Nutrien Ltd.

Greetings and welcome to the Nutrients 2021 Second 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 second quarter results and outlook. On the call with us today is Mr. Mayo Schmidt, President and CEO of Nutrium, and Mr. Pedro Farrar, our CFO. We also have the heads of our business units, Ken Size for potash, Ray Sully for nitrogen and phosphate. For retail, we have Jeff Tarcy and David Elser, and Mark Thompson, who leads our strategy and sustainability group, and of course, our head of market research, Jason Newton. As we conduct this call, various statements that we make about future expectations, plans, and prospects contain forward-looking information. Certain material assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from 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.

Well, thank you, Richard. And I do want to pause to comment before I get into my prepared remarks. The Nutrien's team and I do want to wish you and your family all the best in your planned retirement, which will occur, of course, later this year, and certainly recognize you and thank you for your 25 years of service to Nutrien. You've been an outstanding member of this team for many years and have enjoyed an exceptional career. You are appreciated and you will be missed. I know you're very pleased to be passing your torch over to Jeff Holzman, who I know many of you already know as our Vice President of Investor Relations. So good morning, everyone, and welcome to Nutrien's second quarter earnings call. Today I will recap the actions our teams have taken to fully benefit from excellent agriculture fundamentals and the demonstration of the advantages of our global integrated business structure. which together allowed us to execute on delivery of record performance for the quarter and for the first half of the year. This morning, I will also provide an update on the outlook and decisive actions that we have taken that allowed us to increase our annual adjusted EBITDA guidance to a midpoint over $6 billion for 2021, an increase of over 33%. Furthermore, we will illustrate the momentum that we will expect to carry forward well into 2022 and how the Nutrien team are enhancing our unique market position to drive value. So first of all, I would like to thank all our employees for the dedication and commitment they demonstrate each and every day in support of our grower customers in the more than 40 countries that we serve and as we work to feed a growing world. These efforts are especially apparent through the busy application seasons when our approximately 3,600 crop advisors are working directly with our grower customers as we produce and safely deliver nearly 30 million tons of potash, nitrogen, and phosphate globally. Myself, the board, and all employees are very proud of how our potash team has responded to increased production significantly from our flexible, reliable, low-cost six-mine network in the second half of the year to ensure our growers around the world have the potash they need to meet the ever-growing demand for food. So now turning to our results, our first half adjusted EBITDA was over $3 billion, up 36% over last year's level. We delivered excellent results across all businesses, geographies, and for most products and services. The key driver was impressive team execution with our well-positioned assets, higher prices for crop and fertilizers, and robust global demand. Our business also generated notable free cash flow of $1.9 billion in the first half of the year. Nutrien Ag Solutions, our retail operations, achieved a 24% year-over-year increase in adjusted EBITDA for the first half of 2021. In fact, almost all of our retail metrics showed significant improvement, and we're on track to meet or exceed our longer-term targets ahead of schedule. When we look across our nutrient businesses, we generated a combined $1.2 billion in adjusted EBITDA in the second quarter. Year-over-year potash earnings up 48%, and nitrogen and phosphate businesses up 45%. The increase was due to continued focus on managing costs, making operational excellence core to everything we do supported by stronger pricing. Our wholesale marketing and sales team execution was outstanding. Our team ensured we did not get over committed too early and optimized our retail distribution system. We evaluate our retail business on a first half and second half basis representing the spring and fall application seasons. In the first six months of this year, we witnessed strong year-over-year performance across all geographies in the majority of our product shelves. Adjusted EBIT in the first six months in the US, Canada, and Australia were up over 20%, driven by organic growth, while our South American team's EBITDA was nearly double last year, driven by their strategic acquisitions. By product shelf, the biggest increase in earnings was for our crop nutrients, per ton margins benefiting from well-placed inventories in a rising fertilizer price environment, as well as record sales volumes. Volumes for crop protection and seed were higher year over year, helping drive a significant increase in growth profit. The increase was also due to improved proprietary product performance across all geographies and products, with profits from all proprietary products up an average of 13% year over year. We also delivered excellent retail performance relative to our long-term targets, adjusted EBITDA percentages surpassing 11.4% compared to 10.3% in the first half of last year, partially supported by strategic fertilizer procurement. Our working capital as a proportion of sales and cash operating coverage far exceeded our long-term targets, and our average EBITDA per location showed significant year-over-year improvement. The ongoing progress in these metrics is made possible by our continued focus on meeting growers' needs while also rationalizing our network, optimizing working capital, and expanding our proprietary product line. We also reported $1.6 billion in digitally-enabled sales in the first half of the year, nearly double the same period in 2020, and processed approximately one-half a million grower payments through our systems. We also continue to grow our retail business in Brazil and recently announced an agreement to acquire Terra Nova, the fourth value-enhancing zillion acquisition in the past 18 months. With this transaction, we