The CFO of Nutrien, ticker NTR. I've had the pleasure of working with Mark for, dare I say, probably 13, 14 years now. I appreciate you taking the chance on me when I was a younger analyst. It's depressing to think that it was that long ago, but it's been, truly speaking, it's been remarkable to see how your career has progressed. I'm very, very happy for you and your family because I know how hard you work and how much you absolutely love the industry. At least we share something in common.
Yeah, we do.
Thank you so much for taking the time today. Obviously, it's a little bit more of a trek for you than some of your U.S. counterparts. One of the things I did want to start off, and forgive me, it's a bit of an unpleasant topic, but just given the events of the last few weeks, and we'll go over the last three, six months and where we're going, but just in terms of the geopolitical turmoil that we're seeing in the Middle East right now, when you take a step back with Ken, how are you thinking about things? Has anything actually changed? Are you still generally in wait-and-see mode in terms of the...
Yeah, great to be here with you. Yeah, we always like coming out and talking to you. You know the industry really well. So happy to be able to speak with you for a few minutes this morning. I think maybe just like a minute of context setting because it's probably important to lead into where we are today and then get to your question on the conflict more recently here in the Middle East. I think if we step back relative to where we were coming into 2025 and our view three to six months ago, certainly from a fundamentals perspective, we would be more constructive than we were at the beginning of the year. Really, that's a function of tighter supply-demand balances across all three nutrients.
In North America, as you know, people are gearing up to plant what is expected to be close to 95 million acres of corn. Against that backdrop, we expect there is going to be really healthy demand for crop inputs. Generally speaking, we are seeing that this spring. I think that backdrop context is important because as we get to where we are today and we look at the fundamentals prior to this conflict flaring up late last week, we already had a relatively tight supply-demand balance for nitrogen based on the fundamentals alone. That was particularly true for urea and UAN, which had been tighter and remained relatively tight relative to history, especially in North America. Ammonia probably more in balance or a little bit looser conditions we have seen over the past couple of months. We fast forward to this conflict between Israel and Iran.
Obviously, all that we know today is what we're reading like everybody else. There are a few key implications of this if this were to continue for any prolonged period of time. One of the major implications is that if you look at production in Egypt and Iran and the Middle East today, we understand that production in both countries is largely, if not entirely, shut down. In 2024, both countries accounted for about 10 million tons of exports of urea and are also important in other forms of nitrogen as well. The other main implication that we would see is the risk on trade that's started to take hold in energy markets and particularly what that looks like it's doing to international energy prices and in Europe. Of course, that Euro TTF price is really important in the price-setting mechanism for global ammonia benchmarks.
All of this is taking place against a nitrogen backdrop, which was already tight. Obviously, we do not have any visibility into how long this really difficult situation will continue. To the extent that it does, it probably only tightens things further.
It's important to stress, I think, that we're not talking, even the gas outages are unrelated to an escalation. Escalation would be the Strait of Hormuz. Obviously, it would be more than double that constraint, which would not include Oman, which would not include Egypt. That's solely from the current gas outages, Egypt from Israel, and Iran from, obviously, its southern gas field. Pretty dicey situation in the last five, six days. When I take a step back, let's move on to perhaps some more pleasant topics. When I take a step back, this isn't—I was on the morning call yesterday, and believe it or not, I was talking about you. Good things.
You did not need any Middle Eastern turmoil to boost up nitrogen prices to have what I perceive as turning out to be a pretty good year and, more importantly, something that can most likely extend into 2026. When I take a step back and I think about, I want to do retail probably last, but the potash fundamentals have generally, versus previously bearish expectations, have generally been pretty positive. That is despite the fact that Belarus has been approaching pre-sanction, pre-war levels. Uralkali, same thing. Laos has had some disruptions, SQM a little bit, but it is fairly immaterial. The potash market has been primarily demand-driven. The first question is, has that actually surprised to the upside as it has me? Feel free to disagree. More importantly, how much longer can this actually persist? Is this a 2025 issue? Is it 2026 and 2027, perhaps into BHP?
Just how is Nutrien thinking about that?
