Greetings and welcome to the Nutrien First Quarter 2018 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation And as a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Downey, Vice President, Investor Relations And Corporate Relations. Thank you.
You may begin.
Thank you, operator. Good morning, everyone, and welcome to Nutrien's 2018 first quarter conference call. To discuss our results and outlook. On the phone with us today is Mr. Chuck Nagro, president and CEO of Nutrien, Mr.
Wayne Brownley, our CFO, and the heads of our 4 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 to 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 U. S.
Security commissions to which we direct you. I will now turn the call over to Mr. Chuck Negros. Thanks, Richard. Good morning, and welcome to Nutrien's first quarter 2018 earnings call.
Today, I will recap 1st quarter results, and provide insights on market conditions and our financial outlook for the year. I will also provide an update on the progress we have made on integration and the actions we have taken on capital allocation as these two items have been a major focus for the new board and management team. The initiatives implemented during the 1st 4 months at Nutrien include a meaningful return of capital to shareholders, and strong growth of our We believe when you look at our company, the investment thesis is clear. No other company in our sector has the combination of strength, stability strong future cash position or our potential to invest and innovate. And with over 26,000,000 tons of fertilizer sales, no one can touch our leverage to an improvement in the market fundamentals.
Turning to our first quarter results. Our wholesale operations performed well this quarter. However, earnings were constrained by rail performance issues, on West Coast potash exports. Our retail earnings were delayed due to the extremely wet and cold weather conditions across North America this spring, which has deferred applications, planning and associated crop input purchases. Similar to what occurred in 2015.
Our international retail business continued to deliver strong results with EBITDA up 46% from the previous year. Potash EBITDA increased by nearly percent compared to pro form a results for the first quarter of 2017, illustrating the earnings leverage that can be generated from our large low cost potash assets. Prices continue to strengthen in both domestic and offshore markets and sales volumes rose 11%. Despite rail transportation issues. Our cash cost of products sold declined to $60 per ton this quarter, as we benefited from continued ramp up of the Rokinville facility, merger related synergies and fewer overall downtime days.
The delayed start to the spring season impacted our nitrogen sales volumes, most notably for ammonia. However, nitrogen EBITDA was up from the prior year as we benefited from lower production cash costs and higher average realized prices. Our nitrogen plants operated very well in the quarter with ammonia utilization rates increasing to 96% compared to 84%. The fourth quarter of 2017. Our phosphate business also demonstrated strong operational performance this quarter, as plant utilization rates increased 13%.
Our our average realized phosphate price was up $10 per ton this quarter, but was offset by sulfur costs that increased by approximately $50 per ton, and this headwind is expected to remain in the second quarter. Nutrien's adjusted net earnings for the quarter was $0.16 per share, excluding $74,000,000 of incremental depreciation and amortization adjustments, as well as merger related costs of $66,000,000. Adjusted EBITDA totaled $553,000,000, which was slightly up from the first quarter of 2017, even with the significant delay to the start of the spring season this year. While there there are still some moving parts with merger accounting, Q1 clearly shows the potential for this company. Looking ahead, there are a number of market factors that support our positive outlook for the second quarter full year of 2018 earnings.
First, let's look at the agricultural fundamentals. Global crop prices have been supported by a delayed North American planting season, and significantly lower corn and soybean production in Argentina. Ag markets have also benefited from strong demand for grains and oil seeds globally. Despite near record global crop production, the USDA projects that inventories will decline by nearly 3% during the crop year, the largest year over year decline since 2010. Based on current 2018 futures prices, US soybean and corn grower cash margins are projected to be 10% to 20% higher this year.
Trade tensions between China in the US has created some market uncertainty. However, we do not expect an impact on grower planting decisions this spring. We also anticipate grower spend on crop inputs and services to be similar to the previous year as farmer sentiment is generally very good. While the late spring has delayed field work and retail earnings, we are well prepared to meet the challenges of a compressed spring season given an unmatched North American distribution network. As weather conditions started to improve in late April, we have seen a significant increase in daily retail sales revenues compared to the previous year.
As a result, we expect first half twenty eighteen retail EBITDA to still exceed last year's level. Moving to potash where prices continue to firm in major spot markets, The improvement in potash fundamentals is a demand story and more specifically a direct result of very positive global consumption trends over the past The key driver of this growth is a greater use of soil sampling and recognition of the importance of balanced fertilization and sustainable agriculture in developing countries. We anticipate tight fundamentals through 2018, and have raised our global demand forecast to 64,500,000 to 66,500,000 tons. We have also increased our annual potash sales volume guidance to 12,000,000 to 12,500,000 tons. Canadian rail performance has improved lately, although the pending CP union vote remains a near term concern.
