Nutrien Ltd.

Greetings, and welcome to the Nutrients 2021 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Downey, VP of Investor Relations.

Thank you, Operator. Good morning, everyone, and welcome to Nutrients Conference Call to discuss our first quarter 2021 results and outlook. On the call with us today is Mr. Mayo Schmidt, President and CEO of Nutrien, Mr. Pedro Farrar, our CFO, as well as our heads of our business units and other key members of our team. As we discuss this conference call, various statements 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 current quarterly report to our shareholders, as well as our most recent annual report, MD&A, and annual information form filed with Canadian and U.S. security commissions to which we direct you. I will now turn the call over to Mr. Mayo-Schmidt.

Thank you, Richard, and good morning. I want to thank you for joining the Nutrien team today as we share news of our exceptional results and strong outlook. Nutrien has a portfolio of integrated and related businesses that provide competitive advantages. Our team's excited to execute our long-term and board-approved strategy. This includes our 2023 financial and operational targets, as well as our recently unveiled ESG targets and commitments. We are dedicated to growing Nutrien through superior operational performance and focused capital allocation to create shareholder value. The very tight global supply and demand growth has led to strong pricing across virtually all crops, and we anticipate a tight supply and demand environment continuing through 2021 and beyond. As we speak today, growers are responding by increasing seeded acreage and are focused on maximizing yields. It's really an exciting time to be in agriculture, and as the world's largest provider of crop inputs and services, we are also helping growers meet increasing global food demands. We're focused on the challenges of ensuring food security, safety, and climate action. We recently issued our new ESG report highlighting how Nutrien will focus on helping to transform the agriculture industry in three priority areas. Feeding the planet sustainably, environment and climate action, and inclusive agriculture. We'll be hosting a detailed review of our priorities, key commitments, and targets as well as our market leading carbon program at our ESG update in June. Now, turning to our first quarter results and outlook, we delivered excellent performance across all our business units. Our outlook for the second quarter is very positive as field work and seeding are progressing very well and our expectations are for higher acres in North America. As the largest ag retailer In multiple countries, we are seeing firsthand strong interest of growers to maximize yields, and we are fully prepared to serve them with our broad selection of crop inputs and services. Our service offering includes our leading proprietary products, our direct producer relationships, while fielding more than 3,600 agronomists globally, an input financing program, and our investments in innovative digital tools. Our nutrient ag solutions retail business delivered a record first quarter adjusted EBITDA of 109 million due to strong margins across virtually all product lines and geographies. Retail sales increased 12% year over year and gross margins rose to 22%. Fertilizer margins were strengthened by the rapid rise in prices this quarter. although margins are expected to normalize in the second quarter as retail's more recent fertilizer purchases have been made at higher levels. U.S. crop nutrient volumes were up just over 10% year-over-year, while total retail volumes were up 20%, and gross margin per ton was nearly $15 per ton higher. Crop protection margins in all geographies demonstrated year-over-year improvement this quarter. The market has been fairly tight for certain products and regions due to the combination of the February freeze impacting production in the U.S., strong global demand, and recent logistical bottlenecks both international and domestic. However, due to the strength of our supply chain, Nutrien Ag Solutions is well positioned with product availability for our growers' requirements for the season. We also reported improvements across our retail metrics this quarter. Total retail adjusted EBITDA to sales surpassed 10% and was over 11% in the U.S., while adjusted EBITDA per U.S. selling location increased to over $1.1 million. Retail lowered their cash operating coverage ratio to 60%. We continue to see impressive performance and utilization of our digital ag platform all metrics showing significant year-over-year improvement. In Potash, our business continues to build momentum with near-record sales volumes in the North American market for the first quarter and solid demand internationally. Kinsights and the Potash team are optimizing production across our six mines and progressing automated mining projects that will together improve safety, performance, lower cost, and further reduce our carbon footprint. Our cash cost of production was lower by about $3 per ton compared to the first quarter of last year, despite an increase in the value of the Canadian dollar. We achieved significantly higher potash sales volumes this quarter, despite the extremely cold weather in February, which slowed logistics and deferred offshore shipments, shifting about 300,000 tons of our planned international sales into the balance of 2021. Demand for our nitrogen products remains strong across North America, with prices rising rapidly during the quarter. Rafe Sully and his team delivered strong operating results, achieving a 97% North American pneumonia operating rate, despite downtime due to extreme cold weather events in February. Sales volumes decreased year over year due to the lower starting inventories due to a robust fall season in 2020 and reduced production in Trinidad. Our phosphate operations posted a strong quarter with $97 million in EBITDA due to higher realized prices. We do expect margins to temper going forward as costs rise from the much stronger sulfur and ammonia prices. Now turning to the outlook. New crop corn and soybean prices and the cash margins are approximately 60% higher than this time last year, while spot prices have approximately doubled. The rally in crop prices highlights the tightness in global supply and demand balances and the sensitivity to any potential supply risk in 2021. Retail is experiencing excellent demand for products and services as the mood amongst growers is very positive. We believe the final seeded acres for corn and soybeans could be about 4 million acres higher than the USDA March intentions report. Even at a higher U.S. seeded acreage, we expect to see a continuation of tight stocks to use ratios and strong crop prices in the next year. We have increased our annual EBITDA guidance by $400 million to $4.4 to $4.9 billion in 2021. The increase is across all business units supported by continued strength in crop and fertilizer prices and a very positive outlook for potash in the second half of the year. We believe that potash inventories in the major global markets remain low for this time of year and the global demand will be 68 to 70 million metric tons. We're expecting as much as a 20% increase in potash imports in Indonesia and Malaysia this year. Exceptional demand in North America and continued growth in South America and Asia. CampoTex is fully committed on volumes into September. and anticipates it will gain market share in the higher netback regions outside of China and India. The recent increase in the Baltic Dry Freight Index is expected to have minor impact on our offshore potash netbacks. Year-over-year ocean freight rates are approximately $20 per ton higher. We anticipate the impact to our international potash netbacks will be less than $10 per ton in 2021 due to Campo Tech's long-term freight arrangements. We anticipate North American nitrogen and phosphate prices will remain firm through the application season. Our realized nitrogen prices in the second quarter will be supported by the higher proportion of ag-related sales. We expect typical summer seasonal pricing and some moderation in nitrogen prices in the second half of the year due to an increase in global urea export availability from China and some new capacity coming on stream globally. However, we continue to be constructive on the nitrogen market outlook for the medium and long term. In closing, we believe agriculture fundamentals have positive momentum and nutrients exceptionally well positioned to benefit from the multi-year strength expected in crop and fertilizer markets. We also see great opportunity to demonstrate and benefit from our commitment to delivering products, technologies, and services to ensure we can collectively feed the planet more sustainably. We are uniquely advantaged to collaborate with growers and industry partners to launch and scale a comprehensive carbon program that has the potential to accelerate climate-smart agriculture. The interest in the program is apparent as we're oversubscribed for our 2021 farm pilots. Before we begin the question and answer portion of the call, I'd like to thank Chuck Magro on behalf of employees, customers, and shareholders for his contribution over the past 11 years and do wish him success with his next steps. With that operator, I'd like to open the call to questions for our leadership team here today.

