Greetings, and welcome to Nutrien's 2026 third quarter earnings call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Jeff Holzman, Senior Vice President of Investor Relations and FP&A. Please go ahead, sir.
Good morning. Welcome to Nutrien's third quarter 2026 earnings call. As we conduct this call, various statements that we make about future expectations, plans, and prospects contain forward-looking information. Certain assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions is contained in our quarterly report to shareholders, as well as our most recent annual report, MD&A, and annual information form. I will now turn the call over to Ken Seitz, Nutrien's President and CEO, and Mark Thompson, our CFO, for opening comments.
Good morning. Thank you for joining us today to review our third quarter results, the outlook for our business, and the portfolio actions we have taken to enhance earnings quality and support long-term growth and free cash flow per share. Through the first nine months of 2026, Nutrien delivered structural earnings growth and increased cash returns to shareholders, supported by record potash sales volumes, strong proprietary products gross margins, and a continued focus on operational excellence. In potash, we delivered more volumes from our existing network and continued to strengthen our competitive position through mine automation, increasing the ore tons cut using automation to 53%. These investments are enhancing safety, improving productivity, and supporting our position as a low-cost and reliable supplier to global markets.
In nitrogen, our North American operations continue to benefit from advantaged natural gas feedstock and a focus on reliability and de-bottlenecking initiatives that increase upgraded product volumes and margins. Production was consistent with our expectations, including planned turnarounds at our Lima and Redwater facilities during the third quarter. Within retail, adjusted EBITDA increased over the first nine months, supported by higher proprietary products gross margins and a strong livestock market in Australia. These benefits were partially offset by geopolitical-related market volatility that contributed to lower crop nutrient sales volumes and higher fuel costs. Across our retail business, we remain focused on helping growers improve returns through differentiated products, agronomic expertise, and efficient service. We delivered higher operating cash flows and further strengthened cash returns to shareholders.
We increased share repurchases by 36% in the first nine months of 2026 and returned a total of $1.3 billion to shareholders through dividends and share repurchases. We also continued to optimize our portfolio. Since the fourth quarter of 2024, we have generated approximately $1 billion in gross proceeds from divestitures. These actions are enhancing earnings quality and free cash flow, enabling disciplined capital allocation toward opportunities that offer the strongest returns and long-term value creation. Consistent with these efforts, we completed a comprehensive review of strategic alternatives for our phosphate business. Following this review, we determined the optimal path in the current environment is to retain and further optimize our Aurora and integrated upgrade facilities while shutting down operations at our White Springs facility in the second quarter of 2027. We believe these actions best position Nutrien to enhance shareholder value.
In the case of Aurora and our upgrade facilities, we received strong interest and a number of non-binding bids as part of the process. However, following a careful evaluation of the alternatives, we concluded that the proposals received did not adequately reflect the long-term value of the assets. Aurora is a world-class facility with approximately 1.2 million tons of P2O5 capacity, a high-quality resource base, long reserve life, and one of the industry's most diversified phosphate product portfolios. Through operational and excellence initiatives, we have increased operating rates at Aurora from 80% in 2024 to 85% over the past 12 months. As a best-in-class operator, Nutrien will continue to focus on improving operational performance and optimizing product mix to further enhance margins and free cash flow.
The decision to shut down operations at our White Springs facility was determined to be the optimal path, as the mine approaches the end of its economically recoverable reserve life, which has resulted in increasing operating costs and capital requirements. We expect an improvement in adjusted EBITDA and free cash flow as a result of this decision, as lower operating costs and reduced capital requirements more than offset lower sales and shutdown-related costs. We recognize the impact of this decision on our employees and the White Springs community, and we are deeply grateful for our employees' commitment and contributions over many decades. While these decisions are never easy, they strengthen our portfolio, improve the quality of our earnings, and further position Nutrien to optimize value from our core asset base. Looking ahead, we're encouraged by the fundamentals supporting our business.
Global agricultural markets continue to benefit from robust grain and oilseed demand, and we believe there is risk to global supply due to ongoing geopolitical conflicts and weather events. In North America, fertilizer demand is expected to be supported by improved prospective crop economics and the need to replenish nutrients removed from recent strong crop production. Global potash market fundamentals remain constructive, supported by favorable affordability and healthy demand in major importing regions. We have maintained our forecast for global potash shipments of 74 million-77 million tons in 2026. We expect continued global potash demand growth in line with historical consumption trends and forecast global potash shipments of 75 million-79 million tons in 2027. In addition, we anticipate limited new potash operational capacity in 2027, with the potential for ongoing geopolitical conflicts to impact supply chain capabilities.