Our potash cash cost of product sold will benefit from the integration of the Van Secoy mine into the broader potash portfolio, and a continued ramp up at Rokinville. We expect production at Rokinville will exceed 5,000,000 tons in 2018, and could move closer to resulted in some pricing pressure early in the second quarter. However, urea and UAN fundamentals are expected to be tight through the spring in most regions, supporting prices and volumes. We anticipate higher global energy prices in tighter supply will support nitrogen prices well above the lows witnessed last year. Strong phosphate demand in India is expected to be largely offset by increased supply available from Saudi Arabia and Morocco this year.
Higher environmental and raw material costs in China are expected to support phosphate prices above 2017 lows and lead to reduced Chinese production. Based on these market conditions and operational considerations, We have raised our annual earnings $3,300,000,000 to 3 $700,000,000. This equates to an anticipated increase of greater than 20% in year over year adjusted EBITDA. These figures exclude synergy implementation costs, which will start to wind down now, as well as excluding incremental depreciation We have provided guidance for the first Our EPS guidance includes earnings from equity investments now classified in discontinued operations with the majority of these forecasted earnings expected to be realized in the 2nd quarter. As I mentioned earlier, our focus over the 1st 4 months has been on integrations and setting Nutrien's capital allocation priorities.
And we have made significant progress on all fronts. In terms of integration, we remain confident in our ability capture $500,000,000 in annual operating synergies by the end of 2019. We achieved a run rate total of a 150,000,000 at quarter end, with significant progress made on distribution and production optimization and procurement synergy buckets. Corporate cost synergies were limited in the first quarter given that staff reductions notices largely took place in March. And we took a $28,000,000 charge for severance this quarter.
We achieved over $40,000,000 in potash run rate synergies primarily by eliminating maintenance capital redundancies and overtime costs. In procurement, we executed on a multitude of initiatives capture $24,000,000 in synergies and have identified numerous additional avenues to further utilize our scale and drive down costs. We invest production and distribution optimization plans across all business units, achieving $52,000,000 in synergies. This quarter, we also announced our detailed synergy plan for our phosphate business. The merger allows us to convert the Redwater plant to ammonium sulfate and move from 3 phosphate facilities down to 2.
By repurposing the Redwater plant, we will be able to supply more ammonium sulfate to this growing market, it will also allow us to increase utilization rates at our Aurora and White Spring phosphate facilities which will drive down our rock costs and our delivered map costs into Western Canada. We will also save on capital caused by operating only 2 phosphate facilities. This plan is expected to allow us to capture $80,000,000 in run rate synergies by the end of 2019, and we have commenced our capital projects to achieve this target. With less than $80,000,000 in investment capital, this is a highly capital efficient project. The 2nd major integration item is the required divestiture of our equity investments.
We completed the sale of ICL net proceeds of $685,000,000 in the first quarter. In terms of SQM and APC, the process remains on plan and we expect to conclude those transactions this year. With the potential for net proceeds from the equity stakes of $4,000,000,000 to $5,000,000 plus $500,000,000 in annual operating synergies combined with our unparalleled leverage to the upside in crop nutrient markets, we expect to generate significant free cash flow in the future. Therefore, it was important that we move quickly on our capital allocation priorities. In February, we declared a quarterly dividend of $0.40 per share, which marked a 27% increase from our legacy company's combined payout level.
Maintaining a stable and growing dividend is a top priority for Nutrien and we will target a payout ratio that represents 40% to 60% of free cash flow after sustaining capital through the cycle. This dividend policy will return significant cash to shareholders while allowing management and ample resources to grow the company. At the same time, As of May 7, we have completed 1 third of this program, allocating $500,000,000 to purchase over 10,000,000 shares. Given the point in the crop nutrient cycle, we believe the share repurchase program will provide excellent value to shareholders. We also know it's important to grow the company in areas where we have strategic advantage.
Over the next few years, we will allocate a significant amount of CapEx, to expand 29 locations, primarily in the U. S, with total annual sales of $280,000,000, which is well above the normal for this point in the year. We have a strong pipeline in place with increased resources targeted on this opportunity. We also recently completed the acquisition of Agrichem that will expand our Loveland products portfolio significantly in Brazil. Having access to proprietary product lines is a key component to implementing our digital capabilities.
