Welcome back. Got a good panel, or a good fireside chat here with Nutrien. I got Mark Thompson from Nutrien, Chief Commercial Officer. He covers essentially all of the wholesale aspects of Nutrien. And then I got Jeff Tarsi here that runs Global Retail. I met Jeff about 20 years ago, when he was with UAP, and I toured a cotton farm with him, which was kind of a new experience for me, having grown up in the northern Corn Belt. But I learned about cotton from Jeff. But anyway, got a really good group, a discussion going here with these guys. Feel free to jump in with questions, when we get in here a little bit further.
But maybe we'll start off with potash. I think I'd like to hear your views on this one, Mark. You know, where do you see potash going? What... Why is it lagging behind your other nutrients, and what's the outlook from your perspective?
Yeah. Thanks, Steve. So thanks for having us, first of all. Happy to be here. Sure, on potash, I mean, I think to understand where we're at today, probably have to go backwards a little bit. So I think from a Nutrien standpoint, just to start from a high level, I mean, you know, since the company was created in 2018, the strategy in potash, you know, as it relates to volume and our overall approach to the market, has been very consistent. It was, you know, continuing to maintain share as global demand grows, and that share historically has been in that 19%-20% range.
And so, you know, about two years ago, when we got into the second half of 2021 and we started to see some supply disruptions, we saw the flooding of another mine in Canada that was not Nutrien's asset. We saw Belarusian sanctions, and then, of course, the war break out in Ukraine and really caused a supply crisis. And so, you know, our first response in that situation was to say, you know, "How can Nutrien put more volume in the market to stop prices from flying up?" Which we knew would be unhealthy for demand, and to try to take a path to do that, and ultimately, I think at this point, some of that's history. But, you know, we saw potash prices go above $1,000 a ton and really saw demand be destroyed by that.
And so for the last 18-24 months, we've really been on this trajectory of demand recovering. And so, of course, in 2022, we saw global shipments fall from about 70 million tons down to 61 million tons. In 2023, we saw some improvement in that as we worked through inventories from the panic buying and saw prices start to moderate. And so really, in the second half of 2023 is where we started to see broad-based global recovery in the potash market. At the same time, we've seen supply out of the former Soviet Union recover, albeit through new, high-cost-to-serve routes that weren't there previously. And so as we enter 2024, we're actually back into a position where, as Nutrien, we say, you know, we're continuing to see demand recover.
We expect demand to grow again this year from 67 million-68 million tons last year to, you know, what we'd now say is 68 million-71 million tons. So we've got about two million tons of demand growth globally at the midpoint, and we believe that'll be filled, you know, maybe half of that from the FSU and the balance from Canadian producers like us and, and Laos. And so we see 2024 as a, a much more balanced market. You know, when you think about Nutrien's role in that, it's really, you know, back now that the supply crisis is behind us, back to the role that we've had previously, which is continuing to maintain our share as the market grows.
So as that market recovers, which we expect it will, as affordability is improved, you know, some of the uncertainty around trade flows has improved, and we look out to this year, you know, we see ourselves continuing to grow share with the market, really into that mid-cycle case that we see as 14 million-15 million tons for Nutrien in that share that we've traditionally maintained and enjoyed. And so I think the benefit that we've got at this point is we've, we've put the steel in the ground. We invested in the low-cost assets we have, and really, from an installed capacity standpoint, we've got about 15 million tons there. And so we really can grow into that more or less organically over the next couple of years as the market continues to recover, and we expect it will.
Jeff, on your side, on the retail side, do you think that that severe contraction in application rates in the last two years, particularly in 2022, is driving increased application rates in 2024, or is it just going back to normal?
No, I think if we... First of all, we look at, at 2023, we would've seen an 11% increase in tonnage for the 2023 crop year with, within N, P and K. And then, if I look at the last quarter of 2023, we would've seen a 15% increase. We had a really strong fall application rate. And look, part of that is, some of that is recovery, and I think we talked about that quite a bit, that there was quite a bit of nutrients that were banked in the soil over time when growers saw prices as more affordable. I think they pulled on that bank some, and obviously, in 2022, and then in 2023, we saw them start to replenish.
But then you also got to recognize that, you know, from a corn standpoint, we pulled off a 177-bushel corn crop last year, and so that naturally is gonna take a lot of nutrients out of the soil and, and therefore, a lot of replenishing. We're forecasting our tonnage to be up again in 2024, over 2023, 6%-7%, across our retail network. So, you know, you can't, Steve, you can't invest in these hybrids, and in the last session you were having here and talking about a lot of the dynamics with the hybrids that we have today. But you can't invest in those hybrids and pay the, the cost they are to plant those without giving those hybrids the proper nutrition in order to get the yields that we're desiring to get.
