11/7/2024

speaker
Operator
Conference Operator

Greetings and welcome to Nutrien's 2024 third 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 call is being recorded. I would now like to turn the conference call over to Jeff Holtzman, VP of Investor Relations.

speaker
Jeff Holtzman
VP of Investor Relations

Thank you, operator. Good morning and welcome to Nutrien's third quarter 2024 earnings call. As we conduct this call, various statements that we make about future expectations, plans, and prospects contain forward-looking information. Certain assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our quarterly report to shareholders, as well as our most recent annual report, MD&A, and annual information form. I will now turn the call over to Ken Seitz, Nutrients President and CEO, and Mark Thompson, our CFO, for opening comments.

speaker
Ken Seitz
President and CEO

Good morning, and thank you for joining us today to review our third quarter results, the progress on our strategic priorities, and the outlook for our business. At our investor day in June, we outlined a set of 2026 performance targets that provide a pathway for driving structural improvements to our earnings and cash flow through the cycle. As highlighted in our third quarter release, we have made significant progress on a number of these priorities in 2024. This includes accelerating the timeline for achieving $200 million in annual operational efficiency and cost savings. We now expect to achieve this target by 2025, one year earlier than our initial goal, with cost reductions evenly split between retail and corporate. Nutrien is in a unique position to expand production and sales of potash and nitrogen with limited capital expenditures. We set a 2026 target to increase upstream sales volumes by 2 to 3 million tons compared to 2023 levels. And through the first nine months of 2024, we have increased sales volumes by 1.3 million tons. In our downstream retail business, we have faced some headwinds associated with a more prolonged recovery in Brazil, and softening in North American ad commodity prices. However, we remain confident in the growth platforms that support our 2026 retail financial targets, which include an expansion of our proprietary products business, network optimization, tuck-in acquisitions, and the execution of our improvement plan in Brazil. Through a focused and disciplined approach to executing our capital projects, we expect to further optimize capital expenditures in 2025 to a range of 2 to 2.1 billion. This total includes the capital required to maintain our world class asset base and meet our growth objectives. We will continue to pursue each of these performance targets with a focus on how we can enhance our offering of products and services to the grower, all while structurally growing our earnings and free cash flow. Now turning specifically to our 2024 results. Nutrient generated adjusted EBITDA of $4.3 billion through the first nine months of 2024, supported by increased downstream retail earnings, higher upstream fertilizer volumes, and lower operating costs. Retail adjusted EBITDA totaled $1.4 billion in the first nine months, up 10% from the prior year. North American crop nutrient margins increased by $17 per ton compared to 2023, supported by a stabilization of fertilizer markets and continued growth of our proprietary crop nutrient and biostimulant product lines. The improvement in per ton margins was partially offset by lower North American crop nutrient sales volumes, which were impacted by wet weather in May, lower corn acres, and reduced field activity in the third quarter. Crop protection margins in North America have improved in 2024, While seed margins were lower, primarily due to the impact of dry weather and delayed planting on our proprietary seed business in Brazil. We ended the third quarter with crop protection inventory down 13% compared to the prior year, as we focus on tightly managing working capital levels. Turning to potash, we generated adjusted EBITDA of 1.6 billion in the first nine months, down from the prior year due to lower benchmark prices. We increased potash production across our six mine network and lowered our controllable cash cost of production to $52 per ton over this period. The reduction in per time costs was primarily driven by higher production volumes and the benefits of mine automation investments. We sold record potash volumes in response to increased demand from our customers. We achieved this performance despite a short-term disruption in Canadian rail service during the third quarter highlighting the advantages of our industry-leading supply chain and effective planning by our commercial teams. In nitrogen, we delivered adjusted EBITDA of $1.4 billion in the first nine months, down from the prior year, as the benefit of lower natural gas costs was more than offset by lower nitrogen prices in the first half of 2024. Our North American nitrogen assets remained very well positioned on the global cost curve, and we continue to progress reliability initiatives that have contributed to higher production volumes in 2024. Nitrogen selling prices in the third quarter increased compared to the prior year, reflecting tight global supply, in particular for ammonia. Phosphate fertilizer benchmark prices have remained strong, contributing to higher net selling prices in the third quarter compared to the prior year. weather-related events impacted our phosphate operating rates, resulting in lower sales volumes and incremental costs. Now turning to the market outlook for the remainder of 2024. We have seen a good start to the fall application season in North America, with crop nutrient sales in October above the historically strong levels achieved in the same month of 2023. The increase in demand has been driven by a relatively early harvest and the significant need to replenish soil nutrients following this year's record harvest. Global grain stocks remain below historical average levels, supporting export demand for North American crops and firm prices for key agricultural commodities such as rice, sugar and palm oil. Global potash consumption is projected at a record level in 2024, supported by strong agronomic need and relative affordability. We have raised our full year global shipment forecast to a range of 70 to 72 million tons and expect continued growth in 2025. We anticipate limited new global capacity additions next year, creating the potential for incremental supply tightness compared to 2024. Global nitrogen markets have remained firm in the fourth quarter due to continued Chinese urea export restrictions, ammonia supply outages, and project delays. U.S. nitrogen inventories are estimated to be well below historical average levels, which we expect will support strong demand for the fall season and into 2025. I will now turn it over to Mark to provide more details on our full year 2024 guidance assumptions and our capital allocation plans.

