kind of walked through the case of mid-cycle EBITDA of around $9 billion. Do you still think this is realistic? I know you're making some commentary about mid-cycle prices for the remainder of the year.
But the midpoint of 23 guidance is well below that 9 billion. So just any commentary there would be helpful.
Yeah, good morning Jacob and thank you for the question. Yeah, what we would say is yes we do and there's a few reasons for that. If we look at the assumptions when we talk about mid-cycle EBITDA of 9 billion, it's really predicated on the structural shift that we've seen in energy, agriculture and crop nutrient markets and really lending to
what we see is a strip going forward that's about $50 more across crop nutrients than we had assumed prior to this conflict in Eastern Europe . It also assumes additional volumes and so there's a timing effect here obviously as we look at wrapping up potash volumes over time and as we talk about our brownfield investments and our nitrogen fleet.
and also our Clean Ammonia project, which is also going to bring volume. And then finally, when we talk about normalized EBIT ranges within our retail business, and it is true that we've had a reset in our retail business, we talked about that at the end of last year.
We expected that to happen this year, of course, as it relates to the softness that we saw in crop nutrient markets in the first quarter that reset is bigger than we had anticipated. That's reflected in our results. But when we think about normalized EBITD ranges that have our retail business, it too contributes to that 9 billion mid-cycle. So they need lower numbers of wond inward mind.
If we walk across those assumptions, there is a timing effect here, but we believe that those assumptions remain intact. Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is now open. Hi, good morning. Maybe a two-parter for me. So if we take your potter's body...
If you look at the slide now, that's where you show your operating cash flow. It looks like you're suggesting there's really no more room for any additional repurchases this year at the midpoint. Thanks.
Right, so as it relates to our plan for Potash this year and the shifting trade patterns that Mark described earlier and how we're navigating that, I will pass that back to Mark and then as it relates to what we might do this year with share buybacks, we'll ask Pedro. Yeah, good morning, Joel. So, just to reiterate a couple of the comments I made earlier.
points that I'll call out again is the record volumes that we've seen in Q1 from Camitex into Brazil and the fact that we are seeing Canadian production become far more important in some of these other key markets including Brazil and Southeast Asia. So when we consider the fact that we do believe China is going to have to come back to the market to meet its second half needs for
in Brazil overall this year. So you put all of that together and we do believe that we can get to a place that meets the shipment numbers that we've talked about and certainly in working with Campitex we also believe that we've got a supply chain that can deliver it and a production plan and Chris's business unit they can also get us there as well.
Okay, so just, Joe, on the buybacks, I think we are not circumscribing ourselves to the fiscal year here. I kind of said before, we do have a strong balance sheet. We are obviously going to be monitoring the business, but if we do see value and we see the direction of travel being as we expect.
We are intending to be opportunistic in the market and use the flexibility we have to capture that value.
Your next question comes from the line of Adam Samuelsson from Goldman Sachs. Your line is now open.
Yes, thank you. Good morning, everyone. Maybe continuing on Potash, if I look at your own shipment guidance for 2023, volumes up about a million to 1.8 million tons, can you break out the increment of that that's domestic versus...
versus offshore. I presume that at least a million of that was
implied domestic over the balance of the year. And if that's the case, get your North America business.
back pretty close to historical norms versus history, which would mean that you would need to see a disproportionate offshore growth in 24 and beyond to really see a disproportionate
be the outlet for your incremental production tons. And I'm just trying to get a sense of your confidence in that view and kind of where you think the market share gains from Campotex can be durable, especially with China getting more tons out of the former Soviet Union and Laos. Yeah, good morning, Adam and thank you.
albeit a supply constrained environment. Importantly, this is a market that's growing. We are, we've seen 2.8% compound annual growth rates in the potash market for the last 20 years. And we expect that continue to grow for all the reasons that we talk about growing population in the need for more food. So.
We're in a market that's growing and as we look at where that growth is going to take place, yes, last year the North American market, when we talked about 61 million tons, North American market was down significantly and that was going to the late spring weather last year and here we are this year and while we have seen some incredible volatility and movements of inventory, we are now in the heart of the planet.
As we look at where the volumes are going, it is tilted to North America. Maybe Mark you want to provide some detail around those numbers.