Last month, we launched our new integrated digital platform that will enable our retail customers to interact with us when they want, where they want and how they want, providing year round commercial and agronomic digital management. We have a unique opportunity to combine this digital platform with our industry leading distribution network to create an unrivaled experience for growers. We expect a strong return To conclude, we made good progress on our strategic and capital allocation priorities this quarter, but we are just getting started. We are focused on executing our synergy plan, and we will begin realizing G And A savings in the second quarter. With grower margin strengthening, and planting now well underway, we see good demand in firm prices for most crop inputs, which allowed us to increase our annual guidance.
With the ability to generate significant free cash flow, Nutrien is positioned to deliver excellent shareholder value in the months and years ahead. Thank you and I'd be happy to
of time. And so that other participants have the opportunity to ask their questions during the conference as well, we ask that you please limit yourself you. Our first question comes from the line of Ben Isaacson with Scotiabank. Please go ahead.
Hi, it's Oliver on for Ben. Thanks for taking my question. So on the digital platform that you're launching, is that a response to some of the digital competitors that have popped up in the last couple of years, or is it just taking advantage of a general market up that you saw. And maybe could you highlight some of the key differences between this platform and its digital peers? And on data, how much are you willing to share with farmers?
Yeah. Thank you for the question, Oliver. I'll I'll give you my views and then I'll turn it over to Mike Frank, who is really working directly with the team. We're really excited about our digital platform. This is all about our continued focus on not only being the best profit advisor in the world, would also be the easiest to do business with.
And we think that there's a really unique opportunity here to combine our distribution network our 3300 agronomist in North America with a very unique digital offering and putting those 3 things together, I think, will provide significant value for farmers in North America, but our plans are more global in nature, longer term. So with that, Mike, maybe you can give us your perspective on where we're heading with the digital platform. Sure. Yeah. Thanks, Oliver, for the question.
So firstly, yeah, it's not in, response to other online, offerings out there. Really, what we're taking a very different approach where we want to create a seamless experience for our customers however they deal with us, whether they're doing in person at the branch or online. And so we're really combining all of our assets, all of our offerings, into one seamless approach for our customers. We've seen other online only platforms in the past. They haven't been success and you know, when you think about what's going on right now with the compressed season, this is really where we shine where our growers are we taking advantage of our custom application equipment, our people on the ground to make good, good decisions And, and we'll now offer them a more convenient way, if and when they want to, order products and services from us.
And so that's the way we we think about our digital offering.
Our next question comes from the line of Christopher Parkinson with Credit Suisse. Please go ahead with your question.
Thank you. Can you just give
us an update on your required divestitures, including your degree of confidence to close in 2018 as well as the size and types of any suitors? Also, do you have any color also on net proceeds and key strategic initiatives? Just I'm assuming M and A is still front and center. Thank you.
Hi, Chris. Yeah. I'll I'll have Wayne talk about the process, for SQM and APC, and then I can come back and talk a little bit about priorities for capital allocation Go ahead Wayne. Hi, Chris. So look, we've had an auction process ongoing, for both aircraft and SQM.
It's progressing well and hopefully that we will have, transactions to announce by the end of the second quarter in both cases. The timeline and for, cash proceeds will really depend on regulatory approval and, and, that is, a little bit like the Chinese potash contract. You can speculate all you want, but we'll see where we get there. But the process has been moving well. We're derisking it as much as we can to get certainty of the proceeds.
And, Chris, just to finish your question here in terms of capital allocation priority. So if you step back and you look, we are pretty confident that, the SQM and APC process can close this year. That will generate in total with ICL somewhere between $4,500,000,000 of cash. On top of that, of course, we have the $500,000,000 synergies. And we'll talk a little bit about that today, of course, but we're we're on track for that.
And then if you just look at our base operations and how they're generating cash after we pay the dividend, and the sustaining capital. There's another $1,000,000,000 to $2,000,000,000 per year, even with today's prices and maybe modestly up a little bit over the next couple of years, that the business will generate per year another 1 to 2,000,000,000. So think of the next 3 years, we have to allocate somewhere between 6 and $8,000,000,000 of capital all in. And our priorities for that capital will be 1st and foremost, we wanna sustain our asset base and we think that the right number to stay sustain the asset base that we have is about a $1,000,000,000 a year for for sustaining or maintenance capital. Our balance sheet is an important asset for us.
