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Presentation

Operator: Greetings, and welcome to the Nutrien 2023 First Quarter Earnings Call. As a reminder this conference is being recorded. I would now like to turn the conference over to Jeff Holzman, VP of Investor Relations.

Jeff Holzman: Thank you, operator. Good morning and welcome to Nutrien’s first quarter 2023 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 quarterly 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, our President and CEO and Pedro Farah, our CFO, for opening comments before we take your questions.

Ken Seitz: Good morning. Thank you for joining us today. Nutrien’s first quarter results reflect the impact of structural supply issues and shifting buying patterns that have contributed to an unprecedented period of market volatility. We delivered adjusted EBITDA of $1.4 billion the second highest for any first quarter on record. Continuing to demonstrate the advantages of our flexible low cost production assets and global distribution network. We invested $700 million to sustain and grow our assets and returned over $1.1 billion to shareholders in the first quarter. While our full year outlook is lower than previously expected, we are encouraged by the continued stabilization of crop nutrient markets and anticipate increased fertilizer demand in the second half of the year.

We expect to generate strong cash flows in 2023 and maintain a balanced and disciplined approach to capital allocation. Shifting to the highlights from the first quarter. Nutrien Ag Solutions results were impacted by delay to grow our purchases and to lower margins compared to the exceptionally strong period and 2022. Retail fertilizer prices declined in the quarter, albeit at a slower pace than wholesale benchmark prices and margins were below normalized levels as we worked through higher cost inventory. We ended the quarter with U.S. fertilizer inventory down 10% year-over-year, leaving a significant amount of our spring fertilizer volume to procure in the second quarter. Crop protection product margins were impacted by lower prices for certain herbicide products and later in grower — in later grower engagement compared to the previous year.

This resulted in a temporary build of crop protection inventory. But this product is moving through the channel in the second quarter as fieldwork has accelerated. Seed sales and margins improved due to higher prices, increased crop acreage and the strong performance of our proprietary seed lines. We completed eight retail acquisitions during the quarter in the U.S., Brazil and Australia. In Brazil, our primary focus in 2023 is on the integration of acquisitions completed last year. The results were our potash nitrogen and phosphate business were impacted by lower benchmark prices compared to the exceptionally strong period in 2022. We had good initial uptake for our potash which are filled program in North America. However, volumes were down from the prior year as customers purchased on a just in time basis.

Canpotex sold record volumes to Brazil, driven by strong demand for the spring planting season and to lower imports from Eastern European producers compared to Q1 2022. Potash shipments to spot markets in Asia declined as our customers work down inventory and contract settlements with India and China were delayed as buying patterns continued to evolve. Global potash prices were relatively stable to begin the year, but declined later in the quarter due to the lack of consistent market engagement. We adjusted potash production across our low cost network and pulled forward maintenance activities preserving the flexibility to quickly ramp up production when stronger demand re-emerges. Nitrogen benchmark prices were highly volatile due to a sharp drop in European gas prices, lower Indian urea imports and weaker industrial demand.

Our North American nitrogen plants operated very well in the quarter and benefited from low natural gas costs in comparison to other global producers. Trinidad was impacted by a gas curtailments of approximately 20%, which was in line with our previous expectations. We are progressing well on engineering work for our Geismar clean ammonia project and remain on track to make a final investment decision in the second half of 2023. In recent months, we have received a significant external interest regarding co-investment, or potential equity partnerships in the project. We plan to explore these options as we continue our evaluation of the project with a view of maximizing value for shareholders. Our phosphate business benefited from the stability of our feed and industrial product lines, partially offsetting the impact of lower sales volumes and fertilizer prices.

We completed maintenance and reliability initiatives during the quarter and are targeting utilization rates above 90% in the second half of the year. Turning to the outlook, geopolitical and weather related challenges continue to impact global agriculture commodity markets. The global grain stocks to use ratio is at its lowest point in more than 25 years. And we expect it will take multiple cropping cycles to restore stocks to more adequate levels. Agriculture is a seasonal business, and there has been some near term pressure on crop prices resulting from a record Brazilian soybean harvest and favorable planting progress in the U.S. Even with this recent softening new crop futures for corn, soybeans and wheat around 15% above the 10-year average.

Growers are increasing acreage and have the incentive to invest in their crop, leading to strong demand for crop inputs as the planting season progresses in the northern hemisphere. To give you some context from a fertilizer demand standpoint, our second quarter U.S. retail fertilizer sales volumes are currently up 40% compared to the previous year. With product moving rapidly through the supply chain we have seen some spot shortages in the U.S. and particular for potash and urea. This is highlighting the challenges that can emerge from just in time purchasing. Retail fertilizer inventories are projected to end the second quarter down significantly compared to last year, which supports the need for a strong summer refill. We expect the second half global potash demand will be up significantly compared to the same period in 2022.

With the majority of the increase in Brazil and North America, which are the two largest markets for our potash. The timing of a new China contract remains uncertain, but we do not view this as a significant impediment to our recovery and global demand. Global trade flows have evolved over the past year and China’s seaborne imports now represent only 5% of global shipments. For Nutrien, it also represents a relatively small percentage of our total sales, so we have shifted more volume to higher net back markets. On the supply side, Belarus has gradually increased potash exports through ports in Russia, partially offset by lower Russian production producer exports. We expect Eastern European potash shipments will be up approximately 15% in 2023 compared to last year, but still down 30% from 2021.

