Nutrien Ltd.

And welcome to Nutrien 2022 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 Jeff Holzman, Vice President of InvestorLake. Thank you.

Operator, good morning and welcome to Nutrient's first quarter 2022 conference call. 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. report to shareholders, as well as our most recent annual report, MD&A, and annual information form filed with Canadian and U.S. Securities Commissions. I will now turn the call over to Ken Seitz, Interim President and CEO, and Pedro Farr, our CFO, for opening comments before we take your questions.

Thanks, Jeff. And good morning, and welcome to Nutrient's first quarter earnings call. Before we get into the discussion of our results and outlook, I would like to express our thoughts and sympathies to all those that have been impacted by the conflict in Ukraine. We see the significant toll it has taken on the people in Ukraine, and it hits close to home for many of our employees, customers, and other stakeholders that have family and friends in the region. The conflict has also compounded supply challenges that have contributed to higher commodity prices and escalated concerns for global food security.

Russia and Ukraine account for over 20% of global exports for many agriculture and fertilizer commodities,

And there's no simple or fast solution to overcome this level of supply disruption. As the world's largest fertilizer producer and retailer of crop inputs, Nutrien has taken several actions to help our customers secure the products they need.

In potash, we are expanding production capabilities. to approximately 15 million tons in 2022. An increase of $1 million

...to our initial expectations. This represents a nearly 20% increase compared to 2020 and accounts for more than 70% of global...

production during this time. We have expanded our nitrogen suction capacity by nearly 1 million tons since the beginning of 2018 and are in the process of adding an additional half million tons over the next few years. improving the carbon footprint of our facilities. Our retail business operates in seven countries across North America and Australia.

These are key agriculture regions that will be called on to sustainably increase crop production and our team of 3,900 crop consultants work every day to provide innovative products and solutions that meet the needs of our grower customers. I'm extremely proud of how our people have stepped up across the organization as we respond to this critical time for global agriculture and and do so in a manner that does not compromise our core values of safety and integrity. Now, turning to our Q1 results and outlook, we delivered higher earnings across each of our business units due to the strength of the market fundamentals, advantaged position of our assets, and solid execution by our people. Year-over-year growth in earnings was further supported by recent strategic capital allocation decisions that included expanding our production capabilities and increasing the size of share buybacks over the past two quarters.

Nutrient Egg Solutions delivered record first quarter adjusted EBITDA of $2.5 billion. Despite a delayed start to the spring season in North America, our per-time crop nutrient margins remain strong due to the timing of procurement in a rising price environment and continued

growth in our proprietary nutritional products. We delivered higher crop protection growth margins as growers engaged early to purchase product ahead of the spring season. We strategically procured inventory of certain products in anticipation of tight global supply and our margins in Q1 reflect this effort. Potash delivered $1.4 billion in adjusted EBITDA, supported by higher realized prices. Global demand was strong as buyers looked to secure product in the midst of supply uncertainty from Belarus and Russia. We increased offshore potash sales volumes by 8% compared to the previous year. However, shipments were impacted by rail service interruptions during the quarter. North American sales volumes were impacted by a delayed start to the spring season and were down compared to last year's very strong.

In nitrogen,

we generated adjusted EBITDA of $1 billion, driven by higher realized prices and the cost-advantaged position of our assets. We experienced some unplanned outages during the quarter, and sales volumes were also impacted by a slow start to the spring season. Phosphate delivered record adjusted EBITDA of $239 million, as higher sales prices more than offset the large increase in ammonia and sulfur input costs. Turning to the outlook, global grain and oil seed inventories were well below historical average levels entering 2022, and the conflict in Ukraine has led to further tightening of supplies. Corn, soybean, and wheat futures prices are 50 to 90% above the 10-year average and are trading at elevated levels on a multi-year basis. Prospective crop margins are significantly above historical average levels as the increase in revenues from higher crop prices has more than exceeded the projected increase in input costs. Weather permitting, we expect planted acreage to increase in the key agriculture regions in which we operate with a strong incentive for growers to maximize production. The North American spring planting season is behind the historical average pace. but there is still time to get the crop in the ground, and our retail network is well positioned to deliver in a compressed season. We are seeing strong demand in the regions where planting has progressed and have all-time high customer prepayments on account, which is a good indicator of grower intent. Financial sanctions and other restrictions imposed on Russia and Belarus have constrained potash supply, with minimal exports from this region reported since early March. These two countries represent approximately 40% of global potash exports, and there is limited available production capacity in other regions to help fill this supply gap. Therefore, we expect global potash shipments will decline to between 60 and 65 million tons in 2022, and we assume a wider than normal range given the level of supply uncertainty from Eastern Europe. Nutrient expects to ship record potash volumes between 14.5 to 15.1 million tons, with most of the growth projected in offshore markets.