Yeah, I think you actually characterized it really well in terms of how we would be looking at the potash market today. I mean, similar to how I started today's discussion relative to how we expected the year to play out. We did expect constructive fundamentals. We've been saying that since the second half of last year from a potash standpoint. I think they have exceeded expectations. I think it's probably easiest to talk about potash sort of on the four parameters that matter, which is demand, supply, inventory, and price levels. I think all of them would indicate we're in a pretty constructive space today that we expect has some longevity to it. From a demand standpoint, as you said, we're looking at 71-75 million tons of global shipments this year. Our midpoint is still 73 million tons.
We're kind of back very close to historical trend levels, which is an extremely healthy spot to be in relative to where we were a couple of years ago after the conflict in Ukraine. From a demand standpoint, this is one of the first times in the last couple of years where in the first half of the year, we've seen really good demand across most major markets, all occurring simultaneously. We would say that demand is probably testing the industry's ability both from a production standpoint and logistics standpoint to actually meet that demand. Demand is very healthy. From an inventory standpoint, we don't see inventories in a problematic or concerning spot in any of the major markets. We see them as relatively normal or healthy. In the case of China, they were depleting quite quickly ahead of the annual contract that just got signed.
Inventories look good. From a supply standpoint, I think expectations in the market this year were that price strength might come from more of a supply-constrained market. You mentioned a couple of different areas of the world in your comments. From a Belarusian standpoint, while we may see some mixed shift among grades, overall, Belarusian production has actually been quite strong on an absolute volume basis. We are seeing Belarus back at really pre-war levels. From a Russian standpoint, we are seeing reasonably strong production over the last couple of months. We can see a few of the announced curtailments in the export data showing through. As you mentioned, Laos is struggling to get materially above last year's production levels. SQM has had some grade shifts away from MOP. I do not think the supply curtailments are really the story of 2025.
It is that demand-driven story that you talked about. The last parameter, of course, would be price. Among the three nutrients, price remains the most affordable for potash. We think economics are relatively attractive today for the different crops that are being grown via potash applications. Ultimately, we see affordability and price in a healthy spot. All of those things would tell us that as we look ahead over the next couple of years, we see demand in a good spot. Inventories look reasonable to healthy. There is not a huge amount of supply that is available over the next couple of years. If demand continues to grow at that 2.5% growth rate, we see some longevity in front of us here.
I want to hit on the demand side, then I'll circle back to the supply side in a second. On the demand side, I'm always hesitant to bring these up in fireside chats. Throughout the last 15 years, essentially as long as you and I know each other, there have been a plethora of these disappointing biofuel catalysts back in 2014-2015 and China in 2019. As we progress through 2025, it seems generally that the U.S. is in a good place. We obviously got a positive announcement on soy, which has been overshadowed substantially by the unfortunate events in the Middle East. You have Europe moving in the right direction. You have Brazil moving in the right direction, especially based on corn-based bioethanol, not just sugarcane-based ethanol. India, Indonesia, obviously some places where Canpotex is a substantial exposure.
Between that, and there is still a bunch of emerging markets which are still slightly above prior war, prior sanctions levels in terms of just dollar affordability. It seems like the demand side of it still has legs, forgive me for the lack of a better term, into 2026 and 2027. Would that match your general internal view? And would there be anything that you would add?
Nope. I think, again, that's a really good characterization of our view. I think, as you said, the biofuels announcement the other day in terms of the mandate in the U.S. looking like it's up high single digits over last year, I think about 8%, which would be particularly encouraging for biodiesel, along with other parts of the world that are prioritizing biofuels as part of their overall government policy framework. I think that's one of a number of drivers that is sort of the story of the structural demand growth of potash over time. We have countries that are really important to global crop and food production that are still underapplying potash, which, of course, is part of that story on nutrient use efficiency.
We have some countries that are actually just getting back to where they were before the war, important parts of the world that are starting to grow demand again based on affordability and replenishing potash, which was probably depleted over the last couple of years and needs to be built up again. Of course, there is just the structural growth story around increasing acreage in Brazil, enhancing and evolving farm practices in some of the emerging geographies that use potash. All of those things would lead us to believe that this is a secular growth story for some time around that 2.5% growth rate that we talked about. As we go into 2026 and 2027, as long as the three or four factors that we talked about hold true, we do see constructive fundamentals.