At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. Your first question comes from Steve Burney from Bank of America. Your line is open.

Yes, thank you. Just following up on the last comment about Chuck Magro, any comments on why Chuck left or does this represent any change in the direction of Nutrien?

Well, thanks for that question. The board of directors and Chuck mutually agreed that Chuck stepped down after a decade of strong leadership, and it was my honor to accept the role of president and CEO for Nutrien. Regarding the Nutrien strategy, certainly I had a front row seat in developing and working with the team as chairman of the board with the aspect of driving industry performance across all our business lines. I might also mention that when we go back to the value that's been created through the MOE, the merger of equals with Potash Corp. I headed that committee from a board level. So it was really, you know, I think the board's thinking about a combination of history and building value and focus on an existing strategy and taking the business to the next level.

Your next question comes from the line of Ben Isaacson with Scotiabank.

Thank you very much. And good morning, everyone. Give me a question for Jason Newton if he's there. Potash demand has been very, very strong so far this spring, and there's some concern that despite strong crop economics, demand may be getting pulled from the fall and even from the spring of next year. Can you address that, please?

Sure. Good morning, Ben. I think we've seen really positive a couple of consecutive really strong application seasons in the US, starting with last fall with really ideal weather and then continued strength in demand this spring. If you look at where affordability is, potash prices remain very attractive relative to where crop prices are, still well below average from an index relative to corn costs and we see that supporting demand. And I think as we look toward the summer fill period, which leads into the fall of 2021, I think there's already interest building for summer fill and we expect that the inventories through the supply chain will be relatively low once we get to the end of the spring planting season. We know that as we look toward The fall weather is really important, but the crop is getting in the ground at a good pace, which sets up well for the growing season. And then as we get into next year, we think the supply-demand fundamentals in major crops continues to look strong, which should be supportive of continued strength in crop prices and affordability in the spring of 2022, which should continue to support high levels of application rates and demand.

