Nutrien Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 12 speakers on the call.

Operator

Greetings, and welcome to Nutrien's 2023 Third Quarter Earnings Call. At this time, all participants are in a listen only mode. Question and answer session will follow after the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jeff Holtzman, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to Nutrien's Q3 2023 earnings call.

Speaker 2

As we conduct this call,

Speaker 1

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 those 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 and A and Annual Information Form filed with Canadian and U. S.

Speaker 1

Securities Commissions. I will now turn the call over to Ken Seitz, Brendan and Theo and Pedro Farr, our CFO for opening comments before we take your questions.

Speaker 3

Good morning, everyone, and thank you for joining us today. Nutrien delivered adjusted EBITDA of $1,100,000,000 in the 3rd quarter 5,000,000,000 through the 1st 9 months of the year, down from the record comparable periods in 2022. We saw a number of positive market developments in the 3rd quarter that are constructive for our business, including strong crop nutrient demand in North America and increased stability in global potash markets. In retail, North American crop nutrient sales volumes were up 5% in the 3rd quarter and 10% on a year to date basis as growers were incentivized to maximize crop production. North American crop nutrient margins in the quarter increased by $10 per tonne compared to the prior year, supported by improved margins for commodity fertilizers growth in our proprietary crop nutritional and bio stimulant products.

Speaker 3

These high value proprietary products contributed nearly $350,000,000 in gross margin through the 1st 9 months of 2023. Crop Protection sales in North America were down from the record prior year due to lower prices for certain commodity products and slightly lower sales volumes, a result of dry conditions in the U. S. Midwest. We ended the quarter with North American crop protection inventories down more than $200,000,000 from the prior year, And we will be patient with our approach to restocking inventories.

Speaker 3

Crop Protection inventories in South America more elevated, resulting in pressure on prices and margins. Crop nutrient volumes for our South American retail business were up 25% in the 3rd quarter Due to improved grower demand and the benefits of our Casa Doedubo acquisition in the Q4 of 2022. Nutrien Financial sales increased in the Q3 and 1st 9 months of 2023 due to higher utilization of our financing offerings in the U. S. As well as the recent launch of our digitally enabled financing program in Australia.

Speaker 3

We are pleased with the uptake of our financing programs and see additional to drive organic growth for our retail business. In potash, we delivered record sales volumes Totaling 3,900,000 tonnes in the 3rd quarter, North American channel inventories were at multi year lows entering the second half And customers secured supply in anticipation of a strong fall application season. We had a very positive response to our summer fill program, Utilizing the strength of our distribution network to deliver 1,700,000 tonnes to customers in North America. Our potash volumes and net realized prices were impacted by logistical challenges associated with the port strike in Vancouver And an outage at Canpotex's export terminal in Portland. Shipments through Vancouver returned to normal late in the quarter and we expect Portland Terminal is to be operational by the end of the year.

Speaker 3

We increased granular potash production to meet the surge in domestic demand And our controllable cash cost declined to $56 per tonne in the 3rd quarter, highlighting the advantages of our low cost 6 minutee network. Our nitrogen realized prices in the Q3 reflected the reset in benchmark values at the time of summer fill programs. Nitrogen sales volumes declined from the prior year due to production outages at our Trinidad, Orger and Geismar plants. We completed 2 smaller brownfield expansions at our Geismar facility and installed the final of 8 N2O abatement projects at our nitrogen sites, which we expect will be a key contributor to reducing our greenhouse gas emissions. Phosphate sales volumes increased in the 3rd quarter due to a that impacted production volumes and costs.

Speaker 3

Excluding this downtime, our phosphate plants have operated well following the completion Reliability Initiatives in the First Half of twenty twenty three. Now turning to the market outlook. Global grain yields are projected to fall below trend in 2023 for the 4th consecutive year, limiting any meaningful recovery in stocks. New corn crop Soybean prices have incurred some seasonal pressure, but remain 10% to 15% above the 10 year average. Fertilizer affordability has improved significantly over the past year and projected grower cash margins are above historical average levels.

Speaker 3

Harvest in the U. S. Has progressed ahead of average, providing an open window for fall field work. We project U. S.

Speaker 3

Fertilizer demand will be up 5% to 10% in the Q4 compared to the prior year. Global potash demand has increased in the second half driven by greater price stability and improved grower affordability, Absorbing the gradual increase in Eastern European export volumes, we now forecast global potash shipments in the range of 65,000,000 to Europe and India. Global ammonia supply has been tight to start the Q4 due to outages in Europe and production challenges in other key regions. The urea markets are relatively balanced as Chinese export restrictions and strong import demand in India create additional volatility for global energy prices and nitrogen supply. Most notably, European natural gas prices have increased by To summarize, agricultural fundamentals remain supportive and we are seeing strong demand for crop nutrients and from our grower customers.