We are a strong investment grade today. We don't see any any issues down the road, but that will always be a priority for us to maintain maintain a strong and healthy balance sheet. The next priority will be, of course, as I mentioned on my prepared remarks, a sustainable and growing dividend. And we're gonna allocate 40 to 60 percent of free cash flow through the cycle on growing that dividend. And so that'll be a major theme in terms of the capital allocation.
Beyond that, it will be growth. And the growth could come in multiple areas. But the the primary focus for us will be on retail growth. We think that there's a good opportunity right now with where we are in the cycle. We're seeing tremendous opportunities in North America, but also in Brazil to allocate capital.
But the capital will be allocated basically in 3 One will be in the existing retail footprint, the network itself. The other will be in in building out our Loveland products portfolio. We've had just tremendous success in building that portfolio, and we think there's a lot more we can do to consolidate that space. And the third Mike mentioned, we are gonna allocate capital to grow our digital capabilities. So a primary focus for a lot of the capital will be in in, in retail, but that's not to say that if something opportunistically came in other products and other of of the producing businesses, we would absolutely have a look at that as well.
And our next question comes from
the line of Andrew Wong with RBC Capital.
Hi, good morning. So just regarding your strategy with Brazil and growing retail there, how big can we expect Brazil retail to be eventually? Could it be comparable or even bigger than some of your other non U. S. Retail businesses.
And just in terms of timing, does Does the does buying something in Brazil depend on having capital available from selling the equity stakes? Thanks.
Hi, Andrew. So look, we're we're just getting started. The the first, kind of process we went through to look at the opportunity and narrow the opportunity to beat Brazil is we wanted to make sure that our our retail model creates value, for Brazilian farmers. And we've spent a long time looking at that. As you know, we have a pilot facility in Brazil and it's been very, very successful.
So that brings us confidence that we have a unique offering for resilient farmers to create value for them. And right now, so we're looking at a lot of opportunities in Brazil. And the first, I guess, entry beyond our our pilot program was the the acquisition of Agrichem, which brought over 30 proprietary products, about 300 employees, and it's the 2nd largest product company by market share in Brazil. And and we thought that was a very unique way to enter the market because now we can bring Loveland products into Brazil. We can bring those products into our other global operations.
But we think that over the longer term, that Brazil will certainly be either the, I'd say that the 2nd largest retail business after the US business, as we allocate capital over the next few years. Now we're gonna also take our time. We're gonna get this right. But right now, we're just seeing tremendous opportunity to create some value for shareholders, but also to grow value for farmers in Brazil by offering
Thank you. And our next question comes from the line of Don Carson with Susquehanna. Just a
question on
your potash rationalization plans or what strategy you've decided upon to come in at rokinville's ramping up. That's helping lower your production cost. But, you know, with Wilconville and VanScoy, do you need some of these, smaller mines that you have? And would you look at, perhaps permanently closing some of your smaller potash facilities.
Yeah. Hi, Don. I'll give you my perspective and then I'll turn it over to Ray Sully, our president, and he'll provide that some specifics. The thing that you have to remember is 2 of the facilities right now are are running exclusively white potash. So we really only have 4 facilities running red.
And those plants are are are maximum capacity. They have very high margins because, of course, that's a premium product. So I I think you have to get into the a bit of the details on how we've optimized the network in turn in terms of potash. Bringing Advance going into the network now has afforded us tremendous synergies that we're seeing right now in the results. If you look at the cash cost of overall products sold down to $60 a ton, so it's down 10 percent from the first quarter of last year, and that's because of the optimization network.
So we we think given market conditions, where we are today, And and we actually raised our potash sales volume this year. We're seeing really good synergies being delivered by the optimization of the network. Right now, we're feeling comfortable with our current operating plan, but rates maybe you can give your perspective as well. Chuck, I think I think you hit the main point Dom, as Chuck mentioned, we only had 4 red producing mines at
the moment. Patient's lake is wide only and quite small. Corey was put down ramped down to 800,000 tons of white only. Those sites are higher costs, but we're getting higher margin for the white product as well. They're doing quite well.
We only have 4 red mines to optimize. Banco is actually the smallest one in terms of capacity of those 4.
Our focus at the moment is
on integration. We've already generated some synergies,
a band score by bringing band scoring in and operating it
as one of the system we've been able to immediately lower, maintenance costs, sustaining
capital and overtime spend.
As Jack said, we're looking forward. We we're seeing higher sales in the first quarter in the back half of the year. We wanna make sure we're we're there in the market to catch those. We'll keep looking at what we think will happen in 2019. There's some potential volatility there as compared to this ramp up.