We maintained our global potash shipment forecast at 63 million to 67 million tonnes, which is well below the estimated trend demand of above 70 million tonnes. We expect increased demand as markets stabilized driven by growth and global crop production, lower channel inventories and the need to replenish potassium levels in the soil. I will now turn it over to Pedro to review our guidance assumptions and capital allocation plans for 2023.

Pedro Farah: Thanks, Ken. Good morning. Our revised full year guidance reflects changes in fertilizer benchmark prices since mid-February and our expectation of a boy stable market going forward. In retail, our initial guidance assumes a reset in crop nutrient and crop protection margins compared to the extraordinary levels achieved in 2022. In North America, demand is accelerating as expected. But we have seen fertilizer margins temporarily drop below normalized levels, as we work down higher cost inventory. We expect to end the spring season with very low inventories and for North America crop nutrient margins to recover in the second half. We could still see below normal margins in Brazil in the third quarter as grower purchases are not likely to accelerate until closer to the spring planting season in September.

Turning to potash. We assume North American prices remain firm through spring and then follow a typical seasonal pricing pattern. Offshore prices have moved lower in second quarter due to the lack of consistent buying, however, we forecast prices to stabilize in the second half, as demand increases. We lower our 2023 potash sales volume guidance to 13.5 million to 14.3 million tonnes due to the delayed contract settlements and slightly higher export volumes from Eastern Europe. We have adjusted our production plans accordingly and will maintain a flexible approach to our potash ramp up basing the timing of capital expenditures with the expected recovery in demand. The investments completed to-date have provided for greater production flexibility and increased our autonomous mining capabilities.

These are important initiatives that enhance safety and reliability while supporting the low cost position of our potash mines. In nitrogen, we forecasted normal season reset for urea any UAN prices following spring. We expect an increase in global ammonia prices during the second half as prices are currently trading well below the estimated marginal cost, which we do not believe is sustainable over an extended period. We are assuming U.S. natural gas prices will average around $3 per MMBtu in 2023 and Western Canadian gas below that level. Continuing to position our nitrogen assets at the low end of a global cost curve. Cash from operating Activities is projected at $5 billion to $5.8 billion in 2023. A relatively small decline compared to our previous forecast.

As we have stated before one of the benefits of our integrated business is the counter cyclical impacts on cash flow. We project large increase — release of working capital with a reset in fertilizer prices. And now our cash conversion ratio would have been even higher this year, if not for the timing impact of cash tax payments. We continue to deploy a disciplined approach to capital allocation that balances our priorities of maintaining a strong balance sheet, investing in sustainability and growth of the business and providing meaningful return to shareholders. While our cash flow allows to fund all of our strategic projects, and we have a strong balance sheet to cushion the volatility, we will continue to review our investments to ensure they provide the best return on investment through this cycle.

We allocated $900 million to share repurchases in the first quarter and intend to remain opportunistic, taking advantage of our existing and CIB. We announced a 10% increase in our dividend per share in February that aligned to the significant reduction in share count over the previous 12 months. Since 2018, we have reduced our outstanding share count by 23% and increased the dividend per share by 33%, demonstrating our commitment to capital returns through the cycle. I’ll pass it back to Ken.

Ken Seitz: Thanks, Pedro. I would just make a few final comments. The fundamentals for our business remain strong. We anticipate increased fertilizer demand in the second half of 2023 and supply issues that emerged in 2022 have yet to be resolved. Following a period of unprecedented volatility, we expect fertilizer prices to stabilize near mid cycle values, reflecting the strength of underlying market fundamentals. We are generating strong cash flow from our integrated business and will remain disciplined in our capital allocation approach. As we position the company to serve the needs of our customers, and deliver long-term value for our shareholders. We would now be happy to take your questions.

Operator: Your first question comes from the line of Ben Isaacson from Scotiabank. Your line is now open.

Ben Isaacson: Thank you very much and good morning Ken and everyone. Just on potash. You talk about Just in time buying Southeast Asia is destocking. Can you Jason or Chris remind us of when are the key buying times in each of the main regions and how are channel inventories in those regions? And if I can just sneak in a really quick one. On the Q4 call, when you talked about your 5% buyback, the stock was about 80 bucks and now it’s about 60 bucks. Has that changed your philosophy in terms of how aggressive you’ll be when it comes to buybacks? Thank you.

Ken Seitz: Yes. Good morning, Ben, and thank you for the question. And yes, absolutely sort of walk market by market on potash, as we’ve done in the past. And so maybe I’ll hand that over to Mark and probably augmented by Jason. And then on the share buyback question, I’ll hand it over to Pedro. So Thanks, Ben.