As a reminder, everyone will have the opportunity to ask one question. Your next question comes from the line of Adam Samuelson with Goldman Sachs. Mr. Samuelson, your line is open. Your next question comes from the line of Andrew Wong with RBC Capital Markets.

Hey, good morning. So just a question for our, for our male, maybe just looking across the business. I mean, there's been a lot of work done to improve operations and reduce costs over the past couple of years. Are there any areas within the business that you feel could see further improvements and maybe just highlight some of those areas for us? That'd be great. Thanks.

Sure. Terrific question. You know, certainly I absolutely agree with you and I was certainly a key participant and there's strong board alignment on the changes. But I really think as we think about moving forward, really a focus on the structural advantages that we have in retail and our production businesses. I think it's a really unique opportunity to put a fresh set of eyes with leadership team on taking the business to the next level. And more specifically to your point, I think an internalization of operational benefits between the business units, focusing on pipeline margins, facility utilization, areas around logistics, transportation, which I I've got quite a deep background in, and also working capital. And I do think we're really focused on our structural advantages. We think about how we focus the organization on our proprietary, the scale of our transportation, and then I would say the symmetry and balance within our system, which in my view can enhance the pipeline utilization of products and growth and creating profitability when we can find opportunities for growth, both organically and and through acquisition and making sure those are profitable in the first full year of operation.

Your next question comes from the line of PJ Juvicar with Citi.

Yes, hi, good morning. You know, as growers are flush with cash, do you think they'll upgrade in their seed and chemical purchases to preserve yields And, Mayo, I think you said that you expect maybe 4 million more acres than what USDA suggested. Do you think that most of that goes towards corn, given that corn is now at $7? And what's the upside from that? Thank you.

Sure. Thanks for your question. I'll make a comment, and I'll ask Jeff Tarcy to join me here. You know, the higher crop nutrient sales prices and volume from really strong American crops, Strong North American spring application season is what's been driving our increase in gross margins. We're quite positive about, as we look forward, the opportunity. Jeff, would you like to further comment? You're on the ground and have a great sense of the planting this year and tensions.

Sure. Thanks, Mayo, and good morning, PJ. And PJ, I agree. I mean, look, there's a lot of optimism out in the network today, especially with our customers. We see people, I like to use the term swinging for the fences. They're going to do everything in their power to maximize yields in 2021, no matter what the crop is, corn, soybeans, cotton, and wheat and various other crops with it. As far as maybe trading up on the seed side of things, I don't see so much trading up on the trait side of things. The trait side of it is more determined by pest pressure. But what we do see is we increasingly see our growers using technology to trade up on the germplasm side and being able to match the best germplasm possible to the different soils that they have on their farm. Our digital agronomy platform is allowing us to really utilize those tools going forward. But, you know, look, we're going to see growers really for the inputs to this crop this year. If I look at our nutritional proprietary nutritional business, you know, I'm seeing that today with some of the infer applications that are being made. Again, they're putting the very best germplasm out there, and we think they're going to do everything they can to protect this crop as we go through the season. I would expect plant health fungicides to be very strong as well as we get a little bit deeper into this growing season.

And PJ, just to answer the second part of your question on acreage, we'd see the potential growth to get to that 4 million acre level is relatively even between corn and soybeans, so roughly 2 million acres of each corn and soybeans.

Your next question comes from the line of Joel Jackson with BMO Capital Markets.

Hi, good morning. Welcome, ma'am, to this new role at Neutron. Just a couple questions. So just maybe following up on Jeff's answer earlier, you know, with higher crop prices and farmers training up on germplasm, is that a good thing or a bad thing for Dyna-Gro? Like, might we see Dyna-Gro lose share this year? Farmers are less price sensitive. And then second... on potash, you know, will the strategy going forward be the same when it comes to price versus volume? Might you try to push more tons out? How might this change if we get some more tonnage coming on in Russia and Belarus?

Jeff, do you want to take that first question and I'll take the potash, please?

Sure, absolutely. And again, good morning, Joel. Hey, in respect to the germplasm, Joel, absolutely not. That's not a negative to Dynagrow in any way. Our germplasm, no matter what the crop is, as it relates to Dynagrow, can compete with anything out on the marketplaces. As a matter of fact, if I look at our share through the quarter with Dynagrow, I see our shares increased across corn, soybeans, cotton, and canola, which would be under the proven side of things. No, we don't take a back seat when it comes to Dynagrove. And, you know, if you look at our yields as it relates to those by crops, we compete with anything out on the market. And depending on the geography in some of those markets, we actually have leading germplasm in those areas. May I turn it back to you?