operate 33 branches in Brazil and are well on our way to generating $100 million in run rate EBITDA by 2023. Our retail team continues to demonstrate exceptional performance across the board and in all geographies in which we operate. Our Plodash Group performance has been outstanding. Ken and his team responded to market conditions and have fully delivered commitments to our customers while taking action to increase sales and production significantly to ensure our customers have the product they need. We are the only producer globally with the capability to respond. We delivered record volumes in the first half of 2021 and are on track to achieve a full year record. We are focusing all-time high global potash consumption in 2021 due to exceptional spot market demand in the US and Brazil and Southeast Asia, where we saw a significant market recovery this year. The demand has positioned Campotex to place greater emphasis on these higher net back markets compared to contract markets of China and India. Overall, we project to produce nearly 14 million tons of potash in 2021, In fact, by the fourth quarter, we anticipate nutrients to serve potash production to approximately 17 million tons on an annualized equivalent basis. We will continue to be proactive and flexible with our operating rate. Rafe's teams in nitrogen and phosphate delivered excellent results in the first half, capturing much stronger prices, and for nitrogen, achieved a 92% ammonia operating rate despite increased turnaround activity and weather-related challenges. Phosphate margins this quarter reached an impressive $195 per ton, and nitrogen margins averaged $182 a ton. Both were up almost 60% year-over-year despite higher input costs. We continue to benefit from the brownfield expansion projects completed over the past few years, which have both expanded production capability and increased product mix flexibility. These results also demonstrate our ability to leverage the competitive advantages of our extensive production and distribution network to execute on emerging market opportunities. For the near-term outlook, there is a wide range of crop conditions across North America. Crop maturity is generally ahead of normal, which bodes well for the fall application window. We may see some pullback on fertilizer applications in severe drought areas such as western Canada this fall. Overall, in North America, we expect solid crop input demand supported by continued above average crop prices. In Australia, very favorable weather conditions also continue to support strong crop input demand. Some ongoing weather challenges in Brazil have impacted yields for certain crops this year, but the outlook for next season is a further expansion in seeded acreage, which will support demand for all crop inputs. For fertilizers, The current price environment is a result of robust demand for all nutrients, driven by supportive agriculture and industrial market fundamentals. We expect these market dynamics will continue to support prices into 2022. That said, fertilizer affordability is something we watch closely. But even at today's elevated prices, most fertilizer to crop price indices are close to average levels and grower margins continue to be very favorable into 2022. We expect global potash demand in 2021 to be at record levels between 69 and 71 million tons and global inventory levels in key regions to remain very low. There is no news at this point about a potential contract with China or India. However, we continue to believe that China will need to negotiate a new contract before the end of the year as their inventories continue to draw down as Chinese domestic demand has been seen as robust. Campotex is already fully committed right into November and will continue to focus on higher net back regions. We believe the future outlook for our company is excellent. We expect crop prices to remain well above historic levels and fertilizer markets to remain tight. We will also benefit from our ongoing commitments to operational excellence, execution, a keen focus on cost and inventory management, continued value-added growth, and a strengthening return on investment. As such, we raised our consolidated annual adjusted EBITDA guidance by more than $1.5 billion, or over 33%, and our EPS by nearly 70%. This is due to stronger earnings outlook across all business lines and executing on our competitive advantages. We believe this positive earning outlook will continue into 2022 further strengthening our balance sheet. We will maintain our discipline compete for capital approach, which includes the potential for further investment in the business, deleveraging of the balance sheet, and additional returns to our shareholders. Our purpose is to help growers increase food production in a sustainable manner. There is no better example of this commitment than our responsiveness of our team to quickly and safely bring on an additional one million tons of potash production to improve access of this important nutrient for growers globally. These actions also deliver significant financial value for our shareholders as the increase in production accounted for approximately 25% of the $900 million increase in our potash adjusted EBITDA guidance for 2021. Another example of executing in line with our purpose is our Feeding the Future plan and 2030 sustainability commitments which includes our ongoing focus on improving carbon outcomes. We are reducing the carbon footprint at our facilities, making great progress on our industry-leading carbon program at the farm level, and our recent announcement on a partnership to develop a marine vessel that is powered by low carbon ammonia as a fuel. Nutrien is committed to ensuring our strategy and operations remain world-class and successful over the long term. which is supported by strong integration and management of ESG risk and opportunities into our strategy and our execution plans. We believe the outlook for Nutrien is exceptional, with crop and fertilizer prices anticipated to remain well above historic levels into 2022. No other company is more advantageously positioned across the value chain to be a catalyst for positive change in the global crop production system and help growers around the world feed a growing world. So I want to thank you for joining the nutrient team today and we're all looking forward to your questions.