We're looking forward to what we think will happen in 20 and we'll make a decision as we get through the year. One important thing to remember is putting a mind in care and maintenance is not a small decision. If we do that, we're not gonna do it unless we think we can keep it down for more than 12 24 months would be better. And so I guess the summary is at the moment, we think we need all four of them. We'll keep an eye on it.
We always do something that's reviewed constantly, towards the back end of the year, we'll make a decision about what we do into 'nineteen.
Thank you. And our next question comes from the line of P. D. Juvekar with Citigroup. Please go ahead.
Hey, good morning, everyone. It's Dan Jester on for P. J. You know, obviously there was an impact in the quarter on the retail side and crop protection and seed sales. Can you you mentioned that going into April, there's some been acceleration.
Can you just walk through
what you're seeing on nutrients, crop protection feed in April and May and how you think the first half has been involved for those buckets? Thanks.
Yeah, Dan. So I'll turn it over to Mike Frank. Our president, 21 is entirely a weather story. It's that simple, but he can walk you through what he's seeing on the specific shelves and the overall business. Sure.
So, Dan, really the 1st, 2 weeks in April were really a carryover of Q1 where if you continue to be wet and cold through you know, most of our core markets in the US and in Western Canada, but the the back part of April really started to open up. And so we've, we've been actually running record days and record weeks over the last couple of weeks. So we're really seeing it open up, you know, especially in the, the core Midwest markets, you know, Indiana, Illinois, Iowa. It's still, quite a bit behind, I would say, in in the Northern US state the Dakotas, Minnesota, Wisconsin, and Western Canada. So, you know, we, we we are rapidly catching up across all of our shelves.
And so, you know, we're we're almost at the point where we, we're crossing over where we were last year. And we still have a long ways to go. And so, we're, we're really pleased with what's going on in the marketplace right now.
Our next question comes from the
line of Jacob Bout with CIBC.
You talk about how much the rail issues and the changes to the Canvatex revenue recognition policy impacted your first quarter potash volumes? And maybe just as a secondary, what you're seeing on the demand side to increase your potash guidance?
Yeah. Hi, Jacob. I'll let, since it was primarily a, a potash impact, I'll have, Ray Sully talk a little bit about the impact we saw. In the first quarter and and how we think things are gonna unfold in the second. So go ahead, Ray.
For the right impact?
Yes. So, we were we were behind offshore quarter 1. We were we started behind domestically quarter 1 that we made up. So quarter 1, we finished a whole domestically but behind on export. Quarter 2, we are running behind on export at the moment, but there has been improved performance from the rollaways we're seeing seeing come to table and help take more tons to the east.
We're seeing CP put more trains on. If that increased performance continues, we will be whole by the end of the second quarter, early 3rd quarter. If there's a strike, obviously, that's going to, that's going to hurt us. About, 80 percent, 85 percent of our export volumes go by CP.
Yeah. And I think it's important to say, Jacob, that our earnings guidance that we've outlined for the first half and the annual does not include anything that from a rail to So it assumes business as usual. I know it goes without saying, but we just need to put that on the record.
Our next question is from
the line of Steve Hansen with Raymond James. Please go ahead.
Yeah, good morning guys. Just a quick one, 2 part question on phosphate. Just perhaps a bit better detail on the timeline associated with your phosphate restructuring down to two facilities and the Redwater conversion And then as a second part, how do you feel about the division how do you feel the division will be positioned after this restructuring is complete and whether or not it's still core to the broader enterprise? Thanks.
Hi, Steve. I'll have Susan Jones, our President of Fox Bay talk about the, synergy delivery and structuring. And then I can come back and talk a little bit about strategically how we think about our phosphate business. Go ahead, Susan.
Hi, Steve. Yeah, as Chuck Negro mentioned earlier, we are well underway for our synergy plan and phosphate We do plan to capture $80,000,000 in annual run rate synergies, by only spending $80,000,000 in capital. And just as a reminder, we are going to when we recurpose thread water, we're going to be moving from 350,000 tons of sulfate production to 700,000. And we're going to, shift, our map production from White Springs, Florida, and our LoRa facilities in the US to, backfill that In terms specifically to your question on timing, this is going to be, very efficiently sequenced. So we are going to be bringing the map train up in the first quarter of 2019.
And we are going to be planning to do the full conversion in Q3 of twenty nineteen. So we're going to have ample opportunity to bring product through to ensure it's in the bins ready for customers in time for both spring through summer and, ready for the fall.