Mark Thompson : Yes, good morning, Ben. This is Mark. So maybe I’ll just do a bit of a flyover on some of the key markets. And then I’ll pass it to Jason to talk about specific timing of application. I think, generally, as Ken said in his comments, there’s really three key themes here we see in potash globally. I think first, there remains a supply constrained market. And really what we see relative to our expectations in February, is about a million more tonnes coming out of the former Soviet Union as a whole. I think second, as Ken mentioned, we are seeing trade flows shift structurally. And really, the biggest themes there that we see is that North American production is becoming more important and a bigger proportion of buying in markets like North America, Brazil, and Southeast Asia, Former Soviet Union production is disproportionately moving into China.

And then third, production of Laos is increasingly finding markets in China and Southeast Asia. And so, I think those are the three biggest factors as it relates to the structural shifts. And third, as Ken mentioned, we do see demand recovering in the second half and certainly do see long term trend demand and tap. So maybe just to drill down into some of the markets more specifically. Brazil was certainly a bright spot in Q1, Canpotex had record shipments into Brazil in Q1. We did see a recovery there and we do expect to rebound for the remainder of the year and buying to accelerate to meet their seasonal needs as we move through the second quarter and into the second half. From an India standpoint, obviously there was contract signed with major producers and suppliers recently.

One of the big items that we’re waiting for there while we have seen some products start to move, is a subsidy announcement from India. Right now we would probably be historically wait for that announcement. So we expect that at any time. And we would anticipate that when that’s announced, we’ll see further movement in India. From Southeast Asia standpoint, we have seen some volume moving to Southeast Asia, we’ve seen inventories that were higher costs for 2022, continue to be work down. We did see some reengagement and buying following the Indian contract, inventories are normalizing and we are starting to see fresh purchases. And again, we would expect those to accelerate through the second quarter and into the second half. And then I think finally on China, from an inventory standpoint today, we would see port inventories of China between 2.3 and 2.5 million tonnes, probably about 500,000 or 600,000 tonnes of that is sitting in bonded warehouses today.

And certainly we have seen that inventory be a little bit stickier because of the trade flow shifts that we’ve seen. But as Ken said, I think what we’ve seen over the past 12 months, certainly from China perspective is that, while the contract markets have historically been benchmarks or events that the goal of markets look to in a year like 2023. With these trade flows shifts, we think China’s seaborne imports are only going to represent about 5% of global shipments. And so we expect that this is going to be a trend that these contracts will be of less significance to the global market over time, and really a smaller part of the picture. So finally, in North America, as we’ve talked about, because of the lack of field activity in Q1, we had a seasonally slow Q1, but really an April, things have picked up substantially.

I was just in the field last week with our team. And as Ken said, products moving extremely well. We saw one of the biggest draw downs in the last five years month-over-month between March and April, in our customer owned inventories, and certainly saw inland production of potash moving very well at our distribution terminals. So I think from a timing perspective, I’ll just let Jason talk about some of the specifics on that.

Jason Newton: Sure, thanks, Mark. Just to start with Southeast Asia and the timing of shipments and applications in that market. It is a region, particularly as we look at Indonesia and Malaysia, where there’s a long lead time between purchases and applications. And that’s part of the reason why the high priced inventories are holding up there. So there’s large volumes purchased earlier in the second half of last year that flowed in through the end of 2022 and carried over and early 2023 and start to see applications in late Q1 and those inventories move lower through the second quarter of the year in Southeast Asia. And then in Brazil, in terms of the timing, we just did see unusually strong imports of potash from Brazil in the second quarter of last year, which really led to a buildup in inventories and that mark in front of Q3 and we’d expect more normal levels of imports into Q2 and the seasonally normal volume of imports coming in late Q2 early Q3 in front of the applications for their spring season in September.

Ken Seitz: And maybe Ben, just to address your last question about the buyback. So we intend to remain opportunistic in the market. As we mentioned before, we already since we bought 23% of our share count, we do have a very strong balance sheet that allows us to take a long term view in terms of value. And that continues to pay off. And in terms of our free cash flow per share. So just to kind of give you a quick compare, in 2021 when our EBITDA was $7.7 billion. Our free cash flow per share was $3.4 per share. And if we jump now to kind of a similar year, I’m excluding 2022, because of course, there’s like an anomalous year. In 2023, we have a kind of a midpoint of our guidance have about 7.3 and our free cash flow per share is $4.7. So that’s almost 40% increase in our free cash flow per share. So we think that strategy is paying off we intend to use the balance sheet and if we see value will be optimistic about it.

Operator: Your next question comes from the line of Jacob bout from CIBC. Your line is now open.

Jacob Bout: Good morning. My question is on normalized EBITDA, and how are you thinking about that? If we go back to your investor day last year, you kind of walked through the case of been certainly of around $9 billion. Do you still think this is realistic? I know you’re making some commentary about mid cycle prices for the remainder of the year. But the midpoint of ’23 guidance is well below that $9 billion. Just any commentary, there’ll be helpful.

Pedro Farah : Yes. Good morning, Jacob. And thank you for the question. What we would say is yes, we do. And there’s a few reasons for that. I mean when you look at the assumptions when we talk about mid cycle EBITDA of $9 billion, it’s really predicated on the structural shift that we’ve seen in energy, agriculture and crop nutrient markets, and really lending to what we see is a strip going forward, that’s about $50 more across crop nutrients than we had assumed prior to this conflict in Eastern Europe. It also assumes additional volumes. And so there’s a timing effect here, obviously, as we look at wrapping up potash volumes over time, and as we talk about our brownfield investments and our nitrogen fleet, and also clean ammonia project, which is also going to bring volume.