At this time if you would like to ask an audio question press star followed by the number one on your telephone keypad. Again that is star one for questions. Your first question comes from the line of Ben Isaacson with Scotiabank.

Thank you very much and congrats on the beat and raise. Question for Mayo and Pedro. So you're going to generate six, six and a half billion of EBITDA this year. And even if prices moderate a little bit, you'll probably do something similar next year. And that's a lot of free cash flow to generate, especially considering you don't have any major capital projects. So in that context, and rather than talking about your compete for capital philosophy, Can you give us some actual goalposts in terms of what you have planned? How much debt reduction do you want to see over the next 18 months? Do you have a buyback authorization? Do you expect to be finished within a year from now? How much have you earmarked for M&A in retail, whether it's in the U.S. or Brazil? Thank you.

Sure. Happy to comment on that. And Pedro and I have had those good discussions and actually quite frequently. And it's an outstanding year which gives us a number of opportunities, including both strategic and also, as you mentioned, buyback relative to our strategic initiatives. And so what I'll do is I'll ask Pedro if he'll just run us through some of the options that we have in front of us. And we're very pleased to be able to have these choices.

Yes, Dan, and nice talking to you again. To your point, we will continue our discipline capital allocation approach, which would involve basically sustaining our assets. And on this one, we We kind of guided for a little bit more expenditure as we were a little bit depressed in the past due to COVID restrictions that we couldn't do what we needed to do in our different facilities. We have increased visits earlier this year, and we are looking into the balance sheet now that we are above mid-cycle prices in terms of opportunities to deleverage. That very much will depend on how much we'll do, will depend on how we look through the cycle, and we'll like to position ourselves to have flexibility in the future. So I don't have a specific number for you as we are looking at our various options for the future. But in terms of the compete for capital approaches, as you mentioned, We do have options there, too, both organically and inorganically, and we are already starting to deploy that. You have seen us do some acquisitions in Brazil. We're also investing some of our ESG projects for nitrogen, and we'll continue to look at those in the future. And we are, as you pointed out, we still have the NCIB option that we will be considering together with all the other ones. So it is a fluid environment here, so we'll kind of be analyzing our options and we'll come back to you with more specific points as soon as we have them and we can tell you in more detail.

Our next question comes from the line of PJ Yuvacar with Citi.

Yes, hi. Good morning. I was wondering if you can just talk about level of inventories in the retail channel by NPK, and where do we stand post the summer fill?

Jeff, would you mind taking that question for us, please?

Sure, be glad to. We can talk about inventory in two different capacities. We talked about crop protection. I think you're going to be more specific on the MPK side of things. And I guess if we look at the end of quarter two, we're probably a little bit higher from a revenue perspective what we've got in inventory today on MP and K, about $150 million higher in the U.S. than last year. That's planned as we're starting to load in product today for what we anticipate to be a good fall application season and trying to get some product. When you look at how much product we have to move through our system, we have to get a really early start from a logistics and supply chain side of things with it. And then if you look at that higher inventory value, you also got to give credibility from the standpoint of we're looking at higher product pricing than we were looking at a year ago as well on it. But We feel really good where we're sitting right now from an inventory perspective on it, and we basically plan to have a pretty normal fall application season. David, I don't know if you want to add anything else to that.

No, Jeff. I think you hit the fertility side of things quite well. On crop protection, we were just getting ourselves well-positioned for our upcoming fungicide sprays. So, no, Jeff, I think that's it.

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

Yes, thank you. Just wanted to hear if you had any visibility on where you think third quarter realizations could be in potash in both offshore and North America. Do you have that visibility through Campotex on how much is already sold forward and at what price?

Why don't I just make a couple of comments, and I'll ask Ken to comment as well. We certainly expect to see relatively limited new supply in the next couple of years, and the majority of it's going to come from former Soviet Union producers, particularly Eurochem. And then, of course, there's the issue around the Belarusian political sanctions. So we think we're very well positioned. We're sold out for a period of time here and continuing to look at these strong prices. And, Ken, do you want to fill in some of your thoughts on that?

Thanks, Mayo. And yeah, thank you, Steve, for the question. So yeah, we do have visibility through Captex. In fact, they just released a few weeks ago that they are committed into November now. So the remaining volumes to be committed in the year are shrinking. In North America, similarly, we're committed right through October. And again, uncommitted volumes relatively small compared to what we're doing for the year. So with respect to third quarter realizations, We can follow benchmark prices. There's always a lag between what the benchmark prices are being reported at and what we're realizing, and that has to do with the two- to three-month lag on contracting and delivery. And I'll also say that in this rising price environment at times, those reported prices are based on thinly traded volumes. So it could take a few weeks for prices to firm up at that level as well. So, yeah, we do have good visibility, and certainly we're expecting a strong third quarter.

