Greetings, and welcome to Nutrien's 2020 Second Quarter Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Downey, VP of Investor Relations.
Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our second quarter 2020 results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien Mr. Pedro Ferra, our CFO and the heads of our 3 business units.
As we conduct this conference call, various statements that we make about future expectations, plans and prospects contain forward looking information. Certain material assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report MD and A and annual information form filed with Canadian And U. S.
Securities Commissions to which we direct you. I will now turn the call over to Mr. Chuck Megro.
Thanks, Richard, and good morning, everyone. Nutrien's 2nd quarter results demonstrates the strength of our business even during these unprecedented times. The bottom line is that food is essential, and there is no company better positioned to help farmers meet the growth in global demand. Our adjusted EBITDA was over deckers. We were able to produce these results despite cyclical, weakness in fertilizer prices and global economic uncertainty.
In fact, Nutrien's 2nd quarter EBITDA was higher than the combined total of the next 4 largest crop nutrient companies. We also generated $1,600,000,000 in free cash flow this quarter, aided by strong working capital I take 3 things away from our results today. 1st, the strength and performance of our Retail Ag Solutions business and the benefits of our growth strategy. We generated nearly $1,000,000,000 in EBITDA in the first half of the year, primarily due to strong organic growth and significantly higher margins. We also had tremendous uptake of our digital platform, which we continue to build 2nd, we achieved excellent operational results in our potash, nitrogen, business units, with strong on stream times, and lower production costs, demonstrating that we generate strong cash flows, even at the bottom of the cycle.
And third, the fundamentals of the commodity markets are improving, including the agricultural markets. There are signs that fertilizer in most crop prices have stabilized and are beginning to recover in the outlook into 2021, is now more positive. In the first half of twenty twenty, our Retail Ag Solutions business delivered impressive EBITDA growth of 20% compared to last year despite lower continue to offer growers new solutions and optimize our business. The other 25% of our growth came from highly accretive acquisitions, including from the Ruralco acquisition in Australia. Our Australian business continues perform extremely well, contributing around $150,000,000 in EBITDA in the first half of twenty twenty, and we continue to be ahead of our Ruralco Synergy targets.
Total Exolutions EBITDA margin exceeded 10% in the first half the year as gross profit was higher across all product lines and total gross margin percentages improved. We also lowered operating costs as a percentage of gross margin, achieved efficiencies in working capital requirements, and surpassed $1,000,000 of annual EBITDA per U. S. Location as well as making solid progress towards all operational targets. Set at our last Investor Day.
We continue to make great strides in the adoption of our ag solutions digital hub, On a year to date basis, sales through the platform surpassed $700,000,000 exceeding our annual goal of $500,000,000 in just 6 months. In the second quarter, 45% of sales available on the platform were ordered online. We continue to build out this industry leading platform with new functionality and by collaborating with key partners. We plan to launch tool that helps evaluate seed options, using the best and unbiased information and considers soil, weather, and seed trial performance data. Acquired Agbridge, which provides valuable data transfer and management capabilities for equipment to our central data network.
This startup company is a small acquisition from a dollar perspective, but we believe that it will help improve our digital agronomy offering for growers and lead to improved utilization and optimization of our extensive fleet of custom application equipment. Shifting the potash, the breadth and flexibility of our operations and distribution system was highlighted this quarter. We achieved strong sales volumes for both the second quarter and the first half of twenty twenty as market demand was brisk. North American sales were the primary driver, but volumes were also supported by improved offshore demand. Our second quarter potash cash cost of product manufactured was $52 per ton, down $8 from the first quarter and was excluding white and specialty products, our red standard grade had a cost below $50 per tonne this quarter, ensuring we are were strong this quarter, which helped offset a downturn in industrial demand.
Weaker industrial demand impacted global nitrogen prices, particularly for offshore ammonia. We proactively took down took downtime at our Trinidad facility to help balance regional trade and improve our cost position. We were able to on our North American assets in the second quarter. Much of our business remains among the lowest cash cost and highest margins across nitrogen producers globally. By the end of next year, we also expect to have added almost a 1,000,000 tons of North American production from brownfield projects and improved operating performance.
Now let's shift to what we are seeing for the outlook. We expect a stable second half of twenty twenty and we are constructive reflect a modestly slower recovery for ammonia and UAN prices. We maintained Solutions And Potash segments, and we have raised expectations for phosphate. A few additional comments here on the Ag market and fertilizers. The downward revision to the USDA's corn and total acreage has reduced carryout levels, and stocks to use estimates and improve the outlook for the 2020, 2021 crop year and farmer sentiment.
Lower crop production combined with a recovering ethanol market and indications of potentially higher import demand from China has also provided a constructive growers are seeing record crop margins and have forward contracted a historically high percentage of their anticipated 2021 harvest. Brazilian soybean acreage is expected to increase by approximately 5% in the upcoming planting season and grower sentiment is extremely strong. Solid ag fundamentals and a long runway for growth is the key reason why building our Brazil ag solutions business is strategically important for us. In Australia, moisture and grower sentiment is also very supportive. Australian planted acreage is expected to increase by over 10,000,000 acres or 23%, and should result in higher crop input demand in the coming growing season.
We expect this environment will support good earnings and global fertilizer demand. In potash, prices strengthened in most spot markets throughout the continues to be solid. Our order book is fully committed into October, and we remain confident in our full year volume estimates for the global market. And our corresponding sales. We expect potash sales volumes in the second half to be strong, particularly in India, Brazil and Southeast Asia, We expect that global demand momentum that started in the second quarter will carry through to 2021, leading the potash supply demand balance to tighten.
And markets to continue to recover. Our global potash demand forecast for this year still holds at 65,000,000 to 67,000,000 tons, and we expect to see growth from we do expect our costs will be slightly higher in the second half of the year. In nitrogen, we reduced our have been Florida recover than previously thought due to weaker industrial demand. Extremely low nitrogen prices have tested the cost curve, but there is limited new capacity under construction as the economy recovers, so too will nitrogen demand and prices. Though these are unpredictable times, one thing is clear.
We continue to strengthen our position as an integrated ag solutions provider, we made significant progress across virtually all of our long term operational objectives and continue to grow our ag solutions footprint and solutions offering. We are paying a solid dividend to ensure our investors are rewarded throughout the commodity Our dividend remains within our targeted range, accounting for less than 60% of our expected free cash flow during the cyclically low period. Accounts for only about 80% of our free cash flow from our Ag Solutions business. I want to finish up with some comments related to the environment, health and safety. Nutrien's top priority is ensuring the safety and health of our more than 25,000 employees globally.
And the communities where we live in work. The company successfully implemented controls and procedures to minimize the potential impact and transmission of COVID-nineteen at our operating facilities. We remain vigilant in this regard, and the company continues to be fully operational and our people are doing an admirable job keeping each other safe, while ensuring we operate efficiently and effectively. 2nd, Nutrien continues to be committed to improving ESG performance and reporting. We achieved another quarter of excellent results across our key metrics, we also issued Nutrien's first ESG report in April.
And since that time, we have achieved significant company and sector rating improvements, from a number of third party ESG agents. We expect this trend to continue over the next year as we lay out our climate and ESG strategy, and targets all business units in a difficult and uncertain environment. We are well positioned with a stable and growing dividend, significant free cash flow a solid balance sheet and end markets where demand continues to increase. Now more than ever, we are questions.
Operator, are you there?
Please press star, then the number one question. Your first question comes from the line of PJ Juvekar from Citi. Your line is open.
Great. Thank you. This is Kendall Marthaler on for P. J. So just looking at retail, so during first quarter results, You noted that you wanted retail inventory is pretty low.
You expect that they would be low, so you could restock going into the fall. So just given very strong sales in retail in the first half, can you provide a little bit more detail on the inventory situation there? Specifically within crop nutrients and crop protection. And would you say they're lower than normal or just about in line with, what you were expecting?
Good morning, Kendall. Yeah, I'll have Mike Frank answer the question specific to retail.
Yes, Kendall. So, our inventories across our network, globally are are lower in, crop protection and in crop nutrients. And in, in particular, in North America, we did come out of the season with strong sales, as you saw from the the the the report today, and overall lower inventory. So we we did achieve the operational that we were looking for. And in fact, if you look at our overall working capital metric, you know, we're down to about, 18% in our working capital ratio, which is really strong performance for us.
And so we're if anything, we're probably a little bit ahead of expectations.
And just more broadly speaking, Kendall, what I would say is, across our ag value chain, so including the wholesale businesses generally speaking, after 2019, we and the industry had a significant amount of fertilizer inventory because of the poor application seasons we saw last spring and last fall. We're feeling very good. It's part of the reason why we're more constructive half and as we move into 2021, that most of that inventory now has normalized. And in fact, in some parts of the ag value chain, as Mark, as Mike has alluded to, it's quite, it's quite thin in terms of our inventory position. And as I mentioned, looking at our order book on a forward basis, Our order book is quite full, right through the third quarter now.
Your next question comes from the line of Ben Isaacson from Scotiabank.
Good morning. A nice job on the quarter. Chuck, you guys have spent, 1,000,000,000 of dollars on a physical retail infrastructure obviously including your tuck in strategy. You've now realized, I think, 45% of North American retail sales, available were made on the digital platform as that continues to succeed. Just working out backwards, if you're realizing $0.55 to $0.60 on the historical use of capital going forward, is there a shareholder value that can be unlocked by consolidating or thinning out the brick and mortar business model in retail?
Thank you.
Yes. Good morning, Ben. So look, we've always said that the digital strategy is is it's integrated. We call it an omnichannel with the physical distribution network. In fact, we couldn't deliver the great results on the digital form without the several 1000 agronomists that work, inside a nutrient and with farmers on a day to day basis, and of course, the physical facilities to move the product.
Agriculture is one of these very unique, industry where, when the season is open and farmers are ready to go to work, we need to get product people and our assets on the farm in a short order in a matter of hours. So we think that the work that we've done the digital platform is fantastic. We do believe that, we're going to change how and what we can offer farmers and make farmers more profitable, help them manage their farms, as well as help them, kind of maneuver the sustainability world And that's a big, big part of our investment, but we do think that it goes hand in glove with our physical, network. In fact, we're very confident. We've seen other, players in this industry just have a digital platform and not have the physical infrastructure and they just cannot be successful given the demands that are pressed when we're in the heat of the season and the requirements that our customers need.
Your next question comes from the line of Steve Byrne from Bank of America.
Yes. Thank you. As you noted, the urea prices have really ripped in the last couple of weeks. And and if we look into the the US Midwest pricing the, the urea on a per unit nitrogen basis relative to UAN and our pneumonia is is at a real premium. The the UAN and pneumonia pricing there is is near, you know, multi year lows.
So curious to hear what your view is for where does that disconnect go here, do you think that that that disconnect narrows because the urea pricing is potentially unsustainable? Or that you think the UAN and ammonia pricing could could rally from here. Which of those scenarios is likely and reflected in your guidance?
Steve, I'll have Jason Newton to talk about the dynamics between urea, ammonia, and UAN, what we're seeing. And then I can address the guidance question at the end. Go ahead, Jason.
Good morning, Steve. Yeah, typically, what you see, especially at this time of year is that the urea market is being, driven by dynamics offshore and in particular, the really robust, demand that we're seeing, from India. And to date, a little bit of the inability for for Chinese suppliers to get on get in on those tenders. And so, we've seen seen a tight, global urea market and prices moving up in response. And typically, historically, you don't see the other, product prices, ammonia and UAN, moving in tandem, unless you're in season.
So the spreads fluctuate because urea price is volatile. As we get closer to product actually being applied, you'd expect that those those end market prices of ammonia and UAN will move, to be more in line with historical levels relative to urea. And I think you've already seen some of the sentiment, turn a bit more positive, toward the other products because of the strength in the EMEA market.
Yes, just to put that together now with our guidance and how we're thinking about it. So look, we think that the crop, maturity is quite advanced right now for this time of the year. We are expecting an early harvest and a nice application window for a fall application. So from a demand perspective, and that's clearly what our order book is showing right now, is that we're expecting solid demand. I'd say this is a general comment not only for nitrogen, but potash and phosphate, which is helpful.
And the reason we trimmed our guidance in nitrogen was purely just on the ammonia and UAN. We just don't think that there's going to be because of the economic slowdown and the hit to the industrial demand for nitrogen products. We just don't think that there's going to be as much forward momentum when it comes to pricing. But we do think that urea certainly is strong and there's reasons for that. The supply demand is quite tight as Jason's articulated.
And what we what when you look at the bottom end of our rate of our range, what we would need is a weather event. So, you know, a very shortened application season, And we're not calling for that today, but that would be the bottom of, of the range. And then the top end, of course, is a nice wide season, and a little bit of forward momentum when it comes to recovery and some nitrogen prices, but not a lot. We don't really need a lot to hit the top end.
Your next question comes from
Good morning. My question is on the retail margins. So a solid improvement, you know, we look at a year on year basis. Me talk a bit about what drove this, was, was it mix or or what else is going on here, what role the digital play in this and and just lastly, what is your ability to improve margins further?
Good morning, Jacob. Mike Frank, will you take that question?
Sure.
So, Jacob, look, our first half was really about driving operational excellence and, you know, focused on organic growth and EBITDA margins and we executed against that strategy. Our stronger margins are partly a result of mix. And so For example, in, in, crop protection, we saw a really strong market for trees and in both, corn and soybeans. And there's solid margins on, on those products. Obviously, in, in, crop nutrients, you know, prices were off But if you if you saw in North America, we we pretty much were able to hold our per ton margins.
And so our our teams just did a really good job of selling the value of the products, and that, that drove margins. I would say lastly on the seed side, you know, our, our seed revenues are about flat. We, we actually walked away from some of our wholesale seed business. Which impacted revenue in a market where there was more planted acres, but it strengthened our margins. And so we just executed across each one of our, of our platforms.
And we think that these margins are sustainable. Obviously, the digital platform is giving us you know, more insights in helping us, work with our customers to make better agronomic decisions. And it's also simplifying and making the entire purchase process more efficient. And that's also driving, you know, some margin efficiency for us. So it's a number of pieces that came together but Jacob, we, we think these are sustainable.
In fact, we think there's a runway of opportunity ahead to continue to drive both organic growth and EBITDA margins.
Yes. And Jacob, just one further point, we also think there's some further upside in margin simply because were still integrating the Ruralco acquisition. That was a large acquisition for us. It was a public company. And we laid out the synergy targets that are gonna take, a couple of years to accomplish.
So as the rest of the synergy couple, synergies are delivered, we do think that'll have some upward potential for overall margins because it was such a large acquisition. So, we we like what we see. I think Mike and the leadership team of the retail group have done a great job. And there's some there is some upside as we further integrate the Ruralco acquisition into the overall company.
Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is open.
Hi. Good morning. I did wanna follow-up on some of the commentary on seed and seed margins. It was a a more competitive dynamic in seeds this year, especially in soybeans. And Nicky, you mentioned your margins were up.
And there's also a bit of now, uncertainty around and what will happen with the Canva use. So I guess the value of Xtend, if you don't get any registrations later this year for next year. So I wanted to maybe it's a 2 part question. How is the seed price dynamic evolving? Do you see a more competitive market and how might that pressure in pressure margins?
And then what is sort of your plans for some of the uncertainty around extend and has been listed ramping up?
Good morning, Joel. Mike Frank, will you take those questions, please?
Yes, you bet. So Joel, good questions. Look, I think, if we just kind of look across the seed industry, if you start with corn, you know, what we saw on a unit price in our retail business is that prices were up just a bit about $3 a unit. So, you know, less than 1% price appreciation. So it's a competitive market.
We didn't see a big shift in, trade mix. And so you know, the, the core market seems pretty stable. You know, margins are relatively stable as well. And, you know, as I just mentioned previously, we walked away from some wholesale business, both in corn seed, but as well as in soybean seed. Then more specific to the soy market, it's extremely dynamic, obviously, with the the the legal issues on Dicamba that, you know, we we were faced with at the end of the application window.
You know, those those were challenges, but in the end, you know, we were able to get Dicamba on most of the acres that that farmers wanted to get it down on. Our pricing on soybean seed was really flat. In fact, there was no appreciation or depreciation on selling price. Early in the season, there was some really aggressive pricing. We, you know, we, for the most part, stayed out of that.
And, you know, then the the market came back, you know, and and, you know, overall, again, we we saw a pretty flat pricing and and, on the retail side, similar to flat margins on soybean. Now going into 'twenty one, obviously, there's a question on whether or not extend is gonna be reregistered. And so, you know, we're working closely with our suppliers, bare, BASF, Corteva, you know, we'll be prepared to to sell whatever the farmer, ends up wanting. You know, we expect that we're gonna sell both extended and list seed next year. The root question is, you know, whether or not there's gonna be, registration to allow us to apply Dicam over the top.
You know, so I think we're we're gonna continue to see strengthening of the in list platform you know, we think it'll be, this year, it was about 20% of our of our mix. Next year, we think it'll be north of 30. So, you know, there's definitely, some momentum with Enlist right now. But again, we're kind of sitting back and waiting to see, both from a legal standpoint and a regulatory standpoint, what tools that our customers can use, and, and we'll have the available, see to to solve them, you know, regardless of how these regulatory decisions get made.
Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open.
So the question is on the potash market. And I would love to just get your views, on China as we think about the second half of the year and into next, Chuck, in your prepared remarks, I think areas of strength in the potash market. China was notably absent from that list and just reflect on kinda how the contracts, evolved, this spring. Port inventories and kind of how you think the utility of a China contract kind of works going forward given the experience both this year and the last couple?
Okay. Good morning, Adam. So look, yes, the market fundamentals for potash, as we said, very good first half. Demand was strong. We're seeing, brisk movement.
We mentioned, I mentioned already a couple of times order book. And the markets I did call out, for strength were Brazil and Southeast Asia and India. And we are holding our overall market, demand forecast to 65,000,000 to 67,000,000 tons in 2020. And certainly, we think that in 2021, the market will grow again. Specific to your question on China, we do think that shipments, it's China in 2020 will be down.
And that's built into our overall, forecast in the numbers we provided. It's clear that they drew down their inventories. They tapped their strategic reserves to gain leverage in the last contract. And they won't be able to do that again this year unless those shipments are significantly higher than what we predict. So, I'm not really overly concerned about the port inventories.
I think there's some gamesmanship happening here. And we view overall inventories in China. So just not just the pork, but in country to be actually reasonably tight because the fundamental demand for potash in China, we think grew year over year. So we're feeling very good about the overall potash market. China included, if we can get to a point here where we continue see solid demand in 2020.
I think it sets up for another growth in good year in 2021.
Your next question comes from the line of Duffy Fischer from Barclays. Your line is open.
Yes. Good morning. Two questions. First one is just there's been a couple news articles about COVID may be hindering the overall ability to pull in the crop this year and to prep for next year. So just with all your touch points in the field, do you think COVID will be an issue, this fall on kind of a macro basis for North America?
And then the bigger question is were about a decade into the push into digital, you know, it was about maybe 7 years ago or so. The Climate Corp got sold, which is when I think it came to investors' minds, how big this might be, Originally, people thought it was going to be revolutionary. You might have one winner. Obviously, none of that has really played out. If anything been evolutionary to kind of non existent with what we see from the outside as analysts looking at the numbers for the company.
So 1, what's gone wrong with digital or what didn't happen over the last 5 to 7 years it was supposed to? 2, can we crack those going forward? And do you see digital becoming kind of revolutionary? Can it really move the needle at some point, or will it continue just to be evolutionary in your mind?
Good morning, Duffy. What I'll do is I'll have Mike Frank give a perspective because he's closest to the farmer on COVID and the har harvest. Mike, please, please feel free to comment on your views on digital, and then I can I can come back to that as well?
Yeah. You bet. So, Duffy, look, I I wouldn't anticipate any issues getting the harvest off. I mean, if you think back to, kind of the middle of March when COVID, the pandemic and the concerns were really ramping up. That obviously was right in the busy time of, of farmers in North America getting the crop planted.
And, you know, firstly, you know, our employees on the front line, you know, they didn't lose a beat. They every day they came to work and they focused on, you know, making sure they were safe and the customers were safe, and, and very importantly, making sure that our customers were making the right decisions. And so I I think it's gonna be the same thing as the crop comes out. You know, farmers will get in the field. They'll harvest, you know, grain elevators will operate and, I wouldn't anticipate, you know, any any, material issues, from a COVID standpoint.
Now, look, good, good question on digital you know, revolutionary versus evolutionary. Look, our our focus on digital has been very pragmatic, and it's really about what we can do as a retailer based on the breadth we have, and the focus and the value that we add, you know, in the value chain. You know, so we're using our tools, our digital tools to to help our agronomists and our customers make better agronomy decisions. And we're doing that with seed. We're doing it with fertilizer, variable rate applications.
And I would say that those two tools are working extremely well and are adding value to our customers and, and to our business. We're also now using our digital platform to help our customers plan ahead. And so doing complete crop plans across their entire farm, the input by input, ultimately creating a business plan and then being able to execute that business plan as the season plays out. And all of this being done digitally ultimately streamlines the entire, operation and, you know, from our perspective in terms of how we work with our customers. Because once you've planned ahead, then you can basically execute on that plan and and again, it's it's as simple as, you know, going into the into our digital hub and ordering the products, whether it's our customers, doing that directly or our sales agronomist on their behalf.
The other thing I would say is, you know, we're adding new features really month by month and talked about this in in in his prepared remarks. This new seed, selection tool that we've just rolled out will be the industry leading seed selection tool. We'll have all of our our seeds that that we offer to our customers and and we've got, an incredible database of, both research and and plot data and public trial data crossed by weather and, and soil environment. And so we'll be able to help our customers make really good ROI decisions on seat selection, we'll be able to get access to the, the best financing programs through that same tool, and then ultimately order the products. And so Again, it, not only does it help from a, an agronomy decision standpoint, but it's incredibly efficient for our customers and for us.
And so we, we think that's how this continues to play out. And so, you know, I didn't know if that's evolutionary or revolutionary but it's making us, help our customers make better decisions. It's making us a stickier, supplier to them. Our organic growth, is being driven in part because of our digital tools, and that's, you know, making a big difference in terms of our our overall performance. And so we, we see digital as a very important tool, in, in our retail business going forward.
Lastly, I'll just say with our Agbridge acquisition, we'll now be able to stream all of our data in in in geospacially that we're applying fertilizer or crop protection products across our entire fleet. That again is just going to give us a deeper database to be able to drive even better agronomic decisions going forward. So, you know, we're extremely excited about our digital, tools today and where we're going. We believe that we're going to continue to invest, you know, north to $50,000,000 a year in our digital strategy. And that makes sense for us based on the size of business that we can leverage that against.
Duffy, just a few other comments to augment what Mike has said is Look, we don't really think about it in those terms. What we do know though being so close to the customer as an independent advisor is that the relationship matters. And we don't expect ever that a digital platform or portal is going to replace that. This is a business that has, for generations, has been built on relationships. And we want to build on top of that.
And what we're trying to do, our approach is very different than what you outlined in some of the, companies that have tried to do this and probably got less results than they had hoped is we're really letting our customers guide us. We're not building these things and and then expecting them to come and use it. And then, of course, pay for it. The the seed selector tool that that Mike, just outlined, you know, that was built because growers can't find a platform where they can get all the the seed varieties in an, unbiased view. And as a company that is independent and we sell it all, that should be our role.
And we do that with our agronomists today, but now we're gonna put, not only our agronomists, but, but we're gonna have the tool to help growers make these very complex decisions. So you know, we are excited about this and we think over time there's going to be tremendous value created for farmers and for our shareholders But this is an evolution in my humble view. This will not be a revolution.
Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is open.
Hey. Good morning. Thanks for having me on the call. So I just wanna ask about, just geopolitical risk of potash. I mean, on the upside or the downside, Belarus just had a pretty Tentious election Canada's relations with US and China are pretty strained.
Russia's relations are strained with pretty much, you know, many countries. Is there anything we should be watching there in terms of impacts on the potash market, potential tariffs, potential sanctions, anything like that? Thanks.
Good morning, Andrew. Yes, look, so we are in a world where, where, I don't think we've seen as many, geopolitical risks that we've seen over the last 2 to 3 years, across the world in multiple industries. So I can't sit here and say, don't worry about it. But what I can say is, look, we're pretty well connected and plugged into, at least the jurisdictions where we we either produce or we sell. And I think the difference that we haven't seen any, even a hint of discussion in these really important, I think, businesses that we have, whether it's fertilizer or in our ag solutions business, And I think that the reasons for that is because these are products that are in high demand.
We're talking about the overarching priority being food security. And if governments get this wrong because of playing politics, the first group that gets that gets hurt will be will be their their their population or their voters. So I think that, you know, my my view is that the risk is a lot lower than some other industries. And so far, we've seen very, very little, if anything at all in terms of geopolitical risks that would concern us about altering trade patterns.
Your next question comes from the line of Jonas Oxgaard from Bernstein.
Thank you. I was wondering about the online sales. You said you, you grew online sales quite a lot. But can you put that in contrast to the market as a whole? Do you know roughly what the U.
S. Average is And on the as a follow-up question on that, just do you see regional differences between US, Canada, Australia, etcetera?
Yeah, good morning. Mike, Frank, why don't you take those questions?
Sure. So good morning Jonas. So we don't have, industry level data in terms of how, you know, what percent of the overall input market is ordered online but, but we know it's very small. You know, it would be in the low single, percentage digits. And so, you know, outside of what we're doing, which we're doing at scale, there's really no other, platform that has the scale and reach that we do.
And so regionally, then Jonas, we we'd actually, you know, so today, our platform is focused on North America. And, so whether it's across the US or or Canada, we we don't see regional differences that way. Obviously, you know, depending on the crop you grow, whether you're, you know, you're growing real crops in the Midwest or for, vegetable crops in California that, that, the tools, do vary and they're built for purpose. And so we've, you know, we, we've built tools that, that address the local market conditions. I would also say, you know, so as we think about the next, 12 months, you know, we're, firstly, we're going to take our, our digital platform globally.
And so we're now in the works of, of, adopting and building these tools and leveraging our platform into Australia and South America. And we would expect by the end of next year, we'll really have the same, set of tools for our businesses in those geographies as we have in, in North America today. And and maybe lastly, and this is just building on what Chuck mentioned here a minute ago, you know, our digital platform doesn't stand alone. And if it did, it wouldn't offer a lot of value. It's really the combination of our digital platform, the relationships that we have with our customers and the reach that we have, our physical assets.
And it's these 3 pillars together that really create the leverage opportunity that we believe we have uniquely in digital because of our relationships and because of the extensive physical assets that we have. And so I, you know, I really believe that's why we're able to leverage our digital tools to create real value for
Your next question comes from the line of John Roberts from UBS.
Good morning. This is Lucas Beaumont. I'm for John. So I just wanted to touch on your retail acquisition pipeline. So now that you've had a few more months experience with the current disruptions, what are your expectations now to be able to complete bolt ons in North America in the second half?
Given that's traditionally, like, your high period of activity, are you expecting things to be lower this year given, like, ongoing challenges with due diligence? If that occurs, would we be likely to see high deal activity in the first half next year, or would that basically push everything back 12 months? Could you also please discuss how, your smaller retail competitors are faring currently as I sort of help you with struggling and how this is impacting potential opportunities.
Okay. Good morning, Lucas. Mike, over to you.
Yes. So, Lucas, obviously, we've we've made a a couple of nice acquisitions in Brazil. I would call the medium sized acquisitions. We we see, you know, more opportunity to to do that, in Brazil. So I would expect we'll we'll continue to, you know, have opportunity in, in that market just like we've seen here over the, the past several months.
In North America, the, the pipeline has slowed down a bit. We talked about this, after our last call, you know, partly because of COVID, it makes the entire process more challenging. And so we've seen that play out. I think, you know, some companies that, you know, maybe would have thought about exiting at this time are probably slowing down their plans a bit. So I do think that'll impact our, our deal flow a little bit, you know, coming out of 2020, that likely builds, opportunity for 2021, just as you mentioned.
Now in terms of, you know, how are other, retailers doing, you know, obviously, we're, you know, we're still looking at probably, a dozen or so deals right now in North America. So we get to see, you know, the income statement and balance sheet from a a lot of, smaller players. And I would say, you know, it continues to be tough. I mean, you there's there's a lot of value in scale, and, you know, I and you need capital to continue to upgrade your, both your physical assets and training into your people. And we've seen that companies that are subscale are are challenged because of that.
And so I think that continues to play out, which in my mind means that we'll continue to see consolidation across the retail industry you know, for the next several years ahead. Your next
question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open.
Thank you, and good morning, everyone. Just a kind of a follow-up question on the seed advisor platform, risk recognition platform. I'm curious if you know your customer base in North America broadly, does it match with the market shares of the large seed companies, or are you overshared with the seed companies that you with with you with with with growers that use the seed companies that you sell, or versus pioneer, which you, which you don't sell. And I guess what I'm what I'm getting at is with the the seed adviser, if if that adviser makes a recommendation that the farmer should be using hypothetically a 100% pioneer, and they were using a 100% something else, presumably you would lose that seed sale because they're not gonna be buying seeds from you. So I'm just wondering if part of the the idea of the seed advisor and it being unbiased is to, is to drive more growers, into your, into your overall network and not just seldom fees, but maybe seldom all of the other inputs that they need.
And I'm just curious how that how this is all works.
Yes. Good morning, Vincent. Mike, Frank?
Yes, Vincent. Good question. A little bit detailed, but here's what I would say. So we have a very broad portfolio of seeds that we sell. We've got our own Dyna Grove brand where we have seeds in, you know, corn, soy, cotton.
We sell the Calvin asgrow. We sell jenta seeds. And we do sell, Corteva pioneer brand in, in the Southern half of the U S. We've actually acquired some pioneer, dealers in, in the Midwest. So we do sell pioneer in select areas in the Midwest as well.
And then of course, you know, Corteva now has a new retail brand called Brevant, which they're providing us new plasm to sell through our platform as well. So our seed advisor tool will present to our customers those seeds that we have the port folio where we can execute the sales. So, you know, if, if it's an area where we're not selling Pioneer or another regional seed company, we won't, be recommending those tools because we can't execute on the sale. But again, as a retailer, there's there's no retail company that has a broader seed portfolio than we do. And that's one of the benefits that we can, you know, take to our customers is that we sell seed from a variety of of seed breeding companies And the, again, those varieties and hybrids that we have available, those are the, the, the, the varieties and hybrids that we'll show in our seed selection tool so that our customers can make the best
question comes from the line of Chris Parkinson from Credit Suisse. Your line is open.
Great. Thank you very much. Can you just talk a little bit more about your nitrogen asset portfolio, how we should be thinking about your TNT production over time, including gas contracts you know, your appetite for additional brownfield and debottlenecks and even M and A within the North American or global market. Thank you very much.
Morning, Chris. So I'll have Rafe Sully just talk a little bit about the current portfolio platform and the brownfield projects that we've got underway. And then I can answer the larger strategic go ahead, Rafe.
Yes, thanks, Chuck. So look, as you know, our plants are located in 3 different regions. We've got, about a third of our production in Canada on acogas. Now it's traditionally been lower price than Henry Hub. We've seen that get closed a little bit, but it's still, very, very good cost.
Gas. We've got a little over a third of our production sitting in the U. S. On Henry Hub, and the remainder, a bit less than a third is in Trinidad. Would have seen that we took a plant down in May, another one in June, just based on market conditions.
The world's changed a little bit in the last 6 months. Seen Trinidad go from a second or third quartile to a third or 4th quartile as a glutton LNG is pushed out or pushed down prices, across the globe, particularly in Europe, those plants in Trinidad will probably stay down until we see market conditions improve. What we have been focusing on is brownfields. As Chuck mentioned, we towards we're coming close to being able to put online close to 1,000,000 tons more in North America. Some of that has helped us in this quarter with our record productions.
We'd like to continue that where it makes economic sense. That'll be our focus, Chuck, and if you add to that,
Yes. And I guess just the broader strategic comment. So we, we like the nitrogen business. You know, we're a top 3 producer globally. We're I think we're a strong operator.
As Rice mentioned, we've got a good gas position. And if you look at some of our margins, there's some of the highest in the world based on how we operate our networks. I think the industry itself, it's the most, as you probably know, it's it's the most fragmented industry that we certainly operate in. And I think we are a believer in consolidation We like consolidation. We think consolidation drives cost efficiencies.
And then this business cost is everything. So, we would be always looking for for consolidation opportunity. But what I'd say right now is that our primary focus is the way rape is described it. We've got about a 1,000,000 tons going to, that's going to, we've already seen some of that this year, but by the end of next year, we'll have a total of a 1,000,000 tons incremental capacity, opportunities but they have to make economic sense.
Your next question comes from the line of Steve Hansen from Raymond James. Your line is open.
Yeah. Good morning, guys. You've already described a number of different initiatives around M and A and retail and digital strategy expansion. I'm just curious Chuck how you think about all these opportunities relative to your own stock right now in terms of capital deployment. Stock's not trading at extremely lofty levels.
Do you think about share repurchases being a priority through the back half of this year and into or do you feel like the opportunities are still better on the internal side? Thanks.
Good morning, Steve. So from a capital allocation perspective, what I'd say is as we look forward, some things haven't changed and we're going to keep an eye on some other things Obviously, for us, we want to make sure that our assets are very safe and reliable. And so we would allocate capital to sort sustainability of our assets. The balance sheet, of course, we've got a strong balance sheet today. I think Pedro and the finance team at the company has done a great job.
And we want to ensure that we have, maximum financial flexibility with that balance sheet. We do consider it to be a core asset for us as we move forward. And then the dividend. So the dividend, as I mentioned in my prepared remarks, we like having a dividend policy see where the dividend will grow and it's sustainable. And we've always said we want that dividend to be around 40% to 60% of our free cash flow.
And at this point in the cycle, that's exactly where it is, but it's less than 60%, which is where we would expect it with the the pricing that we've seen, in the last few months or so. Now going forward though, nothing's going to change in those three areas. The look forward for us though is that, you know, we are trying to balance the need to grow the retail platform. We did see some great opportunities in Brazil. I think that Ruralco acquisition, it's been accretive already, and it's got so much potential.
But you're right. When we look at our stock, that would also be a very strong use of capital. So we're going to continue to assess things. I think before we would get, more interested in a buyback, it's less about the financial strength of the company and just a bit more of certainty in the forward markets when it comes to not just the agricultural industry, but the overall economic backdrop. So we're going to take a bit of a wait and see approach on the buybacks.
And of course, we're working through the rest of our growth platforms, but they will be buybacks will be part of the decision on any internal investment. We will always compare a buyback to, say, an acquisition in a different country or in the United states, for example, because that's the prudent thing to do and we've always done that.
Your next question comes from the line of Michael Tupholme from TD Securities.
Thanks. Good morning. Can you elaborate on your expectations for industrial ammonia demand in the second half talk about what you've seen so far through the the first portion of Q3, and then also what you've got baked into guidance as far as industrial ammonia demand.
Okay. So why don't we have, Jason Newton just talk a little bit about the outlook for industrial demand? And then, I can try to give you some perspective on guidance. So Jason, go ahead.
Yes, sure. So we've started to see, some improvement in certain markets particular, if you look at, China, for example, the industrial ammonia used to start to pick up. And in fact, Chinese imports of ammonia were pretty much in line with year ago levels through the first half the year. You've also seen demand start to pick up in some of the surrounding Asian markets, which has provided some support to that region. On the other hand in the Western markets in Europe and North America, the rebound has been a little bit slower.
So overall, on a year over year basis, we'd expect industrial nitrogen demand to be down about 10% but we expect agricultural growth to offset that. So it's a pretty flat overall nitrogen demand outlook.
And then the way we've built our guidance is we still believe in our order book is strong. So there'll be a shift of our product mix into agriculture. And if we get an early harvest and a nice wide fall application season, we've seen that in historical years. So our guidance really doesn't reflect the volume change. In fact, our volume should be quite strong.
It's just that the reason we took the top end of the guidance range down is we just we were expecting stronger pricing, but because of the slightly softer, industrial demand that that Jason's outlined quite nicely, we don't think we're going to see the same price momentum that we normally would have in the 4th quarter.
Your next question comes from the line of Michael Picking from Cleveland Research. Your line is open.
Yeah. Good morning. Just wanted to, ask about, you know, your expectations for the fall season. It sounded like you were pretty optimistic to you for retail. And if, we do end up getting kind of a bigger fall season and there's potentially, you know, a contraction of, several million acres in corn, next spring?
I mean, what type of retail trajectory do you think we could see from 20 to 21 if we end up with a big spring that we had this year following the week fall and then potentially a strong fall season. Thank you.
Good morning, Michael. Mike Frank, do you want to take those questions?
Sure. So, you know, Michael, obviously, law could play out still this fall. I would say you know, what we saw from planted acres this year, you know, 87,000,000 soybeans, 92 corn. You know, that that's within our normal range. Obviously, Cotton was down a couple 1,000,000 acres.
And those are high value acres for us. And so we would expect if if weather improves in in West Texas that we'll see some, cotton acres come back next year. But I'd say, look, it's too early to really forecast, you know, how 2020 was going to play out on the retail side. But right now, the way I would think about it is, you know, we would expect, acres to likely be, you know, somewhat similar in terms of total planted acres to what we saw this year. Obviously, the mix always changes a little bit from year to year depending on commodity prices.
And if we get a a great open fall window, that that'll, you know, obviously help our our business this year and and, you know, then we'll get busy next spring with helping with, with the spring needs. So you know, that, as Chuck said, you know, we're we're expecting, with the progress that we're seeing this year, it's coming in pretty quick. It should it should line up for a nice open, fall window for fertilizer applications, at least in North America this year.
Your next question comes from the line of Suki Kuak from J. B. Morgan.
I've got 2, short potash questions. Can you discuss what, what effect like repricing of potash tons in China I had on the, offshore potash price this quarter and and have all of the tons repriced And secondly, I was wondering what your partnership and forecast is, for North America, like, does your 10,900,000 to 11,500,000 ton forecast assume that there's a strong post harvest season in the U. S?
Okay. Thank you very much for the question. Ken Sites, why don't you take those?
Sure. Good morning and thank you. Yes. So, yes, we did, with the pricing of the Chinese contract there in the last day of April. We did have a price adjustment in the quarter.
And so we've taken all of that, that's behind us in in in our results. With respect to sort of the balance of the season, in this fall, we talked about it a little bit on this call, but you know, with the flush of inventories throughout the balance this year and, assuming some good weather in places like China, and North America. In certain, we're seeing strong farmer affordability in Brazil and India. Yeah, we expect, as Chuck shared, our guidance of 65,000,000 to 67,000,000 tons to be intact and being committed out into October, would you expect our guidance of, 12.1 to 12,500,000 tons to remain intact as well. Yeah.
And which, as Chuck has shared, I think, positions us well. As an industry and as new train heading into 2021.
There are no further questions at this time. I turn the Richard Downey, VP, Investor Relations for closing remarks.
Thanks, operator, and thank you, everyone, for joining us this morning. If you have any extra questions, IR is available to to answer them. Thank you. Bye bye.
This concludes today's conference call. You may now disconnect.