Yeah, thanks Ken. Good morning Adam. So yeah, maybe just to start with North America, and again the assumptions are laid out in our investor package for the call, but we do expect North America to be back to a relatively historical level of shipments this year. So we're estimating 9.5 to 10.5 million tons of shipments into North America, so 2022 is certainly a...
much more typical for us than sort of a one-third roughly domestic and two-thirds internationally moving through Capitex. And then just on your second question about where that growth is going to come from, I mean as Ken talked about the last few years have been certainly a major shock to the market supply coming out and what we've seen from a pricing and inventory perspective.
But we certainly believe that the long-term demand trend is intact in these markets, and certainly we expect to see a rebound, as I've talked about already, in markets like Brazil and Southeast Asia, where Campertex and Canadian production has become increasingly important from a share perspective. So the growth in those markets over time certainly can sustain the volume growth in our business from our perspective.
And there's other markets that have become opportunities for Campitex in this environment. I think a great example of that is a destination like Bangladesh where we're expecting to ship over half a million tons through Campitex this year, which really provides incremental opportunity. So notwithstanding the incremental production from the former Soviet Union that's finding its way into China, we do see growth in...
You mentioned Belarus being more active and Russia being less active in the export market than what you had previously expected. Can you talk about whether this changes how quickly you think Belarus can get back to those pre-war shipment volumes and what would need to happen for them to get there? And then if you could give us a little bit more color on why Russia isn't exporting as much that would be helpful as well.
Right, so yes, we had started the year with a set of assumptions or beliefs about shipments out of that region and it was really following last year where we saw, you know, substantive volumes out of Belarus and Russia shut in with the effect of sanctions and to your question, well
Belarus and really difficulty getting access to tide water for seaborne exports and some of the logistical challenges with rail. As Mark mentioned earlier, we are seeing those rail movements increase or have seen them increase out of Belarus to China. So there is a bit of an outlet there.
So when we started the year, we thought that, we said that Russian volumes, we thought would be down 15 to 30%, and that Belarusian volumes would be down 40 to 60% compared to 2021 levels.
If we look at exports out of the region, we've adjusted those numbers so that we say, we think Belorussian volumes will be more like 25 to 40%, and Russian volumes more like 25 to 35%. But importantly, if we look at just supply out of the region, while it is closer, you know, and maybe even a little bit above the top end of what we had.
seeing with Belarus for seaborne imports is that some of those volumes are going through Russian ports.
But at the same time that seems to be displacing Russian volumes out of those ports. And then finally one of the other outlets is of course rail to China. We've talked about that. I think for Belarus to probably continue to increase volumes I assume they'll be maximizing those rail volumes but at the same time what we believe need to see is new port capacity. Now we're talking about volumes from the region, new port capacity on the Russian.
A couple years ago, Ken, if you had thought that there'd be a 9 million ton shortage out of the former Soviet Union of potash, maybe net 5 million ton with some increases elsewhere,
would you have predicted a $370 realized price for your offshore business? Does that seem fair to you on a going forward basis? Maybe the math has got a few strange items in there, but it seems lower than what you would have expected.
that's your product in your customers warehouse. How is the price set there when that customer decides to pay you and do you have
negotiating or pricing power given a what seems like a tightening market in the US when your product is in their in their warehouse? Right, good morning Steve and thank you for the question. So I'll start with you know just obviously as you've described it
challenges on the supply side of the equation for potash, but as you put it, some anomalous effects that are leading to what we are experiencing is as softening crop nutrient pricing, potash pricing in the first quarter of the year, which frankly domestically is a rarity, something that we've really never seen. But that's just one of the anomalous observations. If you look...
took place and obviously the price spike that followed that. I mean, we saw that inventory building, there were some weather related effects there so that when we headed into the fall, the world started on a large inventory drawdown, watching prices soften.
In that inventory drawdown, one of the most dramatic again that we've ever seen carried through the first quarter of this year as farmers, as growers, and we saw that certainly in our North American markets.