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

Good morning. My question is on potash demand and also going back to inventory levels. I guess first, spot pricing for potash, we're back to levels not seen since 2008, 2009. Are you seeing any evidence of demand destruction? And then maybe if you just talked a bit about the U.S., but what are you seeing in some of your other key global markets for

potash inventory at the retail level well thanks thanks for that question Jason's with us today and I think can offer some really valuable insights into your question yeah good morning Jacob as we look around the world at demand and at inventories I guess it's starting with the spot markets we think that what's being sold is being applied to ground and of course as we look at the US market The weather during the fall season is extremely important to driving the fall demand and where inventories end up. But as Jeff said, we're expecting good engagement. And just given the affordability right now and the stage of the crop, which is at or ahead of average, we expect a normal application season. So we look at the contract markets. We're really seeing, because they're priced out of the market at current levels, inventories being drawn down both at port and within the domestic market. And you can see within China that domestic prices have been really firm and almost keeping pace with the Brazilian spot market. So evidence of a really tight supply-demand balance there. Maybe pass it to Ken to see if he has any other comments.

I think you've summed it up well, Jason, you know, heading into the fall here, assuming we have a reasonable fall, we're expecting inventory levels to be low, which is, I think, a critical point. So, you know, with our million tons committed through October and November, and certainly homes for the balance of our volume and lower inventories at the end of this year.

Hey, Jason, I might add one other component to it. You know, we talked about whether We've talked about timing of harvest, and I think it's been mentioned a couple times, this crop feels like it's moving ahead a little bit from a maturity standpoint. But the other big factor is yield. And if we look at what's being predicted from a yield standpoint, we're looking at trendline yields or something right at that level. And so what that tells me is we're going to have a real strong removal rate as this crop comes off. We'll obviously be out. with our agronomist out in the field doing massive amounts of soil testing and such with it, which should drive, you know, again, should drive demand for the fall.

Your next question comes to the line of Jeff Zakowskis with JPMorgan.

Thanks very much. There really wasn't any change in crop protection margins. Why is that? Why shouldn't pricing be better than costs? And what's your outlook for that business, that sub-business and your retail operation over the coming year?

David, you take that question. You lead that for our group, please.

Yeah. Thanks. And Jeff, appreciate the question. You know, I think our CP sales volumes and our margin stayed fairly stable through half one, you know, really on the backs of acreage expansion, as well as some of our strategic purchasing and our long-term relationships with suppliers. The crop protection industry as a whole continues to be pressurized from a generic perspective, and we continue to monitor that globally and look to strengthen our proprietary position to move margins in the right position. I think going through half one, our upfront margins on a proprietary business was strong. and we look to continue to make progress moving forward.

Your next question comes from the line of Adam Samuelson with Goldman Sachs.

Yes, thanks. Good morning, everyone. I was hoping to get some color on retail performance in the first half, and specifically in the disclosures that have been same store sales adjusted for movements and fertilizer pricing and FX was up 1% on a year on year basis. And I guess I'm trying to square that with the reported results in the segment overall, which, which looked quite good, but for one up 1% on an organic basis, it doesn't actually seem like that much in the context of the market that we've been in. Is that a function of weather in Western Canada and California? Is there any additional color there? Cause it doesn't, I would have thought there would have been more evidence of share gain and benefits from proprietary products in the reported sales over there.

Thanks, Adam, for the question. Let me just start with saying we're very pleased with the 2021 seed selling season. You're correct that the Canadian crop has really been dry in that area. We might see some really strong follow-through next season from them. We continue to build momentum in seed, and we do expect it likely to grow between a half and full share point on seed across the four major crops. And that share growth and acreage increase, we didn't see a lot of shifting between crops or brands. But David, you want to fill in some of that in your area?

Yeah, no, I think, Mayo, you hit it well. I mean, in the context of seeds, it's a major priority of ours to grow share as well as look to strategically gain more of our customers' overall business across our four strategic crops of canola, cotton, soybeans, and corn. As Mayo said, we're seeing strength in those share gains going through this first half. preparation underway heavily for 2022 as we speak. And I think, you know, some of the underlying themes in soybeans was some price pressure relative to some new herbicide-tolerant trait launches. But overarchingly, you know, our teams worked well through that and gained strength going into this next selling season.

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

Thank you, and good morning, everyone. May, I just wanted to ask you on potash, you referenced the 17 million ton run rate that you'll reach from a production perspective in the fourth quarter. How should we think about that production run rate going into next year? And I guess I'm asking sort of juxtaposition of you obviously have the capability, you mentioned affordability and being sensitive to that, but then there's also potentially maybe less Belarusian tons coming into the North American market, which you're obviously advantaged into from a distribution perspective. So I recognize that's a few variables, but maybe just philosophically, how are you thinking about how much you want to produce versus how high of a product price you want to see on a go-forward basis?