Turning to nitrogen, global supply and demand fundamentals are expected to remain tight into 2027. Trade flow disruptions, production outages, and elevated energy prices continue to impact global supply, while increases in Chinese urea export availability only partially offset these factors. Following a period of deferred purchasing, we expect strong demand early in 2027, ahead of the Northern Hemisphere planting season. In summary, we expect supportive agricultural and fertilizer market fundamentals through the fourth quarter and into the first quarter of 2027, underpinned by the potential for tightening global grain and oilseed markets, strong potash consumption trends, and tight nitrogen supplies. With that, I will turn it over to Mark to review our third quarter financial results, updated guidance, and capital allocation priorities in more detail.
Thanks, Ken. Our third quarter and year-to-date results reflect strong execution across the business on factors that are within our control. Nutrien generated adjusted EBITDA of $1.31 billion in the third quarter and $4.85 billion through the first nine months. Cash provided by operating activities increased by 17% through the first nine months compared to the prior year. In potash, we generated adjusted EBITDA of $730 million in the third quarter. Potash prices remained affordable on a relative and absolute basis, supporting sales volumes near record levels for the quarter. Our year-to-date controllable cash cost of product manufactured was $60 per ton, in line with our target. We raised our full-year potash sales volume guidance range to 14.3 million-14.8 million tons, reflecting strong customer engagement across all key markets.
We anticipate a similar mix of offshore and domestic sales volumes in the fourth quarter compared to the prior year. In nitrogen, we generated adjusted EBITDA of $497 million in the third quarter. Our results reflect the volume impact of previously announced planned turnaround activities, partially offset by higher global benchmarks and lower natural gas costs. With planned maintenance for 2026 now complete, we expect ammonia operating rates above 95% in the fourth quarter, and we have increased our full-year nitrogen sales volume guidance range to 9.3 million-9.7 million tons. In phosphate, adjusted EBITDA was $8 million in the third quarter. Results continue to be impacted by elevated sulfur costs, which were partially offset by stronger global benchmark prices. We anticipate a moderate increase in fourth-quarter phosphate sales volumes and margins compared to the third quarter of 2026.
Overall, at the midpoint of our revised annual guidance ranges, we expect upstream fertilizer sales volumes to increase by approximately 600,000 tons year-over-year on a like-for-like asset basis. Retail generated adjusted EBITDA of $203 million in the third quarter. Crop nutrient gross margins were impacted by the sell-through of higher-cost nitrogen inventory and lower international sales volumes, which included the strategic decision to reduce sales in Brazil as we continue to rationalize our retail footprint. We delivered 9% growth in proprietary products gross margin in the first nine months. However, performance in the third quarter decreased, reflecting a shorter plant health season in North America and weather-related impacts on our seed business in Brazil. We've revised our full-year retail adjusted EBITDA guidance range to $1.72 billion-$1.85 billion, primarily reflecting the noted impacts on third-quarter earnings.
We expect a stronger North American fall fertilizer application season in 2026 due to improved prospective crop economics, and we assume a normal fall application window compared to the compressed application window seen in 2025. Nutrien's retail earnings continue to be resilient under a range of market conditions, with mid-single-digit annual growth rates delivered over an extended period of time. Turning to capital allocation, our priorities remain unchanged. We continue to take a risk-based and disciplined approach to sustaining our assets, prioritizing a narrow set of high-return growth investments, maintaining a strong balance sheet, and returning excess cash to shareholders. On our last earnings call, we highlighted that share repurchases during the first half of 2026 increased by 26% compared to the prior year, averaging approximately $53 million per month.
During the third quarter, we accelerated repurchases to approximately $75 million per month and maintained that pace into the fourth quarter, increasing total capital return to shareholders again this year. In addition, we expect to further reduce net debt by year-end while increasing financial flexibility to allocate capital through the cycle. With that, I'll turn it back to Ken.
Thanks, Mark. Before we wrap up, I'd like to leave you with three key takeaways. First, our focus remains on what we can control, operational excellence and disciplined capital allocation. Through consistent execution, we are improving the quality of our earnings and increasing our capacity to return cash to shareholders. Second, we have taken deliberate actions to simplify and strengthen the portfolio. Every decision has been grounded in a rigorous assessment of value creation, and we are confident these actions have positioned Nutrien to deliver stronger free cash flow and returns. Third, we believe there is significant opportunity ahead. At our Investor Day later this month, we look forward to sharing the next phase of growth we see across the business and how we intend to create additional value for shareholders. With that, we would be happy to take your questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. The first question comes from Andrew Wong with RBC Capital Markets. Please go ahead.