On the supply side, there has been a lot of debate. I would say supply has generally, I would say, been coming on slower than anticipated in some cases. You have Laos, you have Belarus, you have Acron, Russia. We were just talking about some of these with the former presenter. BHP is the elephant in the room. How should we think about those additions in the context of what is now a 73, 74, 75 million ton market in terms of just the cadence through the balance of the decade of what is likely to be added relative to demand growth?
Sure. Yeah. So I think if you take the anchor point that we just talked about in terms of 2025 at the midpoint today being a 73 million ton global market, and we cast out over the next couple of years, if we take the 2.5% growth rate as a proxy for global demand, which has held true over time, by the end of the decade, you're likely adding 9-10 million tons. We sort of have 80-85 million tons as the potential in 2030 for potash demand. If we step back from there and say, "Okay, the market needs 9-10 million tons to be in balance," and we look at what's available today, obviously, based on the midpoint of our guidance for 2025 at 14 million tons, Nutrien would have another million tons of bought and paid for capacity.
When we look at the former Soviet Union, we see a few different increments that could be 3-4 million tons over that time horizon. You mentioned Laos. We look at Laos. We think there is potentially 1-2 million tons of growth there before the end of the decade. Of course, that comes with some level of risk profile because Laos has been dealing with sinkhole issues and water inflows and appears to be struggling to get materially above last year's production levels. There probably is a risk premium associated with that. That all amounts to about 5-6 million tons. You mentioned the BHP project, Jansen in Saskatchewan.
Our perspective on that project is that you won't see any material volume, if any, in 2026 and probably have some question marks about how much we actually see in 2027 based on how projects of that nature truly ramp up over time versus how they look on paper. We look at the project and certainly expect that at some point it will reach 4 million tons. We just think that point will be closer to the end of the decade. When you add up all that supply, if you assume that it comes on perfectly, it roughly matches global demand growth in 2030. As you know, we've talked about this over the years. We get surprises every year in ways we don't expect around supply coming offline. That can be mine floods. That can be reserve depletion.
It can be other outages related to logistics, all kinds of things. If things ramp up perfectly with all of those projects, we think we roughly have a balanced market in 2030. Of course, if there are supply issues, we could see a more tight market in 2030. Certainly, as we look out over the remainder of 2025 into 2026 and even 2027, we do see some longevity of relatively constructive potash fundamentals. I think 2028, 2029, 2030 will really depend on how that supply stack comes on. In a worst case, we see a relatively balanced market.
One of the interesting parts about this, and no sell-sider likes admitting that he or she was wrong, but you and I had discussions back in 2014, 2015, 2016. I had discussions with Kelly Freeman or Chuck Magro, whether it was Agrium or PotashCorp of Saskatchewan. The one thing your team's always told me as a relatively newer analyst was, "Chris, it takes time." I would implore people, and I have been telling people, "Go back, look at how long it took Usolskiy to ramp for Eurochem. Look at how long it took Bethune for K+S, the former legacy mine. Look at what happened in Turkmenistan in March of 2017." I remember I'll point out, "Oh, they're starting to produce." The flood was a week later, essentially. I haven't heard anything since.
It's interesting that the fact that the management community is so concerned in even recent history, and granted, BHP is a phenomenal miner, but it does take time, especially for that many tons, probably four, five, maybe perhaps even more to truly hit that run rate. It's going to be interesting to see through the balance of the decade. I will concede that you were right and I was wrong back then. It's taken me 10 years to build up the courage to say that to you.
Probably only happened once or twice.
Oh, never. One of the things I want to switch over in terms of just relative materiality. Perhaps this is the one time I have to ask the short-term question. Things in the U.S. are pretty healthy right now. The first quarter retail number, something tells me I doubt you were happy with your first quarter result in retail. It also seems like things in the second quarter have progressed fairly well. Just how should we be thinking about the U.S. planning and kind of ending hopefully on a strong note during the first half, understanding there were some weather issues in the first quarter?