Good, Jeff. Thank you. Thank you, Jeff. You know, when we think about our potash, we're certainly, you know, focused on price over supply. You know, and we also look at the increase as we're thinking about the next 10 years, you know, the 2% to 2.5% growth, and that could produce as much as 14 to 20 million more tons of demand over the course of the next 10 years. So we're quite positive, one, about price, secondly, growth in that market, and we'll continue to focus on that. And as we see, you know, right now we're fully committed on our offshore sales volumes through August. I think, as Ken Seitz may want to comment here, jump in, Ken, but he's certainly been focused on the opportunity in these markets to price, and that's why he's concentrated on certain markets.

Yeah, happy to, Mayo. Thank you. And, Joel, yeah, just maybe reiterate what Mayo said, and that is nothing changes for us. We believe we have a good strategy, obviously focusing on netbacks You know, it continues to be the case that we have this flexible mine network, and we'll meet demand in the market where it is. And we demonstrated that in the first quarter with our six mines and our significant structural advantages throughout North America, be it supply chain and our 300-odd warehouses, and then internationally by Capitex. And, yeah, you look into the balance of the year, things look very positive. And, you know, so we're going to stay the course. Back to you, Mayor. Thank you.

Your next question comes from the line of Michael Pickin with Cleveland Research.

Yeah, good morning. A question on nitrogen. If you could just talk a little bit about, you know, where you are with respect to running your Trinidad plants and, you know, any kind of plan turnarounds that you have for some of the other facilities over the remainder of the year and how we should be thinking about the cost structure for your nitrogen business going forward. Thanks.

Yeah, sure, Michael. So let me just start in North America. You will have noticed over the last couple of years a steady increase in our utilisation rates. That's as a result, I think, of some of the synergies that we got out of the merger. This year we've got two large turnarounds. During the last couple of years we've also been trying to take care of some large end-of-life issues where equipment is coming up to 40 or 50 years of service. We have two large turnarounds. We're in one at the moment at Borga, Texas, And we have another one starting in a couple of months in Redwater. That's pretty normal for us to have one turn around a year in the US and one turn around in Canada. The unusual thing about these is they're a bit larger than normal because of these end of life issues that we've talked about. So coming out of those we expect to see an increase in production capability and continued increase in reliability. Trinidad, a little bit different story there. We have four plants as you know. At the moment all four of them are actually running. Two of them, however, are running at reduced rates. We have a turnaround plan for one of the plants down there starting in a few weeks' time, and then another smaller, minor turnaround later in the year. The outcome of that will be that you'll see us produce at a level equivalent to about three plants over the rest of the course of the year, and that's, of course, dependent on gas supply.

Your next question comes from the line of Jacob Bout with CIBC.

Morning, all. Mayo, perhaps a bit more color in your strategic view, specifically your thoughts on how you're prioritizing investment in wholesale versus retail. And does it make sense to keep them together? Is there value created by splitting them apart?

Thanks for that question. You know, I think that when we think about the internalization that we're focused on between the two, you know, between the different operating units, that would be the pipeline margins of facility utilization, logistics, and transportation. And that supply chain is just critical for success. And, you know, when we think about the symmetry and balance in our system, we think about the research and development we have to generate a proprietary seed and then the ability to take that seed to the ground and support it by all of our wholesale fertilizer. And I think this is really a unique opportunity to put a new, again, a fresh set of eyes on how we drive more of that internalization within the system. And so we actually believe that we're stronger together. We also know that we have to set ourselves up to be advantaged structurally when we look at region or countries to make sure that we're not only competitive within particular zones, but also throughout the transportation and logistics network as well. So we think there's strength in the operating teams together, and we're going to really be focused on that internalization over the next course of time and look at our structural advantages.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Thank you. Two quick ones. First, on the 300,000 tons of potash that was delayed, you mentioned that it would be delayed into the balance of the year. So I'm just wondering, are you now holding that product back because of the rising price environment and expectations that you can get prices for it later on, or will it actually just flow through in 2Q? And then secondly, I noticed there was a very light buyback in the quarter. So just wondering if there's anything specific to that, just given that you raised the buyback at fourth quarter. Thanks very much.

Ken, do you want to pick up what Ash and Pedro – I can pick up the buyback portion. Ken, are you on?

You bet. Yeah, thanks, Vincent. So, yeah, with respect to the 300,000 ton, that really was just related to some challenges with – with supply chain and logistics in the first quarter. It was weather-related. We had some cold weather in February and then rain on the coast where we load vessels. And so we did defer those 300,000-ton Compotex did, and it's really kind of spread over Q2, Q3, and Q4. That's not to say that our salespeople aren't watching the rising potash price environment and timing sales accordingly. They definitely are. But with respect to those 300,000 tons, it's really just a deferral into the balance of the year.