Speaker 3

Global potash demand has strengthened in the second half of twenty twenty three and we expect this trend will continue into 2024. And we anticipate constraints on global energy and nitrogen supply will continue to provide a positive backdrop for our low cost nitrogen assets. I will now turn it over to Pedro to review our guidance assumptions and capital allocation plans.

Speaker 4

Thanks, Ken. I will start with our updated guidance for potash. We increased the bottom end of our year potash adjusted EBITDA and sales volume guidance to reflect the strength of our market fundamentals in North America. We continue to see strong customer engagement and have increased our domestic reference price for deliveries in the 4th quarter. Spot prices in offshore markets have been relatively stable and Canpotex is fully committed on its sales plan for the remainder of 2023.

Speaker 4

In nitrogen, we narrowed our adjusted EBITDA guidance range as higher benchmark prices offset lower projected sales volumes. Our North American nitrogen plants are operating at higher utilization rates in the Q4, including Geismar, where we recently completed expansion projects. We made a decision to bring forward a plant outage at our border site to address reliability issues that impacted production in the 3rd quarter. We lowered the top end of our retail adjusted EBITDA guidance range to reflect pressure on crop protection margins in South America and the impact of weaker livestock markets in Australia. We maintain our outlook for North American Retail Business As fall fertilizer application rates have been strong and per ton margins are expected to be above historical average levels.

Speaker 4

Based on these factors, Buterin's full year adjusted EBITDA guidance range was narrowed to $5,800,000,000 to $6,400,000,000 And adjusted net earnings was revised to $4.15 to $5 per share. Our effective tax rate and adjusted earnings in 2023 has been impacted by non cash impairments and an unfavorable geographic mix earnings. We do not expect these to be recurring items and anticipate our effective tax rate will return to more historical levels in 2024. We are projecting total capital expenditures of approximately $2,700,000,000 in 2023 and plan to return over $2,000,000,000 to shareholders through dividends and share repurchases. We are focused on investments to sustain our assets in highly targeted growth projects in our retail, potash And nitrogen businesses.

Speaker 4

Based on current planned initiatives, we expect to reduce annual capital expenditures to a range of $2,000,000,000 to $2,500,000,000 going forward. In retail, our focus is on increasing earnings and free cash flow by enhancing margins and asset efficiency. This includes investing in our proprietary products, production capability Network Optimization and Digital Initiatives, which are all key drivers of organic growth for retail. We continue to evaluate retail takin acquisitions in the U. S.

Speaker 4

And Australia, and we'll remain selective based on strategic fit and valuation. In Brazil, we believe the long term prospects for agriculture are very strong and see opportunity for future growth We will utilize this period to integrate recent acquisitions and optimize our cost structure. In potash, our mid cycle scenario assumes global demand returns to historical trend and nutrient Sales volumes in the range of 14,000,000 to 15,000,000 tons. This translates into volume growth potential from existing operational capability of 1,000,000 to 2,000,000 compared to 2023. We are continuing to focus on further automation of our fleet, enhancing safety and productivity of Lastly, in nitrogen, our priority is to complete in flight brownfield expansion and reliability projects That support our mid cycle sales volume scenario of 11,500,000 to 12,000,000 tons.

Speaker 4

Roundfield projects are expected to Back to you, Ken.

Speaker 3

Thanks, Pedro. I will just make a few final comments. We are encouraged by the positive market developments over 2nd half of twenty twenty three, in particular the strength of crop nutrient demand in North America and increased stability in global potash markets. We're optimistic on the outlook for our business going forward and we'll continue to position the company to efficiently serve the needs of our customers. Our focus is on initiatives that strengthen the advantages of our integrated model, drive operational efficiencies and increase free cash flow.

Speaker 3

As Pedro highlighted, we are proceeding with highly targeted investment opportunities and will maintain a balanced and disciplined approach to capital allocation, including the return of meaningful capital to our shareholders. We would now be happy to take your questions.

Operator

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. Your first question comes from the line of Andrew Wong from RBC Capital Markets. Your line is now open.