Hey, good morning. Thank you for taking my question. I would like to just get your thoughts on crop yields, both in the U.S. and globally. The U.S. is interesting, obviously, because we had some expectation for lower yields, and then the USDA came out and updated their yields, and now we are at the second highest on record. But then if you look at phosphate, applications are down. The TFI put out a report that phosphate and potash are a bit deficient in soils. I am just curious your take on the situation with yields holding up pretty well. Is there maybe a lag effect here? Just, what your thoughts are on that going into next year? Thank you.
Yeah. Thank you, Andrew. Yes, obviously, the backdrop is very strong demand for ag commodities at the moment and looking into 2027. Yes, seeing big crops come off in certainly in Brazil and in North America, and a lot of crop nutrients being removed from the soil as a result. Just in terms of what we are seeing and what we expect, and as that crop comes off, I will hand it over to Jason Newton, our Chief Economist.
Yeah. Thanks. Morning, Andrew. Yeah, when you look at the U.S. crop yields, it definitely was an unusual growing season in that we had really high precipitation in some areas early in the growing season, and then it turned dry. So, of course, we saw a lot of surprises in terms of yields when the crop tours were going out and late in the growing season, and then again, surprises in October when the USDA published its outlook. I think there is still some uncertainty with respect to how that changes going forward, and we will have to watch in future reports, just given the late stage of some of the harvest in states like Iowa during the October report. So, we will continue to wait and see.
I think in any case, what we can say is just given the application rates that we saw of, well, N, P, and K, and the yields and the weather conditions, certainly seeing a drawdown in soil nutrient levels, and that will need to be regenerated in the coming months. Just given the ag fundamental environment, improved crop market, we would expect to see some improvement in application rates in the coming fertilizer year.
Hello, Andrew?
Oh, sorry. I thought I only had the one question, but I can ask another one. Can you just talk about what you're seeing in potash?
Okay, thank you.
Can you talk about what you're seeing in potash?
The next question comes from Hamir Patel with CIBC. Please go ahead.
Hi, good morning. Ken, you are pointing to potash demand growing for a fifth year in a row next year. If we see the shipping constraints that are limiting Russian and Belarus output here in Q4 extend into 2027, would you have near-term excess capacity available to meet any supply shortfall in the market there?
Yeah, thank you for the question, Hamir. We are saying 75 million - 79 million tons next year, which would put potash market growth sort of in line with historical average growth rates. While, as usual, different parts of the world are building inventories and putting volume to ground, where other parts of the world may be drawing down some inventories. When we step back from all of that on a global basis, yes, we expect potash shipments to grow again next year. Yeah, we are watching all of that as we also watch some of the challenges on the supply side. Certainly, you noted one of them, Hamir, and that is just logistics out of FSU countries and the 1.5 million tons in the fourth quarter that they have talked about.
We are seeing limited shipments in the month of October, which would, I think, endorse that overall statement of about 1.5 million tons. Then, I think questions about some of the new supply coming on in 2027 as well. When we look at that range, 75 million - 79 million tons, Hamir, we do believe that the top end is sort of limited by both production capability and global logistics. For our part, can we supply additional volumes into that environment? We absolutely can. We maintain the ability to flex production as long as we can read the market far enough in advance where we can mobilize and increase production, then we will do so. Yes, we have our plans set for 2027, but part of those plans include the ability to flex production if the market presents that opportunity.
Thank you. The next question comes from Ben Isaacson from Scotiabank. Please go ahead.
Thank you very much, and good morning. Ken, I also have a question on potash demand growth. Very simply, why does potash demand grow every year? And if we look through-
Yeah, so we lost you there, Ben, but hopefully we got the majority of your question, which was, why does potash demand grow every year? And I would say it is a combination of things. One is the world continues to do a better job of feeding itself, where the number of food insecure people on the planet is about as good as it has ever been as a percentage of the population. And, yeah, I think that that is obviously owing to a number of technologies, but certainly balanced fertilization plays a role in that. So, as grower education improves in various parts of the world, we see demand for crop nutrients growing. And once we see that demand in place, it is pretty rare that that goes backwards. In other words, growers learn to understand the benefits of balanced fertilization.
We also see some arable land expansion in places like Brazil, and that is certainly part of the story in Brazil, combined with, again, better agronomics and agronomic expertise. That means increasing application rates for fertilizers. And then, finally, I would say, if you go around the world and look at the geopolitical uncertainty on the planet today and how countries have more and more focused on food security, becoming almost synonymous with national security, and hence the focus on the ability to feed their populations, and knowing that good agronomics is part of the story, and again, certainly balanced fertilization, part of that story. And nowhere is that more true than in China, where you have the Central Planning Committee and the NDRC that has really raised agriculture and balanced fertilization almost to the top of the agenda.