Do you think that 177 bushel suffered from soil deficiency?
You know, first of all, I'm gonna tell you, I was very surprised at the 177. You know, if I would've looked at just how scattered rainfall was across the Corn Belt last year, I wouldn't have personally predicted. And I always feel like I'm a pretty good—I've been in this thing for over 40 years, and I always feel like I got a pretty good feel for where yields are gonna come in. Those yields surprised me from that standpoint. I can't sit here and tell you that I think the yields suffered from deficiency, 'cause even when I look today, I think USDA came out a couple of weeks ago, and they're projecting somewhere 180-181.
I have a hard time following that as well, because that was a really big crop we produced last year, and we're going back into... You know, we're going back into this spring. We've had some drought relief, but we haven't had as much as we need from that standpoint.
Yeah, Steve, I think we've looked around. I mean, we ask ourselves this question. I mean, we've seen in some of these international markets on potash what we would believe to be severe underapplication of nutrients in the last couple of years. And of course, you got a lot of different factors going on that can drive yield on an acre. But when we look across key global markets across the world, and we look at, you know, traditionally how we think about it, is you've got that trend yield and really how are yields performing versus trends.
So when we look across all the major ag regions of the world, you know, we would say that over the past three years, which is really when you've seen more of that underapplication of nutrients, particularly potash, yields are about 3% on average below that trend if you look across global markets for grains and oilseeds. And of course, that can be weather, it could be nutrient underapplication. But, I think, you know, your question on potash in particular, potash is a nutrient that is really important when you've got drought conditions. It's gonna be one of those nutrients that helps to prevent the impacts of drought. So, you know, we look at those yields globally, and they are below trend, and, you know, we think nutrients is obviously one of those things that's gonna help catch up.
All right, let's jump to nitrogen. What is your outlook near term for nitrogen demand in the U.S.?
Yeah, with respect to the U.S. in particular, you know, right at this moment in time, heading into the spring season, you know, and Jeff could comment after me on what he's seeing from a retail standpoint, but we see the U.S. Gulf in particular as being very tight, just in this moment in time. Obviously, the U.S. is a net importer of nitrogen products, and you know, we're shaping up to have another pretty strong year from a planting standpoint on corn, it looks like. And so, really, the U.S. needs to attract those imports on an ongoing basis to get ready for that spring season. And so particularly in urea and UAN today, we see trade balances continuing to be tight.
And with some of the weather starting to improve in pockets of the U.S., if we get going here a little bit more quickly than maybe is traditional, you know, we could see a squeeze in some of these inland markets for nitrogen. Yeah, I think the same is true on ammonia. Ammonia's really, you know, been a bit of a mixed supply picture, but, you know, we do see some tightness right here and now today in the U.S. Gulf. And so, you know, as we look out at least through the first half of the year, we're very constructive in terms of nitrogen demand, but also tightness in supply heading into the spring here in North America. But I'll let Jeff-
Yeah, we saw very heavy ammonia usage in the fall, which sets up well for 2024 season. And as Mark just discussed, one of the things that I look at right now is the fact that, you know, we're planting corn in South Texas right now. We've started planting some corn in Louisiana. We're not out of the month of February yet, and so this thing looks like it could shape up really early. Now, I realize there's some weather patterns going across the Midwest this week, with some temperatures cooling off some. But, you know, my immediate mind goes to is, how quick could we see a pool on products like nitrogen, and how quick can we get ourselves replenished? And also coupled with the fact that, you know, until we got into...
Until we got into turn of 2024, we were dealing with a very low river, and so we couldn't move a lot of product up and down the river as well. So if this thing kicked off really quick, I think there could be some constraints there. We, I know we feel good about our asset base and how we're positioned going into the end of the spring, so we think we'll be able to satisfy our customers' demands, but it could make it tight.
How is it that you are well-supplied on nitrogen? Is it, is it in your wholesale supplies, or is it at the retail facility that you think you have adequate?
Yeah, well, I can talk from a, you know, certainly from a nitrogen perspective in the wholesale business, I mean, we've talked about this, Steve. Reliability's been a big focus for us. You know, when we look on a year-over-year basis for the company, we were about 10.4 million tons of nitrogen sold in 2023. And between improved reliability in Trinidad by operating, you know, on a three-asset plan to fully utilize our gas that's available to us there, and improvements on the back of some of the turnarounds we did at Borger and Geismar last year, we see about 500,000 more tons this year, going from 10.4 million- 10.9 million tons at our midpoint.