Speaker 2

Hi, good morning. Thank you for taking my questions. So Nutrien recently paused on adding some potash capacity, which It looks like it was the right decision for the market. But then now one of your competitors, BHP announced that they want to accelerate Phase 2 project at Janssen Lake, what's your thought on the economic rationale for that project? How does Nutrien view the future supply additions to the market and how Nutrien will respond to those changes in the market and Just to broaden the facts.

Speaker 2

Thanks.

Speaker 3

Great. Good morning, Andrew, and thanks for the question. So Yes. As we've discussed, we are in a growing market in our potash business and that's owing to the things we talk about growing population, decreasing rate of Land expansion and backcasting over the last couple of decades, we've seen those growth rates 2.5% average annual growth rate. So that As we've talked about, we get to the end of this decade and we're at 80,000,000 tons.

Speaker 3

So a market that's growing, we continue to maintain Sort of 20% market share and we have always had a Phase 2 for BHP's plans in our Supply and demand forecast. So, I know this is a surprise to us. What I will say is, for our part And our ability to continue to expand volumes, yes, we paused, but we've talked about our 18,000,000 tonnes of low cost additional capacity, the ability to expand beyond that in a demand environment that is growing. And I'll also say that, So here we are, it's 2023, 1st production announced, Jans in 2026. I mean these are challenging projects.

Speaker 3

We have years of experience with that and soft rock mining and ramping up in a Phase 1 takes time. It's technically challenging And then certainly going beyond that. So we are talking about volumes in Phase 2 that are in the next decade. In the meantime, Nutrien with And with our flexible 6 minutee network, the investments we've made in our supply chain, our customers around the planet, I mean, we will

Operator

Your next question comes from the line of Ben Isaacson from Scotiabank. Your line is now open.

Speaker 2

Maybe to follow-up on Andrew's question in terms of potash. Can you talk about the market balance for potash in 2024? Ken, you've said that you're looking for further demand growth in 2024 closer to the 67,000,000 to 71,000,000 ton Some people are concerned about a slowdown in Southeast Asia because of El Nino. The Indian subsidy seems to be a little bit tepid for potash demand and Chinese inventories are high. And so how do you balance that against increasing production and exports out of Belarus and Russia?

Speaker 2

I guess the bottom line question is, do you see the market being tighter in 2024 than where we are right now? Thank you.

Speaker 3

Yes. A lot going on there, Ben. Thank you for the question. So, yes, we are constructive and it's certainly the experience we're having here in 2023, North America, Brazil, where we've seen Strong demand and that's on the back of much improved affordability among our grower customers. As we peer into 2024, again, we're constructive.

Speaker 3

I'll hand it over to Mark Thompson to talk about the details. But we can see that grow affordability Continuing, we've seen destocking of the channel. We've seen some depletion of crop nutrients in the soil and yet some supply side challenges persist. But Mark, over to you to maybe walk through some of those details.

Speaker 5

Thanks, Ken. Good morning, Ben. So look, maybe we'll just parse out your question to a few different I think just to reiterate, as Ken said, we have been encouraged by the stability that we've seen in prices and the attractive affordability levels have really accelerated the return of Demand to the potash market, which has certainly been a positive in 2023. I think just to bridge to 2024, we've got to talk about 23 a little bit. And I think the story on 2023 versus where we were in August on our Q2 call is really about 3 markets.

Speaker 5

So first of all, in North America, we've seen continued very strong engagement in North America. Our fall fill program was very, very strong. We've seen continued interest from retail customers and growers for product going to ground and things are moving well in Q4. And obviously, that whole backdrop has contributed to our Midwest reference price moving from a fill value at $3.70 to 2 increases since then and Most recent reference price in the Midwest achieved at that $4.20 per short tonne level. So North America certainly has been Positive story in 2023.

Speaker 5

The 2 markets internationally that have really contributed to that demand growth In 2023 versus prior expectations are Brazil and China. And overall in Brazil, we continue to see very good Engagement on fertilizers. And despite the fact that growers are still a little more hand to mouth in that market, we're seeing consumption levels back at 2021 levels, which is a positive indicator. And trade in recent weeks has been relatively thin there, which is normal. But if we look at inventory levels in Brazil, they're Similar to a year ago, but significant imports are required over the next 2 months to meet demand for safrinha.

Speaker 5

And if that doesn't materialize, inventories will be very, very So we expect a positive transition in the demand side in Brazil heading into 2024. Coming to your question on China, because that's also part of the 2023 story. Really in China, I think 2023's big increase in shipments is Primarily due to two factors. The first is that apparent consumption in China just generally is very strong across all the nutrients. We're looking at consumption levels that appear to be demonstrating growth of about 5% across the board and domestic production in China This is down in our expectations somewhere between 750,000 and 1,000,000 tons this year.