Chris and I were just there in July and saw that firsthand, where now you have the Chinese consuming 20 million- 21 million tons of potash, double-digit growth rates every year. It is really a focus on what can the land in China provide when proper agronomics and agronomic expertise and balanced fertilization are applied in service of feeding population. So, it is a combination of all those things, I would say, Ben, and it also just gives us confidence in the ongoing sort of 2.5% average annual growth rates as the world just continues to focus on all of the things I just said.
Thank you. The next question comes from Joel Jackson. Please go ahead.
Good morning. I want to talk about Retail in Brazil. Two-parter on this. Can you talk about what the drag or the contribution on Retail this year has been in Brazil? Then it seems like, I mean, we all know that credit has gotten very tight in Brazil. As you try to wind up that business, are you finding it hard to do that? Are there lots of complications? Is it going to be higher cost than you thought? How complicated is closing up Brazil? What will the incremental cost be to wind that down? Thanks.
Thanks, Joel, for the question. Yes, I mean, we have, as you know, we have taken a number of steps in Brazil. We have talked to them about them before, sort of idling all the blenders, put them up for sale, closing branches, experience centers, reducing workforce. We have also announced in September closing operations in three states, three additional states now, and assessing options for additional rationalization. I think that sort of goes to the heart of your question. I will say on the credit side, and I will hand it over to Mark to talk a little bit more about some of the numbers, but we have had this sort of intense focus on collections and sales efforts. Indeed, part of the Q3 story for us in revising down our Retail adjusted EBITDA is intentionally fewer sales in Brazil.
That's just focusing on the higher quality customers, where frankly, we know we're going to get paid in avoiding credit issues. That's really quite deliberate. Going forward, rationalization in Brazil, further rationalization in Brazil, and we committed to the market that we would have conclusions about Brazil by the end of the year. We're on path for that. As we rationalize your question about how we rationalize and the costs of that, it becomes a working capital story. I'll hand it over to Mark to provide some more detail.
Thanks, Ken. Good morning, Joel. Joel, I don't have a lot to add. I think Ken provided a really solid overview of the approach in Brazil, and it's been the same as the approach that we've been talking about for the last 12 months. I think just to zoom in on your question specifically, in 2026, we would expect a moderately negative EBITDA contribution from Brazil as part of the Retail business earnings structure. As Ken said, and we alluded to in our prepared remarks, part of the performance drag in Q3 really was intentional steps that we took to reduce volume and constrain credit in Brazil. While that had a negative effect on accounting earnings, that's definitely the right decision for free cash flow and the management of the company, as Ken alluded to.
As we've said with respect to the asset base there, and I think this has been fairly well telegraphed, the majority of the assets that remain in Brazil today are working capital. The focus of the team over there is really a couple of things. One, managing that credit situation, as we said, but really laser-focused on recapturing working capital through rationalization of inventory and focusing on those receivables. As Ken said, there's been a focus on coming to some conclusions before the end of the year, and that rationalization activity has continued.
Thank you. The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Thank you, and good morning. Wondering if you could help us bridge Retail from 2026 to 2027, just thinking through, there have been some exotic items this year with the weak plant health sales in the third quarter. Sounds like you had a high fertilizer inventory cost position as well. Australia did well. What are the puts and takes into next year, and how should we think about the potential growth rate of that business in 2027 versus 2026? Thank you.
Yeah. Good morning, Vincent. Thanks for the question. Yeah, it continues to be the case that we grow that Retail business at sort of that mid-single digits. We prove that out every year, sort of regardless of the ag environment. We know that we're going to do that again this year in an environment that, once again, is where ag is a bit challenged.
Peering into 2027, thinking about that bridge, we enter it, we do enter it, with a more constructive outlook on ag fundamentals. And that is, as we've talked about, very strong demand for ag commodities, and part of that is the geopolitical story of biofuels and fuel prices. Part of that is weather uncertainty in the super El Niño that's going to go through Asia, and ongoing disruption that may come from some of these global uncertainties. But in terms of the bridge itself, I'll hand it over to Mark to just provide a little more detail.