And then strategically, Steve, if you step back and you look at the phosphate business, moving from 3 facilities to 2, it it makes the operations, I think, more efficient. It allows us to run at a higher cap capacity utilization rates that $80,000,000 no matter what we choose to do, we'll go to our shareholders, which is the most important thing that we're focused on. So I'd say right now that The vast majority of our energy and attention is on getting that right. It's $80,000,000 capitalizes, is significant value creation. I have said before that, philosophy, but as well as many of the parts of our portfolio will be part of our overall portfolio review with our board of directors that we will we will start that process most likely in the middle of this year.
But right now, it's a little too early to talk about what will happen through that process until we get through our analysis and have our our discussions with our board. And the vast majority of our energy right now, as I mentioned, is it delivering the 80,000,000
And our next question comes from
the line of Vincent Andrews with Morgan Stanley. Please go ahead.
Hi. This is Neil calling in for Vincent. Just had a question on your synergies. You already achieved a $150,000,000 run rate after 3 months. Versus a $250,000,000 run rate targeted by the end of the year.
Does that exceed your initial expectations and does your fast pace in 1Q imply any upside to the $250,000,000 number? Did we get through the year?
Yeah. Hi, Neil. I'll have Steve Douglas, our our chief integration officer, kind of give you how we're thinking about, the synergies now and maybe even a few examples to, to make it real for you. And then he can also address the question on on, is there some upside? So go ahead, Steve.
Thanks, Chuck.
I think it's important to remember that regardless of the fact that I think we've had some great in the beginning of the year. It's still early days relative to, where we're at on the synergies. That said, nothing we've seen in any way, shape, or form leads believe we've only achieved the synergies we put out there, the $500,000,000 of a run rate by the end of 2019. The $150,000,000 that we've realized on a run rate basis to date it's reflective of both capital and income impacts by virtue of, a lot of things. And Chuck alluded to.
We have some, you know, examples of shedding over 900 railcars, 10 warehouses, incremental potash tons being put into retail that, we wouldn't have otherwise generate sales for reduced VanSCoy sustaining capital. Many of you will recall when we were agreement on a stand alone basis. We had one mine that needed to run. So we probably took a lot of, incremental cost that we wouldn't otherwise when you look at it in the context of a broader portfolio that we have today. Other savings include the credit facility savings that we've been able to realize, insurance, just having larger pools to be able to put together.
And a lot of other more granular examples that I think lead us to believe, that we're going to be in exactly where we said we were going to be. We're not, at this point, suggesting that we're going to exceed the $500,000,000. Again, it's still early days and we've only really been together and able to look over the wall for the last well, for 5 months now or 4 months now and then 3 into the quarter. But, we remain very confident that the synergies we laid out beginning all of this are evidently achievable. And, we're going to keep working to make it higher if we can.
Our next question is from the
line of John Roberts with UBS.
Thank you. Did your retail operations see any change in the competitive behavior from co ops early in the season when it looked like the co ops would get a tax windfall on their grain operations. I suppose that could drive the farmers to use the co ops more for their inputs as well. And do you think the U. S.
Tax law has been fixed to address that?
Hi, John. Mike Frank can answer your questions. Yeah. John, we we didn't see any impact on, crop inputs. You know, I know there was a lot of concern on the grain side.
And, yeah, what we understand now is that the, the tax issue has been fixed. And, and so there's no chance that you don't have any spillover impact on retail.
And our next question comes from
the line of Joel Jackson with BMO. Please go ahead.
I understand that your presentation of segment EBITDA now includes synergies where in the in the past, it didn't. So you raised the EBITDA guidance for both potash and nitrogen $100,000,000 each for EBITDA. Can you talk about how much of that is just by layering on synergies now in that presentation? How much is of $100 each is you see better outlook for the business. And then you did a good job to break down the $150,000,000 run rate synergies achieved so far by bucket.
You're able to break that down by segment as well. Thanks.
Hi, Joel. Look. So not to get overly granular on on the guidance ranges we raised potash and nitrogen EBITDA, a $100,000,000 each, as you mentioned. And that's really because we're, we're getting more off optimistic about the performance of our business, about market conditions. We're seeing higher sales volumes.
We're seeing higher market prices. Certainly, some of the lower costs are due to synergy capturing those 2 big businesses. They were always part of the plan. And if you look at at that, the the increase of the 200,000,000 of EBITDA fits pretty nicely inside of the overall consolidated 3.3to3.7000000000. We did raise the bottom end of that range because we have growing confidence of the 2018 market conditions.