Speaker 5

So that's all led to inventories actually in September That had been drawn down to levels just below 2,500,000 tonnes. Now we do expect that by the time we get to the end of the year, Some of the shipments will have gone to rebuilding inventories to some extent. But as we look to 2024, as you would see in our materials, we do Project a bit of a step back in China next year. So other markets are really driving that growth in 2024. Those markets that we've called out, Ben, in 2024 really are Southeast Asia, India, Europe and continued growth in Latin America.

Speaker 5

So to your question on Southeast Asia, in 2023 shipments were down in Southeast Asia quite substantially, and we've seen conditions improve. Inventories have been drawn down in Southeast Asia. We've seen from Canpotex indications of good interest returning in Q4. We've seen interest already in Q1. Palmol prices and rice prices and fundamentals in particular are very strong there.

Speaker 5

So we do expect a rebound in shipments. Of course, to your point, watching dryness in the region is a risk factor we'll have to watch. But given the depressed level of Consumption in that market this year, we do expect a meaningful rebound there next year. You also asked about India in your question. And even with the subsidy changes, I'd say those were about as expected for us.

Speaker 5

The importers are still making just over a 10% margin in that market. And shipments in 2023 were depressed by historical standards. So we do expect good things in 2024 in India. And Latin America, obviously, this year has been a positive surprise. We expect continued growth there, as I've outlined.

Speaker 5

And then in Europe, Europe is another market That has worked through its high cost inventory. And in Q4, we've seen good engagement. So as Ken said, when we transition into 2024, We see demand stepping up at the midpoint by another 3,000,000 tonnes next year, which will further support market fundamentals.

Operator

Your next question comes from the line of Jacob Bout from CIBC. Your line is now open.

Speaker 2

Good morning. I had a question on the Nightsho division. I think this is the first time I've seen 3 outages in the same quarter. How much of this is coincidence or maybe just talk Through any maintenance or reliability issues, and then any comments on, Trinidadian gas supply contracts and availability?

Speaker 3

For sure, Jacob. Thank you for the question. So yes, we had outages at our Geismar, Borger and Trinidad sites and Varying reasons there including some of those that you mentioned, yes, we are also in the middle of a contract negotiation with the National Gas Company in Trinidad. I'll hand it over to Trevor Williams, our President of the Nitrogen Business to talk about those pieces.

Speaker 6

Hey, good morning, Jacob, and thanks. So a couple of comments. So year to date, actually, the majority of our assets have actually run quite well, averaging about 97 capacity utilization, excluding our planned turnarounds. However, as folks have referenced, we did experience some issues at 3 of our facilities, primarily Now at our Geismar facility, typically historically a top quartile performer. We just took on and completed our 5 year major overhaul here in Q3.

Speaker 6

However, During the outage and coming out of it, we did experience some issues with some large rotating equipment as a result of some quality challenges, Which did force us to come back down a couple of times to address those. Thankfully, those repairs have been completed, and now the site is back up and Challenges around some of the gas curtailments. We did experience several, I'll say, deeper curtailments through the year that forced us to take some plants offline. As a result of cycling, those plants, we did experience some equipment failures that required us to come down to make some repairs. Those repairs are underway and we expect the site to return to normal levels of operation here in November.

Speaker 6

And as Ken alluded, We are working with the natural the National Gas Company to develop more effective ways here going forward to manage some of these curtailments, such that we don't compromise the Trinidad facility here going forward. And in addition, with some of the recent announcements related to longer term gas supply, We're optimistic of returning back to full capacity over the course of the next couple of years, and we will be taking steps to prepare the site in And then finally, from a border perspective, we did have several reliability equipment Related issues that were scheduled actually to be addressed in our 2025 turnaround. However, in order to reestablish the reliability of that facility and Safe operation. We did elect to take an outage here in Q4 of this year to address a number of those operational risks And really set the site up here for a successful run going into the next major turnaround. And then finally, just a couple of things in Our overall reliability program, I just wanted to highlight.

Speaker 6

The first thing obviously is really prioritizing our capital to focus on increased uptime and efficiency, Obviously, managing the risks associated with our facilities, really doing a lot of work in terms of enhancing our reliability program using data analytics, People skill development and some organizational structural changes within the organization of the company. And then finally, which is really a big step forward to us This is around external monitoring, troubleshooting and optimization through our recently commissioned operations or remote operations center And finally, we just put together over the course of the last couple of quarters an infield reliability task team That's really been put in place to drive operational improvement through targeted reliability initiatives across the organization. So that gives you a good picture in terms of the reliability front and thanks for that. In terms of Trinidad Gas contract, yes, we're in the final stages of finalizing the contract with the National And we expect to be announcing something here in the short term.