We expect nitrogen markets to remain strong through 2022 due to lower Russian exports and volatile European gains.

gas prices that are currently setting the floor for ammonia and urea prices. Chinese urea exports have been restricted in the first half of 2022, and we believe there is potential for restrictions in the second half if the government intends on maintaining the current discount for Chinese domestic prices compared to other global markets. We are discussing these supply challenges in the context of 2022. We believe these issues could extend well beyond this year. Sanctions on Russia and Belarus have the potential to create more lasting changes to global trade patterns as customers prioritize reliability of supply. We anticipate volatility in global energy prices due to greater supply uncertainty from Russia, and we expect some delays in the development of a new capacity from this region as access to financing, equipment and other resources becomes more challenging. We will closely monitor global market developments as we assess opportunities to increase our potash production capability beyond 15 million tonnes. Increasing production on a sustained basis requires opening up new ground, installing additional equipment and infrastructure, hiring more people and securing outbound logistics.

These are decisions that require careful planning as they have long-term impacts on our operations and our people.

We intend to provide more details at our virtual investor update meeting on June 9th. I will now turn it over to Pedro to review how we expect these market conditions to impact our 2022 guidance and our approach to capital allocation going forward. Pedro.

Thanks, Ken. Given the significant changes in market fundamentals, we have increased our 2022 adjusted EBITDA guidance to $14.5 to $16.5 billion. At the midpoint, this represents a nearly

50% increase from our initial full year guidance in February. We expect earnings to be fairly evenly split between the first and second half of the year, with the PESA plan and crop development likely to have some impact on the timing of earnings between quarters.

We are projecting retail adjusted EBITDA between $1.8 and $1.9 billion as crop nutrient and crop protection margins are expected to be stronger than previously anticipated. Crop prices have risen materially since the beginning of the year, and we expect growers will be incentivized to maximize yields.

which typically contributes to strong crop protection and specialty nutritional products.

Similarly, similar to previous years, we expect 60% to 65% of retail's adjusted EBITDA will be generated in the We significantly increased our PONASH adjusted EBITDA guidance due to the expectation for higher realized prices and increased sales volumes. Costs of goods sold per ton are expected to increase in 2022 due primarily to higher royalties, which are directly tied to selling prices. Excluding the impact of royalties, natural gas, and carbon taxes, we expect

Controllable cash costs will be comparable with the previous year. by production volumes offset inflation.

Our increase in nitrogen adjusted EBITDA guidance reflects higher global benchmark prices and a very competitive cost position compared to producers in Europe. We lower our nitrogen sales volume expectation due to the plant outages that occurred in Q1. We are taking a number of actions to enhance plant reliability Incremental investments to protect our size from severe weather events and expect higher operating rates over the remainder of 2022. We expect to generate 10.5 to 11 billion in cash from operating activities, assuming a cash conversion ratio of

approximately 70% at the midpoint of our 2022 adjusted EBITDA guidance range.

This represents a slightly lower conversion rate that we assume in February, as the increase in input prices is expected to translate into greater working capital requirements in this period.

The majority of our cash flow is expected to be generated in the second and the fourth orders due to the working capital.

the profile of retail. Our priorities for investment capital remain very consistent with our long-term strategy and what we communicated in February.

However, given the potential for We are evaluating the viability to accelerate a few high return growth opportunities.

We announced a one-million ton increase to our potash production capability in March, which will require small incremental capital investments for mine-facing equipment and mine development. As Ken already mentioned, we are closely looking at the potential to further ramp our potash production capability above 15 million tons.

We are evaluating opportunities across our nitrogen business that would enhance the product mix and improve the environmental facilities. including expanding our leading low-carbon ammonia position.

In retail, there is a strong pipeline of acquisition opportunities in Brazil and the U.S., and we will maintain discipline

approach as we evaluate this opportunity.

In terms of investment capital, our focus is on initiatives that enhance our proprietary product business and digital capabilities, which are key drivers of retail organic growth. We committed to a minimum of $2 billion in share repurchases in 2022, and year-to-date, we have allocated nearly 740 million, repurchasing approximately 9 million shares at an average price of around $81 per share. Given the strength of our projected cash flow, we believe there is potential for additional shareholder returns as the year progresses. We will provide a more in-depth update on our capital allocation plans at the investor update meeting on June 9th. I will now pass it back to Ken for final comments.

Thanks, Pedro. The importance of global agriculture to help sustainably feed a growing world has never been clearer. it is increasingly apparent that the supply issues currently impacting agriculture and fertilizer markets could last well beyond 2022. Nutrien is responding in the near term by utilizing the full extent of our integrated sustainable agriculture platform to provide customers with the products they need for the upcoming growing season. And we are thoroughly evaluating our longer term plans to ensure we deliver the greatest value for all our stakeholders.

I'm joined today by members of our leadership team, and we would be happy to take your questions.

We will now begin the question and answer session. If you would like to ask a question, please do so by pressing star 1 on your phone. Again, this

star followed by the number one on your telephone keypad.

Please note to limit yourself to one question.

If you have additional questions, you may press star one again, and we will try to address those at the end of the presentation if time permits. Please stand by while we compile the Q&A roster.

Your first question is from the line of Andrew Wong with RBC Capital Markets. Please go ahead. Hey, good morning. Thanks for taking my question. So the sanctions on Belarus and Russia, they're probably the biggest change that we've seen in the Polish market structure.

since the breakup of BPC almost 10 years ago.