Thanks, Ken. Good morning, Vincent. So maybe just to get us into 2027, I mean, I'll talk about 2026 first and just underscore the assumptions that are really part of our remaining outlook for this year. Our revised full-year Retail guidance of $1.72 billion-$1.85 billion implies growth on both a year-over-year basis and on a Q4 basis. And at that midpoint of $1.785 billion, we have a few key anchoring assumptions for this year. First, we assume that improved prospective crop economics and a normal fall application window will result in higher crop nutrient volumes this Q4 compared to last year in the same period, which was a compressed application window, as I mentioned in my prepared remarks.
Second, we expect that proprietary gross margin in Q4 will be roughly flat this year to last year's Q4, but on a full-year basis for 2026, that implies mid to high single digits growth for that business on a full-year basis. Third, we assume that Q4 crop input demand in Australia is going to be stronger on a year-over-year basis, and that's supported by just continued good engagement there and livestock activity that's been positive. That's the way we'd be thinking about the anchoring assumptions to finish 2026. Maybe just as we start to think about 2027, I mean, really just reiterating the comments that Ken made. We've seen this retail business demonstrate resilience and growth under a variety of market conditions over time, and that's really due to the structural advantages that we have in our competitive position that's really unmatched in the industry.
As we look to 2027, soft commodity pricing is better. We see nutrient affordability being better, and we do have a constructive outlook as we finish the year and look into next year. We're not quite there on giving formalized 2027 guidance yet, and obviously, we'll have more to say at the Investor Day at the end of the month about those structural growth drivers that we see. But that mid-single digits growth rate that Ken mentioned is part of the algorithm on retail growth that we do see being possible on a multi-year basis. We'll have more to say at the end of the month, and then, of course, we'll give our formal 2027 guidance when we get to the earnings release in February.
Thank you. The next question comes from Chris Parkinson with Wolfe Research. Please go ahead.
Trying to ask a question ahead of the CMD, but let me try to simplify it. If you just take a step back and look at your potash and nitrogen assets, and you look at all the cost improvements you've been doing over the last few years, specifically on that without consideration of brownfields or mine mix or anything like that, how much more can you actually go with autonomous mining and potash improving operating rates in nitrogen, which, Ken, I know has been a huge focus of yours over the last few years? Just, are we kind of in the final innings there, or do you still see significant improvements just like asset by asset, apples to apples? Thank you so much.
Thank you, Chris, for the question. We are not in the final innings of both sort of the operational excellence improvements that we talk about as it relates to nitrogen reliability and the very low-cost brownfield and debottlenecking initiatives. Yes, we made what we believe are the absolute right decisions on Trinidad and our New Madrid facilities, improving quality earnings and free cash flow by rationalizing those operations. Now, as we look at the balance of the footprint and just how competitive it is situated in North America and really paying Henry Hub gas in comparison to a place like Europe today, the competitive advantages are extraordinary. That gives us the confidence to invest. That gives us the confidence to unlock. It is additional tons sort of in nitrogen measured in the 100,000 tons at a time, but we have more of those opportunities.
Indeed, we expect the operating rates to reach 91%. Even with some of the turnarounds that we have had, we do have a real focus on ongoing improvements and reliability, and part of that story is improved turnaround performance, which indeed we are experiencing today. On potash, we talked about the sort of 15 million-16 million tons that we have capacity for and line of sight to and the ability to get to what we are now calling 19 million tons at a very low-cost capital way, an order of magnitude lower than what a greenfield costs today. We have the mines, we have the shafts, we have the infrastructure, we have the mills, and we have the tailings management areas. We need to invest in mining machines and belting, and we do that, as I said, very low cost, $200-$300 a ton in terms of CapEx.
In a way that is, we can watch the signals in the market, deploy that capital in sort of a year's time, and see that new production reach the market. We have a lot of runway there, Chris. We look at both of those businesses. We are excited about the setup and the market. We are excited about heading into 2027 and grower affordability and improved crop economics, and we are excited about, like I say, our ability to deploy additional tons into the market as we have done every year for the last five years.
Thank you. The next question comes from Stephen Hansen with Raymond James. Please go ahead.
Yeah. Good morning, guys. Thanks for the time. Just a two-part question related to the new phosphate optimization plan. Curious how much of this decision was shaped by your constructive macro view on long-term phosphate fundamentals versus just the bids that necessarily came in. Secondarily on Aurora's utilization rate, you referenced a large step-up rate to 85%, I believe. Curious if that's a rate we can now underwrite going forward into 2027 and beyond. Thanks.
