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.