And then finally, when we talk about normalized EBITDA ranges within our retail business, and it is true that we’ve had a reset in our retail business, we talked about that at the end of last year. We expected that to happen this year, of course, as it relates to the softness that we saw in probably nutrient markets in the first quarter that reset is bigger than we had anticipated. That’s reflected in our results. But when we think about normalized EBITDA ranges that of our retail business, it too contributes to that $9 billion mid cycle. So if we walk across those assumptions, there is a timing effect here, but we believe that those assumptions remain intact.

Operator: Your next question comes from the line of Joel Jackson from BMO Capital Markets, your line is now open.

Joel Jackson: Hi, good morning, maybe a two-parter for me. So if we take your potash volume guide, it’s going to be the best nine months of the best Q2 to Q4 in aggregate that Nutrien’s ever had 11 million tonnes. Can you do that in a year without meaningful seaborne Chinese volumes? And what do you assume in the midpoint of that for Chinese seaborne volume. And then just back on the buyback? If you look at on slide, the slide now that show your operating cash flow. It looks like you’re suggesting there’s really no more room for any additional repurchases this year at the midpoint? Thanks.

Ken Seitz: Right. So as it relates to our plan for potash this year, and the shifting trade patterns that Mark described earlier, and how we’re navigating that, I will pass that back to Mark. And then as it relates to what we might do this year was share buybacks, we’ll ask Pedro.

Mark Thompson: Yes, good morning, Joel. So just to reiterate a couple of comments I made earlier and then Ken said. We do see the shifting trade flows playing a role here. But nonetheless, even at 5% of global shipments, China is likely going to need 3.5 million tonnes or give or take 0.5 million tonnes on either side of that in seaborne imports that are going to have to be met. And we ultimately believe that in the second half, China is going to need that volume. So we do see Canpotex playing a role in meeting those needs. But one of the other points that I’ll call out again, is the record volumes that we’ve seen in Q1 from Canpotex into Brazil. And the fact that we are seeing Canadian production become far more important in some of these other key markets, including Brazil and Southeast Asia.

So when we consider the fact that we do believe China’s going to have to come back to the market to meet its second half needs for potash, we expect Canpotex to play a role in that. And again, when we look at our projections across markets, we look at economics for growers in these markets. And the healthy demand recovery that we expect we would also see shipments growing in places like Southeast Asia and Brazil overall this year. So you put all of that together and we do believe that we can get to a place that meets the shipment numbers that we’ve talked about. And certainly in working with Canpotex, we also believe that we’ve got a supply chain that can deliver it and a production planning crystal business unit they can also get us there as well.

Pedro Farah: Okay, so just Joel on the on the buybacks, I think we are not circumscribing ourselves to the fiscal year here. I could have said before we do have a strong balance sheet we are obviously going to be monitoring the business but if we do see value, and we soon see the direction of travel being as we expect, we are intending to be opportunistic in the market and use the flexibility we have to capture that value.

Operator: Your next question comes from the line of Adam Samuelson from Goldman Sachs, your line is now open.

Adam Samuelson: Yes, thank you. Good morning, everyone. Maybe continuing on potash. I mean, if I look at the — your own shipment guidance for 2023 kind of volumes up about a million to 1.8 million tonnes. Can you break out kind of the incremental that that’s domestic versus offshore? I presume that at least a million of that was implied domestic over the balance of the year. And if that’s the case that get your North American business back pretty close to historical kind of norms versus history, which would mean that you would need to see a disproportionate kind of offshore growth in ’24 and beyond to really be the outlet for your incremental production tonnes? And I’m just trying to get a sense of your confidence in that view, and kind of where you think the market share gains from Canpotex can be durable, especially with China, getting more tonnes out of out of the former Soviet Union and Laos.

Ken Seitz: Yes, good morning, Adam. And thank you for the question. Yes, so I would just say a few comments, and maybe pass it over to Mark. In 2021 we saw potash demand shipments on the planet of about 70 million tonnes, and we saw that dropped to 61 million tonnes last year. And now seeing a rebound, we expect to 63 to 67 million tonnes. We’re maintaining that range, albeit a supply constrained environment. And importantly, this is a market that’s growing we are — we’ve seen 2.8% compound annual growth rates in the potash market for the last 20 years. And we expect that continue to grow for all the reasons that we talked about growing population and the need for more food. So, we’re in a market that’s growing and as we look at where that growth is going to take place.

Yes, last year, the North American market, and when we talked about 61 million tonnes, North American market was down significantly and that was going to the late spring weather last year. And here we are this year. And what we have seen some incredible volatility and movements of inventory, we are now in the heart of the planting season. And seeing very strong movement of volumes in North America. Application rates are up inventories are being drawn down. And as I said, in the opening remarks, we’ve seen a 40% increase in Q2, follow volumes quarter-to-date over last year. So yes, as we’re looking at where the volumes are going, it is tilted to North America. Maybe Mark you want to provide some detail around those numbers.