Improved reliability is definitely playing a role in, you know, I think our network and us having supplies available to support our customers. From an intercompany perspective, you know, we always look at optimizing the integrated model in a way that's freight logical, you know? And so we've got areas of the U.S. and Canada where it's extremely freight logical... for nutrient to self-supply from a nitrogen standpoint, and there's other areas where, of course, and Jeff can talk about it, where they'd be procuring from third-party suppliers. But yeah, we feel like we're in a good position if we do kick off with an early spring to support customers, and obviously, we do everything we can to do that.
Yeah, and obviously, with fertilizer, that's obviously not a just-in-time market, and so we're buying pretty much every month of the year. And I, you know, as I look today at our inventory levels where we sit today, I think we're adequately supplied, very adequately supplied through the middle of April and into 1st of May, and in a good position, really and truthfully, for the first half of the year. But, you know, we do that keeping in mind that we don't ever know when these springs are gonna open up. And, you know, I could say four to six weeks from now if the spring was very slow starting, then I might have pulled it in a bit quick.
But just in case, and now it looks like we're looking at a just in case, where I think we're gonna have, I think we're gonna have an early, early planting window here.
Mark, why is the U.S. so tight in not having attracted sufficient imports? Why is that?
Yeah, I think there's a couple of factors to that. I mean, I think if you look sort of on a Fertilizer Year basis or even look back 12 months, I mean, one of the dynamics we have seen more over the past year is, you know, exports in certain cases leaving the U.S. or Trinidad that, that sometimes are destined for North America, that have sought out other destinations or end markets. But I think on the supply side, you know, you've seen some constraints out of Trinidad from a gas standpoint. You've seen, some supply issues in the U.S. itself with production assets in the U.S., and I think, different producers have been public about that.
And then I think from a Middle East standpoint, you know, just you consider the logistics interruptions and some of the escalated costs associated with the conflict around the Red Sea area. And as producers in the Middle East think about netbacks and where that nitrogen is gonna be directed, you know, right now there's, you know, maybe some more complexity around getting to the U.S. Gulf and the cost of that than would be traditional. So I'd say it's really a combination of a variety of supply-side impacts that, as Jeff said, if they coincide with demand, that's a little bit earlier than we expect and a real push to get that product in market. And I think that's what could coincide to cause some tightness potentially.
You clearly have excess supply of potash that you could bring on stream. What about nitrogen? Is that an area that you would be looking at capacity expansions?
Yeah, I think when you think about our improvement plan, I mean, I think the, the best way to anchor over the next couple of years is probably that mid-cycle case that we talk about. So, you know, in the mid-cycle case, from a volume standpoint in nitrogen, you're short of at 11.5 million-12 million tons in that mid-cycle case. And I think the, the supply walk, the easiest way to think about the supply walk to get there, as I talked about, was from 10.4 million tons last year, the improvement to our midpoint this year is really that 500,000 tons, if you break it down, is probably, you know, 60% of that is, is Trinidad and the, the strategy we've employed at Trinidad to fully utilize the gas that's available to us.
And then, you know, about 40% of that, five hundred thousand ton improvement would be really looking at, at assets like Borger and Geismar, where we've undertaken major turnarounds. Really the remainder of that gap to get from 10.9 million to the 11.5-12 million tons would be, getting access to full gas utilization at Trinidad, because we still assume in 2024 we'll be about 20% curtailed. And then the completion over the next three years of these smaller incremental brownfields that we have been undertaking across our network and fleet. And as those come to fruition over the next two to three years, we see that 11.5 million-12 million ton number being, you know, probably a good landing spot for us.
All right, Jeff, I want to drill into the retail business a little bit here. You guys acquired a retail organization that I've known for a long time. It was a privately held group, and I knew them for a long time. My old college roommate was a farmer and relied on this group. But what that group explained to me was their profitability doubled, and they attributed it to the benefits from having your low-cost position, the cost that you can acquire crop chemicals, your proprietary products, and then the scale and the density of the platform and the benefits from that. Is this an opportunity that's gonna be a continued driver for your business to continue to bolt on in the U.S.?
Is there a limit to how much further you can go on that?
Well, I think, you know, if you just look at it from a share perspective today in that U.S. market, we're still probably below a 25% market share. So my answer to that would be is that there's still runway there for further consolidation. You know, if you look at our retail organization, we really built it through a series of tuck-in acquisitions-
Like the UAP.
I could probably go through the list and name off 200 to 250 that we did over time from that standpoint. And these have always, and Mark knows this too, because he spent a lot of time at M&A, and we spent a lot of time together. These are always very synergistic to us. First of all, when you find these businesses like this, very rarely do any of them have a proprietary platform. And with proprietary products, you know, a lot of times we can double our margin with that proprietary portfolio. And that's, look, that's across seed, that's across crop protection, that's with plant nutritionals and biostimulants and seed treatments and those type of things.
And then the other factor that you mentioned was that, you know, because we do procure on such a large basis, and that we should have some synergies there, from that standpoint. And I might also mention that we take things from those businesses as well. And when we see niche things that they do in there. And look, every one of these proprietary or independent-owned businesses, they have to be good to survive in these markets. And so when we find those niche things that they do that work well in their business, we can spread that out across 2,000 retail facilities across the globe. And like the company that you're referencing now, you know, they did some very unique things in seed, and they were very strong in selling seed.
That's something that, you know, over time, we have greatly desired to increase our market share in seed. So these go both ways. There's a lot of things we can bring to those businesses, and yet, at the same time, there are things that we can bring back across. You know, if I look at our Australian business and the Landmark business that we bought in 2010, you know, there are a lot of things there that we saw on the financial and grower financing side of the business that we've been able to bring over across our bigger portfolio. So we gained a lot of synergies over time and, you know, look, we've made a lot of investments in the last 15 years in that retail side of our business.
I tell our people every day, you know, "Let's take some time now and collect some dividends off of that." We wanna continue to be opportunistic when we find really good opportunities from a tuck-in standpoint, and we will be.
Maybe talk a little bit about your Brazilian business, where you recently took a write-down. Has that been a more challenging area for you to build out that platform, and why?
Well, it has been a challenge, particularly over the last 18 months. And the Brazilian market has been a lot more, in my opinion, a lot more volatile than the North American market or the Australian market. And what happened in, and just to go back, we've acquired roughly 10 companies there in Brazil, 10 acquisitions in that marketplace. And what we're doing right now is we're taking a breather from acquiring further, and we're making sure that we get those 10 fully integrated. That's very important from us, and particularly when I speak to the fact that we had an extremely hard reset on nutrition prices, a lot of devaluation in the fertilizer market.
Just as we got through that fertilizer devaluation, we went into a massive devaluation on the crop protection market. I'm sure you've heard a lot of the basic suppliers talk about that same thing. We feel really good about where we sit right now from an inventory perspective. We really worked hard last year to get our inventory down. We really worked hard to put a lot of controls from a procurement standpoint in there. But what happened is when Mark's referenced it many times, when the war, when the Ukraine, Russia's invasion of Ukraine came in, growers really started hoarding a lot of product, and because there's a long supply chain window on getting product into that country, and almost everything is an import into Brazil.
What's different there is it's very easy to lose transparency into what inventory levels are in that country for a couple of different reasons. Number one, it is a very fragmented retail marketplace. Steve, we've got about a 2% market share there, and we might be the third largest retailer in Brazil, so very fragmented. Secondly, because growers store a lot of inventory on farm, so as you would know, here in the States, 98% of the fertilizer we sell, N, P, and K, is bulk truckload, okay? That market there is 98% a bag market, and super bag, we call it. And so growers will store that fertilizer on farm. Well, once that's on farm, it is very hard to have transparency into what those inventory levels are.
They did the same thing with crop protection, and you wake up one day, and you went from not knowing if you were gonna have enough inputs to you've got a glut of inputs. And that starts a devaluation and a spiral and a lot of cost reductions and price reductions and such. We think that we'll see significant improvement over 2023, starting in the back half of 2024. As you know, we're planting second crop corn there right now. Soybean harvest is coming off at a really pretty fast pace right now, and the big heavy season for us will be from August to December. So we think we'll start to see improvements in that as we get in the second half of the year.
But it is a much different market than the North American market from that perspective.
Anybody want to get in here with a question? Up here in the front.
Thank you. I have two questions. One is, you know, we're talking about how nitrogen is, seems to be tight in the U.S. on the wholesale level, but at the same time, you made a comment that nutrient retail is adequately supplied. So how do we reconcile, you know, tightness, which you see further upstream, with the fact that you say you have enough inventory? That's the first one. The second I want to ask in potash, Anglo American has a big project in the U.K. for a slightly different potash nutrient, polyhalite. And if you can talk about that, because I think it's scheduled to come online in the next three to four years. You know, how big could it be?