Operator

Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is now open.

Speaker 2

Good morning. Usually when the potash, corporate and Nutrien, when you see global shipments rise so much since you hold the excess tons, Usually, you've gained disproportionately share. This year, obviously, I guess, the Belarusians picked up as they've gone up to 80%, 85% of capacity utilization, sorry. So now you're modeling a very bullish outlook next year for 3,000,000 tons of further potash demand next year. How much of that 3,000,000 tons do you in your model, are you assuming Nutrien should be able to benefit?

Speaker 2

How much more you think Bellys has to go? So yes, how much of the 3 next year Should we assume in your base projections that Nutrien should get?

Speaker 3

Good morning, Joel. Yes, thank you for the question. So yes, Obviously, when we say 65,000,000 to 67,000,000 tons, so that's up from last year. And as Nutrien, as I mentioned earlier, we continue to Maintain our market share. So we have been deploying our tons into the market.

Speaker 3

There have been a few challenges this year as I'm sure you know with the logistics side of our business, when we talk about Canpotex and the strikes that we saw in the West Coast, Which certainly challenged our volumes and we did have a volume impact there. Those shipments have returned to normal, but We're still dealing Camptex is still dealing with an outage and its Portland facility, which that work has been underway To get it back online, which we expect to happen by the end of the year, but there have been volume impacts associated with both of those outages. Yes. As we peer into 2024 and talk about 67,000,000 to 71,000,000 tonnes, and with what we believe will be some ongoing Challenges with FSU exports. And it's not to say that we don't plan for those exports to come back over time, but We expect that next year there'll still be some of those challenges that yes, Canadian potash and Nutrien potash will play a role certainly And filling some of that void.

Operator

Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is now open.

Speaker 2

Thank you. I just kind of wanted to follow-up on that in terms of your expectations for that normalization of Russian and Belarusian supply. And it seems like maybe they as we move through the course of this year, they were able to export a little bit more than you thought. And it seems I'm wondering if that's again going to be the case next versus what you thought 3, 6, 9 months ago. And if that's true, what is it that's allowing them to get more product out faster than you previously anticipated?

Speaker 3

Yes. Thanks, Vincent for the question. Yes. I what I'll say is, Yes, certainly those volumes are at the top end of what we saw coming out of the region this year. I mean, there's of course a lot of uncertainty associated Yes, we see volumes going into China via rail from Belarus, albeit at $2.80 a tonne, we think, To deliver to that part of the world and we saw we see depending on the Chinese domestic price, we see those volumes coming up when it's Affordable and coming back down again when it's not.

Speaker 3

So and then there's the shipments out of the coast Russia. So a lot of moving parts, as I said, at the high end of the range. The reality though is there continue to be sanctions against the Belarusians The terrible conflict that carries on in Eastern Europe aside, those sanctions were in place prior to this conflict. So we think there will still be challenges. I'll hand it over to Jason Newton to maybe talk a little bit more about some of those details.

Speaker 7

Okay. Thanks, Ken. Good morning, Vincent. Yes. If we look at the exports coming out of Russia and Belarus, what's been the majority of the increase We've made quarter over quarter for 2023 has been from Russia.

Speaker 7

And what we've seen there is particularly Eurocalie has been operating at a higher operating rate than we would have expected and shipping more out Through, St. Petersburg. Now if we look forward to 2024, as mentioned, we'd expect that volumes will continue to increase from Russia, but actually there's less potential Growth there to get back to pre war levels than was the case before. And so incrementally, We'd expect somewhere in the range of 1,000,000 tons additional supply. As Ken also mentioned, Belarus continues And actually if we look back at the monthly shipments that we've seen over that region, really since the end of Q1, it's been relatively steady Volumes, and as the Chinese contract was signed, we've really seen a prioritization of shipping the lowest Cost logistical routes, which are through St.

Speaker 7

Petersburg and Branca and less through the other Russian ports, which really Limits the upside on logistically, we believe in the volumes that can get to port. Through the summer months, A little bit of higher volumes moving into China. The strong demand, as mentioned that we've seen seasonally in China that supported prices and volumes in that market Led to a little bit higher volumes moving into China. But again, that's a high cost to serve location that The rail distance just to get to the border is 10 times what it would have been to get to Clypeta port. And to get to the port warehouses in China, it's a cost to serve in The high 200s on a per ton basis.