Exercise really cautious buying behavior. We talked about it just in time buying and really only stepping into the market now when they absolutely have to as all of these big volumes go to ground. And so cautious buying, sorry, wanting to shore up inventory with supply concerns in 2022.
movements in price and then inventory drawdown coming into 2023 and the associated movement in price. And here we are, the backdrop for egg fundamentals remain strong. Grower affordability is good given the reduction in crop nutrient prices. And so here we are with inventories clearing and prices stabilizing and volumes moving. So in this case, the promotions huge growth of 4-year corninch
Steve, you know how this all translates into price and market volatility. What we would say is that we've now approached sort of a form of stability and what we would call sort of mid-cycle pricing for potash and that's what we've assumed for the balance of the year. As it relates to these supply shortages we're watching that incredibly closely.
It's going to, and has impacted how we think about increasing our own volumes. It will continue to do that as we seek to meet the needs of our own customers. But yeah, some of the supply challenges remain and we'll see how that plays out over the balance of the year.
Maybe Mark if you want to provide some thoughts on pricing with our customers in the domestic market. Sure, good morning Steve. So yeah, I think this is a relatively simple answer overall. I think first and foremost, you know, we continue to contend that we've got, I think, the best bill, the most ideal position and the most robust.
distribution network in North America for potash and the majority of those assets are owned assets. As I mentioned, I was just out at our Hammond, Indiana terminal last week which has about 80,000 tons of storage. So our primary mechanism for moving products into the North American market is through our own warehouse and distribution system.
From an efficiency perspective, we do have agreements with some customers. Nutrient Egg Solutions is one of those customers, as well as our other major customers. And that's really efficiency from a logistics standpoint, so that we're not spending unnecessary dollars, whether or not needed, on distribution infrastructure and taking advantage of that.
of the assets that exist in market. And from a pricing standpoint, actually things have been relatively straightforward as we've talked about in the commentary today. We saw products move very quickly and a lot of hand-to-mouth buying. So what was being sold was largely going directly to ground and moving through the channel quite quickly.
And what we've found from a commercial perspective generally is that as we've seen these supply-demand shortages emerge at inland distribution points, we've been tracking those prices higher as they've emerged throughout the spring season.
Your next question comes from the line of Christopher Parkinson from Mizuho. Your line is now open.
Great, thank you so much for taking my question. Just from a strategic perspective, is there any remaining apprehension to walking away from the contract structure of the Indian and Chinese markets? It seems your exposures in other markets, Southeast Asia, Brazil, from a spot perspective are continuously growing and it seems like it affects the fluidity of the marketplace.
So just what's in terms of how you've been thinking about the last several decades versus the future, can you just walk us through what you see as the merit of the current market dynamics? Thank you. Yeah, thanks Chris. You know, and I would say that as we look at our portfolio sales over 40 countries around the world.
Importantly, agriculture markets that we see growing and what are they? I mean, we talked about Brazil, but it's certainly India, it's certainly Southeast Asia and it's certainly China. Right now, the Canadian potash is an important supplier into all these regions. We have worked hard in these regions to establish a really, really enviable customer base and we've worked hard over the last 40 years to do that.
So we have had success in these growing markets of China, India, Southeast Asia, of course Brazil when we talk about offshore markets and that we continue to believe that these will that customer base will be important to us as we as we grow our volumes.
is basically now baked into the updated guidance. So could you just clarify for us exactly what your expectations are, either directly or as a range in terms of pricing for potash, ammonia, urea, phosphates, and your energy cost assumptions? Thanks.
Yeah, we can provide those, you know, some ranges, Lucas, and yeah, I handed over to Mark to talk about those specifics.
Yeah, Lucas, so I think with respect to mid-cycle prices, as Ken said, when we came out of last year's investor day and talked about the structural shift that we expected from all the factors that we mentioned today, our expectation was that generally on average across the fertilizer price complex,
that we would see prices shift by about $50 across all the nutrients. Probably specifics in every product line is beyond the scope of today's discussion. But I think what we're seeing generally is that as prices are stabilizing, as Ken's talked about, and that process continues for both nitrogen and potash domestically and internationally.
Currently prices are sitting give or take probably within $20 or $30 of those assumptions that we made in terms of what new mid-cycle prices would look like. So when we look across the fertilizer complex and we see things stabilizing today, that is what's inherent in our guidance as Pedro and Ken have described. We also think that's a good way to think about the future of the
Hi, good morning. So with pricing now near what you would consider as mid-cycle levels, what's the overall
Has there been any change in your view on the capital allocation and investing in more capacity? Would you consider slowing down the potash ramp a little bit more? Maybe until demand reengages and maybe would it make sense to use some of that capital if you do delay some of those plans for buybacks given what your shares are today? Thanks.