And, Vincent, this is Pedro. I think just a comment on the buyback. Of course, nothing really changed in our capital allocation. We continue to use it to sustain our first-class assets. And then we kind of provided a dividend increase in the first quarter. And we look at everything else in a compete for capital basis. So we made some kind of choices. Of course, we're also preparing for a very strong spring season here. So what you see is looking at the best return for that capital at that point in time. Of course, we approved the NCIB and got approval from the board for a reason. So we're considering that as an option, but that option will be exercised in light of our tradeoffs between organic and organic and shareholder distributions in the future.

Your next question comes from the line of John Roberts with UBS.

Thanks. Welcome, Mayo. You talked about the CEO change having something to do with taking nutrient to the next level. Does that imply the 2023 targets laid out at the last investor day may not have been enough? Or are you thinking about something else when you talk about the next level?

You know, I think it's a combination of things. And thanks, John, for the question. You know, really we're putting a fresh set of eyes with leadership teams on our operational excellence. You know, we think about, as I mentioned earlier, our structural advantages we have throughout the sector globally today. and to a greater degree taking full advantage of those and enhancing that pipeline of utilization of products. So we really think that, you know, as far as we think about those targets, those are of course going to be driven by a combination of the advantages that we have in the marketplace and our execution. So the focus on the leadership team here is going to be both on execution, and when we think about even a wonderful business or retail that we have today, I can't imagine when we think about the sites that we have across North America and Brazil that we can't find new and unique opportunities in those businesses. So that's the area that we're going to really be focused in on.

Your next question comes from the line of Mark Connolly with Stevens Inc.

Thanks. I was hoping you could talk a little bit more about the performance of the Brazil business and how urgently Nutrien thinks it needs to grow that strategically. You know, my sense is that listening to Chuck, Nutrien wants to be a lot bigger and more impactful there.

We certainly do, and we see an opportunity to be more impactful and more We think that as we're looking at and progressing in that particular market, there's unique opportunities as it develops. So we've got a keen focus on that area, and that will continue. We expect to see growth and earnings there as well. And, of course, we have an expectation of a bit of a higher rate of return in that market, particularly with any levels of risk being in different countries as such. So, Pedro, do you want to make any comments about that?

I would just say that we have capability for – corporate development expansion, so M&A expansion in Brazil, very rich pipeline. So we have many paths to grow in Brazil. We would like to grow in Brazil, as we kind of stated many times before, but we will do so on a disciplined basis. So we'll take our time to get the best assets. And we're very encouraged by the performance of the existing assets at this point in time, which gives us more confidence about our strategy in the future.

Your next question comes from the line of Duffy with Barclays.

Yes, good morning. A couple of questions just around China and potash. I mean, if you look, you know, China's obviously been buying a ton of corn and soy, kind of price indifferent, and that stands, you know, really juxtaposed to what they've done with potash, where it seems like, you know, you're fighting over nickels and dimes around pricing. Can you square why they would be so tight on the potash side when that can actually affect their internal corn yields versus buying a lot of global product? And then just to follow on to that is, as you sit here today, how do you see the contract developing with them on potash this year?

I might just comment to start with and draw Ken in here. You know, when we look at the change that, you know, we've gone through the tariffs the U.S. has applied in China, worked through that, you know, which created obviously an extension of Brazilian exports into that market, and then the African swine flu and the recovery from that, and then the, you know, I think it's a combination of that swine flu recovering, and secondly is China building strategic food supply is driving a lot of this demand, and we do expect to see it continue. Ken, would you like to comment further?

Yeah, you bet, Mayo. Sure. And thanks, Duffy, for the question. So yes, it is a unique year with respect to the contracting process in China. Of course, that contract with one of the big international suppliers was on the heels of an agreement with India at the same price level at the 247. We're watching Chinese inventory levels quite closely at the moment, exactly as you say, Duffy, because demand in China will be strong this year. And will continue to be strong going forward. Inventory levels at the moment are about 2.5 million tons. That's down from about 3.7 million tons this time last year. And important to note that of that 2.5 million tons, 1.5 million is the so-called strategic reserve. So really only 1 million tons sitting at the port that's usable. If we look inland at the Qinghai Salt Lake, we believe that those inventories were depleted at the end of last year and continues to be the case. So Inventories level are low, to your point. Campotex has said that it's committed right through to the end of August, and so it remains to be seen how the contracting situation will evolve in China with this very strong demand and with inventory levels coming down. So yes, I think it plays into the timing around discussion for a new contract or a new price level in China. And, again, that remains to be seen as we watch this strong demand in the depletion of inventories with, frankly, suppliers targeting other higher net back markets in the world as opposed to sending as much potash to China. And you see that reflected in Capitex's numbers as well.