How does it compete with MOP, and whether this is something of interest to you because they are actually looking for additional investments there?
... Sure. Thanks. Maybe I'll take the second one first, since the first one is probably both Jeff and I. But, yeah, I think in terms of the second one, I mean, when you look at polyhalite as a product today, you know, and the global market for that product, I mean, you should have, you know, maybe one million tons or just under that. And, you know, it's been between a couple hundred thousand tons and 1 million tons for probably most of the last decade. And so I think the biggest difference from a sort of an agronomic or a content perspective is, you know, you think about MOP or potash and being in around that 60% potassium content. Polyhalite, by contrast, is about 14% potassium content combined with micronutrients.
It's not really agronomically a substitute for potash, and because of the low analysis nature of the product, the use cases are quite different. From a nutrient standpoint, it's not something we've been focused on. It's not something that we would expect we will focus on. You know, there are some smaller agronomic use cases for that today, but we wouldn't see that playing a role in having an impact on the overall global MOP market, and the use cases would be, you know, quite different for that product. You know, I think maybe I can let Jeff start on talking about the nitrogen position that retail has today, and then I can, you know, maybe reiterate anything on the supply side.
Yeah, and I think I stated a bit earlier in that because we sell the mass volume of tons that we sell, we're buying basically every month of the year, some product somewhere. We also have a very extensive logistics network and a lot of storage capability as well. And so when I say we're adequately supplied, I look at it from a standpoint, from a historical basis, where we sit today and where I think that market is, and I think that I think we're sitting in a pretty decent position today from that standpoint. Now, how my competitors are supplied, obviously, I wouldn't have any idea on that, and I do know that from a storage capacity standpoint, we're probably sitting in as good a position as anyone does from that perspective.
Mark, you might want to add some more.
Yeah, I mean, I'd just reiterate, Sal, the, you know, comments I made earlier. You know, I think the supply tightness is coming from a few different places, you know, with respect to production interruptions that have happened, and in some cases have seemed to continue to happen in Trinidad because of gas and the U.S. And, you know, I think in some cases, we understand that's really probably shipping from prior seasons still catching up because of some of those supply interruptions. And of course, as I mentioned, Middle East is playing a role in that, and we don't expect you're gonna see really a material amount of Chinese urea exports, probably until sometime in the second quarter. So again, I think all those things are exacerbating, and as Jeff said, the supply chain is distributed very differently.
Different players have different asset bases. So, you know, I think, you know, the key point here is that, you know, I think from a nutrient standpoint, whether it's to supply customers or whether Nutrien Ag Solutions, as Jeff is talking about, we feel like we're pretty well positioned. You know, I think in that whole equation, whether it's, you know, from a volume standpoint or just generally the natural gas and the profit advantage we have on the wholesale side of the business in that environment, where you've got supply tightness this spring in North America.
We're out of time, but I want to squeeze one more in, and that's phosphate. A relatively smaller wholesale fertilizer business for you, but quite profitable right now. Is that an area that you would consider expanding?
You know, I think with the phosphate business we have today, Steve, you know, you've got sort of the two assets, Aurora and White Springs, and really, the focus in phosphate has been around optimizing product mix. And so we've got a very diversified business in phosphate today. So actually, just over 50% would be non-agriculture uses in phosphates. And so a lot of those businesses are very profitable for us, where you look at, you know, Purified Demand as an example, and some of the different, feed and industrial markets that we're serving. So really, the, the focus in Nutrien has been, how do you optimize the asset base so that you have White Springs and Aurora serving the right places?
And really, on the agriculture side, the focus has been on, you know, converting some of our traditional dry phosphates business to MAP plus MST, which is a sulfur-enhanced MAP product that we've had just great penetration in North America. In the last year here in 2023, we increased sales by over 100% of that product, and it's become very competitive. And our integration of Nutrien and Nutrien Ag Solutions has been a big part of that, Nutrien Ag Solutions playing a role in having that product penetrate the market. So I think with phosphate today, it's more about how do we optimize the asset we have. You know, of course, we continue to watch, you know, how the discussion around LFP evolves globally.
You know, again, I think there's a lot to be determined there, but certainly, where Nutrien sits today, you know, we're sort of at the top of the list in terms of available purified demand, and purified capacity to meet that demand. And so, you know, I think as we watch that market evolve, we'll see what that means for the existing product mix that we have. But I think it's an optimization story versus a growth story in phosphate.
Very good. Join me in thanking Mark and Jeff here. Thank you.