Mark Thompson: Yes, thanks, Ken. Good morning, Adam. So yes, maybe just to start with North America. And again, the assumptions are laid out in our investor package for the call. But we do expect North America to be back to a relatively historical level of shipments this year. So we’re estimating 9.5 million to 10.5 million tonnes of shipments into North America. So 2022 is certainly an anomalous year with what we saw in terms of inventory, stocking and drawdown. And the return to normal will see us back in more normal levels in North America with shipments somewhere between 4.5 million and 5 million tonnes. So the split we would see between domestic and international is much more typical for us and sort of one-third roughly domestic and two-thirds international and moving through Canpotex.

And then just on your second question about where that growth is going to come from, as Ken talked about. The last few years have been certainly a major shock to the market supply coming out and what we’ve seen from a pricing and inventories perspective. But we certainly believe that the long term demand trend is intact in these markets. And certainly we expect to see a rebound as I’ve talked about already in markets like Brazil and Southeast Asia, where Canpotex and Canadian production has become increasingly important from a share perspective. So the growth in those markets over time certainly can sustain the volume growth in our business from our perspective. And there’s other markets that have become opportunities for Canpotex in this environment.

I think a great example of that is a destination like Bangladesh, where we’re expected to ship over half a million tonnes through Canpotex this year, which really provides incremental opportunity. So notwithstanding the incremental production from the former Soviet Union that’s finding his way into China. We do see growth in a number of our important markets.

Operator: Your next question comes from the line of Vincent Andrews from Morgan Stanley, your line is now open.

Will Tang: Hi, guys, this is Will Tang on for Vincent, thanks for taking my question. You mentioned Belarus being more active and Russia being less active in the export market than what you had previously expected. Can you mention — can you talk about whether, you know this changes how quickly you think Belarus can get back to those prewar shipment volumes and what would need to happen for them to get there? And then, if you could give us a little bit more color on why Russia isn’t exporting as much, that would be helpful as well.

Ken Seitz: So yes, we had started the year with a set of assumptions or beliefs about shipments out of that region and was really following last year where we saw substantive volumes out of Belarus and Russia shut in with the effect of sanctions. And to your question, Will, Belarus in really difficulty getting access to Tidewater for seaborne exports, and some of the logistical challenges with rail. Albeit as Mark mentioned earlier, we are seeing those rail movements increase or have seen them increase out of Belarus to China. So there is a bit of an outlet there. So when we started the year, we thought that we said that Russian volumes we thought would be down 15% to 30%. And that Belarusian volumes would be down 40% to 60%, compared to 2021 levels.

If you look at exports out of the region, we’ve adjusted those numbers, so that we say, we think Belarusian volumes will be more like 25% to 40%, and Russian volumes more like 25% to 35%. But importantly, if we look at just supply out of the region, while it is closer and maybe even a little bit above the top end of what we had assumed were experts out of the region, still 30% down from 2021 level. So that equates about 9 million tonnes. So, I mean, while there is movement among those numbers, well, the reality is there’s still a lot of volume that’s not getting out of the country. What would it take? I mean, what I think what we’re seeing with Belarus for seaborne imports is that some of those volumes are going through Russian ports. But at the same time, that seems to be displacing Russian volumes out of those ports.

And then finally, one of the other outlets, is, of course, rail to China, we’ve talked about that. I think for Belarus to probably continue to increase volumes, I assume there’ll be maximizing those rail volumes. But at the same time, what we would, we believe need to see is New Port capacity. And now we’re talking about volumes from the region, new port capacity on the Russian coast. And of course, we’ve talked about that’s going to take a bit of time so that we believe exports out of the region will continue to be challenged.

Operator: Your next question comes from the line of Steve Byrne, from Bank of America. Your line is now open.

Steve Byrne: Yes, thank you. A couple of years ago, Ken, if you had thought that there’d be a 9 million tonnes shortage out of the former Soviet Union of potash maybe net 5 million tonne with some increases elsewhere? Would you have predicted a $370 realize price for your offshore business? Is that seem fair to you? And on a going forward basis, maybe the maths has got a few strange items in there, but it’s seems lower than what we were expecting for the quarter? And then maybe another pot ask question on your domestic side. The surge of sales through customer own warehouses. That’s your product in your customer’s warehouse. How is the price set there when that customer decides to pay you? And do you have negotiating or pricing power given what seems like a tightening market in the U.S. when your product is in their warehouse?

Ken Seitz: Right. Good morning, Steve. And thank you for the question. So I’ll start with just obviously, as you’ve observed described it. There’s challenges on the supply side of the equation for potash. But as you put it, some anomalous effects that are leading to what we are experiencing is as softening, crop nutrient pricing, potash pricing in the first quarter of the year, which frankly, domestically is a rarity, something that we’ve really never seen. But that’s just one of the anomalous observations. If you look at we look at 2022 and obviously this terrible event which we all want to come to an end and stability back in the markets and the challenges that created for some of the big potash importers and users. And the inventory the rush to get hands on inventory and the inventory build that took place.