Yeah. Thanks for the questions, Steve. We have taken a view of the phosphate market and had that view prior to what's going on in the Middle East and sulfur prices and all those things, and that's the view that we carried into what we called our strategic review. That view has been pretty consistent over the long term. As we looked at the range of options that we had under our strategic review, which always included the assessment of, at some point extending, if economically prudent, expanding the resource at White Springs. We determined that to be economically challenging. We're always knowing that White Springs was potentially coming to the end of its life, that we would be facing a shutdown decision absent a sale.
Aurora, world-class facility, long-lived assets, as you say, improved operating rates, and watching those operating rates through our operational excellence initiatives coming up over the last few years. A product mix that's really second to none in North America makes that a world-class asset along with the upgrade facility. That, again, as we looked at the range of options under our strategic review, and looking at our view of the market is quite simple, what is the best path for a shareholder?
We determined that, yeah, while there was strong interest in terms of number of bids, and interest in Aurora and upgrade plants, less so White Springs, as we looked at those bids, we determined, exactly to your point, Steve, that we can, with some of the improvements we're making and some of the improvements we believe we can continue to make, that those bids didn't meet our expectations. Yes, to your question about 85%, again, we were at 80% in 2024, 83% last year, 85% this year. Yes, we believe that that's a good number to continue to use. In fact, we have line of sight to some operational improvements, low capital, where we believe we can continue to improve on that number. That's something that in a sales process, we would expect someone to pay us for that.
Again, we didn't see that value come through in some of these non-binding bids. Here we are, and yes, we absolutely intend to. We own this asset. We absolutely intend to run it to the best of our ability, and that includes improved operating rates.
Thank you. The next question comes from Kristen Owen with Oppenheimer. Please go ahead.
Hi. Good morning. Thank you for the question. Two follow-ups related to the Retail business, one short term, one long term. On the short term, can you just walk us through the crop nutrient margin recovery that's embedded in the fourth quarter outlook? Is that just volume, or is there something else there? Then, longer term, we're seeing the crop protection industry move toward less of a rebate model, so I'm just wondering if you can talk through puts and takes for the Retail business. Is that a shelf opportunity maybe for more of your proprietary products, and how that might impact Nutrien financials? Thank you.
Yeah, so maybe, I'll hand it over to Mark for your first question, but maybe I'll start with the second and hand it to Chris. With respect to CP, absolutely watching that market and the role of generics and plotting our own path here. What we have seen, and I think 2027 is a great example of that, is as we see more generics in the market and any challenges that might bring is our growers turning to our offering and our CP offering under our proprietary products portfolio. We have had very strong performance in our CP line in our proprietary products, and we believe that part of that story is supplemental use of those as we see more generics in the market. But Chris, maybe you want to say a few more words about that and then hand it over to Mark on Kristen's first question.
Yeah. Thanks, Ken. Good morning, Kristen. Thanks for the question. You are right. We have been obviously watching this closely in terms of some of the changes happening in the crop protection business and talking to our partners about those changes and how to position ourselves. We really like how Nutrien is positioned as this change unfolds. As Ken mentioned, particularly because of our exposure through our proprietary portfolio and the unique full-service model that we offer to growers through the best-in-class network that we have.
That could be through producing and distributing products through our back integration strategy, which could be likely at a lower competitive price. Also, as we think about retaining market share and improving our margins through product innovation, I think Loveland Products has been a terrific example of that. We are keeping our eyes wide open here as this change unfolds around us, but we like our position in the marketplace.
Yeah. Thanks, Chris, and good morning, Kristen. With respect to your first question on fertilizer segment gross margin in Q4 and expectations there are really two major drivers. The first, I mentioned in my prepared remarks and earlier in a prior question, on fertilizer volumes, we are assuming that the more attractive soft commodity environment and prospective crop economics, combined with a better application window, are going to drive higher fertilizer volumes in Q4 versus last year.
So that is a portion of it. Then just to reiterate, some of the things that we saw in Q3 was the higher level of sell-through of some of that higher-cost nitrogen inventory, which has now cleared our channel, and that the plant health run cut off some of our higher-margin nutritionals, which we expect would recover in Q4. Those two factors combined give us the constructive outlook that we have for fertilizer gross margin in the fourth quarter this year.
Thank you. The next question comes from Matthew DeYoe with Bank of America. Please go ahead.
Morning, everyone. I wanted to talk a little bit more about China to get your views both on potash and nitrogen. On the nitrogen side, China is exporting more product now than they have, certainly off of the 2024 base. 2026 feels like volume is probably more than expected, right? What are your thoughts on 2027? Do you get a sense, is there any conversations that asset closures could pick up? Do you expect more volumes? Could we drop the export restrictions in the spring, or do you think there's talk of shortening the windows? You're probably more privy to those conversations than I certainly am. On potash demand, there's some puts and takes, right? Chinese potash inventories are near record, or fall very high for where they are seasonally.