Yeah. I mean, as you said, Chris, I think it really is a half story in retail. And that's been true of our business for as long as we've been in the downstream ag retail business. The first quarter, the magnitude of earnings in the first quarter in our downstream business is typically made based on weather in North America. If you have appropriate weather in the second half of March, you tend to pull some earnings from the spring into the first quarter. If that weather isn't available and you don't get field activity, then you won't see that profile of earnings being pulled into the first quarter. This year was more of the latter, as you said. We didn't really have any material amount of field activity in North America in the first quarter. The results showed that.
As we said on the call, we do think about the business in halves. At the time of the call, we had mentioned that we were seeing really robust activity in April, sort of making up for March. I think generally, I would say at the highest level, the spring season is probably playing out a lot like we thought it would. Again, we're expecting upwards of 95 million acres of corn, which should drive good demand for crop inputs. Generally speaking, we're seeing that. I'd say the only pocket where weather has been probably a little bit different than expected would be in portions of the U.S. South where it has been very, very wet.
We probably will see some incremental prevent plant acres in portions of the south where it was just so wet and rainy that there were areas where they just did not have a chance to get into the field and get started. That would probably be the anomaly relative to the rule that, generally speaking, I think things are directionally playing out as we thought for the first half. I think the sentiment remains positive in terms of us being able to service the grower, getting in the field and running our business. Obviously, we have more room to run here. With the corn crop now planted and soybeans almost complete, we will really kind of shift into the summer and focus on plant health and taking care of the crop.
I'll have to visit Mr. Tarsi to do a channel check down there, I suppose.
You'd like that, I'm sure.
I know I would. How should we think about the intermediate to longer term? I mean, there have been a lot of kind of puts and takes since COVID. You put out a number, I think 1921, in terms of your longer-term guidance at your analyst day. How should we think about tracking towards that? What's your level of confidence? And perhaps if you could just go over how Brazil fits into that, proprietary products. I mean, there are a lot of moving pieces, which I know you're knowledgeable in all. If you could just kind of walk us through that confidence level, we'd greatly appreciate it.
Sure. If you start at a baseline of 2025 guidance for the business, we've guided to $1.65 billion-$1.85 billion of EBITDA for the retail business this year, so a midpoint of $1.75 billion. If we sort of use that as the base and we look at that 2026 target, $1.9 billion-$2.1 billion, we would say there's some factors that are maybe not entirely within our control, but more within our control that are a part of reaching towards that target. The first and arguably one of the most important is the growth of the proprietary products business. Embedded in our guidance this year from a gross profit standpoint would be about $1.15 billion of GP from proprietary. If we look at what's in that 2026 target at the midpoint, it's about $1.4 billion of gross profit.
The big drivers there will be around the nutrition segment of our proprietary business and crop protection. That nutrition segment has a structural tailwind behind it in terms of growers adopting those products at a quicker pace. Within our own network, we have a few unique opportunities, one of which is just, as you know, increasing the penetration within areas where we have ag retail and increasing that penetration in our own network in terms of the mix of proprietary in terms of nutrition with commodity fertilizers, but also CP versus branded third-party CP. That is an area that we can drive more growth, more independent of commodity prices and market cycle.
The second would be, I think, a synergy of the structure of Nutrien in that we're beginning to look outside of North America in geographies where we're not likely to have ag retail ever or anytime soon, where we do have very strong fertilizer sales relationships downstream with distributors in major countries like Mexico and India, and looking at moving Loveland products outside our retail channel. We see that as another avenue where, again, we have a little bit more control over how we drive that. So proprietary will be a big piece of the puzzle. The second is on just continued focus on cost rationalization. We've been continuing to shut down smaller, undersized, older locations and build larger distribution hubs that can drive revenue growth organically by selling products further away with more distribution efficiency, taking cost out of the network.
That is another piece of that walk to the $1.9 billion-$2.1 billion. You mentioned Brazil in your comments. Brazil in 2024 was about negative $85 million of EBITDA. The goal for 2025 is to drive that business towards break-even. We feel like we are seeing good progress and are tracking generally in line to date with that target. 2026 would assume some modest growth beyond that from Brazil. We also have the opportunity to continue to look at pursuing bolt-on acquisitions in retail. That is something that we have done throughout cycles. We have no arbitrary targets for that. If we see the opportunity and that is viewed as a value-accretive investment that is going to grow free cash flow per share, we can drive synergies and valuations are attractive. We will continue to look at that as a mechanism.