And obviously the price spike that followed that. I mean, we saw that inventory build and there are some weather related effects there. So that when we headed into the fall there — the world’s started on a large inventory drawdown watching prices soften. And that inventory drawdown one of the most dramatic again, that we’ve ever seen, carried through the first quarter of this year, as farmers as growers, and we saw that certainly in our North American markets, exercise really cautious buying behavior, we talked about it just in time buying and really only stepping into the market now when they absolutely have to as all of these big volumes go to ground. And so cautious buying may — sorry, wanting to shore up inventory with supply concerns in 2022 movements in price.

And then inventory drawdown coming into 2023 and the associated movement in price. And here we are the backdrop for Ag fundamentals remain strong. Grower affordability is good given the reduction in crop nutrient prices. And so here we are with inventories clearing and prices stabilizing, and volumes moving. So Steve, how this all translates into price and market volatility, what we would say is that we’ve now approach sort of a form of stability, and what we would call sort of mid-cycle pricing for potash. And that’s what we’ve assumed for the balance of the year. As it relates to the supply shortages, we’re watching that incredibly closely. It’s going to and has impacted how we think about increasing our own volumes. It will continue to do that as we seek to meet the needs of our own customers.

But yes, there’s some of the supply challenges remain and we’ll see how that plays out over the balance of the year. Maybe Mark if you want to provide some thoughts on pricing with our customers in the domestic market?

Mark Thompson: Sure. Good morning, Steve. So yes, I think this is a relatively simple answer. Overall, I think first and foremost, we continue to contend that we’ve got I think, the best build the most ideally positioned and the most robust distribution network in North America for potash. And the majority of those assets are owned assets. As I’ve mentioned, I was just out at our Hammond, Indiana terminal last week, which was about 80,000 tonnes of storage. And so our primary mechanism for moving product into the North American market is through our own warehouse and distribution system. From an efficiency perspective, we do have agreements with some customers that Nutrien Ag solutions is one of those customers, as well as our other major customers.

And that’s really efficiency from a logistics standpoint, so that we’re not spending on unnecessary dollars where they’re not needed on distribution infrastructure and taking advantage of the assets that exist in market. And from a pricing standpoint, actually, things have been relatively straightforward. As we’ve talked about in the commentary today. We saw product moves very quickly and a lot of hand to mouth buying. So what was being sold, was largely going directly to ground and moving through the channel quite quickly. And what we found from a commercial perspective, generally is that as we’ve seen these supply demand shortages emerge at Inland distribution points, we’ve been tracking those prices higher as they’ve emerged throughout the spring season.

Operator: Your next question comes from the line of Christopher Parkinson from Mizuho, your line is now open.

Christopher Parkinson: Great, thank you so much for taking my question. Just from a strategic perspective, is there any remaining apprehension to walking away from the contract structure of the Indian and Chinese markets. It seems, your exposures in other markets, Southeast Asia, Brazil, from a spot perspective are continuously growing, and it seems like there’s the facts, the fluidity of the marketplace? So just what’s in terms of how you’ve been thinking about the last several decades versus the future? Can you just walk us through the kind of what you see as the merit of the current market dynamics? Thank you.

Ken Seitz: Yes, thanks, Chris. And I would say that is we look at our portfolio sales, over 40 countries around the world, and importantly, agriculture markets that we see growing, and what are they? I mean, we’ve talked about Brazil, but it’s certainly India, it’s certainly Southeast Asia and it certainly China. And right the Canadian potash is an important supplier into all of these regions. We have worked hard in these regions to establish a really, really enviable customer base, and we’ve worked hard over the last 40 years to do that. So we have had success in these growing markets, markets of China, India, Southeast Asia, of course, Brazil, when we talk about offshore markets, and that we continue to believe that these will — that customer base will be important to us as we as we grow our volumes.

Operator: Your next question comes from the line of Joshua Spector from UBS. Your line is now open.

Unidentified Analyst : Hi, good morning. This is Lucas filling in on for Josh. I just wanted to follow up on the mid cycle expectations that you’re saying pricing is basically now baked into the updated guidance. So could you just clarify for us exactly what your expectations are either directly or as a range in terms of pricing for potash, ammonia, urea, phosphates and your energy cost assumptions? Thanks.

Ken Seitz: Yes, we can provide those some ranges, Lucas. And I’ll hand it over to Mark to talk about those specifics.

Mark Thompson: Yes, Lucas, I think with respect to mid-cycle prices, as Ken said, when we came out at last year Investor Day and talked about the structural shift, we expected from all the factors that I mentioned today, our expectation was that generally higher average across the fertilizer price complex, that we would see prices shift by about $50 across all the nutrient, probably specifics, and every product line is beyond the scope of today’s discussion. But I think what we’re seeing generally is that as prices are stabilizing, and Ken has talked about in that process continues for both nitrogen and potash domestically and internationally. Currently, prices are sitting, give or take probably within $20 or $30 of those assumptions that we made in terms of what new mid cycle prices would look like.

So when we look across the fertilizer complex, and we see things stabilizing today, that is what’s inherent in our guidance was Pedro and Ken have described and we also think that’s a good way to think about the business on a run rate going forward in terms of where we’ll see mid-cycle prices in the future.

Operator: Your next question comes from the line of Andrew Wong from RBC Capital Markets, your line is now open.