But we heard from one of your peers that China is engaging the market much earlier on the contract than normal. How do you decipher what would normally or perhaps be somewhat divergent data points there?
Yeah, thanks for the questions, Matt. I will hand it over to Jason to talk a bit about nitrogen and Chris to talk about potash. Chris, be happy to address your question about contract and timing of those things and how we're thinking about China demand and consumption shipments in 2027. I'll just say, as it relates to nitrogen, again, we're heading into 2027. We believe we're heading into 2027 in an environment where the nitrogen market will just continue to be tight. We've watched some delayed purchasing in the Northern Hemisphere, just price volatility and what's going on in the Middle East. But we also know that there's been, as we said earlier, some very large crops that have come off, and that crop nutrients all need to be replenished, including nitrogen.
We are watching our Retail business here in the fall, and indeed, over the last few days, with good weather, we are seeing strong demand here in the fourth quarter. So, it is validating that view. We do not expect that some of the challenges in the Middle East, as it relates to nitrogen, will abate anytime soon, for a part of the world that supplies 30% of urea, 25% of ammonia, and all the LNG that comes out of the region that also goes to produce nitrogen in different parts of the world.
Today, only a third of those volumes really leaving the region. The increased urea exports out of China really not, on a net basis, closing that gap, and we expect that will be part of the story in 2027. Potash, similarly, we are entering a constructive environment. Again, I will hand it over to Jason Newton, talk a little bit more about the moving parts on nitrogen in China, and then Chris, over to you on potash in China.
Yeah, thanks, Ken. Good morning. When we look at the Chinese urea exports, we have raised our expectations on exports for the year to between 8 million and 9 million tons, versus just under 5 million tons last year. About half a million tons of that gap was an increase in exports in the first half of this year, and the remainder is in the second half. Of course, some uncertainty just on the volume moving out in the fourth quarter of the year. The increase this year is driven by an increase in production. We have seen both increased capacity in China for urea and high operating rates through the year. As we look forward to 2027, there is, of course, a lot of uncertainty with respect to government policy, and that has a major impact on Chinese urea exports.
We would not expect the same level of capacity additions next year as what occurred this year in China. Of course, we have continued demand growth would be the expectation in China. We would expect a similar window of exports to occur again, so outside of the Chinese application period, and likely exports within the range that we have seen in the last couple of years, depending on Chinese domestic supply and government policy.
Yeah. Thanks, Jason. Matt, thanks for the question. As we think about Chinese potash demand, Ken mentioned he and I were just there visiting with customers last quarter. What we do know is that China, it will remain laser-focused to ensure a robust supply of potash for their farmers, in line with the government-stated food security policies and the priority they have there. We also know is that they've been very happy with the performance of this year's contract, which also was a result of an early settlement there late last year. I think it's also important to put into context that the inventories we're seeing now, when you think about the backdrop of demand that we're seeing in China, which is somewhere around 20 million -2 1 million tons of potash, you can see that growth continuing at pretty healthy levels.
In fact, over the last decade, compound annual growth rates of Chinese demand have been around 2%-3%. When you focus in on the last five years, that's risen to 5%-6%. Again, just what we're hearing from our customers, they continue to see very robust demand and actually continue to ask us for more potash, not less.
Thank you. The next question comes from Edlain Rodriguez with Mizuho. Please go ahead.
Thank you. Good morning, everyone. Ken, two-parter on phosphate. The decision to keep the business, is it a process you can revisit again when the market is more stable? Again, it's not a big surprise that you didn't accept the bids because, again, so much turmoil in the industry. Is that something, or is this a final decision, the door is closed, we got in that process? Two, we've seen demand destruction because of high prices in phosphate. How do you think we resolve that affordability issue? As we look into December 2027, corn prices are still below five. How do we solve that affordability issue?
Yeah, thank you, Edlain. First question with respect to Aurora, it's certainly a never say never. We always, you know, have the option to revisit, depending on how we view the portfolio, depending on market conditions, all those things. We wouldn't say that the door is closed. We would say that we are, with the decision that we've made and announced as of today, we would say that our focus for the time being is going to be on the things we've talked about, and that is operational excellence, improving operating rates at our Aurora facility, continued performance at our upgrade facilities, the product mix that we enjoy at Aurora, and just serving our customers. You know, those we believe are value, continue to be value creation opportunities for our shareholders. Again, that will be our focus, but we would never say never.