Yeah, thanks, Vincent. Well, let me start with, I think, an important comment that we expect global demand to continue to grow by 2% to 3% a year. So if you do the math on that, over the next eight, nine years, that's 14 to 23 million metric tons. And that's why I would say that Ken and his group are thinking about, you know, as we talked about, the annualized run rate of about 17 million tons by the fourth quarter. So we really look at this as the opportunity for our shareholders, but at the same time, you know, there tends to be value destruction when we get to these higher prices. And when we have, you know, Brazil sitting at 680, you know, you get to a level of some level of concern whether they'll simply mine the soil. So, you know, I think the additional – for us, the additional production – capability could be further leveraged in 2022, but I think that's if the market needs it. And then we also have a good line of sight to about another 5 million tons of low-cost brownfield capacity. So we're going to continue to invest in already low-cost position that we have and leading the industry in that with our flexible mine network. And so our focus this time is going to be on our potash operations and how we're positioned to service the market while being price sensitive. You know, we're enjoying some prices, and we want to continue to enjoy these prices, and that's how we're going to, you know, think about servicing our growers to keep them in the game and price accordingly. And, Ken, do you want to add anything to that?

Thanks, Mayo, and thanks, Vincent. Yeah, just a couple comments maybe. Everything that obviously Mayo said on the fundamentals and expectation of strong demand, obviously through 2021, but 2022 as well. And I think a critical point is one that we've discussed already, and that is inventory levels. And inventory levels at the moment in multi-year lows and with a reasonable fall, we expect that to continue. On the supply side, we haven't seen any new announcements of additional production other than our own. And if there were to be announcements at these price levels, they would have happened already. Mosaic, we expect, will be back. But I think it's true that while the situation in Belarus is and the consequences of sanctions are a bit unknown at the moment, it does create some uncertainty. So exactly as Mayo said, if our customers are asking for it in 2022, we will be there for them, and we can surge production beyond 2021 levels.

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

Thank you. I was hoping you could help us understand what part of your retail portfolio is is being the most impacted in California so far. Assuming this drought continues, how does that impact progress and how meaningful is it?

Jeff, do you want to take that please for the California market?

Sure, I'd be glad to. If I look at the California market from an impact standpoint, we haven't seen a dramatic impact. Obviously, the majority of all of those crops are irrigated. We're all reading what the reservoir levels are there, and they're very alarming right now. I think the biggest impact might come later as we're getting into a fall planting season now, and a lot of that fall planting is going to depend upon how much water they're going to release for those growers to use with those plantings. We're seeing some indications that they will be down, and obviously when you're in a very hot and dry season, conditions, you know, that really doesn't create a lot of disease, especially in our permanent crop. So I would say probably our fungicides have been affected out in the West more so than anything. Our business has actually performed very well considering the circumstances that we've been in out there. But I think we'll start to see it a little bit later in the fall as we get into fall planting. And then, you know, hopefully we can get some of these reservoirs levels up later in the fall and winter with some snowfalls, you know, that's conducive to our business going into 2022.

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

Hi, good morning, everyone. Maybe we could talk about when you gave your guidance range for both EBITDA for the year and for potash. It may be because, you know, it's a very interesting time. A lot on this call, talking about a lot of topics right now. There's a lot of Uncertainty in a couple of moving parts. So I wanted to know, you know, when you think about the higher range and lower in the range, what are the assumptions you're making on some of the bigger sources of uncertainty? So, you know, fall weather, you talked about it's dry in Western Canada and, you know, fall weather is always important. For Belarusian sanctions, they're sanctions that seem to be fake. They're not, you know, the US, Europe, they're not really respected. What are your assumptions around BPC's abilities? Mosaics, having production problems, but then the production, you raise your volumes. then mosaics as a production problems aren't as bad as they found a way out of it. And then you've got media on the nitrogen side. You have to make an assumption around whether there'll actually be Chinese fertilizer export restrictions or, or it's just fluff. So, you know, when you think of all those assumptions, what do you assume for the high end, the low end of your ranges?

Thanks, Joel. Let me, let me just make a couple of comments and you've got a lot of good questions in there and you talk about, you know, volatility and that's the commodity business that we're in. You know, I think the fundamentals for us are that we do expect to see strong follow-through. And regardless of what happens with the Belarusians, I think we're still going to be in a very strong position. It just sort of creates an amplifier of a combination of results and the potash that we're capable of bringing on. You know, as to your point, I mean, we delivered a new company record with an adjusted EBIT of $3 billion in the first half of the year, which is a 36% year-over-year. When you talk about the performance and the earning perspective, you know, in our significant increase in guidance with our full year, you know, EBITDA, as you would know, is 6 to 6.4 billion, so that's up 70%. But we do see the ability to follow through with this crop. I mean, all the signals, when you look at the, you know, the markets you're trading flat, there's a demand for corn to be delivered in the nearby. Yet at the same time, the deferred, I mean, there's not necessarily a big inverse. They're really demonstrating, you know, strong corn prices, you know, even not only through this new crop, but into the next new crop. So we really see a real opportunity here to sustain these prices for an extended period of time. And, you know, we get into these type of cycles. I mean, it's hard to tell when they end. They end dramatically and quickly. But if you look at the supply and demand, particularly the supply right now is on the low side. We've got certain countries that are almost down to their level of food security in terms of what they have in their inventories, both in crops. and in terms of the crop inputs, and we're already seeing that with China, where they're asking their producers, their production system, to withhold and look at focus internal to the system. But I'm happy to ask some of our leaders here to contribute. Ken, do you want to chime in a bit, and then perhaps Ray, if you want to make a comment, or back over to Jason? Okay, thank you.

Yeah, great. Thanks, Mayo. And Joel, I agree. There are a number of moving parts in the potash business at the moment, and we talked about some of those on the call today. But I believe the net effect of those moving parts is that it's created an opportunity for us this year to the tune of a million tons. And I think that's just really a demonstration and testament to our capabilities here. For 2021, we're committed with Captex through November and domestically through October. In large part, the table is set for us. We do have some uncommitted volumes, so if we look at our guidance ranges, they're an opportunity to do some additional volumes without moving inventories to high levels, but also price. Price continues to firm in many markets, and so hence the ranges. But I will say that the confidence level in those ranges is quite high.

Yeah, and on the nitrogen side, I'll let Jason talk about it. China's export situation, just domestically here in North America, pricing has remained firm. We thought there would be some reset. It hasn't happened. We think the fundamentals are solid. We think the pricing will remain firm through the second half across the suite of nitrogen products. And we've committed out through the third quarter of a minute. So as Ken says, the whole year is pretty close, pretty well baked. at this point. So we're pretty confident about the range of carbon monoxygen products.

Yes, Joel. Just to follow up on the Chinese export situation, we've seen several attempts by the Chinese government to pressure the domestic state-owned enterprises. And now this week we've seen the industry association, several industry associations step in and put pressure on members not to export urea and phosphate. I think we'll have to wait and see what impact that has. I will say, if you look at what action the global urea market has taken, and we've seen a little bit of prices come off of the highs over the last week, the market doesn't believe that the restrictions will hold. So I think if there are restrictions that come into place, that's incrementally positive from where we are today. And it certainly seems, as Neil mentioned, from a food security standpoint, The priority is on supplying the Chinese market with the fertilizer they need. And if the informal restrictions don't work, we've seen in the past that more formal restrictions are put into place to take that action, which would also be positive.

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

Good morning. This is Lucas Beaumont. I'm for John. I just want to go back to retail if we can. So your sort of EBITDA per location there is now sort of about 15% above the 2023 targets on a year-to-date basis. And it looks like you're probably going to exceed the target there for the full year despite the first half waiting. So is that telling us that the US retail locations are temporarily over-earning in the current environment and we should expect that to kind of trend back towards sort of your 1.1 million target, or do you think, do you need to think about sort of raising the targets there or any other factors we should consider?

Thanks. Well, let me be just before I call in Jeff, uh, let me just comment that the re retail performance certainly delivered record results in the first half. We've had double digit, uh, growth in both revenue and margins. And of course you would know where we're supplying over 500,000 farmers year round. We're certainly pleased with the progress we've made in this area. We're going to be focused on driving value. Think about the proprietary. We have over 2,000 proprietary seeds, and that's supported by digital tools and services. So I think we're going to see real strong momentum in that area. Jeff, and then followed maybe by David, if you wish, would you like to fill in more of a local view, please?

Yeah, sure. And look, we don't get too many opportunities to go backwards. We're really pleased with our performance this year in the marketplace. I think what you're seeing is you're seeing us really hit our stride in leveraging off our platform in retail. And too many times we think about just crop protection, seed and fertilizer. But when I look at our retail platform, Those are the centerpieces, but what I look at what we've invested in and what we've flanked ourselves with, whether it's Nutrient Financial, whether it's our digital technology, it's our best-in-class proprietary business, it's the job that David and his group do with supply chain and logistics. I think we're hitting our strides across all of those areas, and we're really able to leverage off of that. We've had a really strong year with our proprietary products group, as Mayo's mentioned several times today. And if I look at our growth this year, you know, 85% of that growth has come across what we call our differentiated or focused products. And, again, we look back at the investments we've made in the plant nutrition business and companies like ActiGrow and Agrison. Those products are really great. given us a really great solution offering to our customers. It's given them a great opportunity for return on investment and our agronomists are out really, really pushing those solutions hard with our customers. From an operational excellence standpoint, I don't think that ever ends. It doesn't matter where you are in the cycle on it and we continue to scrub our business. We continue to look at opportunities to rationalize that business. I think we've basically rationalized 70 retail branches in North America over the last three years. A lot of our greenfield efforts that we put together out there today are around making our business more efficient going forward. So I think we've got a lot of things we're hitting on. There's no doubt we had some tailwinds coming into this year, but we think a lot of the gains that we've made this year are sustainable, and we're going to work that as hard and as diligent as we can going forward. David, I don't know if you've got any additional comments.

Hey, Jeff. I mean, I think you nailed it well. The only two things I can add to your commentary is, you know, to your point of proprietary products performing outstanding, you know, particularly in our nutritional space, growers willing to spend on products that have a high return on investment, nutritional business trending well. And, you know, I'd say lastly, you know, in the context of our strategic suppliers and the relationships we've built there, both in terms of new products that they're launching, how we're looking at putting together full end-to-end solutions, as Jeff has talked about, relative to nutrient financial, our digital assets, and then, you know, obviously our agronomic capabilities on the farm. So owning that growth relationship through our local agronomists has been key, too. So, Jeff, that's what I would add.

Your next question comes from the line of Andrew Wong with RBC Capital Markets.

Hey, good morning. Just a quick one from me. We've heard a lot of talk recently about inflationary pressures on all commodity producers. Is Nutrien seeing anything like that yet? And in terms of ramping up the production and the potash production in Saskatchewan, were there any issues with hiring people back? Any labor shortage issues or pricing issues or anything like that? Thanks.

Thanks for that, Andrew. I'm going to pull in Pedro here, and you may wish to make a comment first.

Yes, Andrew, thanks for the question. Yeah, we have seen some inflationary pressures, you know, across as we kind of scale our production. Although I would say that as we also kind of ramp up our volumes, that has been an offset on volume against those inflationary pressures. So I think in balance, we do not feel like there's advantage at this point in time in the cycle. But perhaps I think most of those would be felt by Ponash. So maybe I'll ask if Ken would like to add any comments here.

Yeah, maybe. Thanks, Pedro. And Andrew, maybe just with respect to human resources, obviously, We don't keep additional people standing around to produce a million tons of potash. So we have been hiring, but we're finding success in that. So we've been able to get the human resources, the individuals we need to ramp up productions. Our confidence level there is quite high.

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

Yes, good morning everyone. I can appreciate the prior commentary on your potash surge capability and recent decisions to add a million tons of production, but I'm just curious on whether you'd contemplate on adding another 500,000 or perhaps more in the near term, as opposed to waiting, just given the price levels we're already at. It just strikes me that high prices can create longer term problems. And so just trying to understand what the decision vector might be in terms of adding new production sooner.

Versus waiting into next year and any limitations maybe just on the operational side of that as well Yeah, thank you Steven Ken sites here again so yeah, we we did have a look at the opportunity in the market and Frankly what our customers were asking for and and that led to the conclusion that a million tons of extra production was appropriate you know we've long talked about 18 million tons worth of capability and On an annualized basis this year alone, we'll demonstrate 17 million tons of that. So we have the capability and certainly we'll have the lead time we can get there. Again, for 2021, we thought that what our customers were asking for led to that million tons for next year. Could we surge additional production if the opportunity is there and our customers are asking for it?

We could.

Your next question comes from the line of Michael Tupholm with TD Securities.

Thanks. Another question on the planned increase to potash production in the second half. First off, can you talk about which mines you expect that incremental production to come from? Is that all expected to come from Vansquoy, or are there other mines in the mix? And then secondly, how do you expect potash cost of production in the second half of the year to evolve as a result of that increased production and potential shift in the mine mix?

Good. Thank you, Michael. That's Ken Seitz here again. So, yes, you're correct that Vanscoy is playing an integral role in that additional million tons, but we're also getting additional tons from Corey and Lanigan. And so the work that we do is one that says, what is the market calling for, what can we produce, and what's our most low-cost and efficient path to production? And that combination of Vanscoy, Corey, and Lanigan was the answer. You know, with respect to our own costs, if we look at the full year there, there is an opportunity for us here with additional volumes to bring our cash costs down. That said, there is an offset this year with the strengthening Canadian dollar, given that we report our cash costs of production in U.S. dollars. On a Canadian dollar basis, I can tell you that production costs will be at really competitive levels, first quartile for sure, and probably similar to last year's.