Yeah, good morning, Andrew. And thank you. The short answer to your question is yes, we would. Yes, we would consider slowing down. We're really, as we talked about earlier this year watching the market, we did delay our ramp up. We talked about that earlier, so 25 to 26, 18 million tons.
importantly, just continuing to watch the market and to supply and demand dynamics. The reality is, again, that we are in a market that's growing, and we believe that that's going to carry on for the absolute foreseeable future. It's sort of 2.5 to 3 percent annual growth rates, and that supply is going to be a new supply is going to be a required to meet that growing demand. If we look at then the
to our customers on a daily basis about what their needs are in this environment and then planning our capital accordingly as it relates to wrapping up on ash. These investments are really quite granular dozens of projects across four mines. We have made some investments that are going to take our capacity up to around 15 and a half million tons by the start next year. We've demonstrated.
the value of that flexible approach, we demonstrated that in 21 and 2022, and the value associated with preserving some additional capacity. But when we're doing that math, yes, Andrew, the short answer to your question is, if we see that the market's not there, then we'll pace our capital accordingly. And yeah, we'll certainly, as Pedro mentioned, always look opportunistic.
So we've done an uptick in the first quarter across Padaxia and nitrogen. I think Pedro talked about bringing some maintenance forward in the quarters. Maybe if you're talking about how much of that increase in costs in the first quarter was attributed to that, and then just on the nitrogen side, ammonia costs.
went up in the quarter, but we are seeing ammonia coming down, and that unit of gas should be coming down in the second half. So you can talk about maybe trends on the cash cost and nitrogen side as well. Thank you.
Yeah, absolutely Richard and thank you for the question. Yeah, there's a number of moving parts there as it relates to natural gas costs in nitrogen. We're obviously automating our mines and starting to enjoy some of the benefits of those investments in pod ash.
The biggest one probably we can talk about is volume and the volume impacts on cash costs in the quarter. But I'll hand it over to Chris Reynolds to talk about, our president of our potash business, to talk about cash costs in potash and then over to Trevor Williams, our president of nitrogen and phosphates to talk about nitrogen.
Yeah, good morning Richard, thanks for the question. So as we look at full year, our controllable cost of product manufacturing in Potash, we expect that to be fairly similar in fact to what we saw in 2022. Now yeah, in Q1, as Pedro had mentioned, we did have some increased maintenance, we pulled some of that maintenance forward to be ready for know.
the surge in demand we're expecting in the second half. But as we look at that controllable cost, still amongst the lowest cost in North America and certainly one of the lowest cost across the industry. So we're still feeling good about that position today. Thank you Richard and very similar on the nitrogen side.
Our volumes are down a little bit, primarily driven from the Trinidad side. We did have some increased maintenance costs as we had a few reliability issues, but really because we've had some reduced volumes because of the curtailments. But really, as we look towards the remainder of the fleet, the majority of the fleet, we look to get back towards what we would expect in terms of our cash costs for 2023. Your next question comes from...
Water demand was clearly softer than what you anticipated. And I think you've talked about it, that there was a year or year improvement of like 40%, but maybe help us understand, put that in a first half context versus first half last year, and maybe also versus 2021, just to kind of get a little bit of a better feel if the need for potash is really...
You know, demand was down but but that inventories were being drawn down and this just in time buying behavior. So that we will when we look on an annual basis for potash. We continue to say 63 to 67 million times. We haven't changed those numbers continues to be a supply-constrained Market continues to be the backdrop of growing demand.
over time, but Jason Newton, our chief economist, handed over to you maybe to talk about some of those details.
Sure. Good morning, Ben. Yeah, if we look globally, as I guess just as Ken mentioned off the start, we've maintained our 63 to 67 million ton shipment range for the year. And as we look around at various markets, there's a bit of a split between standard grade and granular markets, and that we have seen really strong instituted to meet all the barriers that have been es ll His old you
demand in Brazil and strong shipments in North America as well from a granular perspective. But we know the contracts were delayed and particularly China's delayed in terms of contracts which has an impact on our sales but
we have seen strong shipments going into those markets, parked by rail from Russia and Belarus. And so as we look through the various markets, there's a few minor shifts, markets to markets, but overall demand's been pretty much as expected, and I'd say even probably closer to the higher end than some of the other things.
seen strong shipments going into those markets, in part by rail from Russia and Belarus. And so as we look through the various markets, there's a few minor shifts, markets to markets, but overall demand's been pretty much as expected, and I'd say even probably closer to the higher end in some of the granular grade markets.