And these effects seem to be relatively long-lasting. So can you just talk

about how the Belarus-Russia situation changes your longer-term view on the market.

And I'd be curious, Ken, you had a pretty good seat at Campotex to kind of see some of the market changes over the past five, ten years. I'd be curious your thoughts on where we are going forward. Thanks.

Yeah, thanks, Andrew. Yeah, so absolutely it is the case that we watch this terrible tragedy unfold in Eastern Europe. And thinking about people in the region every day, we are watching the impacts that sanctions are having first, as you mentioned,

Belarus and Russia as well.

While the potash itself is not sanctioned in Russia, certainly the enabling activities for export of anything out of Russia at the moment are challenged, whether it's banking or shipping or insurance and so on. And then, of course, with Belarus, the sanctions were there prior to this conflict and having really no access to tidewater being shut off from the ports in Lithuania. So as these things have unfolded, as you say, Andrew, we're looking at duration and how long this might, you know, how long this might last and the longer-term implications for potash. And, you know, we're coming to the conclusion, as we said in the opening remarks, that these could last well beyond 2022, and hence are looking at our own capabilities accordingly. But I'll hand it over to Jason Newton, our chief economist, to just provide a little more color.

Yeah, good morning, Andrew. I think in terms of the overall supply-demand impact, certainly there's a really large potential for supply constraints in Canada. 2022 just given as Ken mentioned the restrictions on Belarusian.

Shipment to tidewater and and. all the different sanctions impacting Russian production.

In terms of quantifying the impact, if we compare to the base operational capability in Belarus, it's around 13 million tons. Operational capability in Russia, around 15 million tons. We think Belarusian supplies will be down around 68 million tons.

this year in Russia in the range of two to six million tons. Going forward, it will take some time to rebuild those export capabilities and we believe Belarus will continue to be more most restricted going forward as they have the need to rebuild or build port capacity, which takes time, especially in the face of sanctions.

And then we also know that that region makes up about 60 to 70 percent of the capacity that we expect to come forward over the next five years, and we believe those will also be delayed going forward. So in any case, we have a tighter supply-demand outlook going forward than we would have previously.

Yeah, so thanks, Jason. And maybe just, Andrew, then finally, your question about Capitex and that vantage point You know, it is the case that really growers around the world with what's happened with commodity prices are incentive to lay down appropriate crop nutrients. And then you layer on that some of the challenges that Jason just described. And you can imagine that Campotex, their phones are ringing as people look for alternative sources of supply. Could it be that global trade routes are disrupted? I think we're seeing that today. But suffice it to say that certainly from a global demand perspective, Campotex,

you know, has homes for potash and for increased levels of potash. That's what's driving us. said in her open comments, looking at the potential to accelerate our ramp-up of potash production.

Your next question is from the line of Chris Parkinson with Museum of Securities. Please go ahead.

Just a quick corollary of that question. Just given the outlook and the potential longevity of the, let's say, the current situation and the shortfall, and, you know, even if growers are in certain Presumably, nutrients are still being removed from the soil on an annualized basis. There are a lot of things to consider. A very simple question. What will it take for you to eventually make a decision to ramp even further? I understand, obviously, there are economic considerations, longevity, so on and so forth. And the remainder of that question will be, I mean, who else even has the capacity to make a dent in that?

between 2022 and 2024.

Is there anybody else that could even remotely make a dent in that from your perspective? Thank you.

Great. Thanks, Chris.

Well, I'll start with the second question and just say that, no, it is going to be a challenge if we believe these supply challenges are going to persist through 2022 and into 2023. You know, if

there was additional capacity to put in the market, it would already be there because the incentives are certainly there for a producer to produce.

We'll also say that some of the new volumes that would have been coming would be coming to the market. are out of that region, out of Russia. Whether it's your chem or Belarus with their petro-cob project.

We can imagine that those projects are also challenged today. If we look at the ability to flex production, a lot of it resides with nutrients. Hence, over the last two years, 70% of the new production

that's come to the market has been from nutrients and our ability to add 20% to it. our own production volumes over the last two years. With respect to your question, what does it take to ramp further

Of course, we're looking at that right now, but it goes back to just assessing the duration of this impact and what it will actually, the impact on the market in terms of trade patterns and ultimately restrictions potentially to certain parts.

world and we know that's going to happen this year hence our 60 to 65 million ton guidance range where we expect there will be demand rationing, much different than demand destruction, but demand rationing. So there is an acceleration case for our volumes. We're looking is that today we will have more to talk about at our Investor Day on June 9th.

But yeah, looking at that accelerated case in the context of drawn-out challenges from production from Eastern Europe.

Your next question is from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, thanks. Good morning, everyone. Maybe just continuing on that same line of questioning, could you just talk about maybe internally and within Campotex and in the broader North American legislation,

where you see kind of the bigger bottlenecks to increasing capacity.