Your next question comes from the line of Stephen Hansen with Raymond James.

Yeah, good morning, guys. Mayo Nutrien has been a clear industry leader on the digital strategy front here in recent years, and I noted that digital platform sales have doubled in the first quarter here. Can you perhaps just speak to the digital strategy in particular going forward and how you see that changing, if at all? Appreciate it. Thanks.

I'll be happy to. Thank you. You know, one, we've had good success in rolling out the Canadian digital strategy. That has been over the course of the last year, and as we think about moving forward, we've been working robustly on the U.S. strategy and how we'll roll that out. We're seeing some really good progress in payment of receivables on the digital platform, and we're seeing a growing demand from producers that are willing to order and do their own input, and we're supporting that. Fortunately, we have the 3,600 agronomists and also the support staff behind that They're able to assist farmers. So for us, it's a matter of a combination of enhancing that digital platform experience for our producers while also helping them with their planning needs in the farm with precision agriculture. And if you think about below all of that is our ESG support that we have and sustainability. And we look at even thinking about not only digital roles into agriculture, Our total pilot acreage target of 100,000 acres, which we were oversubscribed on the carbon program. So there's many, whether it's the financing that we do or the planning we do, whether it's fertilizer or seeds, and then, of course, the input and receivables. So we're quite positive about it. It's a big effort. It's across the company. It's requiring focus at every level of leadership.

Your next question comes from the line of Rikin Patel with Exane.

Just a question on nitrogen. Firstly, do you have any expectations or guidance on the current Indian import tender and how that might impact the market? And then secondly, you've mentioned an offer end of 5.5 million tonnes for Chinese urea exports this year. I'm just curious what sort of scenario takes you to that 5.5 million. Thanks.

I'd like to ask Jason to address that question. You've got great experience in that area, Jason, please.

Yeah, good morning. Great question. In terms of the Indian tender, I think we're seeing some of the offers come in today. It certainly is something over the past couple of weeks that's provided support to the international urea market. I think that leads well into talking about the Chinese export situation. So we've bumped our forecast of Chinese urea exports to between four and five and a half million tons. The top end of the range would be in line with where exports were last year. And I think what drives getting to the top end of the range is a delay in commissioning and the ramp up of some of the urea projects that we see coming on stream in the second half of the year, in addition to continued strength and demand from India, and that's a bit tied as one of those urea projects is in India. We know that Indian production year-to-date is down about 500,000 tons, but is projected to be up on the full year. So if that doesn't happen, there's upside in Indian import demand, and that flows directly through to the Chinese urea export expectations.

Your next question comes from the line of Faye Lee with Odlem Brown.

Hi, it's Faye here. It's been a long time. Welcome aboard on your new role. Just a question on maybe expanding a little bit on the digital side. Right now in terms of the strategic plan, do you see it's kind of been more moving towards trying to get the farmers onto the digital platform, but do you see opportunities to create new, stable, recurring revenue stream through your digital platform somewhere in the future? What's your thoughts around that?

I think it's certainly possible as we expand on that experience in digital ag. I think not only there's going to be efficiencies for the producer, but we're going to realize some efficiencies as well. Whether it's prepaids or pay and receivables, we're seeing some acceleration of opportunity in those areas. I agree with your point. I think a number of those things are to be discovered. We haven't rolled out the U.S., although it's under planning and development right now. We've got a very robust approach to the U.S., so it's going to be about, you know, a keen execution. And, of course, we've had the experience in Canada. We were able to adjust to some of the challenges that we experienced in Canada, and we feel good about the platform that we're operating right now.

You have a follow-up question from the line of Adam Samuelson with Goldman Sachs.

Yes, thank you. Good morning. Apologies for multiple earnings calls this morning. I was hoping to get a little bit more color on your view on the nitrogen market as we think about the second half. It seems like ammonia prices in the seaborne market have topped out the May contract for Tampa, rolled over. We are seeing Chinese urea exports pick up. I'm just trying to get a sense for if there are lower prices in the second half, just How far do we think they're actually going down given the grain price environment and the demand and cost curve dynamics that we have at play today? Thank you.