Speaker 7

So it's a high cost region to get those volumes out. And so as we look Forward to 2024, we don't expect significant increases in the Belarusian volumes that we've seen.

Operator

Comes from the line of Steve Hansen from Raymond James. Your line is now open.

Speaker 2

Yes. Good morning, everyone. Thanks for the time. Your ability to move record volumes in the face of the logistics constraints you outlined is impressive, Perhaps with the risk of being too granular, can you maybe give us the latest update on when precisely you expect the Camptex terminal to be back up and running? I just want to understand the Between North America and Asia, you've described a pretty robust demand environment there.

Speaker 2

Do you expect to see some normalization of those spreads over time? Thanks.

Speaker 3

Yes, great. Thank you, Steve. So, yes, with respect to the logistics piece, yes, our supply chain And Canpotex's supply chain in light of some of the logistics challenges that we've described, but also Low river levels along the Mississippi, it's made barge movement very difficult. We've seen challenges with rain in the Panama Tanal and obviously bottlenecks there. But given the investments that Canpotex has made both on the West Coast, but of course on the East Coast as well.

Speaker 3

And then with our vast network throughout North America, we have been able to meet the needs of our And I think it just demonstrates the resilience of our network and all backed by obviously our 6 minutees as well. So Yes, we have been able to, like I say, meet the needs of our customers. With respect to the Portland outage, I mean, as I said, Vancouver, the terminal So that peering into 2024, we expect to see full export capacity through the Canpotex terminals.

Speaker 2

Can we

Speaker 3

talk about the spreads between North America and Asia? I mean, of course, these are granular markets versus Standard grade markets and there is a distinction there where we've seen this very strong demand in North America as we've certainly heading into the fall application season and that is our largest Granular market and as we said earlier, we're expecting a strong fall. With respect to the standard grade markets, we've talked about those in terms of Chinese consumption, we talked about Southeast Asia and the way we expect to see theirs. Could we see a narrowing of those spreads? We could in 2024, but I think It's really a distinction between grades.

Operator

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.

Speaker 8

Yes. Thank you. Good morning, everyone.

Speaker 3

I was hoping to maybe dig in

Speaker 8

a little bit more on the retail side. And I know You gave some color on crop protection kind of vertical in the prepared remarks. But can you just talk about where The channel inventories in your retail system are in North America, Australia, Brazil, kind of Looking through the end of the year, how you've seen grower behavior change, if at all, this year? We've seen based on some of the suppliers that it's not just the distribution chain that's been slow to purchase products. And If you think that you're getting to a normalization point, looking into next year,

Speaker 2

that'd be helpful. Thank you.

Speaker 3

Great. Thank you, Adam, for the question. Yes, crop protection inventories have been drying down in North America, although we'll continue to be Quite selective there. I would say opportunistic and different in Brazil where we're still working through some higher cost inventory. But I'll hand it over to Jeff Yes, to walk through all of that.

Speaker 9

Yes. Good morning, Adam. And as Ken just said, we came into the year wanting to work diligently to get our Crop protection inventory down. I think we've done a good job year to date on that. We've drawn our inventory down in our retail business about $200,000,000 below Where we were this time last year, sitting in real good spot in the U.

Speaker 9

S. Market. As Ken and Pedro mentioned in their commentary, Brazilian markets are a bit more difficult, more product In the channel there, we think by the end of the year in our retail business, we would have worked through the majority of that crop protection inventory In the Brazilian market, we look from the supplier side of things. As Ken said, we'll be very selective and opportunistic On our purchases in the Q4 and I do think you used the word normalizing. I do think that the purchases supply demand has normalized over the last 12 months and growers don't They're not as keen to purchase ahead of time right now because they're not as worried about supply and inventory from that standpoint.

Speaker 9

At the same time, we've seen our margins on crop protection normalize very nicely from the Q1 as well.

Operator

Your next question comes from the line of Steve Byrne from Bank of America. Your line is now

Speaker 10

Yes. Thank you. Ken, I'd like to tap into your brain from your old Canpotex days With respect to the current pricing in potash, and if you were to think back a few years and see a scenario where Tonnage out of FSU could be down, say, 5,000,000 tons for the coming year. Now you got a little bit coming out of Laos, but you clearly have a supply shock. You got favorable fundamentals in the world.