Obviously, there's about three million tons of hoisting and processing capacity that's still idle. The Vansquay has a bunch of it and some of the other mines as well.

think about beyond that, whether it's ports, whether it's rail cars, whether you think it's restraints around new mining machines. us think about what the key boxes are.

bottlenecks from a time perspective would be and where the bigger capital kind of requirements would come to think about the three million tons that you have still potential internally built and even beyond that.

That's great. Thanks, Adam.

You know, it's a great question because we obviously look at this, you know, our capacities, not just at the mines, but right through to the discharge ports for the customers.

And so whereas

The bottlenecks today, we would say that we're looking very closely at long lead time items from a procurement perspective, and so that would be things like mining machines. which, you know, in order to accelerate a ramp-up, we would need to put mining machines on order. And, you know, downstream of that, we would say that, you know, conveyance we have to put in place. But the rest of it, we have built that capacity, exactly as you say, you know,

And so I end. Our other mine is where we have the infrastructure in place. The 12 shaft sunk and we have milk capacity to wrap up production as well. Capital is associated with production. down at the mine, but downstream of the mining machine. As we look beyond the mind gate and downstream from there. Yes, it's true that cycle times are going to require more rail cars and going to require more capacity. The good thing is that Texas in I did It's never doing facility Portland facility and our East Coast facility in New Brunswick which gives them sufficient port capacity today to wrap up. So it really becomes a discussion about ordering rail cars, which we,

And then I would say with respect to our North American distribution, we feel very well positioned there. We have our Hammond facility. We have our over 300 warehouses across North America.

And, again, rail cars to get it there. So, you know, as we wrap up production, North American Supply Chain and TAC will be looking to offer offshore. We certainly see a path there. Your next question is from the line of Joel Jackson with BMO Capital Markets.

Please go ahead.

Hi. Good morning, Ken and everyone. I had a couple questions. It's a two-parter. Your campus tax partner gave some guidance overnight that, They're expecting about a $50 a ton realized price increase in Q2, sequentially if it's Q1.

They have a lot of pricing. It's linked together. So first I wanted to see, is that kind of what you're guiding to as well in Q2? And then as a second part of that, in your midpoint guidance,

for EBITDA for the year, are you assuming that current potash prices stay where they are for the year, or what are you assuming in the base case? Thanks.

to our margins compared to what Mosaic might have said on their call, I mean, I think

it's fair to say that out of camp protects you can expect something similar and then you know in north america we would we would go our own ways and so and wouldn't talk about that um because that's confidential but yeah i think uh generally joel you can say that

it would be similar. With respect to our pricing assumptions, and what we're saying for the midpoint of EBITDA guidance, I'll hand it over to Jason Newton. Yeah, good morning, Joel. I think you've probably read fairly closely into where the main point the guidance would be based on prices remaining relatively in line with where current prices are. Your next question is from the line of Good morning. Going back to late 2008, 2009, we used to talk about being able to Potash happened. What is your sense of the amount of oil in your key markets like U.S., Brazil, China, and India? Versus historical, maybe you can comment on where you see the inventory levels right now in those key markets as well.

Great. Thanks, Jacob. Well, you know, I would say that given the price of commodities

certainly the most recent price increases. Growers have have some maximize yield and so as such you know we would say that nutrients and crop soils and then depending on region would be sort of average to below average levels and again we would say that growers are heavily incented today

to lay down the appropriate crop nutrients. With respect to inventories, also an important question, Jacob. We would say that today, entering the year, inventory levels are sort of at average or below average historical levels. But it is the case now, and certainly it's true for potash. With the North American spring season delayed, we still have time to get that crop in the ground, obviously, and we expect those inventory levels to come down. And that's true internationally as well. We have China, Southeast Asia, and Brazil entering the year with reasonable inventories. But expecting those to come down, and for potash especially, true given that we are just now starting to see the impact of this conflict in Ukraine. Obviously, Russia was delivering potash out of the region up until the latter part of February. But again, now some of these challenges that are persisting. So we expect inventories to...

Certainly for potash to come down and be pressured then for the balance of 2022.

Your next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you, and good morning, everyone. Just a question on retail as it relates to, I guess, two things. One, how is retail going to position itself for inventories at the end of the North American season? And I'm kind of also, I guess, asking about how you think summer fill will progress in the different nutrients. And then if you could also help us with why crop protection margins you anticipate improving from here. Good.

Yeah, so thank you Vincent. And yes, I mean with respect to inventories, that's something that we're watching very closely at the moment and watching progression, planting progress throughout North America. We entered the season with inventories the way that we would in previous years. And as Jeff Tarcy keeps saying, intending to end the spring season with inventory levels low. But Jeff, can I pass it over to you for the discussion about inventories and crop protection margins?