Andrew Wong: Hi, good morning. So with pricing now near what you would consider as mid cycle levels, has there been any change in your view on capital allocation and investing in more capacity? Would you consider slowing down the potash ramp a little bit more, maybe until demand reengages? And maybe would it make sense to use some of that capital if you do delay some of those plans for buybacks given where your shares are today? Thanks.

Ken Seitz: Yes. Good morning, Andrew. And thank you. The short answer to your question is, yes, we would consider slowing down. We’re really, as we talked about earlier this year watching the market, we did delay our ramp up. We talked about that earlier this year ’25 to ’26 18 million tonnes. And importantly, just continuing to watch the market. And the supply and demand dynamics. The reality is, again, that we are in a market that’s growing. And we believe that’s going to carry on for the absolute foreseeable future, and sort of 2.5% to 3% annual growth rates, in that supply is going to be — new supply is going to be required to meet the growing demand. If we look at then the supply side challenges that continue to persist.

And while yes, we have seen some additional volume get out of Russia and Belarus, the reality is, again, 30%, down from 2021 levels. I mean, these are big numbers, 9 million tonnes. And we’re watching how those trends find their way back into the market and the pace at which they’ll do that. Talking to our customers on a daily basis about what their needs are in this environment. And then planning our capital accordingly, as it relates to ramping up potash. These investments are really quite granular dozens of projects across four mines, we have made some investments that are going to take our capacity up to around 15.5 million tonnes by the start of next year, we’ve demonstrated the value of that flexible approach. We demonstrated that in ’21 and 2022.

And the value associated with preserving some additional capacity. But when we’re doing that math, Yes, Andrew, the short answer your question is, if we see that the market is not there, then we’ll pace our capital accordingly. And yes, we’ll certainly, as Pedro mentioned always look opportunistically at buying back our own shares.

Operator: Your next question comes from the line of Richard Garchitorena from Wells Fargo. Your line is now open.

Richard Garchitorena: Great, thanks. Just wanted to ask a question on a cash costs. So we saw an uptick in the first quarter across potash and nitrogen, I think Pedro talked about bringing some maintenance forward in the quarters. So maybe talking about how much of that increase in costs in the first quarter was attributed to that? And then just on the nitrogen side, ammonia costs went up in the quarter. But we are seeing ammonia coming down. And natural gas should be coming down in the second half. So you could talk about sort of maybe trends on the cash cost and nitrogen side as well? Thank you.

Ken Seitz: Yes, absolutely Richard, and thank you for the question. Yes, there’s a number of moving parts there as it relates to natural gas costs in nitrogen, and we’re obviously automating our mines and starting to enjoy some of the benefits of those investments in potash. And the biggest one probably you talked about as volume and the volume impacts on cash costs in the quarter. But I’ll hand it over to Chris Reynolds to talk about the President of our Potash Business, to talk about cash costs of potash. And then over to Trevor Williams, our President of Nitrogen Phosphate to talk about nitrogen.

Chris Reynolds: Yes. Good morning, Richard. Thanks for the question. So as we look at full year, our controllable cost of product manufacture in potash, we expect that to be fairly similar, that to what we saw in 2022. Now, in Q1, as Pedro mentioned, we do have some increased maintenance, we pulled some mines forward to be ready for the surge in demand we’re expecting in the in the second half. But, as we look at that, controllable costs, still amongst the lowest cost in North America, and certainly one of the lowest cost across the industry. So we’re still feeling good about that position today.

Trevor Williams: Yes, and thank you, Richard. And very similar on the nitrogen side, our volumes are down a little bit, primarily driven from the Trinidad side, we did have some increased maintenance costs. As we had a few reliability issues, but really, because we’ve had some reduced volume, so because of their curtailments. But really, as we look to the rewards to the remainder of the fleet, and majority of the fleet, we look to get back towards what we would expect in terms of a cash costs for 2023.

Operator: Your next question comes from the line of Ben Theurer, from Barclays. Your line is now open.

Benjamin Theurer: Yes, thanks. Thank you very much. Good morning. Just wanted to go back a little bit on the supply demand. And obviously, you’ve shown us in the graph, and you’ve highlight the growth potential over the last couple of years and how you expect this to kind of come back. But, as it seems, in the first quarter demand was clearly softer than what you anticipate and I think you’ve talked about it that there was a year-over-year improvement of like 40%? But maybe help us understand, put that in a first half context. Whereas this first half of last year, and maybe also versus 2021, just to kind of get a little bit of a better feel, if the need for potash is really what you think it should be, and what the mismatch is? That would be like my first question. I have a quick follow up after that.

Ken Seitz: Right. Thank you for the question, Ben. And I think what we would say, for first quarter, it was not necessarily demand was down, but that inventories were being drawn down. And this just in time buying behavior, so that we when we look on an annual basis for potash, we continue to say 63 to 67 million tonnes. We haven’t changed those numbers continues to be a supply constrained market, continues to be the backdrop of growing demand over time. But Jason Newton, our Chief Economist, I handed over to you, maybe to talk about some of those details.