Adam, thanks for the question. Obviously, we spent a lot of time thinking about what might happen. Let me just step back for a minute and look at the macro supply and demand. If you think about where we were 2012 through 2018, there's a lot of supply in the market. Prices were down. 2018 forward, we're not seeing the same amount of projects coming online. The overall nitrogen market is about 150 million tonnes globally at the moment and growing at, you know, one and a half to two and a half million tonnes a year. You know, so a full world scale ammonia plant every year. So, you know, we've seen that tightening. Now, we were expecting it to tighten a little earlier, but you saw that last year, second quarter, we saw a decline due to COVID and the industrial demand had dropped about 20%. We've seen that industrial demand come back and come back strongly. And so, you know, there may well be a little reset as we get out of the spring season. We're expecting a very strong spring season, but there's always a little bit of a reset in summer. We just don't think it's going to be as marked as we've seen historically. We certainly think that the prices through the back half will be substantially above where they were in a similar period last year.

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

Yes, thank you for the follow-up here. The gross margin expansion in the fertilizer sales in retail is intriguing. My understanding is historically the relationship was wholesale could move tons into the retail channel you know, as a way of moving product off season, but retail had the decision of when to, when that product would be priced and when to lock it in. Can you comment on whether that is still the case? And I asked because that, you know, the fertilizer price inflation during the first quarter was robust. And so the question is, you know, when did your retail channel essentially lock in the purchase pricing for the fertilizer that was sold in that quarter? And perhaps more importantly, for the second quarter sales that I'm sure that are going on the ground right now, was that volume locked in, you know, earlier this year as well to represent a nice margin expansion just simply on price?

Thanks, Steve, for the question. I'll pull in Jeff here, but let me just start with, you know, this isn't unique to the agriculture sector, and certainly with my past record in handling seed chemicals, fertilizers, and the internalization of demand. There's going to be the internalization that we do between wholesale and resale, but we also are uniquely positioned to be able to trade and transact outside of our in the marketplace, and that's one of the things that we look at in terms of the balance of our system as to where our wholesale is located, the transportation, logistics, and sales program between the two. So we do have that real unique opportunity to look both internally and externally to maximize our margins. So, Jeff, would you like to continue to comment?

Sure. Sure, Vail. Hello, Steve. Yeah, and look, Steve, you're familiar with our network. And my first remark would be that to move as many tons of fertilizer as we move through our network into the fall and into the spring, we have to start well, well ahead of time of putting inventory in our sheds. And we did last fall. We were able to obviously take advantage at the time of some lower prices. And as we came into this first quarter, as you've seen with our numbers, We were able to take advantage of some of that inflation that we saw on those fertilizer tons. I think our guys have done a great job out there of trying to price as close to replacement as we can. Obviously, we're running out of that inventory on what I would call that first turn. We're actually having to buy back into the market some today. And I think in the second quarter, you'll obviously see more normalized margins as it relates to on from a per ton basis on it. But I'll also add, Steve, that, you know, we've worked really hard on our proprietary nutritionals and those kind of figure into that margin per ton basis too. And we've done a lot of great work with active grow products and things like that that are also contributing to that margin as well. with it. Again, as I mentioned earlier, we've seen rate increases as well as these growers are really optimistic about giving their crops every chance to maximize yield and such. We'll start another month or so getting ready for the fall fertilizer season and obviously we're going to have to layer a lot of product in because we're going to anticipate with these strong prices it's going to be strong demand again this fall as well.

Your next question comes from the line of John Roberts with UBS.

Thank you. You're targeting 29% of retail margin from proprietary products in 2023. Can you get there organically? And is there any particular category that's expected to drive that increase?

Jeff, do you have that one, please?

Yeah, yeah, I think we can get there organically. We've made numerous investments and acquisitions on that proprietary side of our business, whether we're talking about crop protection, nutritionals, or seed with our Proven and Dynagrow brands of seed with it. And, look, we've gotten off to, you know, I think a fantastic start through the first quarter with our proprietary business. Our revenues are up. Our GP is up. Again, we see, and especially in an environment of high commodity pricing, we see a lot of our products like our nutritionals that are in very strong demand today. Our crop protection segment as well is positioned very nicely for these markets. Again, I look at things like our adjuvant and surfactant markets, and we measure them on a metric on a percent to crop protection. And we see nice increases there as well. So I think we've got a really good trajectory to get to that metric that we talked about in 2023. And I don't, to be honest with you, I don't think it takes a lot more investment, say from an acquisition standpoint. I know we're working on things that we can do to make our manufacturing and logistics side of it more efficient going forward. And I think those are normal investments that you make in that side of the business. But, uh, We're extremely optimistic about that side of the business and the portfolio that we built, and we want to utilize that.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Thanks for the follow-up. I just had a question on your comments in retail crop protection where you talked about sort of the favorable application conditions. I just want to understand whether you meant that that was allowing for farmers to do some field work that might have taken place otherwise in 2Q or whether it was leading to greater application rates or potentially both. And then on seed, I don't think this has been discussed yet, but you talked about the elevated competitive environment in the U.S. Is that outside of soybeans? And it doesn't sound like you're seeing that in your whatever the competitive issues don't sound like you're seeing it in your proprietary seed business.