The reason we didn't touch the top end right now is because a lot of the the conditions need to be determined in the second half of the year, namely around price. So what we we thought is we would just increase the the bottom end of the range if the, the businesses of for potash and nitrogen fit very nicely into that range. And then once we get through the spring season in the second quarter, we'll have a good look at the range. We'll have a better feel for second half prices. But I should remind you because this should go without saying.
The midpoint of our EBITDA guidance range of 3,500,000,000 it is up over 20% from last year's pro form a of 2.9. So it's excellent growth. It does reflect, about 200,000,000 total synergies, and, of course, increased volume and higher market prices. So everything's moving in the right direction. Also in my prepared remarks, you know, expecting flat planted acres, higher farmer margins.
We're expecting good input demand. We're seeing that right now in retail. So, right now, we're pretty optimistic about market conditions through 2018.
And our next question comes from the
line of Steven Byrne with Bank of America. Please go ahead.
Yes. Regarding your your plans to sell Loveland products in Brazil. Do you need product registrations, to do that or do you already have them? And if not, how long will that take? And did these newly acquired Agrichem locations represent a footprint for you to not just sell Loveland, but to expand to a more full service retail model at those sites.
And if so, would a fertilizer distributor like Henninger provide the same footprint to expand into full service.
I'll have, Mike Frank talk about our our plans for Agrichem and LPI, in, in Brazil. Go ahead, Mike. Yes, Christine, on your question with respect to, registrations. And so a lot of our Loveland products don't require, registrations in Brazil, you know, specifically our biologicals and microbials and nutritional products. And so, those are products that we can take directly into Brazil.
And and the way Agrochem works is they don't have their own, retail network. They actually, have a broad base of distributors across Brazil and beyond Brazil. And so what we see here is an opportunity to take our Loveland products into their distribution system and and get broad access across, the country of Brazil. Now the other opportunity gives us is that, you know, get us closer to the, the retail industry in Brazil. And so as we think about expanding our footprint, this also allows us to, to get to know the retailers better And we think that'll be an opportunity as we think about our M and A strategy in Brazil as well.
Our next question comes from
the line of Vincent Anderson with Stifel.
Good morning. Thank you. Thinking a little more long term, when you imagine your ideal tail and distribution asset in Brazil, would the addition of that asset to your portfolio materially alter the math behind possible restart of any of the new Brunswick potash assets. And this is probably too reactionary, but have the recent rail issue in Canada added anything to your thoughts on the value of those assets in your portfolio?
Yes. So I'll try to answer your question the best I can. That the retail growth in Brazil is really focused on value creation, for farmers in Brazil, bringing them a full suite of product offering. Of course, if that offering includes potash, we have significant underutilized capacity, and we would do what any other year would do, we would start to use up that capacity from our lowest cost production up. We have we have it still in Saskatchewan as, as it already been mentioned today, we have underutilized capacity in Saskatchewan's fairly significant underutilized capacity that we could more immediately bring up than other production outside of that province.
So in order of priority, the growth of Brazil will stand on its own because of value creation for retail and for growers in Brazil. But if there's a potash synergy, we would bring up the capacity from the low cost plants in Saskatchewan.
And our next question comes from
the line of Mark Connelly with Stephens. Please go ahead.
How differently are you positioning nitrogen through the system because of late planting? And obviously, your footprint gives you a nice advantage, but does the shift to urea and UAN make your system more or less efficient? Yes. Thanks, Mark. So I'll have Harry Dean talk about how we're preparing for spring.
And and, and the overall network, it's been quite a nice situation to have, the southeast part of the US now in the northwest part of Canada. In terms of a production profile in North America. So go ahead, Harry.
Thanks for your question, Mark. Mark, you know, these two systems couldn't be more common to point entry. We've got a a Western network, as we call it, in in Canada, and then Eastern network in the United States. So what we've been busy doing, even though maybe the product hasn't been going to the field. We've been busy actually positioning all our tons in the right places.
So when the demand does kick in, we can supply the market and that's worked extremely well. What we found out before is we used to sub optimally deliver to various places, but now you've actually changed where we deliver from and that's actually helped us to reduce costs, reduce the lead time, and improve the efficiency of the operation.
And our next question comes from
the line of Michael Piken with Cleveland Research.