Your next question comes from the line of Martin Pradir from Veritas Investment Research. Your line is now open. Thank you. Yes, I hear all about this shortage that is in the...
Your next question comes from the line of Martin Pradir from Veritas Investment Research. Your line is now open. Thank you. Yes, I hear all about this shortage that is in the supply chain.
in North America and I was wondering what is the effect in price? Are you seeing the prices increase now because there are no inventory and people have to buy right away? Yeah, maybe yes, the short answer, Martin, is yes, we are seeing some of those impacts on price. Maybe I'll just hand it over to Jeff Tarsi to talk about some of those observations that we're seeing.
certainly in our retail business through the channel and then over to Mark to talk about the impact on crop nutrient pricing. Yeah, Ken, thanks and good morning, Mark. I think we have seen, as Ken spoke to, you know, if I look at the first quarter, we were basically 6% off on volume for the quarter. And so very steady from that standpoint, we have seen a surge in the second quarter on volume across our fertilizer portfolio.
Lucas, again, I think it speaks from a nutrient ag solutions perspective. It speaks to our supply chain and investments we've made across our supply chain in order to get product moved in a lot of cases on a just-in-time basis from that standpoint. We have seen prices stabilize as we've gotten into the spring.
probably more importantly we've seen margins stabilize and normalize as we've gotten into the quarter as well. And look, we spoke to earlier in the year, you know, what our soil testing was alluding to and that there were some deficiencies in about 40% of our tests around P and K and we certainly see our growers responding today to that. Rates are good.
And so the demand has been exceptionally strong into the second quarter. We expect that to continue right in the middle right now of our planning season. And so we continue to see a pull on demand and we're working hand to mouth in some of those situations today from an inventory perspective. Mark, I might pass it over to you as well. Sure. Thanks, Jeff. Good morning. So, yeah, as Jeff said, we're going to be looking at
If we look back to some of the lower values we saw in Q1, sort of in the $370 per ton range at NOLA for potash, we've seen firming of approximately $40 and seen really good uptake at those values. And if we look at inland terminals or inland distribution points, it really has been challenged logistically by the just-in-time purchasing behavior. We've seen values increase in excess of that.
logistical premiums emerge because of the supply chain crunch. So I think we have seen that and certainly have seen potash prices firm in season and have sought to sell into that strength to the extent possible and support our customers. And I think again this is something that whether it's in the nutrient egg solutions business that Jeff talked about or in the NPK distribution assets that we have does set us apart and really we have been responding quickly to meet those needs.
I understand that crop prices are still higher than historical averages, but do you think the lower prices could have an impact on farmers' psychology and willingness to pay higher fertilizer prices? I understand that crop prices are still higher than historical averages, but do you think
Thanks for the question, Edline. Maybe I'll pass it over to Jeff Tarsi just to talk about psychology among farmers. I think the reality is that given the way crop nutrient prices have softened relative to what we're seeing with the crop nutrient prices, we're seeing
with ag commodities, and again, the likes of corn and soybean wheat still 15% above the 10-year average, that we are seeing strong application rates domestically in the planting season here. But Jeff, over to you. Yeah, Ken, thanks. And no, we certainly don't see any indication of that. You have to remember as well that a lot of growers have forward contracted.
prices when they enjoyed a really strong back half of the year last year, so you saw probably more forward contracting going in across the commodity pricing. But as we sit here today, again, we see growers using the best hybrids, the best trade packages. Again, we talked about our fertility rates.
in the second quarter up 40% right now year over year. And we anticipate that they're again going to try to maximize their yields. From that standpoint, I've said this many times before, these are science-based decisions today. And so these growers are making their decisions based off of what these crops need to maximize yields.
going forward and that's their best chance to optimize ROI. So we, I would see, I think we'll see continued strong input demand as we go through the rest of the spring and into the summer.......... Ladies and gentlemen, this concludes today's conference call.