I think all of those drivers provide us confidence that we can push towards that target. Of course, in the retail business, as you know as well as anybody, there will be some dependence on the commodity price environment. I think a $4 corn environment is very different than a $6 corn environment. We are pushing hard towards that target in 2026.
As it relates to Brazil, obviously, there have been a lot of puts and takes in the Brazilian market, not even just FX, just everything else in terms of credit, everything else. Is there anything else we need to be monitoring? Because on one hand, I see the Brazilian market inflecting, and it is almost like this cautious optimism where you do not want to be hurt again. At the same time, you are kind of weighed down by some of the credit issues, which Banco do Brasil and all these guys have been kind of highlighting. What is your thought process as you hopefully hit that break-even or perhaps even exceed it a little bit? I mean, what are you kind of fixated on now, now that we are getting into the planning period?
Yeah, I think we were quite clear with our investors and analysts about our plan, which was sort of independent of the market. We really moved in the middle of last year to begin aggressively taking cost out of the business, leaning more heavily on the proprietary products business, probably sacrificing some fertilizer volume for better margins and changing the way we undertook procurement, managing working capital more effectively, looking at financing costs. All of those levers were to address the structural challenges in the Brazilian market.
While market fundamentals are probably a little bit more encouraging than they have been over the past 12 months today, I would say some of those structural issues remain in terms of length of working capital, high interest rates, probably an overall level of profitability and grower behavior in the market that is not conducive to being back where we were three or four years ago. Commodity prices have improved, but they still would not be extremely high commodity prices. Our focus is still inward at looking at how do we rationalize cost in the business, how do we execute our plan for margin improvement, managing working capital in a very disciplined way. All of those things are contributing to that increase in earnings we are seeing. As I said, we are tracking in line with that break-even trajectory.
I would not say we are in a place where today we have any ambitions to invest more growth capital in the retail business in Brazil. Certainly, Ken or myself in the CFO chair, there are just so many other attractive places to put capital in Nutrien, including giving it back to shareholders versus the risk-adjusted returns that we see in Brazil. It really is an optimized story today for us.
I have to sneak in one question on the phosphate business. I think you've had, as has everybody, a few operational issues over the past few years. You hit on those, how we should think about the operational cadence in 2025, the consistency of flame building in 2026, and whether or not you believe you'll eventually need another rock asset.
Yeah. I think when you look at the phosphate business, we've guided to 2.35-2.55 million tons of sales in 2025. That's still our expectation in that guidance range. That guidance range incorporated expectations for both lower production and higher costs in the first half. It's really a combination of issues, one just being weather in terms of weather having impacts on the quality of the ore pile available to us at one of our facilities, some unplanned downtime associated with rebuilding that ore pile, and also working through some maintenance issues. We have two turnarounds that are taking place during the second quarter, one at each facility. Our expectation is still that as we move out of the first half, we're going to see operating rates improve at both Aurora and White Springs.
I think a little bit similar to the comment that I made on Brazil. When we look at the risk-adjusted returns and our competitive position in phosphate, it's probably a second, third quartile asset, which has globally competitive traits about it. We have a diversified product mix. Relative to the other opportunities we have in Nutrien to deploy capital, drive free cash flow per share growth, or return capital to shareholders, we do not see phosphate as a place today that would be an attractive destination for growth capital. It really is about sustaining the assets in the right way, improving reliability, and ultimately just driving value out of the asset.
I want to spend the last three, four minutes on your favorite topic, balance sheet capital allocation. I think when you came in, you were incredibly well known from the investment community. But correct me if I'm wrong, the first question was, Mark, how many shares are you going to buy back in the second half? Or when we were thinking about it, when I take a look at your balance sheet, I look at the perspective of free cash flow in the back half of the year and knock on wood, hopefully, NPK prices stay where they are without a war or anti-war at Wolf, to be very clear. How should we be thinking about cash conversion in the second half in terms of what you see on the working capital front?