Yes, hi. I was wondering if you could talk
a little bit about what you're seeing in terms of the seed and crop protection markets in the U. S. And in particular, are you seeing any competitiveness it's toward the end of the season on soybean seed and then on, you know, crop protection, just wondering, what the delayed spring might mean for, pre emergent
Hi, Michael. Mike Frank can address your questions. Yeah. So firstly on crop protection. You know, with the quick development of the spring, there there is likely an impact on some of the, already seasoned residuals and even the first burn down marketing.
So we're watching that carefully. You know, when we look at our product mix, we're actually pleased from a margin standpoint as to how the market's, developing at this point in time. But from a, you know, from a herbicide standpoint, which is really the big part of the, crop protection market right now, you know, there probably is an impact with growers going directly, into, into planting. On the seed side, the the seed market's been highly competitive this year. You know, when we look at our overall, book of business on the on the coin side, you know, our average coin selling price is down about $2 and so you can almost call that flat.
Soybean is flat and canola seed is actually down a bit this year. And so The seed market's been very competitive. And, you know, from a soybean standpoint, we're expecting about half or so of our mix to be, Dicamba trades, which again, we're in a unique position because of our, our custom application, equipment to really serve that market. So But the seed market's been competitive for sure.
Our next question comes from
the line of Jonas Oxgaard with Bernstein. Please go ahead.
Good morning, guys. So, you talked a little
bit in the beginning of the Q and A about, you didn't lag. But one of the other competitive, aspects out there is supposedly this website for, for price comparison. Can you talk a little bit about what kind of price differentiations do you actually have between individual products right now? And then how do you see the competition for this website of Old Bank?
So I'll have Mike give you his perspectives Jonas, and then I I'll talk I'll give you mine as well. Yes. So, Jonas, you know, when you look at competitive sites and I think the ones you're referring to. You know, so firstly, from a product standpoint, if you, if you look at their sites, probably 80% or so of their portfolio, is not available. And, and so as I talked to our customers across the market, I mean, they're really not getting any value from that site because it's not reliable from a supply chain standpoint.
You know, from a price discovery standpoint, you know, growers know that there are different prices in the marketplace, whether you're prepaying for cash, you know, well in advance of the season, buying it in season with net 30 day terms, buying it in season with, with, with longer terms. Or you're getting it bundled with application services. And so, you know, what what what our customers have seen when they've looked at the data is, is that it really isn't helpful. And, you know, so from our perspective, you know, we're taking a very different approach again with our omnichannel approach, building a site that provides both, the convenience of online, ordering and, and, and managing your account online. But also getting a a full suite of agronomic advisors as well.
And so we're we're taking a different approach based on all of our feedback from our customers and through our beta testing the feedback has been very positive. And so, we feel, we're confident in the approach we're taking. Yeah, Jonas, my perspective on these websites, So price discovery or price transparency, you know, it's good for any business. And we we're a big believer in that. But it has to be on an apples to apples basis.
So it happy just several smaller generic products with no service, that really are not really relevant in terms of the market price. So in in in our business, you know, we're really focused on not just the cost of any one product, but we're trying to work directly with the grower to provide value to provide a a profit per acre. And so to provide the service, the agronomic knowledge, the digital tools so that they maximize their their business performance, whether that's yield or profit. And there'll always be a subset of our of our customer base that'll want just the lowest cost. But really, our business model is not geared towards that.
It's really geared to working with growers that are wanting more than that. They want profit. They want yield. They wanna maximize their business. They need a partner And and we think that given our distribution capability, the skill set we have inside of our retail business, and now our new digital offering, there's really going to be nothing that we can't provide a grower, in terms of value creation.
And our next question comes from
the line of John Chu with Laurentian Bank. Please go ahead.
Hi, good morning. Just on the Redwater repurposing I understand that, the ammonium sulfate capacity is probably going to double once you do that. So what's the destination for that product? If I recall a few years ago, you were repatriating quite a bit of volumes back into Canada. So I'm just curious where the market is you're going to be focusing on for that, for that AS product.
Thanks, John. I'll have Susan Jones to talk about our plans for ammonium sulfate.
Yes, thanks, John. Yeah, the Canadian market is obviously a key market for ammonium sulfate. It is, expected to be a growing market with canola acres and also application rates. We do expect to have a large chunk of that going into the Western Canadian market, but we're also going to be positioning within the P and W in the Northern Plains. And the nice point of that is we've got a, a key distribution network, not only in Western Canada, but also in the U.
S. Through own retail. And also what we've already got established. And so it will be a combination of those 3.
That is the end of the call today. If you have any follow-up questions, any investor relations is available to take field any calls. And thanks for joining us today, and we'll talk to you shortly. Bye bye.