Sure, sure, Ken, and good morning, Vincent, and yeah, I'd reiterate what Ken just says. I can't think of any year that I wouldn't go into that I wouldn't plan on trying to target myself to being near empty once we come into that June and July time frame across all of my nutrients, and then Obviously, once we get into that July-August timeframe, we'll start positioning ourselves again for what we anticipate to be another strong fall market as well. Look, we try to position ourselves from an inventory standpoint in season. We always try to position ourselves to being as close to empty as we can, whether it's whether it's crop nutrient seed or crop protection. I think your second question was in reference to our strong crop protection margins. And I guess I'll start off addressing that as that last fall, we anticipated that there would be a tremendous amount of supply constraints around numerous crop protection products. And so we started building our inventory last fall anticipating that these supply constraints would be real coming into 2022. As we positioned ourselves early and built inventory, Vincent, we built inventory at some pretty attractive cost positions as well. And as you saw in the first quarter, we had a pretty significant improvement on crop protection. It was probably the highlight of our first quarter. I think we were about 400 basis point increase in margins there. And a lot of that is we got some growers that are buying earlier as well, anticipating some of these shortages. And our people have done a good job of moving our cost up as our cost on those crop protection products have increased as well. And we would expect to see that continue somewhat throughout the 2022 spring and into the second quarter.

Your next question is from Ben Isaacson with Scotiabank. Please go ahead.

Thank you very much and good morning. I just want to come back to the Russian potash situation.

So we're seeing Russian potash.

show up not just in India and China, but we've seen it come to the U.S., Europe, Brazil, Southeast Asia. And of course, while there was significant disruption to Russian fertilizer trade flow in March, can you talk about what trade flow looks like coming out of Russia over the last two, three, four weeks. Do you see Russian potash coming out at a rate of 50%, two-thirds, 75% of normal?

You spoke about the year potentially being down two to six. Can you just talk about what you're seeing right now? in terms of what's coming out of the market. Thanks. Yeah, thanks, and yes, Good morning. We are seeing an impact, an on-the-ground impact at the moment, exports coming out of Russia. Unlike the Belarusians, perhaps, the Russians do have some access to Marcus, and so an example of that would be rail and which we expect to continue. through 2020. And that could be over the course of the year, maybe. million and a half tons.

So, you know, an example of certainly an outlet for the Russians. They have their own domestic demand, which they're satisfying. But I'd say at the moment, Ben, what we're seeing is an impact across export markets that the Russians

need to access via tidewater, about a half a million tons a month at the moment is what we're seeing.

And so, you know, whether that persists through 2022 remains to be seen.

But, you know, as you say, in the last month or so, what are we seeing on the ground? That's what we're seeing. And, you know, that's helping to inform the ranges. Jason Newton. Your next question is from Michael DeFome with CD Securities. Please go ahead. Thanks.

question around the potential to accelerate your ramp up of potash production beyond the 15 million tons. So you talked about some of the bottlenecks associated with bringing on additional production earlier in the call. Wondering, though, if you were to decide to move forward, can you talk about how quickly you could bring on additional production and how we should think about capex associated with incremental tonnage?

Yeah, thanks, Michael. And so, yes, I mean, again, you know, we're looking at that

All of this at the moment, and again, expect... talk about it in more detail on our investor data.

But suffice it to say that, you know, our ramp up to 18 million tons, you know, we can bring it on in increments of production and increments of capital with off ramps.

some of this capital.

So, you know, that's the path that we're plotting at the moment or testing to plot at the moment and testing our assumptions around all that. I'll just say that, you know, certainly as we think about that profile for volume increases, we're talking in, you know, a few years, not decades or anything like that. With respect to the capital associated with it, again, we're looking at that, but I would say that given the off-ramps, And capital, as we move up our production volumes, it's not that it's immaterial, but it's certainly highly economic production in the context of where we potentially see the market going down to 2022 and over to 2023.

Your next question is from Steve Byrne with Bank of America. Please go ahead.

Yes, thanks. I'd like to drill into the retail business here. Just curious what you're seeing in that business in terms of grower application rates so far this spring. Has there been much of a cutback in P&K application rates? Are growers using more of your you know, your variable rate technology to, you know, only put it down where they really need it. So what's the magnitude of the drop there? And any comments about, you know, the sharp drop in nola urea? Is that just because the channel doesn't need anymore and thus it's kind of irrelevant?

Great. Thanks, Steve. And so, yeah, with respect to the First question on retail, the short answer is no. The growers, again, given the backdrop and the ag fundamentals, there are strong incentives there.

But I'll start with Jeff Tarcy to provide some The question about nitrogen, we'll pass it over to Rafe.

Yeah, sure. Good morning, Steve. And yeah, to answer your question and follow up with Ken's comments there, number one, you mentioned variable rate. And, you know, Steve, we don't do really today, we don't do a lot of blanket rates in P&K. A lot of it or the majority of it is variable rate. Most all of our application equipment today is set up where we variable rate. And as you well know, we do a lot of it. We do extensive soil testing. and running that analysis through Waypoint Analytical to come back with a proper prescription for nutrient needs. And so from that standpoint, as Ken said, we haven't seen a cutback in rates. Obviously last fall, we had a tremendous run last fall, and that's probably what slowed some things up in the first quarter a bit. And if I look back at those rates last fall, They were very strong rates, and I think in the environment that we're in today, Steve, these growers are going to give themselves every opportunity to maximize out on yield. We also think that once we get in season, we think our foliar nutritional products are going to be at a very high demand, and we've really stepped up production in those areas as well because we think these growers will food feed this crop throughout the season. We've seen a lot of demand for our in-furrow type pop-up products as well, Steve. So I think we're still in a very strong environment. You know, I'm like anybody else here. I'm ready to see this crop get put in the ground. And it looks like next week, next week, talking to our climatologist looks very strong that We're going to be able to make a lot of planning progress going into next week. So we're anxious to get that started and get things going. And, Ken, I'll go back to you on the urea question.

Great. Thank you, Jeff. And, Rafe, over to you.

Thanks, Ken. So, Steve, look, let's differentiate between some short-term occurrences in the market versus the overall trend. supply and demand situation. If you think about all of the nitrogen products, ammonia, urea, UAN, global supply and demand, the global supply is tight. I think we'll see continued solid pricing through the rest of the year for all of those products. Then the problem with urea at the minute, of course, as my colleagues have mentioned this, is the slow start to the season. With crop pricing where it is, Farmers are going to try and maximize yield here. They're not going to skimp on the nitrogen products. There's a latent demand there for it. We just need to see the seed grow on the ground, the season start, and then we'll see the product start moving and we'll see a correction upwards to recent pricing.

Your next question is from Jeff Zikauskas with J.P. Morgan. Please go ahead.

Thanks very much. If it turns out that potash demand is 60 to 65 million tons for a couple of years, assuming that capacity from Russia and Belarus can come back online, what do you think demand would be after a period like that? Would we go back to 70 million tons or would it be more elevated? And Secondly, why do you think the Chinese have constricted phosphate exports so much? They don't need to constrict it that much to supply more phosphate to their internal farmers.

Yeah, great. Thanks, Jeff. I'll pass that one over to Jason Newton and provide some color on both the phosphate and the biash questions.

Sure. Good morning, Jeff. On the potash side, if we look at where trend potash shipments would be this year, they're probably actually in line with where they were last year. We had a really strong year of demand. So if we were unconstrained in terms of supply, we'd probably be in that 70 million ton range in 2022. So looking forward at one and a half to 2 million tons per year, you're moving out to sort of the 74, 75 million ton mark in the next four to five years, which I think regardless of what scenario unfolds, it's likely to continue to be a supply constrained environment in that period of time. We've looked at a number of scenarios and different ramp ups and different changes over the next four to five years and in most cases you're getting back to the current trend type levels of demand in 24-25 just given supply constraints in the market. Oh and then on the phosphate question, the Chinese government over the last year or so has definitely taken put a higher priority on domestic food production and food security and maintaining low fertilizer prices for domestic farmers. And so while they have definitely sufficient supplies, they exported 10 million tons of DAP and MAP in 2021. Still, we'd expect they'll export somewhere between 6 and 7 million tons of DAP and MAP this year. But there's a big discount in the domestic market for both phosphate fertilizers and for urea versus where the international market is. And as we look toward the second half of this year, that is something to watch. I think the government of China is likely to want to continue to maintain affordable low fertilizer prices for Chinese growers. And with that disconnect between domestic prices and international prices, there may continue to be restrictions on exports just to keep the domestic market disconnected.

Your next question is from PJ Juvikar with Citi. Please go ahead.

Yes. Hi. Good morning. First question on sort of the Chinese Yuri outlook. You know, historically, producers there in China would take advantage of higher global prices and export more. Are you seeing more discipline in China, or is it related to coal and environmental issues? And then second, a quick one in retail. Just on seed, your both sales and gross margins were down, which was a little surprising given that price cards were up. So can you just shed some light on that? Thank you.

Great. Thanks, Vijay. Yeah, with respect to Chinese urea, I think it goes back to the question of domestic supply once again, where we've seen the Chinese shut in exports in favor of domestic market, and that's certainly important. for the first half of this year and could carry on to the second half. But Jason, do you want to provide some more color around Chinese urea? And then we'll head over to Jeff Tarsey to talk about retail seed sales.

Sure. Good morning, PJ. Yeah, in terms of the urea situation, typically, and we've seen this over the last couple of years, there isn't a lot of excess supply in China in the first half of the year. anyway because it's the domestic use period. But with the export restrictions in place, we believe that exports in the first half of the year will be less than a million tons. I think it was 300,000 tons for the first quarter of the year. And the big reason for that is the export restrictions. So the government's restricting the volumes of exports Historically, when exports have been restricted in the first half, we've seen a strong movement of volumes to bonded warehouses in advance of the export restrictions being removed, but may not see that as much this year because there are export inspections in place that are purposely delaying the time it takes to move product into those warehouses. So it might even further delay the start of the export season in July.

And Jeff, over to you for a discussion about retail seed sales.

Sure, PJ. Thanks for the question. Look on the seed side of things. Obviously, the first quarter is a very quiet quarter for us, and it depends on really what the last two weeks of of March due from a weather standpoint. I think we talked about it numerous times today that we got off to a slow start and so I have us about flat, just maybe just slightly up the seed revenue for the quarter.

And, and slightly down on margins.

Maybe, maybe basis points. That's all a timing issue right now, PJ. I think once we get rolling into the season and start getting this crop planted, we'll see all of that pick up. We had about a 50 basis point share increase in seed in North America. Last year, we planned this year to maintain that share gain, and we have plans to grow organically in our seed business price significantly. over the next five years. So no concern right now, just mainly a timing issue and just need to get the planters in the field. Thanks.

Your next question is from Steven Hansen with Freeman James. Please go ahead.

Yes, good morning everyone. Two-part question on your export logistics for potash, if I may.

First, outside of the short rail strike, I'm just curious if there's any limitations that you might have faced in the period on export volumes.

They did improve modestly year over year, but we're still below 2019 levels. And secondly, one of... Dix's Logistics Partners has been talking recently about the potential to move potash via direct line haul straight to the U.S. Gulf for export to Brazil. Just curious if you think that plan has any merits and what kind of infrastructure would be needed if that was the case. Thanks.

Yeah, thanks, Steve. So with respect to export logistics and limitations I mean, again, I'll just go back to sufficient port capacity and access to tidewater here in North America, and it becomes a question of rail. And I think you're rightly pointing out that there were some rail disruptions in the first quarter of this year.

There was some impact.

from the CP strike. We were largely able to mitigate those impacts by favoring volumes that travel on the CN. But we also saw some, you know, there have been some other labor disruptions associated with COVID still and challenges with rail companies staffing from time to time. So we had a little bit of that. And then we had some weather-related events in the first quarter as well that made it a challenge to get to the West Coast with our potash. Now, that said, first quarter, while the volumes were a little bit down compared to last year, we expect to fully recover those volumes in the balance of 2022. And so, yeah, we cope with these things every year, and yet, you know, we expect to recover the volumes. With respect to accessing the Gulf to transport volumes overseas, Certainly, these things are all possible. I think it's fair to say it becomes a question of cost. It's a long journey by a rail. And so for us, in our supply chain, we feel particularly advantaged today because we do have sufficient access to tidewater where today, you know, we can head west to our Neptune facility in Vancouver and then Portland as well. But the shorter answer is, Yeah, if you can arrange the rail and you can get terminal facilities on the coast and then you get ships in a deep water port, yes, you can transport potash.

Your next question is from Michael Piken with Cleveland Research. Please go ahead.

Yeah, good morning. I wanted to talk about the nitrogen side of the business. If you could talk a little bit about, you know, just... where you see India in terms of what they need in the coming months, and then also if you could talk about, you know, how much capacity you think is offline in Europe right now, and then moving forward, you know, where you see your Trinidad ops running throughout the year. Thanks.

Great. Yes. Well, thank you. Yes, it is the case that we see some European volumes offline. We think... You know, for the corridor here, you know, maybe 6 million tons. At $35 gas, those European prices require an ammonia price of about $1,250. And so, you know, it is the case that the price of the tap ammonia is above that today. So European plants have some incentives. But I'll hand it over first to Rafe to provide all the color around that, and then over to Jason Newton.

Yeah, so look, we've been watching this closely. You've seen some huge variations in the price of gas paid in Europe. And Ken's right. I mean, in February, we saw about 6 million tonnes shut in. Tampa went up to 1625. We saw a lot of that capacity come back online. I think what you need to keep an eye on here is what's happening with both the international ammonia pricing and the European gas prices.

With Europe and gas pricing unlikely to be much below $30 for the rest of the year. You need to have most of your money pricing well over $1,200 to be able to operate.

So just keep an eye on that as you go through the year. Globally, let me just make this point here. The ammonia market has continued to grow. Consumption has continued to grow at two and a half million tons a year. Now, in the last two years, and if you look forward the next two to three years, the amount of production coming online is well below that growth in annual consumption. So market has been tightening. It continues to tighten. when you have shocks like the pricing we've seen in Europe and the unfortunate war in Ukraine, it adds to the compounds of the issues. In regards to India specifically, I'm going to pass that to Jason. I think he's got a much clearer picture of what's happening there in detail. So, Jason, over to you.

Yeah, good morning. We've seen a really strong start to the year in India. Imports in the first quarter were up about three times higher versus where they were a year ago so over over three million tons of imports and we expect imports to be in the range of eight to nine million tons this year compared to seven million tons last year so I do expect an increase in imports in India in 2022. it will be interesting to watch they're starting to tender again we know the RCF tender for one and a half million tons was recently announced, and as we get further, and especially into the second half of the year, what the supply constraints look like and what volumes are made available for those tenders.

Your next question is from Joshua Spector with UBS. Please go ahead.

Yeah, hi. Thanks for taking my question. I guess just a little bit of capital allocation. I mean, a lot of conversation on potash expansions, and you have some nitrogen things in the work. Just wondering, given the improvement of performance in the phosphate side of things, is that something that deserves additional investments, or conversely, is now a time to look about strategic options for that business?

Great. Well, thank you, Joshua. Yeah, I would say that our capital allocation priorities and discipline have not changed. As we head into investor day, we'll certainly be talking more about associated with acceleration, everything we've been talking about on the call today. But I'll hand it over to Pedro to just provide some more details on how we're thinking about capital allocation today.

Thank you, Joshua. I think our position in terms of FOSS has not changed. So we are running for cash. We're doing very well. We have made good improvements. But we are not yet prepared to allocate any cash to FOSS in the future for investment. Of course, we are sustaining all of our assets for reliability and safety there. But our, as you pointed out, our capital allocation, it's going to be, we're going to have more options and degrees of freedom. We originally spoke about $4 billion being excess cash in the prior year. in the prior call and we decided to allocate then $2 billion for share buybacks and another $2 billion will come back at the middle of the year and talk about it. We now obviously are starting from a higher position, so we are likely to be at a multiple of that $2 billion. And what we are doing is a body of work to see, as Ken pointed out before, what additional investments within this strategy we are willing to accelerate those that have a high return in payback. And a number of you kind of touched on, of course, all the opportunities in potash. We also have opportunities in low emission ammonia, and we have the continued opportunities in retail that we have spoken before. So when we come to the June IR Day update in June the 9th, we're going to be able to provide a more complete view of that, including what additional opportunities do we have for shareholder distribution. So all of that is going. Our experience so far in terms of our capital allocation has been that we distribute a lot of our excess cash. I mean, up until 2021, We distribute $9 billion, $5 billion of which were share buyback for dividends, and the $5 billion of buybacks were at $55 a share. And just this year, another $740 million at $82 a share. So the strategy seems to be working. And as we pointed out, we think that we may have a different mid-cycle earnings position that we'll continue to support. that strategy. So more to come in June the 9th, but that's kind of how we're thinking so far.

And our final question is from Adrian Tamanio with Berenberg. Please go ahead.

Hello, good morning. Thank you for taking my question. I had one on Brazil. How do you see the competitive landscape evolving in the country because Russian companies are You have a high share of the local fertilizer distribution market. So would this allow somehow easier M&A in the country with more sanctions on Russia? Do you see that on the ground at the moment?

So, yeah, if I understood correctly, Adrian, the question is about the competitive landscape in Brazil and, you know, Russian fertilizers being supplied to that part of the world and what we're seeing there. Yeah, so, you know, we have obviously a growing retail network in Brazil and we've been focused on continuing to grow that. We continue to see opportunity there and certainly watching that competitive landscape. But I'll hand it over to Mark Thompson to talk a little bit more, who heads up...

know our m a work in in brazil and and then maybe over to jeff tarsi to just talk about our operations there so mark yeah thanks ken good morning uh adrian so i think your question is really on um how the competitive landscape is shaping up in in the distribution part of the uh of the brazilian market structure and so obviously there's multiple layers to the uh the market structure in brazil in terms of ultimately how growers are served and As you've noted, the fertilizer distribution segment of that market has become relatively consolidated and there has been some acquisition of assets by some of the Russian fertilizer companies and competitors in that space. As you know, our business is really more of a direct-to-grower, high-touch, high-service model in that market. And obviously, we've been quite forthcoming about our strategy that's been in place for multiple years about growing our presence in Brazil and helping growers be more productive and boost yields and adopt more technology in the country. So in the past few years, we've obviously completed five acquisitions. We've deployed about $300 million in enterprise value in the country, and we've built one of the largest multi-region businesses in Brazil to date. And really it's at a segment that's one level closer to the ground than where the consolidation and the fertilizer distribution space has been. So we now have over 50 locations. We've got over 10 experience centers. We've got fertilizer blending, soybean seed production, and nutritional formulation directly in the country. And as we look forward from an M&A standpoint in Brazil, we see a healthy pipeline ahead of us. notwithstanding the fact that we are building a large presence there and have already begun to amass one, we're still only about 1% to 2% of the ag retail market in Brazil. So it's a very attractive growth market for us and leaves us a lot of room to run growing forward as that part of the industry continues to consolidate and professionalize. So maybe I'll just hand it over to Jeff Tarcy for any more comments that you might have.

Yeah, Mark, those are great comments and really not a lot more to add except to the fact, and I think you said it and I'll say it again, is that continues to be an extremely attractive growth opportunity for nutrient ag solutions as it relates to retail. Look, we've had dual strategies there. You know, Mark's talked about the acquisition opportunities. He also referenced our experience centers that we're putting in. and which is kind of a new go-to market type philosophy in that business. Andre Diaz that leads that business for us is very experienced in that market. And as we looked at to add some new opportunities there, I think we'll look at them in a little bit more asset light than what we think of our markets here in North America, those experienced centers or hub and spoke type centers where growers can come in and get the latest knowledge and technology, and then their product is maybe shipped from a central supply point and standpoint. But we just, we're gaining confidence by the day in our strategy in Brazil and our go-to approach there, and we're excited about what the future holds for us there.

And that ends the question and answer session. I will now turn the call back over to Jeff Holzman for closing remarks.

Thank you, Operator. I just wanted to remind everyone registration for our June 9th investor update meeting is now open on our website. I would also like to highlight that Jason Newton, our Chief Economist, will be hosting a market update call and Q&A session on June 8th. Thanks for joining us today and have a great day.

This concludes today's conference call. Thank you for joining Humanities Connect.