You want me to take that, Mayo?

Yeah, please, and if you'd like to bring in David, that's terrific also, but please continue.

Yeah, I think on the crop protection side of it, you have to take yourself back to last fall, and you have to compare yourself against both years 19 and 20, where we really had late harvest in 18 and 19. Last fall, with getting an early harvest in really good conditions, we were able to get most of our soils prepared for this 21 cropping season, and that makes a tremendous difference as you come into the season. I think you would have seen that this past week with the planting progress that we were able to make. Growers were able to just drop right in and start their farming practices, and that really bodes well for the crop protection side of the business because there are a lot of chemistries we use there what we call in a burndown capacity or really desiccate any weeds that are up prior to planting. We're also able to get in and put a lot of our pre-emergence type herbicides on this acreage as well as it relates to that versus if you come into a year where you need to start to spring with a lot of tillage, you do that mechanically versus organically with crop protection chemicals and such. And from the seed side of things, it relates to competition on it. I would say that competition is more keen on the soybean side of things versus corn and cotton for that matter. But I also would say it's not anything that's really unusual or that we might not see during a normal course of the year. We've got some competing seeds. traits now on the soybean side, you know, extend versus enlist, and that creates some competition as well. David, I don't know if there's anything you want to add to that. Please jump in.

Yeah, Jeff, and Vince, a good question. Particularly on the seed side, I do think the introduction of, you know, the HT platform of E3 probably getting sort of north of 30% this year, you know, has offered a new competitive in the marketplace, but also in terms of our platform, put us in a great position to offer to growers, you know, choices, not only from a genetic perspective, but also from an HT trait perspective. And so, Jeff, everything you said about crop protection, you're clearly spot on, but in terms of seeds, the introduction of this new HT platform has offered us opportunities.

Your next question comes from the line of Andrew Wong with RBC Capital Markets. Andrew, your line is open. Your next question comes from the line of Adrian to Magno with Berenberg.

Hello, good morning. One question with Polish. Assuming Janssen goes through, would you be willing to have some price cooperation talks with BHP at some point, or how do you see the project at this stage? Thank you.

Thanks, Adrian. You know, we're certainly focused on our business and driving the most value for shareholders. We do expect to see long-term potash demand continue to grow. You know, they'll obviously be a competitor, and I'll leave their decisions in economics to them. But when we think about our system, you know, we're the world's largest soft rock miner and potash producer by capacity. We've got a tremendous network of flexible mines, six low-cost mines, our automation has been going remarkably well and a proven track record. And I think the other thing I think about, too, with our potash business is, you know, getting to Tidewater. You know, Ken and his team have done a tremendous job of, you know, now, you know, historically, you know, it was a great success in the industry loading 100-car trains and Ken's loading 200-car trains going to Tidewater. So it's a combination of the internal and external infrastructure, and we're really well-balanced in our system. So the idea of, you know, obviously... challenges of cooperating with competitors but at the same time we're focused on price and efficiencies and you know and Ken you may wish to comment further but the automation programs you're bringing and taking your cost down by three dollars was really quite impressive.

Yeah no thank you Mayo and Adrian Yeah, absolutely. I mean, we make our own decisions independent of what our competitors are doing. We just maintain that we have 5 million tons of available capacity ready to go into the market and significant brownfield opportunities beyond that, that from production costs but also development costs would be the most competitive in the world. So Yeah, we feel pretty good about our position, and then you layer on some of the advantages that Mayo just described, including, as Mayo said, some of the work that we're doing on our mine of the future. We have all of our mining machines with operator-not-present equipment at the largest potash mine in the world at Rokenville, and we're outfitting the balance of our mines as well, and that's just one example of of several projects we have on the way to get better, reduce costs, and improve safety. So we feel pretty good about our trajectory and where we're heading with our decision making.

There are no further questions at this time. I would now like to turn the call back over to Richard Downey for any additional or closing remarks.

Thanks, Operator. Well, thanks, everyone, for listening today. If you've got any further questions, Investor Relations is available to respond to any areas of interest. And have a good day. Thanks. Bye-bye.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect your line.