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

Yeah, good morning. A couple questions on the nitrogen business. Number one, I saw you narrowed kind of the range of your guidance. What type of volume capacity could we be looking at? in 2022 and what is kind of your turnaround schedule look like for the rest of the year in nitrogen and then into next year as well michael thanks for that i'm going to ask rafe to comment they've had a great year and i know he's he's keen to participate here so ray forward to you yeah michael thanks for the question i appreciate it um so look uh as far as volumes go we've had a few

Larger than normal turnarounds this year. We've finished the one at Borga. It was the largest one we've ever done there. And we're a third of the way through at Redwater. Again, largest one we've ever done there. This is because both sites are close to 50 years old and we've got to take care of some major items. That said, going into next year, we should see volumes up over 11, probably closer to 11.3, 11.5. We've also got some of the brownfield expansion projects coming in. We've finished the one at Borges, so that will help us out as well. And of course, we're trying to continue, in addition to the brownfield expansions and the turnaround schedule, we're going to continue our work on increasing reliability of the sites. Just a point to note, when we talk about our reliability numbers, they include the planned outages that we have to take. And if you think about a normal ammonia plant, you've got to allow about 3% for planned outages on an average basis. So the maximum that you could see us reporting at some point is about 97, and you'll see that we're over time trying to get towards 95, 96, which would make us best in class.

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

Good morning. A couple more around nitrogen, maybe a three-parter or so. One, on the UAN anti-dumping, what's your view on the validity of that claim? Two, if it is favorable for the U.S. producers, what impact would that have, you know, either your wholesale business or retail, kind of in the intermediate term? And then three, if it is favorable, would that open up any opportunities for you to invest in a different footprint around nitrogen?

Well, look, a good question. I'm not really sure I can comment on it. I will tell you that we are answering questions that come from the Trade Commission, as we did in Mosaic's countervailing duties case. And as we did in Mosaic's countervailing duties case, we're not actively participating in this one, just answering the questions that come through. We're taking a neutral stance on it, okay? Okay.

Your next question comes from the line of Virkan Patel with XNBNPP.

Hi all, thanks for taking my questions. Just one left for me. On retail, you're able to hit the 10.5% margin year-to-date, and that's in line, I guess, the lower end of your target for 2023. Just curious if you could update us on, I guess, what the that the roadmap is to hitting that target on an annualized basis and whether, given you're hitting the 10.5% now, whether we should be a little bit more aggressive in what we're assuming you guys can do there. Thanks.

Yes, this is Pedro. I think we are very pleased, obviously, with the progress to date and what we have been able to achieve. And even though we need to look at this through the cycle, we are planning to update all of our targets as we go into next year. And we'll probably have, on a new investor day, we'll be refreshing all of those targets. So that's right. The progress that we have made today in retail and other parts of the business have accelerated. So we are pleased about that. But we need to reset them now for the future.

And your next question comes from the line of Adrian Tamagno with Berenberg.

Hello. Good morning. Thank you for taking my question. With regards to the Brazilian deal, can you just explain the rationale and where it will bring you in terms of market share locally and if it was related where there was actually very little buybacks during the quarter? Thank you.

Thanks, Adrian. I'm going to ask to bring in Mark Thompson here, head of our business development group and sustainability. Thanks, Mark.

Yeah, thanks, Adrian, for the question. Good morning. So I think your question was pertaining to the recent announcement of the acquisition that we signed in Brazil. That was Terra Nova. And so, as Mayo said in his commentary, we continue to build out our focus on constructing a comprehensive retail model in Brazil. similar to what we have in the US and across North America and around the world. We've made very good progress and, as Mayo said, have now announced four acquisitions in the last 18 months that are helping contribute to our footprint there. With respect to Terra Nova specifically, it's a nine branch business operation, very attractive footprint in the region of Minas Gerais. We also do have a presence already in this region, and so this will continue to strengthen our footprint. Whereas in the U.S., we have a very strong market share, 20-plus percent, which gives us strong competitive advantages. We're in the very early stages of our potential opportunity in Brazil. And so while this does give us a good foothold in market, there's a lot of room for us to continue to expand our model in the country. both with retail location acquisitions, but also, as Jeff described earlier, bringing our integrated model that involves proprietary products and full acre solutions for growers. So we're optimistic about the opportunity and continuing to look for value-enhancing acquisition opportunities in Brazil.

Thank you. This does conclude the Q&A portion. I will now turn the call back over to Richard Downey for closing remarks.

Thanks, everyone. Thank you for joining us this morning. And if there's any follow-up questions, Investor Relations is always available to help you out. Have a good day. Thanks for joining us.

Thank you. This does conclude today's conference call. You may now disconnect.