speaker
Mark Thompson
CFO

Thanks, Ken. Good morning, everyone. As Ken highlighted, Nutrien delivered record potash volumes through the first nine months of 2024, and we've raised our annual potash sales volume guidance to 13.5 to 13.9 million tons. The range reflects our scheduled maintenance downtime in the fourth quarter and the assumption of a relatively short-duration labor disruption at the Port of Vancouver that's currently impacting Campotec shipments through the Neptune Terminal. For the full year, we expect our potash controllable cash cost of production to be down approximately 5% compared to 2023, strengthening our position as one of the world's lowest cost producers. In nitrogen, we revised our annual sales volume guidance to 10.6 to 10.8 million tons. The range reflects the impact of extended turnarounds and unplanned outages in the third quarter, including the impact of weather-related events. We expect higher operating rates in the fourth quarter with turnarounds at select North American nitrogen sites now complete. For retail, our full year adjusted EBITDA guidance was revised to 1.5 to 1.6 billion. As favorable growing conditions in North America reduced pest pressure and limited field activity in the third quarter. Grower demand increased in October and we expect North American crop nutrient sales in the fourth quarter to be similar to the historically strong levels achieved in 2023. As Ken outlined, we're focused on strategic priorities that support the achievement of our 2026 performance targets, which we believe provide a pathway for enhancing earnings and free cash flow. Looking ahead, we see several levers available to optimize sources and uses of cash across Nutrien. From a sources standpoint, Ken described the areas we've identified to drive increased cash flow from operations. This includes increasing upstream fertilizer volumes from existing assets, delivering downstream retail earnings growth, and driving operational efficiency and cost savings across our network to ensure we maintain a low-cost position. We continue to evaluate ways to simplify and focus our portfolio, optimizing our investments in working capital, and reviewing assets on our balance sheet that may not warrant maintaining, with the objective of improving cash flow conversion through the cycle. In terms of uses of cash, we are allocating $2.2 to $2.3 billion in 2024 to sustain and enhance our assets, a reduction of over $400 million compared to 2023. We expect to further optimize CapEx in 2025 to a range of $2 to $2.1 billion, strengthening free cash flow and positioning the company to countercyclically deploy capital toward high conviction opportunities. We have a long track record of providing a stable and growing dividend as a core part of the return we deliver to our shareholders. Our dividend per share has increased by 35% since the beginning of 2018, while maintaining a total dividend payment of around $1 billion due to the significant reduction in share count over this time period. The allocation of our remaining free cash flow is currently focused on a narrow set of growth investments and on share repurchases. with the goal of maximizing our risk adjusted returns and growing free cash flow per share. From a growth standpoint, we're focused on projects that have a strong fit with our strategy, provide returns in excess of our hurdle rates, and have a relatively low degree of execution risk. These are growth platforms where we've proven our ability to execute and deliver value. Today, this includes investments in proprietary products, network optimization, tuck-in acquisitions, nitrogen to bottleneck projects, and mine automation and pod hatch. We've also repurchased 1.5 million shares for approximately $75 million since late September and intend on repurchasing shares on a more ratable basis under our NCIB program that's authorized through February 2025. I'll now turn it back to Ken for closing remarks.

speaker
Ken Seitz
President and CEO

Thanks, Mark. we remain focused on strategic priorities that strengthen the advantages of our business across the ag value chain. Our results through the first nine months of 2024 demonstrate progress towards our 2026 targets on a number of these priority areas. This includes accelerating the timeline for delivering operational efficiency and cost savings, optimizing capital expenditures, expanding upstream fertilizer sales volumes, and advancing high return downstream retail growth opportunities. As Mark highlighted, we are focused on allocating capital on a counter cyclical basis toward the targeted set of growth initiatives and share repurchases that enhance free cash flow per share. We would now be happy to take your questions.

speaker
Operator
Conference Operator

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star one on your phone. you will hear a prompt that you are now in the question queue. If you're using a speakerphone, please lift the handset before pressing any keys. As a reminder, each caller may ask one question. If you wish to ask a follow-up or second question, please raise your hand again with star one after the conclusion of your first question to rejoin the queue should time permit. The first question comes from Andrew Wong of RBC Capital Markets. Your line is now open.

speaker
Andrew Wong
RBC Capital Markets (Analyst)

hey good morning uh thanks for taking my questions i was just wondering if you could provide any update on how you plan on implementing a buyback program going forward with maybe more regular or systemic programmatic type repurchases um and just giving where your shares trade today how would you view buybacks versus any epic spending on growth thanks yeah thanks andrew um yeah we can certainly talk about

speaker
Ken Seitz
President and CEO

We mean by rateable. Of course, we bought back some stock this year, and we're going to continue with that through the balance of the year. As we look now into 2025, we've been using the word countercyclical. We've pulled back on capital, and that's on the investing side now. We've pulled back optimizing across the capital portfolio and a number of other measures that are going to liberate free cash flow. As we look at that, we look today at the highest and best use for that to improve free cash flow per share growth. And at the moment, yes, we're buying back our stock when we do that analysis. But, you know, Mark, maybe you want to provide some more color on what our plans are and why we use the word rateable.

speaker
Mark Thompson
CFO

Yep, absolutely. Thanks, Ken. Good morning, Andrew. So look, I think just to step back and reiterate, Andrew, a bit of what Kent said, I mean, our capital allocation priorities, they're going to continue to follow the strategic direction of simplifying and focusing the organization and really exercising the discipline in both cost and capital management. And these are things that we control regardless of market conditions. So this intensified focus on both optimizing sources of cash and uses of cash and with the objective of growing free cash flow per share is something that is really top of mind for us. With respect to your question on share purchases specifically, I think just to highlight and recap, we commenced share purchases in the second half of September. And if you look at that time period, we've purchased about $75 million worth of stock over the last month and a half. And as we said, we intend to continue routable repurchase activity at a general similar run rate to what we've done so far through the end of that authorization in February 2025. I think as Ken's highlighted, we sit here today and that set of growth objectives that we have has been narrowed. They're focused, they're things we've done before. A number of them are accretive to free cash flow. But the reason we've continued to make progress on the buyback here over the last couple of months and intend to continue doing so is we do see compelling value, not only from a risk-reward standpoint, but the ability to grow free cash flow per share independent of market conditions. As we look at alternatives at this point in the cycle, obviously agricultural commodities have turned down somewhat over the last few months. And if we look to past cycles, particularly in the retail business, That has presented us with opportunities at weaker points in the commodity cycle where we can continue to consolidate in those market conditions. We've been quite disciplined over the last couple of years in stronger market conditions, but we anticipate some of those tuck-in acquisitions, particularly in North America, will come back to us. So we'll be looking to those alternatives, opposite share buyback, but today the buyback is compelling to us.

speaker
Operator
Conference Operator

Thank you. The next question comes from Ben Isaacson from Scotia Capital. Your line is now open.

speaker
Ben Isaacson
Scotia Capital (Analyst)

Good morning and thank you for taking my question. I just have one question on potash. It's quite rare that we see three years of consecutive growth in potash demand, especially following a year of record global shipments, which we're seeing this year as the channel gets restocked. In light of your comments about softening field activity as crop prices are low, can you talk about your confidence level that potash demand will grow next year in line with your new forecast? Thank you.

speaker
Ken Seitz
President and CEO

Thank you, Ben. And yeah, good morning. Yeah, you know, for 2024, potash volumes have been strong and you've seen that we've changed our own global shipments range to 70 to 72 million tons. That is true. But there are a number of reasons that were constructive for 2025. You can start with global inventories and you look around the world and you could say that global inventories are at average or below average levels in just about every major market on the planet with perhaps the exception of Brazil. But even with Brazil, they continue to return to record level demand consumption of crop nutrients, NPK, this year, probably about 46 million tons, which would be similar to previous record levels. Similarly, China is consuming record levels of NPK. We've seen that in potash. We're seeing that in nitrogen at the moment, and we're seeing it in phosphate as well. It is true that we've seen a very strong crop in North America and that ag commodity prices have come off. That's true, but at the same time, that strong crop has pulled a lot of crop nutrients out of the ground and so that those nutrients are going to need to be replaced and in fact even here in the fall we've had an early harvest the fall is open and we're looking at a lot of activity in the fall application season getting ready for what farmers will be a good see as being a good growing season next year again with North American farm margins being about at the 10-year average It's also the case that the softer input prices have stimulated some demand. So we see strong demand in this price environment. And importantly, we're still returning to trend level demand in potash. I mean, we're just getting now to what we would consider to be trend level post this conflict in Eastern Europe and everything that that brought. So there's, I would say, a number of things that are going on at the moment. that we have now a range for next year of 71 to 74 million tons, again, looking to return to that trend level demand growth. But Chris, anything you wanted to add?

speaker
Unknown
Nutrien Markets Executive

Yeah, thanks, Ken. Good morning, Ben. The only thing maybe to reiterate is that as we look around the world at these major potash markets, we're not really seeing any inventory build that's concerning to us. And as we talk to customers in each of those markets, They're also optimistic about demand for 2025, particularly as Ken said, with these prices remaining at affordable levels. And even if we were to see, for example, in China, inventories grow to around 3 million tons, you put that into the context of apparent consumption at around 18 to 19 million tons. And again, we don't see that concerning. So we do see the good consumption levels that we've seen in 2024 continuing into 2025.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Joel Jackson from BMO Capital Markets. Your line is now open.

speaker
Joel Jackson
BMO Capital Markets (Analyst)

Hi, I'm going to follow up on that potash question with a couple of mini questions, if you don't mind. I don't think you mentioned Southeast Asia oil palm. It seems like palm oil prices are really, really doing well. It looks like in a recent tender this week in Southeast Asia, it looks like you got maybe a little bit higher price, but not massively higher. So first question there is, you know, are Why should we not see some greater pricing there with palm oil? And also why I didn't mention it on some of the drivers 25. And then second question would be, when you look at supply for 25, you know, what more supply do you see coming on? Are you anticipating more supply from Laos? Are you anticipating more tons get through St. Petersburg and Bronca from, from Belarus, Cali, DPC, any other supply drivers? Thanks.

speaker
Ken Seitz
President and CEO

Thanks, Joel. That's a couple of great observations. Thank you. Yeah, I would say with respect to Southeast Asia, we haven't mentioned it yet, but you're absolutely right. In fact, for 2024, part of the rebound to trend level demand that we just talked about, part of that story is certainly Southeast Asia. And it's for the reasons that you said, affordability is strong. When we see palm oil prices at 4,000 ringgit per tonne, But there's also strong rice prices in the region that we expect strong demand and for an important standard grade market. Like I say, that's certainly part of the story for 2024. And if you look at the biodiesel mandate that's coming in 2025 and again with strong prices, we expect that Southeast Asia for 2025 will continue to be an important part of the story on On the supply and demand balance, I think you make a good observation as well. When we talk about 2024, we call it more or less a balanced market. 70 to 72 million tons and supply more or less meeting demand. As those volumes grow, as consumption demand grows into 2025, and for all the reasons we've talked about, we think that it will, we do see some potential tightening in the market. And that's because, as you say, if we look around, there could be some small incremental additions on the supply side, but we don't see much. And so, you know, when we've said that there's the potential for some firming in 2025, you know, the reason we say that is exactly that. We expect demand to grow without incremental supply necessarily being added to meet that incremental demand.

speaker
Operator
Conference Operator

Thank you. Your next question is Vincent Andrews from Morgan Stanley. Your line is now open.

speaker
Vincent Andrews
Morgan Stanley (Analyst)

Thank you and good morning everyone. Question in nitrogen. One of your slides shows that your think the product inventory levels in nitrogen are low levels as we go into the fall season. Curious what your anticipation is in the retail business in terms of what you want to do about that in terms of, you know, do you see this as an opportunistic time for you to build? inventory and hold it through the winter? Or do you still intend to exit the fall season with kind of empty bins?

speaker
Ken Seitz
President and CEO

Yeah, I would say that what we're seeing in our retail business, there's nothing unusual there. And we do expect to head through the season here with inventories flowing through our channel. But Jeff, do you want to talk about what you're seeing on the ground?

speaker
Unknown
Nutrien Retail Executive

Yeah. So first of all, I mean, we're seeing we're greatly encouraged by the activity we're seeing this fall. As Ken mentioned earlier, we've had very strong nutrient removal with really large crops, particularly in North America. From an inventory position, we like the position we're in right now. We came into the third quarter a little heavier than we would have been last year, but that's reflective of an early harvest and an early start to fall application. And as it relates to nitrogen, We desperately needed some moisture across the Corn Belt. We got that in most areas last week. And so we're getting, I'm really encouraged by what we're kicking off across North America from an NH3 application standpoint. But, you know, my desire in retail is normally to buy what we need for the season ahead and not carry over into the year. And so I would like to, I would like from a retail perspective to end the fall with low inventory levels.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Steve Byrne, Bank of America, Merrill Lynch. Your line is now open.

speaker
Steve Byrne
Bank of America Merrill Lynch (Analyst)

Yes, thank you. Ken, I wanted to drill a little bit into potash pricing. You know, you got, you know, you're looking for another couple percent higher volumes in 2025, but yet, you know, your offshore price It's been running almost $100 a ton less than the North American price. It used to be closer to $30. You know, you get even Lukashenko complaining about potash pricing. My question for you, given your current role, your prior role at Campotex, what is the value proposition to Nutrien to be part of Campotex? You have one partner and BHP can't join it? Would you negotiate differently if you were on your own and not part of Camp Detects?

speaker
Ken Seitz
President and CEO

Yes, Steve, thanks for the question. And, yeah, it was a long time back there. But, you know, I'll just start by saying, in fact, tomorrow we are, today we're celebrating Nutrient's 65 years of producing potash in Saskatchewan. We've been doing this for a long time, and for 55 of those years, we've been doing them with Capitex. Capitex has established a customer base in the market in all these key regions that you can't reproduce, and that comes with developing relationships over that period of time. Part of the value proposition for those customers is that They have access to all of these Saskatchewan mines. It's high quality, it's reliable, and it's competitive. And so those relationships continue to be incredibly important to us, incredibly important to Capitex. In behind that customer, we have built out a supply chain in this business to get volumes from, you know, landlocked Saskatchewan. I keep saying to the jungles in Malaysia, that supply chain doesn't exist anywhere on the planet. So there's just so much infrastructure, so many relationships, so much history and a history of good commerce, good trade with these customers that as we look to move our volumes, Capitex has been just an extraordinary partnership and it has taking us into new markets over 40 countries around the world. And obviously, we've always been competitive. So I think Capitex offers us a lot. Steve, what I would say is, you know, we look into the future now. We have seen trade flows that have been imbalanced in certain parts of the world in light of the conflicts in Eastern Europe, even some impact perhaps on what's happening in the Middle East. So yes, you do have markets like Brazil that are easier for global producers to get to at the moment. So we have seen volumes going to Brazil, and you see the impact on price, which creates the delta between that market and markets that might be more difficult to get to. I think as these trade flows normalize, as we look at a stable supply-demand balance in 2024, as we look at potential firming into 2025, And we look at the role that Capitex is going to play in all that. That's where we say demand growing, maybe outpacing supply a bit in 2025 and even beyond. And so that's where we say opportunity for some additional tightening, firming here in price. But of course, you know, Capitex is going to continue to be playing a significant role in getting our volumes around the world.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Jacob Bout from CIBC World Markets. Your line is now open.

speaker
Jacob Bout
CIBC World Markets (Analyst)

Good morning. Question on retail. Second quarter here that you've trimmed your 24 retail guidance despite, you know, a pretty large crop coming off in the U.S. Curious, you know, what would your view of normalized retail EBITDA would be in a $4 corn price environment?

speaker
Ken Seitz
President and CEO

Good morning, Jacob. And yeah, we have a number of things that we talk about at the moment that a few headwinds in our downstream business. And those in North America would be, as we've talked about, our wet May, as we've talked about the ideal growing conditions here in the third quarter that led to less pest pressure and less overall field activity. That's true. But I would say the bigger story is Brazil. and the ongoing work that we're doing to recover, both with the market and certainly with our business in Brazil. But I'll hand it over to Jeff to provide some more color around all of that.

speaker
Unknown
Nutrien Retail Executive

Yeah, thanks. And look, our guide down in the third quarter was more a reflection of what occurred in the third quarter than what we expect going forward in the fourth quarter. As Ken mentioned just a minute ago, regardless of the corn price. Brazil has been a headwind again this year. We expected more recovery there in that market than we've seen here to date. North America and Australia have performed really well, in my opinion, in 2024. And so we expect earnings growth next year just by stabilizing things in Brazil. Going forward, we expect earnings growth that we've talked quite a bit in investor day about, you know, our strategic actions around LPI and how we want to expand our margins in that area as well. And I also think that we had some things that we missed this year. We talked about low field activity in the third quarter. Some of that related to some applications that we actually missed in the spring with a cold and delayed season. planting for corn. And we think those things will come back to us. We thought we'd get a bit more of it in the third quarter, but ideal weather conditions really led to extremely low pest pressure and low trips across the field for our growers. And so we think those things will come back to us next year.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Edlaine Rodriguez from Mizuho Securities. Your line is now open.

speaker
Edlaine Rodriguez
Mizuho Securities (Analyst)

Good morning. Good morning, everyone. I mean, just one quick question on retail in Brazil. Man, the farmer there should be hurting a little bit. There's like a lot of disruption in the marketplace in terms of, you know, people going bankrupt. Does that create medium-term or long-term opportunities for you in terms of retail acquisitions, given that it's a long-term attractive market over there?

speaker
Ken Seitz
President and CEO

Good morning and thanks for the question, Ed Lane. So we are focused at the moment on in Brazil is on our current core business and the things that we've talked about stabilizing the business. And I would say today that that is our exclusive focus. So when we talk about rationalizing some infrastructure, some unproductive infrastructure like blenders, like some selling locations, when we talk about optimizing our cost footprint from a human resourcing perspective, in light of some of the challenges in Brazil. We talked about focusing on inventory and inventory management, bringing down working capital levels. You know, those things are all in flight. There is an extraordinary amount of effort in Brazil at the moment, and that is our exclusive focus. And we've talked about working through all of that through 2025. We think that you know, for these, for the work that's taking place, you know, that's going to continue through 2025. And then, you know, among all that, continuing to focus on proprietary products and growing that proprietary business, which, you know, that's for our future in Brazil, certainly that's going to be a core part of this. We see opportunity there with our agrochem business. So it's a long way of saying our focus today. No, we're not looking at expanding in this environment. We're looking at and focusing on our current business.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Richard Garchit Horena from Wells Fargo. Your line is now open.

speaker
Richard Garchit Horena
Wells Fargo (Analyst)

Alright, good morning everybody. So my question is another strong quarter of potash sales volume this quarter, despite a short rail strike. It raised the guidance this year to 13.5 to 13.9 million, but obviously a third quarter run rate would imply over 16 million potential annualized production. That's well below, well above the 14 to 15 million target that you gave for 2026 a year yesterday. So my question is, are you currently at that operational capability rate at this time to get to that 14 to 15 million? Could you produce that if the market demand was there for it? You mentioned that you expect demand growing in 2025 for potash and don't really see many other supply coming on in other regions. would you be the one company that could potentially meet that demand?

speaker
Ken Seitz
President and CEO

So I'll maybe start with your last question first and then work back from there, Richard. Yes, we can meet growing demand. And we've talked about our ability to produce 15 million tons in that, you know, what we need to do between now and then is bring on people, bring on operators. You know, you look at our guidance range today, we would say that, um, the capacity and our compliment of operators that are six mile network has been built for exactly those times. Our guidance range and not beyond, we don't want people standing around at our operations. So yes, we can get to 15 million times, we need to hire some people. It's always the case that on any given day, on any given month, we might be producing above what appears to be a 15 million ton annualized rate, But when you take those daily or monthly and annualize them, it's not representative of what we can do in the year. And that's just related to what's happening at a particular mine, how maintenance turnarounds fit into the schedule. We have some high days in our business where we're in good ground and everything's working well, but we'll have some days where we'll hit anomalous ground and you will see probably a run rate that would be less than normal. than our 14 million tons of capacity. So it's not a case of looking at those days or months and annualizing them. What we say today is what's true, and that is capacity has been built to meet the needs of our global customers, that kind of 19 and 20% market share that we talk about often, and that yes, we can certainly expand our volumes to 15 million tons by bringing in people, and we can do that relatively quickly.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Chris Parkinson of Wolf Research. Your line is now open.

speaker
Chris Parkinson
Wolfe Research (Analyst)

Great. Just a quick question on your perspective on nitrogen supply dynamics. Just when you take a step back, I mean, there's one school of thought that's concerned about oversupply, just given the number of MOUs and kind of project concepts, I'll call them, you know, things out of Russia, which I personally think is wrong, but it is what it is. And then the other school of thought is looking at, you know, higher costs, a lot of maintenance bills coming up in Europe, CBAM in Europe, and, you know, potential further rationalization. So as you sit here today, you know, even versus a couple of quarters ago, kind of what are your core puts and takes in terms of how you're thinking about that business over the next, you know, let's say three to five years? Thank you.

speaker
Ken Seitz
President and CEO

Yeah, great question, Chris. And, you know, I'll say a couple of things and pass it over to Chris Reynolds. But, you know, if it's on the clean ammonia side of the industry and the the number of announcements that we've seen on prognosticated new plant. You know, as we've looked at those announcements and we looked at the evolution of the potential there and our own experiences with looking at clean ammonia, we would say that, you know, we don't see speculative new plant coming, being built, being green-lit. And, you know, right now, It's a question about really the pacing of the energy transition and how you would then in behind that pace the clean ammonia complex and what kind of risks you'd be willing to take in a market that you might be able to grab a premium on the energy side of the business. That's still evolving and timing of all of that is still very unclear. So again, we expect any new plant to be backed by some form of offtake or some form of bankable contract that gives you the confidence to play the capital. And indeed, that seems to be playing out that way. If we look at the industry and the nitrogen complexes as it is today across the various nitrogen products, we don't see a lot of new buildup. a new plant that's being deployed, especially on some of the downstream products. But Chris, maybe you want to provide a little bit more color on the sort of supply-demand balance in nitrogen and how you see that evolving.

speaker
Unknown
Nutrien Markets Executive

Yeah, thanks, Ken. Good morning, Chris. Yeah, as Ken said, if we break it down by supply and demand and nitrogen market and how we see the next couple of years, you know, on the demand side, it's been pleasing to see that trend sort of return to about a 2%. compound annual growth rate globally. So that's been fairly consistent over the years. And then you look specifically at examples like in China today, that urea consumption there on the ground, as I said earlier, we've got folks there this week, has grown by 14% year over year, taking apparent consumption to 60 million tons of urea. So the Chinese government remains very focused on domestic agricultural production there. And similarly around the world, whether it's Brazil or India, some good steady growth on the demand side. And then on the supply side, you know, what we're watching obviously is what's happening in Europe and those natural gas prices. We would probably mention that, you know, the last couple of winters in Europe have not been too bad. But if we get a harsh winter in Europe, you know, those natural gas inventories could be quickly depleted and you could see that price move even higher. And we've seen some production curtailments there. as a result. And then as Ken alluded to, you know, some delays in new production coming online has kept this market fairly well balanced. But on top of all of that is our, you know, our position here in North America with low cost gas, both in the US and Canada, and the advantage locations of those plants, particularly inland in the US, which we like. So I would say again, as we look out over the next three to four to five years, feeling good about the nitrogen market.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Benjamin Thurer from Barclays Capital Inc. Your line is now open.

speaker
Rahi
Barclays Capital (Analyst)

Hey, this is Rahi filling in for Ben from Barclays. My question was kind of on geopolitical issues. Any updates on how it's impacting fertilizer shipment? Is it still just a hit towards like shipment costs or are there any quantity of volumes impacted? And just how is the updated Red Sea shipment process just kind of on an overall fertilizer market view. Thank you.

speaker
Ken Seitz
President and CEO

Yeah, no, a lot going on in the world, obviously, and some geopolitical events that are impacting our business. Yeah, we look at the war in Eastern Europe. What we would say and have talked about is the fact that those volumes, for the most part, are getting to pre-conflict levels with those export volumes. It's Probably all true with the exception perhaps of the Belarusians who continue to struggle getting access to port capacity in a cost effective way. It's absolutely the case that those suppliers and particularly Belarus probably struggling with cost to serve as well as they send shipments via rail across Russia and into the north of China where We know that on a landed basis, that's probably putting all in costs for the Belarusians, it costs 270, $280 a ton. So those are definitely challenges in light of this conflict in Eastern Europe, but some of those challenges are going to persist for a bit yet. But as those volumes find their way into the market, some rebalancing trade flows that we've talked about, that really we've obviously finding a home for our volumes, with our customers as well. And that has been the case right through all of this turmoil. On the Red Sea, I think it's fair to say that our colleagues at ICL and APL have found alternative routes. And so the challenges through the Red Sea that ICL has experienced, probably continues to experience, that they found alternative routes through the Mediterranean. So we're seeing ICL volumes come in come into the market as well, which is good. And those trade flows relatively balanced as well. But those, we'll continue to watch these things very, very closely because as you say, it has had impacts on trade flows, some respects continues to do, certainly has raised the cost to serve for the industry and therefore the overall cost basis for the industry. And, you know, as these conflicts evolve, we'll continue to watch that.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Joshua Spector from UBS. Your line is now open.

speaker
Joshua Spector
UBS (Analyst)

Good morning. Yeah, this is Lucas. My name is Josh. So just going back to nitrogen, so you've sort of taken your shipment volumes down a little bit for this year, obviously due to some specific factors there. But I was just wondering if you could kind of give us your latest thoughts and frame how you're thinking about

speaker
Ken Seitz
President and CEO

incremental uplift into next year and then the pathway to your 11 and a half to 12 million target in 2026. thanks yeah no good thanks josh yeah we've had uh we've had some weather related effects this year we've had some extended turnarounds at a power outage that uh power supplier near at our port saskatchewan facility in alberta um you know unexpected for us and some mechanical issues so you put that all together and yes we're just a little bit below um you know uh where we had expected to be this year um that said heading into 2025 and beyond we talked about our 11 and a half million uh ton 2026 investor day target and 11 and a half and with trinidad cooperating on natural gas it would be 12 million tons But I'll hand it over to Trevor Williams to give us the breakdown on where we're going to get those new volumes and how we get from here to there.

speaker
Unknown
Nutrien Operations Executive

Hey, thanks, Ken. Good morning. Yeah, just a couple of thoughts here. If I look back and just compare it to 2023, we're approximately 200,000 tons year over year. So it's pretty good to start last year. And then you normalize, Lucas, over our turnarounds, which is a very heavy year this year. We're almost 300,000 tons on a normalized basis. Obviously, this is a result of some of the improvements that we talked about that we announced last year before going to Trinidad. As Ken alluded to, though, is on the full year basis this year, we had several externally related outages across the quarter. And in addition to that, you know, a couple of turnarounds that did go a little bit longer. Now, this has been one of our heaviest turnaround years that we've had for quite a while, with four major turnarounds executed here in 2024, with one wrapping up here in Trinidad here in the last quarter. But as Ken said, you know, as we look forward to our investor day target of 11.5 and above, there's really three components there. There's continued reliability improvements across the fleet, and there's about 300,000 tons in terms of what we look at there. The bottlenecks that both we completed in 23 and what we have scheduled for 24 and 25, you know, there's in the order of about 300,000 tons there as well. And then finally, as Ken mentioned, we have about 500,000 tons in terms of what we're doing with respect to Trinidad in terms of gas improvement. But with that, the one thing I will call out as an example is if you look in 2023, we utilized about 82% of our gas that was available to us in 2023. In 2024, we're projecting right now we're going to be between 93 and 94% of the gas available utilized. And that's really the result of our three out of four strategy that we put in place late last year.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Lawrence Alexander from Jefferies. Your line is now open.

speaker
Dan Rizwan
Jefferies (Analyst)

Hi, this is actually Dan Rizwan for Lawrence. So you achieved your cost-cutting goals early and are expected to be achieved in 2025. Would that suggest that maybe you can kind of expand the goals, that there's more that can be done as we push into 26 and 27? I guess that would be my question.

speaker
Ken Seitz
President and CEO

Yeah, no, absolutely. And yes, we have been incredibly focused on our cost base. And as we talked about in the yesterday, we had looking in through 25, 26, we did see an opportunity to reduce SG&A both in our retail business and our corporate functions by $200 million. As we've said, we're ahead of schedule on that. And as we continue to look at that cost base, we do see some potential. for additional savings. We're working on that at the moment. At the moment, yes, we have confidence around achieving that 200 million and now achieving it earlier than we talked about. And we're always looking at the opportunity to continue to optimize, refine costs, keep ourselves as the low cost producer and competitive in everything that we do.

speaker
Operator
Conference Operator

Thank you. Your next question comes from Aaron Cacciarelli from Barenburg. Your line is now open.

speaker
Aaron Cacciarelli
Barenburg (Analyst)

Hello, hi, good morning. Thanks for taking my question. Earlier this week, we got some comments from Belarusian President Lukashenko on a potential combined 10% production cut with Russia. I was wondering how credible are these comments in your view considering these guys are low-cost producers and don't really need to cut production? And my second question is on ag retail and specifically on seeds. If I look at your sales and see that they declined 16% in Q3, but the gross margin dollar attempts collapsed to 4 million. So I wanted to understand how much of this should continue into Q4, or it was just a one-off for Q3? Thank you.

speaker
Ken Seitz
President and CEO

Good. Thanks for the questions. Yeah, in Belarus, DPC, we saw that announcement as well. We don't speculate on those sorts of things. I think you would want to talk to them and understand better what the plan is there. All I would say is we've talked about this impact of shifting trade flows and the challenges perhaps in that part of world of not getting access to efficient and nearby tidewater and that raising the global cost curve. as a result, so the cost of service gone up. That's true, that's clear, and probably will continue to be the case as those producers look for port capacity, like I say, that is nearby. So it won't speculate on anything that, any prognostications or anything that's coming out of the press in that part of the world, you'd have to talk to them, What we would say is yes, we do see that floor, both in terms of inflationary pressures on the industry, probably added $50 a ton, and then for certain producers who are having challenges, probably could be another $50 a ton on the cost curve. And then the second question, as it relates to retail and seed, I'll pass that over to Mr. Tarson. Yeah, thanks, Ken.

speaker
Unknown
Nutrien Retail Executive

Yeah, so the third quarter is a small quarter for us, which sees, as it relates to the margins reduction in the third quarter. Latin America's primary driver as a reduction as it relates to seed margins before three. This is due to small unfavorable weather conditions which cause seed production challenges and compressed margins for us in that region, and we do consider that to be a one time event.

speaker
Operator
Conference Operator

Thank you. There are no further questions at this time, so I will now turn the call back to Jeff Holtzman for closing remarks.

speaker
Jeff Holtzman
VP of Investor Relations

Okay, thank you for joining us today. The investor relations team is available if you have any follow-up questions. Have a great day.

Disclaimer

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