Because obviously, it's a big swing into year-ends and how you'd like to be spending the cash. I presume that retail tuck-ins are going to be part of it. How should the investment community be perceiving kind of the balance and how you're looking at it from this point forward?
Yeah. Big focus, Chris, as you mentioned, has just been really simplifying and focusing the capital allocation set for investors and making sure we're exceptionally clear on what we plan to do with cash. I think before we talk about the deployment or the uses of cash, underpinning this entire story is we came out in 2024 with a set of targets at our investor day on driving growth of the business and growth of structural cash flows over time. That was predicated on a few of the things that we talked about today.
One, driving increased fertilizer volumes upstream from both potash and nitrogen and improved reliability, as well as organic growth of the potash business, continuing to grow retail earnings over time, which we touched on earlier, continuing to look at the portfolio for assets that aren't generating the types of returns that we feel are warranted, assets that are non-core to shed those assets and free up capital, which we've been doing throughout the course of the past 12 months, and then continuing to look in a very disciplined way at working capital. I say all that because the primary focus of the company is on executing against those targets, and we feel like we're making good progress. As we do that, we're going to structurally increase the free cash flow and cash flow generation that's available to the company in the first place.
When we go to uses of cash, I think 2025 is a good blueprint in terms of how to think about the company. We have taken CapEx down by over $500 million over the last two years. This year, we have $2 billion-$2.1 billion in total CapEx. $1.6 billion roughly of that is sustaining capital, and the other $400 million-$500 million is growth. It is really in a focus set of areas, some of which we have talked about today: nitrogen debottlenecks, high return, low risk, potash automation to continue to bring down our cost profile, and the retail growth areas that I talked about earlier. Beyond the $2 billion-$2.1 billion of total CapEx, we have about $500 million in capital leases. Beyond that, today, we paid just over $1 billion to shareholders in the form of dividends.
It's providing a 3.5%-4% yield for shareholders over time. The way we think about that dividend is we do not want to creep up the absolute dividend expense of the company. We want to increase the dividend as we repurchase shares of the company and reduce the float so we're able to grow dividends per share over time as a commodity company without increasing the burden of that dividend expense. When we look at CapEx, capital leases, and the dividend, we've got about $3.5 billion-$3.6 billion of total uses of capital. Every dollar beyond that today, we're really looking in one of two places. It's tuck-in acquisitions in the retail business. We've done two of those this year, deployed just over $10 million in capital and share repurchases. From a share repurchase standpoint, we want to be more ratable over time.
We want that share repurchase program to be a more consistent staple in our capital allocation and capital returns framework. If you look back to September, as you alluded to, Chris, when the program was reinitiated, we have been doing about $45 million a month rough run rate. We think that is a relatively healthy level today for the company. We have multiple avenues to drive returns. To your point, we also do not believe or are troubled by the conflicts in the world. Even absent those geopolitical issues, we have very constructive fundamentals ahead of us. Our outlook on growing the company structurally, being disciplined and thoughtful in terms of how we allocate capital, and a free cash flow per share growth story over time, we think all of that remains compelling for us.
Final question because we're out of time. But you've been around forever in a good way. But as CFO, what do you think the number one thing the investment community is missing about the Nutrien story right now?
Look, I think as we're out there spending time with shareholders and investors, I think we actually are having great dialogues. I think the investment community is understanding the things that we actually just finished by talking about. I think I step back and say it's really the longevity of the cash flow of the company. If you look at Nutrien as an investment thesis, for me, it's really simple. We want to run the assets in a way that we generate significant free cash flow regardless of the commodity price. If we run the company in the way that we're talking about, we meet our execution targets, and we're thoughtful about how we allocate capital, we will structurally grow free cash flow per share over time. We'll be able to do that throughout cycles and independent of fertilizer prices or soft commodity prices.
Of course, we like when fundamentals are stronger and prices are higher. I think it's really that structural ability to do that across market environments that is unique about Nutrien and differentiates us from other companies that you can invest in in this space. I think it's incumbent upon us to continue to work with investors, show our results firsthand by executing against those objectives, and continuing to add value to the company over time.
Mark, it's always such a pleasure to chat with you. Thank you so much for coming today.
Thanks for having us, Chris. Likewise.