Jason Newton: Sure. Good morning, Ben. If we look globally — so I guess just as Ken mentioned off the start, we’ve maintained our 63 to 67 million tonnes shipping range for the year. And as we look around the various markets is a bit of a split between standard grade and granular markets and that we have seen really strong demand in Brazil and strong shipments in North America as well from a granular perspective. But we know the contracts were delayed and particularly China’s delayed in terms of contracts which has an impact on our sales. But we have seen strong shipments going into those markets, part by rail from Russia and Belarus. And so as we look through the various markets, there’s a few minor shifts market-to-market, but overall demand has been pretty much as expected and I’d say, even culture is at the higher end and some of the granular grade markets.

Operator: Your next question comes from the line of Martin Pradier from Veritas Investment Research. Your line is now open.

Martin Pradier: Thank you. Yes. I hear all about this shortage that is in the supply chain in North America. And I was wondering what is the effect in price? Are you seeing the prices increase now, because there’s no inventory and people have to buy right away?

Ken Seitz: Yes, maybe yes. The short answer, Martine is yes. Where we are seeing some of those impacts on price. Maybe I’ll just hand it over to Jeff Tarsi, to, talk about some of those observations that we’re seeing, certainly in our retail business through the channel, and then over to Mark to talk about the impact on crop nutrient pricing.

Jeff Tarsi: Yes. Ken, thanks. And good morning, Mart. I think we have seen as Ken spoke to, if I look at the first quarter, we were basically 6% off of volume for the quarter. And so very steady from that standpoint, we have seen a surge in the second quarter volume across our fertilizer portfolio. And look as again, I think it speaks from a Nutrien Ag solutions perspective, it speaks to our supply chain and the investments we’ve made across our supply chain in order to get product moved. In a lot of cases on just in time basis from that standpoint. We have seen prices stabilize as we’ve gotten into the spring, probably more importantly, we’ve seen margin stabilized normalized as we’ve gotten into the quarter as well. And look, we spoke to earlier in the year, what our solar testing was alluding to, and there were some deficiencies in about 40% of our test round P&K.

And we certainly see our growers responding today to that rates are good. And so the demand has been exceptionally strong into the second quarter. We expect that to continue. We’re right in the middle right now by planting season. And so we continue to see a pool on demand. And we’re working hand to mouth in some of those situations today from an inventory perspective. Mark, I might pass it over to you as well.

Mark Thompson: Sure. Thanks, Jeff. Good morning. So yes, as Jeff said, we’re seeing things move very quickly right now. And after our first quarter where, and as we’ve mentioned, there was relatively low field activity in North America due to weather and then just in time buying. We really have seen things kick off at a frantic pace as planting activity started in April. So, again, just to look at benchmark prices that are published as an example, if we look back to some of the lower values we saw in Q1, sort of in $370 per tonne range at Nola, for potash, we’ve seen firming of approximately $40, and seeing really good uptake in those values. And if we look at inland terminals, or inland distribution points, that really have been challenged logistically, by the just in time purchasing behavior.

We’ve seen values increase in excess of that, and in some cases substantially. And I think when we go back to talking about the North American agricultural supply chain, one of the things that we talked about in February was that, if we were to see this just in time purchasing behavior persist, that because of the significant needs for crop nutrients, and how fast the crop can get planted, we would expect to see some logistical premiums emerge because of a supply chain crunch. And so I think we have seen that and certainly have seen potash prices firm in season and have sought to sell into that strength to the extent possible and support our customers. And I think, again, this is something that whether it’s in the Nutrien Ag Solutions business that Jeff talked about, or in the NPK distribution assets that we have, does set us apart.

And really we’ve been responding quickly to meet those needs and capture those higher price premia in our market.

Operator: Your next question comes from the line of Edlain Rodriguez from Credit Suisse, your line is open.

Edlain Rodriguez : Thank you. Good morning, everyone. A quick question on crop prices. I mean, they have come down a little bit and as a result, farmer’s income is likely will be down. I understand the crop losses are still higher than historical averages. But do you think the lower prices could have an impact on farmer’s psychology and willingness to pay higher fertilizer prices?

Ken Seitz: Yes, thanks for the question. And I maybe I’ll pass it over to Jeff Tarsi just to talk about psychology among farmers. I think the reality is that given the way crop nutrien prices have softened relative to what we’re seeing with Ag commodities. And again, the likes of corn, soybean, wheat still 15% above the 10-year average. That we are seeing strong application rate domestically in the planting season here. But Jeff, over to you.

Jeff Tarsi: Yes. Ken, thanks. No, we certainly don’t see any indication of that you have to remember as well that a lot of growers have forward contracted prices when they enjoyed a really strong back half the year last year. So you saw probably more forward contracting going in across the commodity pricing. But as we sit here today, again, we see growers using the best hybrids, the best trade packages. Again, we talked about our fertility rates in the second quarter up 40% right now year-over-year. And we anticipate that they’re again going to want to try to maximize their yields. From that standpoint, I’ve said this many times before, these are science based decisions today. And so these growers are making their decisions based off of what these crops need to maximize yields going forward. And that’s your best chance to optimize ROI. So we — I would see — I think we’ll see continued strong input demand as we go through the rest of the spring and into the summer.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation.