Greetings, and welcome to the Nutrien Third Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Richard Downey, vice president of investor and corporate relations.
Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our 3rd quarter results and outlook. On the phone with us today is Mr. Chuck Megro, President and CEO of Nutrien, Mr. Pedro Ferra, our CFO, and the heads of our 3 business units.
As we conduct this conference call, statements that we make about future expectations, plans and prospects contain forward looking information. Certain material assumptions were applied in making these conclusions in forecast, 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 Securities Commissions to which we direct you. I will now turn the call over to Mr. Chuck Negro.
Thanks, Richard. In North American weather, trade uncertainty and short term dynamics. Our results this quarter and our outlook for the 4th quarter reflect these headwinds. But we believe these issues are to provide a perspective on the business. First, on the ag fundamentals.
If you look past near term market headwinds, The outlook is improving. Grain and Oilseed stock to use levels are declining and we expect a significant increase in U. S. Planted acres next year. Today, U.
S. Farmers are looking at corn prices closer to $4 of bushel and soybeans around 9.50 per bushel, which is higher than at this point last year. We expect improved farmer profitability and crop input demand next year, particularly after the weather induced reductions this year. All this bodes well for our business. 2nd, let's touch on potash After a strong start to the in wait for an India or China contract settlement.
In July, we said no deal in China is and that is exactly where we are at today. This is not the The recent India potash contract will help bring price clarity and stability to the market. After 2 strong at 64,000,000 to 65,000,000 tons this year, which is a reduction of approximately 2,000,000 tons compared to last year. The majority of this decline is due to weather issues in North America, weakness in palm oil prices in Southeast Asia, and customer waiting for the contract settlements. These factors represent short term challenges, not structural changes.
With potash affordability remaining high and inventories expected to be pulled through the channel in the fourth quarter and 1st part of 20 we anticipate product is available when the market needs it. Finally, on retail. We had a strong third quarter making up for lost business in the first path that was entirely due to weather. In a tough market, our retail business has outperformed and we remain on track to deliver another year of growth. We're also focused on transforming the industry through improved efficiencies, scale and digital leadership.
Our digital tools and supply chain investments are enabling us to be more efficient, serve our customers, increase market share and be prepared to respond to shifting trends. And the early American Crop Protection product revenue come through our digital platform. This is an incredible rate considering we only launched this feature in January. Furthermore, payments made through the customer portal reached $315,000,000 since introducing this feature. We are making big strides that we believe will reshape the industry and drive organic growth across our network.
Now let's to the third us through the 1st 9 months was still up 11%. And we generated $2,000,000,000 in free cash flow, equates to $3.44 of free cash flow per share. Our and our G and A expenses were down 8%. Retail EBITDA in the 3rd quarter was up 64% as a late spring in condense season, highlighting the importance of infrastructure and service offerings to our customers. Gross margin percentages increased across the major product lines due to an increased mix of higher margin specialty and proprietary products and strategic purchasing.
In the third quarter, we demonstrated business continued to sales are up 1.5%, an impressive result given the challenging spring application season and the late maturing crop. Turning to potash, EBITDA declined by 14% from last year due to weaker demand. Offshore volumes declined as customer the way from purchases, drawing from available inventories following a strong first half. North American sales were the 2nd highest total of any third quarter ever but trailed the record volume shipped last year. Our realized potash selling price was down from the second quarter this year, reflecting lower seasonal summer fill prices in North America, pressure in the offshore spot markets, and a true up of nutrient selling price to Canpotex.
Potash cash cost to product manufactured was $60 a ton through the 1st 9 months of the year, maintaining our position as one of the lowest cost potash producers globally. Nitrogen EBITDA was down 9% in the quarter due to weaker ammonia prices and slightly lower sales volumes. We continued to benefit from low cost natural gas supply across North America across our North American network with our overall gas cost declining 17% compared to longer planned maintenance turnaround at our Redwater facility, which resulted in fewer tons sourced from our lowest cost Alberta plants. In phosphate, the market has struggled to Fosphate EBITDA was down 55% compared to the third quarter of 2018 with weakness in the granular phosphate market more than offsetting stronger industrial the Sulfate Facility in the third quarter. This was an excellent strategic decision given that we generate dramatically higher margins for ammonium sulfate compared to the margins we would have received from producing phosphate product at Redwater with imported rock.
We expect the challenging fertilizer market conditions to continue through the remainder of 2019, while there is strong underlying demand for a robust fall application season in North America, there is a risk of a shortened window created by the late harvest in both the U. S. And Canada. The recent India potash contract settlement should provide offshore volume support. However, we do not anticipate a new China contract in 2019.
Given these conditions, we have reduced our potash volume guidance to 11 point to 12,000,000 tons in line with our revised global demand forecast. Short term production curtailments are expected to increase our 4th quarter potash cash cost of product manufactured by approximately $15 per ton compared to the same quarter last year. We have also lowered our annual adjusted earnings guidance to $2.30 to 2.50 $5 per share and our adjusted EBITDA guidance to $4,000,000,000 to $4,300,000,000 to reflect production in potash volumes and continued pressure in the fertilizer markets for the remainder of the year. 2019 will be for crops increase in prices million acres of corn. Based on these acreage changes, we expect U.
S. Crop input expenditures to increase by around 7% next year. We are also seeing positive developments in a number of our key offshore markets. Brazilian crop economics remain strong in hours are responding by increasing corn and soybean planting by an estimated 4000000 to 5000000 acres. We expect this will lead to another record year for Brazilian laser consumption.
Palm oil prices have improved by more than 30% from June 2019 lows. Supported by a tightening supply East Asian potash demand in 2020. Agricultural fundamentals are also improving in India by most favorable monsoon rainfalls in 25 years. Global potash demand grew by approximately 4% annually since 2013 before taking a step back this year. Similar to previous years when there has been a temporary pullback, we expect global potash demand to recover next year to 67,000,000 to 69,000,000 tons.
The midpoint of this range represents a 5 year annual growth rate of around 2.5%, which is similar to the long term historical trend. We will be ready On the retail side, we have acquired some great businesses and we expect that will we expect will add significantly to our earnings next year. We closed the Ruralco acquisition in Australia at the end of the third quarter. This business is well positioned to bring value to prioritize returning cash to shareholders. We allocated over the in our dividend and we will evaluate additional share buybacks on a compete for capital basis.
We will now
And your first question comes from the line of Jacob Bout.
Can you comment on your confidence level of the, of your 2020 global potash demand forecast of 67,000,000 to 69,000,000 tons? And maybe what are your thoughts or what are the assumptions in China and Brazil in 2020?
Sure. Good morning, Jay. So look, the way we're looking at the potash business, if you if you step back and you look at the long term history, the potash market has been growing pretty consistently at 2 2.5% to 3% per year. But over that period of time, we seen pullbacks in demand over the years. And really that's because of, of, inventory getting built up in the system, which in the potash world, we really can't see with great clarity.
But the last 5 years, if you just look at the last 5 years of the potash market, it's grown that closer to 4% per year. So was this pullback really expected? Not really, but I don't think we can even say it was a surprise. So when you look at 2019, there were 2 really key drivers that pulled back the expected demand now. 1 is North American weather, which we've talked a lot about.
And the second was palm oil pricing being so low in Southeast Asia. So when we look forward to 2020, expect both of those to correct themselves. We're going to assume normal weather, in North America. And when we look at our, as you recall, we bought company called Waypoint, last year, which is the largest soil sampling business, in the United States. And the data that we're getting from that is really quite fascinating.
And what it is showing us is that there are some areas that are quite potash deficient in North America, which shouldn't be a surprise considering the weather we had in the spring and even in the last fall. So we do think the underlying demand in North America is going to rebound next year. When it comes to palm oil, we are seeing prices that are up. There is an increasing demand for biofuels in Asia. And so all of that bodes well for a rebound next year.
In Southeast Asia. The other markets that we're expecting to grow next year, of course, Brazil, just more acres, put it being put in the production. And then, of course, India, which I mentioned had good rains this year. China, our assumption would be more flat to this year. But if you look at the the aggregate of all of what I've just described, you know, it is our call today that we would be at the 67, the 60 1,000,000 tons for 2020 up from the 64 to 65.
And if you just take that number and you go back 5 years, that would put us back on trend point of about a 2.5% annual growth rate. So we are pretty confident the 67 to 69,000,000 tons today.
Okay. And your next question comes from the line of Vincent Andrews
Thanks. Good morning, everyone. I'm just wondering if you can comment on when you think you'll start your potash assets back up and as we think about a shipment number for you for next year. How should we think about the interplay between your your production and shipments given you're probably carrying some inventory into next year as well?
Good morning, Vincent. I'll have Susan Jones answer your question.
Good morning, Vincent. Yeah, we did announce curtailments, in September due to the temporary softness in the market. And just to be clear, we have not curtailed production complete we will continue to build the pipeline. And as we always do, we move our product into the U. S.
Market in time season. So what you've seen in Q3 is that we've moved what was a very robust fill program into the U. S. Retailers in time for their season. As that starts to deplete, we will continue to refill that with the expectation it will be out from Saskatchewan to the ports ready to move into the international markets for the spring season.
And your next question comes from the line of Ben Isaacson.
Thank you. Good morning. BHP CEO came out
a week ago and said that their board is gaining confidence in, in potash My question is maybe a 2 part question. When you make curtailment decisions like you've made recently, are focused only on the current environment or also in terms of what the implications are to potential new entrants? And then as a second part to that question, You have about 6,000,000 tons of spare operational capability. You've talked at your Investor Day about potentially up to another 5,000,000 tons. And the CHP potentially the corner.
Is there room for all of that potash over the next decade? Thanks.
Good morning, Ben. So look, yeah, what we're looking at, our production profile, we're squarely focused on just global demand. You know, our role is really to meet the demand of our customers, that's what we plan to do. Given the the headwinds we saw this year with with based on on weather and then the the contract negotiations in India and China, we felt it was prudent to pull back on the supply. But we when we do our long term planning, we're looking at demand growth in the potash markets, and how we can best meet that with the highest quality lowest cost tons.
To your second comment, you're right. So right now, we would have about 6,000,000 tons of underutilized capacity and we've been very clear with plans. We're gonna put the those tons into the market as a global demand for potash growth. We have we have a a great network we're investing a lot of money into automation and to drive our cost even lower. And we're just seeing some terrific progress in area.
But we also, because we pre invested over the last 10 years or so, with all these this capacity, we have the the lowest cost half when it comes to capital to increase our capacity by an additional 5,000,000 tons. And this is really important because these 5,000,000 tons, we don't require to sink a shaft. We don't need another mill. These are pure brownfield expansions in the existing six six mine network, which will be some of the lowest tons on the planet. And right now, the engineering assessments that we're doing look really promising.
So we're excited that we can bring another 5,000,000 into the market as demand grows, along with our 6,000,000 tons. And I think that that will will will set up our shareholders just for the next 10 to 15 years of incremental capacity as demand grows.
Then it's Susan here. Just in addition to what Chuck is saying with respect to monitoring demand, we obviously are looking at what's happening with new supply coming into the market and you recall last year, we did move an extra 1,000,000 tons into the market. The issue here, we want to make sure that we are able to be nimble quick and move into the market to make sure there's stability of price and we can obviously meet the demand instantly out in the field.
Thank you.
And your next question comes from the line of Don Carson
Thank you. Chuck, you mentioned that, I think on slide 23, you see a 67% increase in input spending year. How would you characterize that between say fertilizer crop chemicals and seed? And if you could also just expand on your very strong crop chemical results in Q3. Was that all just catch up from a late season or was there some other changes going on?
Good morning, Don. Yeah. I'll have Jason Newton answer your your questions. He's our chief economist. And then we can Mike, Frank, talk about crop protection in retail, in the quarter.
Go ahead, Jason.
Yes, good morning, Don. We look at the, the crop protection or the crop input spend, this year where we saw the biggest lines, was in seed because of the loss of both corn and soybean areas, look forward to next year that 12,000,000 acre increase in corn and soybean acres, really, benefits seed. We don't expect to see higher crop nutrients and particularly crop protection spend next year. But there is some offset in the crop nutrient side because prices are lower today than they were a year ago.
Dawn, your question relative to our results in retail in Q3. So a big part of it was catching up from the delayed season. And so we saw, especially in the crop protection side of the business, strong demand for herbicides into the month of July, which is kind of unusual, but we also had a good side season. But in addition to that, we continue to gain share in the marketplace. Our supply chain performed very well.
There was a where we have really good point of sale data for the entire marketplace. We're seeing that we're picking up about 1.3% mark share in across the U. S. Market in this year. And so those results really helped drive and fuel our Q3 earnings.
Thank you.
Your next question comes from the line of Andrew Wong.
Hi, good morning. Chuck, maybe could you provide some thoughts on capital allocation plans over the next 6 to 12 months. Obviously, some of your cash is tied up right now and working capital just seasonally I'm sure that gets freed up as we move through the spring. So could we expect something maybe early next year?
Yeah. So, look, here's how we're thinking about capital allocation. First of all, we were quite pleased with, the cash generation of the company. I mentioned in the prepared that in the 1st 9 months, we've generated about $2,000,000,000 of free cash flow. So even in the market conditions that we saw this year with the weather and such.
The company is still generating very significant cash flow. And we also have a very strong balance sheet. And so when we look at it, we believe we have just a lot of options to, allocate capital to grow the company. And to return capital to shareholders. And if you recall, we've returned a total of about $5,400,000,000 in a with a combination of dividends, and buybacks since, since January 2018.
And and really what we try to do with our capital allocation is invest for long term value creation. Now with that though, we we do believe that, we have some the market and trying to make some decisions on how to create some value for shareholders. But we have lots of opportunity. And maybe I'll just turn turn the few for a few comments over to Pedro on capital allocation.
Yeah. Andrea, the only thing I'll add to this is that we have been, a lot better at managing working capital in retail. I'm inventories this year. It's actually lower than last year at the same time, with with higher sales and greater market share. So that has been very good for us.
And, just a word about dividends because our dividends are still pretty much well funded. We have room to continue to fund growing its stable dividends out of our retail cash flow. So that provides us a lot of stability in terms of our dividends going forward.
Your next question comes from the line of Steve Byrne.
Yes. I'm assuming that your retail customers almost all buy fertilizer from you, but curious, of those retail customers that buy crop chemicals and seed from you, what would you say the direction of change of those two metrics has been? And I'd like to to hear your view on how you see your digital program driving further penetration of those 2 verticals.
Good morning, Steve. I'll have Mike Frank answer the question for you.
So, Steve, base today as we look across our three shelves of fertilizer seed and crop protection. You know, obviously it's a mixed bag. Some come buy only fertilizer, some buy only seed, some buy only crop protection. And of course, some buy all three shelves from us. Clearly, we do see the digital platform a tool that can help us grow our share of wallet and grow our penetration across all three shelves for our customers.
You know, and if you just step back and think about where we're with our digital journey, over the last year and a half, we've really been building, foundational capabilities. We launched supply form in July of 2018. We launched our e commerce capabilities in January of this year. And as Chuck talked about the call, the adoption of the tools have been extremely strong and we've been really pleased with how the adoption and the use of tools that ramped up. What's really exciting as we kind of go into this next phase is we're adding more and more value added tools onto the platform.
In the next month or so, we're going to be launching a crop planning tool. So where we'll sit down with our customer and plan their practices. We believe that these types of tools and value added parts of our digital platform will help us grow our penetration across our base, with respect to seed fertilizer and chemistry. And so it's very exciting. And, we're just at the beginning of the journey, but we've already had results.
Yes. See, just a couple of other comments. So there are some slides on the performance of the digital platform starting on page 14 of the my deck. And and as Mike mentioned, so it is early days, but the progress and the uptake that we've seen, has exceeded our expectations. It's clear that this is going to be a leading platform and there's strong demand for it.
And I'm just pleased with how our customer base is sort of a hopping to the new tools. And I think that the opportunities here are quite significant for our retail business, but not all retail business, but also to transform the industry over time.
And if I may, can
I squeeze in on urea, the NOLA price in the last month has fallen hard? And I just wondered what your views were on that. Is it a slug of exports out of China or cost curve related would welcome your views on that.
Okay. We'll have Grace Sully, who heads up our nitrogen and speed business answer the question.
Look, I think it's a lot of what you mentioned. One of the issues here is that because of the delayed planting that's been delayed harvest, delayed fertilizer application in the fall. We had pretty good inventories getting to the quarter, slow getting it out. So there's been a bit of trade down an old, it's caused some of those process decline. I don't think they're, I think that they'll hit the other way pretty quickly as soon as we start the application pick up in the field.
And your next question comes from the line of Christopher Parkinson.
Hey, guys. This is Lucas Beaumont on for Chris. Just wanted to dig a little deeper on the Chinese potash contract, if we could. So at you had any recent casual customer conversations? And if so, does it look like the bid ask, there's kind of narrowing post the recent global curtailments, or is it really just the Belarusians and the Russians are sort of leading those discussions?
Any, more detail on your thoughts would be great. Thanks.
Good morning. I'll have Susan Jones answer the question.
Good morning. Yeah. What we know right now is, the port inventories are still remain quite high. And what we're expecting to see is as we move into the spring season and just as a reminder, the Chinese New Year is fairly late this year. So it'll be coming near the end of January as they're ramping up for spring season, they're going to need to have a product in place to provide for their farmers.
So, certainly, is demand in deplete from the port. And we expect that to start to move as we move into spring season.
And I'll just add one other though. The the India contract has provided, all the clarity the market needs. So when when I look at this, you know, I think what we're gonna see is now that there's been a marker set with the India contract and, you have, the soil issue that we've we've talked about in North America, you've got growing demand in Brazil. I think it's only a matter of time where where, you're gonna see an increase in demand. The supply demand fundamentals are tightening, in potash and I think all that bodes well for a pretty good 2020.
Great. Thank you.
And your next question comes from the line of Joel Jackson.
Good morning. Chuck, if I I know you can only see for half of the equation, but if I look at you and your Canpotex partner, Mosaic, overnight, you've lowered, you know, but you lowered your potash around about 2,000,000 tons expectations for this year. You and Mosaic have together lowered your individual potash sales by about 140,000,000 tons. So basically, if I take your aggregate guidance, Nutrien and Mosaic have taken all of the pain or lower volume this year. So can you maybe comment on that?
And are these low 60% operating rates sustainable? Is this something you're willing to for the foreseeable future? Or at some point, maybe the question would be, what is the threshold where you can't really stay at a certain rate for too long?
Yeah, Joel, if I understand your question, so look, we see it slightly differently than that. In fact, we're trying to match our supply with our customer demand. That that's where it starts. You know, I I don't think that it it's much more complicated than that. We felt that that get given that we didn't wanna put the undue pressure on getting the wrong deal in India or China.
We thought it was a prudent short term decision to tail our production. And all we do is we look at what's best for our customers and our and our organization. But look, we read the same press you do. So it there's been numerous other curtailments, because I assume there's that they're looking at the same order books with their customers. So I don't see it as a Capitex lead or not lead issue.
I think that what we saw this year was a a pretty unusual set of circumstances where the US market curtailed because of of weather. We saw the Southeast Asian pullback from Palm Oil. And, of course, we saw the contract negotiations drag on a bit. And and every supplier kinda looked at their order book and decided what was best for them. That's exactly what we've done.
Now now if you're asking about our network so look, we have 6 minds and we've talked about having underutilized capacity. We feel fairly confident right now that the decisions that we've made are appropriate decisions for the 20 any plan that we have. And so we're very comfortable going forward with that plan. And Susan already mentioned on the call today that that she will make decisions about ramping up our supply, over time. But look, we're always looking at the Optima the optimal, network to to ensure that we have the lowest cost and to meet our supply.
But we also believe and we thought last year that demand can increase quite rapidly and last year we were the beneficiary of it, right? So the market grew, and we got probably the highest percentage of that growth where where our sales hit over 13,000,000 tons last year. And that's because we had extra capacity, in our network. And so we're we'd that, we believe that if that happens again, that we want to be ready to put the tons into the market.
And Joel, if you take a look at our 5 year market share average, what we're estimating for our volumes this year at the midpoint are actually slightly above we absolutely are maintaining our market share and intend to do so as we go forward.
And your next question comes from the line of Jonas Oxgaard.
I think last year on this time, you talked about the rising input costs China, but he said you'd secured pretty much all the inventory you needed for 2019. So here we are, and it's now happening, Chinese costs doesn't seem to have gone down any. How should we think about your raw material costs for 2020? And is there possibility of raising prices to compensate for it?
Good morning. We'll have Mike Frank, that's a good question. We'll have Mike Frank address it.
Yeah, good morning Jonas. So yeah, coming into 2019, we did have higher crop protection industries in particular, in a anticipation for rising costs. And we did see rising costs throughout the year, especially in the first half it put pressure on on margins as we were reordering some products. And I think even as you look at our proprietary margins, we an impact because of rising costs out of China, both from a third party supply standpoint, but also within our proprietary business. Now going into 2020, as we talk to suppliers and talk to whether it be 3rd party suppliers of our major crop protection products or even for our proprietary products business, we're expecting probably more of a normal price increase in that 2, 2 point percent range.
So we have the inventory, coming into the fourth quarter of this year of crop protection. We're down, over 10 percent in our crop protection inventories, which we think will put us in a good position going into 2020. And so look, if I think for in the first quarter of 2019. So, we're going to see that we're going to be able to And so once we got into the busy season, we were able to pass along the price increases or the cost increases through to the farm gate and that would be our expectation going into 2020.
And your next question comes from the line of P. J. Juvekar.
So, Chuck, you've been very disciplined in potash market, shutting down capacity or curtailing capacity when the markets are slow, you know, why not use the same discipline in the phosphate market too? And the phosphate market is oversupplied you be willing to cut back on capacity? Thank you.
Good morning, P. J. Look, the dynamics are completely different in in my view. You know, phosphate is, in my opinion, in a structural oversupply. And so for us to try to do something, in the market, I think others would just increase capacity and and it would be low cost tons out of North Africa or or the Middle East, and and it would be a futile game.
So I don't believe that the industry structure. I don't, you know, I believe that there's still new capacity coming online. And phosphate is very different than potash. In our view, the phosphate business is in a structural oversupply. And in that it's very, very difficult, I think, to really try to have a supply led price driven response.
Your next question comes from the line of John Roberts.
Thank you. Could you update us on your progress in building out the retail in Brazil and is there any prospect for a deal there that by accelerate that or
are the prices still just too high?
Yes. Mike, Frank, can answer the question.
Good morning, John. We continue to look at the opportunities for acquisitions across Brazil. I would say we've accelerated our our look at the opportunities that are in the marketplace right now and we think there are a number of, interesting opportunities nothing to announce today, but we would expect going into 2020 that Brazil will be high on our list opportunities to acquire some retail footprint and really transform how retail is done in Brazil. Today, the retail industry is extremely fragmented in Brazil and we we can bring a new and value added approach to retail that really makes a difference for farmers there. So we're excited about that and stay tuned.
We think there'll be opportunities as enter 2020.
Thank you.
And your next question comes from the line of Jeff Zekauskas.
Thanks very much. Can you compare your digital platform in retail to Bayer's field view? Why do farmers use your platform? Why do they use field view? Is field view positive for you or negative for you or neutral in your you know, over time.
Good morning, Jeff. We'll have Mike answer the question. Thanks.
Jeff, I would say the forms are very different. And so, you know, with theirs, field view platform, it's really around visualizing, you're planting and you're harvesting, doing some analytics on fields based on your specific field. And our platform today is really our retail platform that allows us to engage with our customers in what we call in an omnichannel way. And so they can manage their account. They can order products.
They can pay their bills. And more and more as we move into the future, they can also get access to agronomy information. So this year, we partnered with BASF on some of their digital tools that are now available through our platform the same with Lindsey Irrigation. And so we've got an open architecture where we'll continue to look for partners that can bring value added insights to our customers that they can get access protection supplier. You know, we we do work with them on their climate platform.
It is part of how we engage with our customers as well. So I would say they're complementary, but they're very different.
Okay, great. Thank you so much.
Your next question comes from the line of Mark Connelly.
Thanks. So as business moves through that digital form even faster. Does that imply that your bricks and mortar footprint has to shift, or does it mean that your distribution channels have to shift I'm just trying to get a sense of what it means to your overall distribution and logistics that farmers are embracing this new way of doing business so much faster than you thought.
Good morning, Mark. Go ahead, Mike.
So, Mark, you know, again, I think when we talk to our customers, they really value our local supply chain. They they high the value, the relationship they have with our sales agronomist. And so we think that that's really important, not only today, but to the future. The digital tools are just one more element to what we can bring to add convenience and value to our customers. Now we do believe that with time and as we build out our greenfield builds, we can serve a large air yet through fully operational retail facilities.
And so as we look at supply chain, we do believe that there's more efficiency that can be gained by leveraging our scale. And really looking at our entire asset base from a bricks and mortar standpoint to say what's the lowest cost away that we can bring a product to our customer's Farmgate. And so that's that we're looking at. We do think there's opportunities through the digital interface. But again, we're going to have a large presence at the low level where we're supporting local communities and we're there to serve our customers.
Yeah. Mark, just another comment on this we we we think it is important that we're in the local communities. But we may not have fertilizer or all of our products in the community. And the supply chain is being evolved right now. You know, you've heard us talk about the hub and spoke model for years.
With with the the digital tools, we think that's going to give us just a bit more insight to have better planning accuracy when it comes to where these products should be and and and when. And so that's where we think that the benefit will come. It will be in in working capital optimization over time.
That's super helpful. Thank you.
And your next question comes from the line of Adam Samuelson
Yes, thanks. Good morning, everyone. I was hoping to get a little bit of color on the ammonia market and if you could just, how you see the merchant ammonia market playing out over the next 6 to 12 months, especially given weakness in the phosphate markets and any comments you could have on your gas costs and your utilization and turn it out would be helpful. Thank you.
Okay. Good morning, Adam. Go ahead, Rick.
Yeah. Look, so, I mean, you're aware that in Trinidad, we got new gas contracts they started in the 1st January. You see they more expensive. They're also tied though to the price of the merchant, ammonia. So as tamper has come down, the price gas to the Trinidad plan has come down as well.
I think if you just step back from a look at the global market, I think we're pretty bullish around the and demand fundamentals. The market itself is about 150,000,000 tons. That's nitrogen total. It's growing at 1.5 to 2 percent per year. That means 1.5000000 to 2.5000000 tons of capacity needs to come on each year.
If you stop and you look at the projects in the pipeline, you'll see that this year, net additions are about 0. Then if you look forward to 2020, 2020, 2022, net additions are less than 2,000,000 tons and may be less than 1,000,000 tonne in each of those years. There's no doubt in from Alpha is that the overall market is tightening for nitrogen. That should be good for Trinidad. As I mentioned before, the gas prices there are higher than we see in the U.
S. But they're still competitive compared to the rest of the world, even with Europe where it is. Okay.
Your next question comes from the line of Michael Piken.
I was wondering if you could talk a little bit about your plants around schedule and nitrogen for the next several quarters. You mentioned you had unplanned outages, if you could talk about how long each one is going to be down and what it looks like in fourth quarter and into 2020, that'd be great.
Okay. Good morning, Michael. Go ahead, Rich.
Yes. So look, a couple of things. We actually had some very large planned outages. In the third quarter, which led to some of the volume reduction. The biggest one there was red water.
Redwater is a plant that is 50 years old. And the turnaround we did this year was one that has been planned for some time to replace a number of end of pieces of equipment. In fact, this turnaround was the biggest turnaround in the site that's ever had in its 50 year history. At some point, we had three and a half thousand people a day working there. It's done.
It was on budget on time. We've now got through most of, all of the, the end of life, issues that were right there. It's running well. Trinidad, as you know, for various reasons and most of it was related to the, the making sure we had a supply contract we could live with with deferred maintenance on 2 of the Trinidad plans for, over 7 years. So in, Trinidad, 2 of their half our capacity are into the turnarounds now.
But not surprisingly over the last couple of years, as a result of us pushing that turnarounds back so far, we have had increased outages. We're hoping that the, the turnarounds that they, that we're undergoing now will fix those and we'll see a return to better utilization and reliability numbers there as we've seen across the rest of the system when we've gone through and we've kept up our maintenance. And just so for
you to plan going forward. The way I think about, our network now is we basically have four plants in Canada 4 in the US and 4 in Trinidad. So you can imagine if we're on a 4 year turnaround cycle, one plant in each of those jurisdictions need to go down every year for land maintenance, which means that you should see a consistent amount of nitrogen supply out of nutrients network, and that will keep our plants, with high and safety standards that that we we wanna have those plants. So that's that's the way I think about it is just you're gonna have 3 plants per year go down. And the volumes will be about the same because we're on a 4 year turnaround schedule.
Yeah. Look, and so the only thing I'll add is that there's been a bow wave of end of life activity. We're through the majority of that. And we're getting into a pretty steady state as Chuck said, where one plant in each system will be down each year.
And your next question comes from the line of Duffy Fischer.
Couple of questions around retail. So the 12,000,000 potential acres next year, that's 7% volume in Reese. What percent of your retail business will that hit? Or, you know, should we kind of build that into would be 1. And then 2, if you do get that kind of demand, oftentimes that leads to an improved pricing environment.
So should we expect if we get that 7% volume increase that prices, particularly in seeds and ag chem can move higher next year. And then just the last one is, can you talk through what the pest pressure looked like this year around North America to set us up as a base to next year where we kind of below above or kind of normal pest pressure this year?
Good morning, Duffy. Go ahead, Mike.
Duffy, so when we look at, you know, the acres next year, for the most part, we think it's gonna be corn and bean acres. Based on our market share, if you take it all the way through to EBITDA, 1,000,000 acres of corn is worth approximately $6,000,000 to us and 1,000,000 acres of soybeans about 3,000,000. So that kind of helps you kind of frame the the value depending on where the acres come. With respect to demand, we do expect a high demand year and just like we got into the high demand season Q3 this year, we saw margins stabilize. Now we wouldn't expect margins to go over the historic levels, but we think that the our historic margins on on seed and and crop protection will hold.
As you can see in fertilizer, we had a very solid year from margin perspective, we think that will also hold and we continue to sell more nutrients on top of NP and K and that's also a margin builder for us And so yeah, I would say we're, you know, as we look forward to 2020, the acres that are going to come in are definitely going to be high value acres because they're they're corn acres. We're well positioned in that part of the marketplace. And when things get really busy, depending on how the fall plays out, that's when our supply chain and our infrastructure really deliver. With respect to your last question on pest pressure, We did have a good year this year both in fungicides and even insecticides were up a little bit this year over 2018. So we did see solid pest pressure.
Again, the window was tight and so we were there to serve our customers with custom application equipment and opportunities and that boded well for us. And so we would expect the same to happen next year. And in fact, with the extra acres, that will all translate to what we think is shaping up as a very strong 2020 for us.
Great. Thank you, guys.
And your final question comes from the line of Faye Lee.
Chuck, AECO gas prices, natural gas prices have been extremely low levels, but history suggests they won't stay that way forever. Could you comment on your outlook and strategy around natural gas in Alberta?
Yes. Good morning, Fai. I'll have Rafe Sully just give some comments.
Yes. Look, I think you'll continue to see AECO below NYMEX. I think there's an oversupply that continues there. It's not interconnected with the, with the U. S.
System, LNG exports are continuing to increase, but not as much. I think you'll continue to see AECO trading below NYMEX, for another 5 to 10 years at least. I think at some point, it will come up. If the interconnects get done, you get enough LNG being traded, you should start to see it trade in line with NYMEX. But I think as a whole, we're expecting NYMEX and a to continue with similar levels through next year.
Yes. Sai, just a couple of other comments. So look, we're bearish on gas, especially in Canada where we can't build pipelines. So there's a lot of gas. There's a lot of low cost gas.
And and so certainly when I looked at our network being, you know, a third in in Canada and a third in the US, we do believe that we're going to sit, quite comfortably on the low end of the cost curve for the foreseeable future. And even when you look at LNG and what's under construction, we don't think there's a material impact to the supply demand of gas. So I think from a from an overall long term competitive position, I think we we our position. And that's why even we would consider investing in in a little bit of expansion money, it's not not greenfield, of course, that doesn't make any sense. But in our plants in Canada and the U.
S. Just to optimize energy infrastructure as well as brownfield tons.
Thanks. Okay. Thanks.
I'd like to thank everyone for joining us for the call today and IR is available for any questions you might have after the call here. Thank you.