Speaker 10

Would you expect Canpotex to be Sold out for the rest of this year and spot pricing in some key markets to be what looks to be fairly Modestly above levels from a few years ago before the supply disruption. Is that logical to you?

Speaker 3

Yes. Good morning, Steve, and thank you for the question. So what I would say is the dynamic and the volatility Since this conflict in Eastern Europe started and all of the supply side events that followed I have just created a situation where we saw the big inventory movements at the start of this conflict where there was Concerns about supply and those rushing into the market, Brazil is a great example of that building inventory and all of the impacts On price that followed, which from a grower affordability point of view, while the fundamentals in agriculture were and continue to remain Very strong from an affordability perspective. I mean, prices just reached to a level where affordability was compressed. And of course, we saw that buyer strike as a result, and we saw that buyer strike in North America, we saw it in Brazil, and we saw that continue until those inventories have been drawn down.

Speaker 3

And We've been watching those inventories come down from market to market. And as those inventories coming down, of course, no one Stepping in until we're able to sort of see an inflection point. And so that's I believe we can characterize the last 18 months along those lines. And then where is that inflection point or what does stability look like? And I think, I would say Steve from a Campertex perspective Peering now into 2024 and as we talked about very strong consumption in China this year and as We talked about Southeast Asia stepping out of the market and really now with CPO prices, rice prices being where they're at an expectation that Tristan and stepping back into the market.

Speaker 3

We're constructive on 2024 and while yes Canpotex has placed volumes and committed through the end of the year as markets have been stabilizing and us continuing to run our 6 cost Our 6 mine network low cost production, this is where we are. But yes, we're peering into 2024 And we're expecting even more normalization across those markets. So yes, it's been an interesting and volatile 18 months, But here we are in constructive on 2024.

Operator

Your next question comes from the line of Michael Tupholme from TD Securities. Your line is now open.

Speaker 2

Thank you. Within the nitrogen business, the brownfield projects that were completed in Q3, can you talk about how much incremental annual production volume those What you're expecting to add in terms of volumes in 2024 for many additional projects and Perhaps the settlement of the gas contract in Trinidad. And then kind of bigger picture, any commentary you can provide on how you're thinking about year over year nitrogen volume growth in 2024 versus 2023, both for the overall market and then specifically for Nutrien?

Speaker 3

Yes. Thank you, Mike. And yes, we certainly expect increased volumes in 2024, getting above 11,000,000 tonnes. But I'll hand it over to Trevor Williams to talk about some of those details.

Speaker 6

200,000 tons this year, mostly in UAN, a little bit on the ammonia side. But again, most of this is geared from the work that we did at Geismar earlier in the year. Going into next year, we do have a couple of small debottlenecks as well. It's on the smaller volume of about 40000, 50000 tons that will be completed Mostly on the ammonia side in the Alberta system. But if you think about where our glide path is, This year, we provide our guidance in the range.

Speaker 6

Next year, we think we'll be in that kind of a little bit above the 11,000,000 or 11 1,000,000 tons. And as we look forward to 2025, 2026, getting back to that mid cycle expectation of being 11 point 5 to 12,000,000 tonnes on a run rate going forward. Mark, maybe over to you just in terms of some of the comments in terms of the market.

Speaker 5

Yes, sure. Thanks Michael for the question. Look, I think Trevor summed up the volume story really well. From a nitrogen standpoint overall, the market is quite Generally, we've seen supply constraints, certainly in urea and ammonia around the world playing a role in the last several months and that's From a nitrogen standpoint, I think, as Jeff Tarsi would probably tell you, it's a little bit early to call acreage shifts for next year, but we do Still expect healthy corn planting and strong agricultural nitrogen demand next year. I think just to double click a little bit Where things are in the market, certainly from an ammonia standpoint, on our Q2 call, we had articulated that we felt ammonia was fundamentally undervalued given in the market and we've certainly seen things firm up here over the last several months, which really has been a supply driven event.

Speaker 5

And so Ultimately, we've seen ammonia now come back into balance from a value on an end basis with urea and UAN. We do expect good fall applications here across the nitrogen complex as we move through the rest of Q4. And I think the setup looks pretty good Peering into Q1 next year.

Operator

Your next question comes from the line of Richard Giorcitoina from Wells Fargo. Your line is now open.

Speaker 2

Great. Thank you. So I just wanted to Back to potash demand and sort of your expectations going forward. So with 2024 basically around 67,000,000 to 71,000,000 tons And then on the supply side, potentially at least 1,000,000 to 3,000,000 more tons Supply from Eastern Europe, I guess, I wanted to know your thought process in terms of how you think about the expansion plans and when we should think about Maybe you started to move forward more quickly on the $14,000,000 to $15,000,000 ton target for mid cycle. And also just on that Follow-up.

Speaker 2

Is the CapEx guidance for, say, dollars 2,000,000,000 to $2,500,000,000 going forward include any spend for growth, Either in potash or nitrogen or is that essentially sustaining CapEx? Thank you.

Speaker 3

Thanks for the questions, Rich. So yes, with respect to 2024 and our potash expansions, When we talk about the mid cycle in our business, I mean, we would say that that's 14,000,000 to 15,000,000 tons of Capacity that we have available to put into the market. And as it relates to 2024, yes, we expect demand to continue to grow. We expect Continue to grow beyond 2024, of course. And as it grows, we're going to we'll maintain market share.

Speaker 3

We'll continue to meet the needs of our customers. And As our customers are calling for volumes, we'll get those volumes into the market. So we absolutely believe that We're on a growth trajectory here and that we'll be able to deploy our additional low cost tonnes into the market. Today, we feel comfortable with the volumes that we've had. Hence, we talked about the pause in deploying capital toward Increasing expansion.

Speaker 3

At this moment, of course, we can return to an expansion trajectory with low CapEx To go beyond the 14,000,000 to 15,000,000 tonnes as we watch the market evolve and as our customers are calling for those tonnes. But again, for today, We feel comfortable with the investments we've made. Where we are deploying capital in Potash is the ongoing work with associated with automation, Associated with predictive maintenance and advanced process controls, of course, the automation work in addition to having the big safety benefits has productivity benefits. And We're in the process of realizing those benefits actually as we speak, as we deploy automated mining machines In our 5 underground mines. So certainly that part of that the $500,000,000 that we talked about in investing CapEx growing our business, Part of that is in the automation work that we're doing in our potash network.

Operator

Your next question comes from the line of Joshua Spector from UBS.

Speaker 11

Good morning. This is Lucas Blevins on for Josh. So just sticking with potash, the top, I mean, 6,000,000 to 7,000,000 tons of capacity there on the cost curve. It accelerates pretty rapidly in terms of the cash costs from sort of low 200s up to kind of 350s With the incremental capacity coming from the 2 phases of BHP, plus the rollback in sort of Russia and Belarus through the end of the decade, I mean, that's pretty much equivalent to kind of what would be 10 years of demand growth kind of historically. And that's not sort of counting any of the other smaller projects that may or may not sort of come online.

Speaker 11

So Do you think that top portion of supply is going to get pushed off the cost curve out there? And if that does, I mean that would seem to imply that pricing support is really kind of back at 2016 to 2019 lows

Speaker 5

versus sort

Speaker 11

of what you guys are assuming sort of for your mid cycle pricing, which is quite a bit higher than that. So if you could just kind of give us your thoughts there on the dynamics and how you see that evolving. That would be great.

Speaker 3

Yes. Thank you, Lucas. And I think you described just a number of moving parts there that Yes, I would say have a lot of unknowns and risk associated with them. Again, we would A lot of conviction around the fact that we're in a market that just continues to grow and we can continue to talk about the reasons that it's growing. But For disease resistance, drought resistance yield, potash is going to continue to be used.

Speaker 3

And again, we've seen that Those growth rates over the last few decades and looking forward, we just have a lot of conviction that that's going to continue to be true. So Taking that assumption and looking at the supply side, we do know that some of this FSU planned new plant production That was in the pipeline to come to the market is delayed. It is in fact delayed. And it's delayed probably measured not in months, but in years. And so as that new volume is pushed out, of course, that creates room in the market.

Speaker 3

Yes, there is an announcement of The Phase 1 and the Phase 2 at New Saskatchewan mine. But I'll just say again, we are we've looked Through our risk lens associated with bringing on those types of volumes in soft rock mining and soft rock mining is a lot different than hard rock mining. I have done both. And those are challenging mines to bring on stream. There's Always unknowns and there's always some surprises.

Speaker 3

So as we factored in a Phase 2 from BHB into our plants all along, But as we factor in these new volumes, we are applying our own lens, which would say that At the end of this decade, the start of the next decade, you put it all together and certainly we believe there's room in the market for

Operator

There are no further questions at this time. I will now turn the call back to Jeff Holtzman. Please continue. Thank you for joining us today.

Speaker 1

The Investor Relations team is available if you have any follow-up questions.

Operator

Have a good day. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Nutrien Q3 2023
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