With respect to the phosphate market, yeah, we've known that, obviously the market's known that it's an unsustainable situation. Sulfur prices being what they've been, and the challenges that we continue to see out of the Middle East and even out of Russia, Ukraine, and refining capacity that's been damaged there. How does it resolve? Well, you know, we obviously, you see production shut in light of some of these cost challenges, even though phosphate prices have been robust. What we need to do is find a new normal, a balance of reasonable crop economics that are going to allow for, you know, phosphate purchases at a competitive price with input costs that need to normalize, and sulfur being the biggest one. We need to find stabilization in each of those commodity markets, and we haven't found that yet.
Hence, the volatility that we see in plant closures and all of those sorts of things. So, you know, over time, what we do see is improved, of the three, we see improved crop economics heading into 2027. We do see diminished or depleted crop nutrients in the soil, and part of that is, as you say, Edlain, on phosphate, some of those volumes not going to ground in the spring. So that we do see, you know, prospective demand for all three crop nutrients improving into 2027.
Thank you. The next question comes from Jeffrey Zekauskas with JPMorgan. Please go ahead.
Thanks very much. I have another question about the crop protection sub-segment in Retail. In general, were your volumes up, I don't know, 4% and your prices down 5%? Can you talk about the general pricing environment for crop protection products? Is it getting better or is it getting worse or is it staying the same? Is it down mid-single digits, low single digits? Can you talk about that?
Yeah, thank you, Jeff, for the question. I'll hand it over to Chris Reynolds to talk about crop protection.
Yeah, good morning, Jeff. Thanks for the question. So, as we mentioned earlier, obviously there's some changes going on in that crop protection business. But I would say as it relates to margins, you know, they're staying sort of more or less the same, I would say, year-over-year. And I think, again, back to my earlier comments around proprietary products, I mean, even in a flat margin environment, we are seeing opportunities to focus on product upselling, you know, whether it's adding higher value adjuvants or other products that we have in our portfolio from our Loveland Products range. So, that's what we like about our position in this sort of changing marketplace, that even with margins staying around sort of flat, we are looking for opportunities to enhance some differentiated products that we can offer our customer growers at more attractive margins.
Thank you. The next question comes from Ben Theurer with Barclays. Please go ahead.
Yeah, good morning, and thanks for taking my question. I wanted just to dig a little bit deeper into some of the opportunities from a capital allocation point of view. Obviously, you've taken some decisions in terms of asset revision, and we've talked about the phosphate business. As you look into having maybe some of these operations shut down, freeing up a little bit of CapEx, as you think about the medium-term outlay, that lower potential need for CapEx, is that something you would consider more for M&A opportunities or is that something more for share buybacks? Or how should we think about just the balance of the cash that might be freed up for not needing it in maintenance with things such as Trinidad gone, some of the phosphate assets gone? Thank you.
Yeah, thanks for the question, Ben. What we've been doing on the portfolio and really all the work that in service of upgrading that portfolio, asset quality of earnings, free cash flow contribution, we enter 2027, perhaps as you're suggesting, with a much improved portfolio and something that we're really quite pleased with. But I will say that none of that changes our capital allocation priorities. Those remain constant.
When we think about that asset base and maintaining it, we brought down, as you've seen, we brought down the top end of CapEx guidance this year, and we're peering into future years, and we'll talk more about that at Investor Day, and our confidence around our ability to maintain discipline around both sustaining CapEx and leases, but then also our investment portfolio, which is laser-focused on the things we talk about around mine automation, around those debottlenecks, brownfields in nitrogen, proprietary products in our retail business, and optimizing our network.
We do have additional opportunity. We always have line of sight to that, but maintaining the dividend. As you see, we've increased cash return to shareholders by the year-to-date by 36% this year. That will continue, we believe, to be a feature of our capital allocation policy. It returns to shareholders in a ratable way. But Mark, maybe you want to walk through that in a little more detail for Ben.
Yeah. Thanks, Ken. Good morning, Ben. I think Ken's done a really good job of summarizing our approach, and I think if you step back and look at Nutrien over the past couple of years, we've continued to take a disciplined and intentional approach to capital allocation, and that does include a more systematic and ratable return of capital to shareholders framework. While I think it's well understood, this has been supported by the significant structural approach to growing free cash flow that we've implemented. The most important foundation of everything that Ken just said is that we've grown, and we estimate we've grown recurring free cash flow in the company by approximately $1 billion since our targets were set at our 2024 Investor Day.
That's in addition to the work that Ken talked about on the portfolio that freed up about $1 billion in proceeds through that portfolio review. All of that's going to be enhanced, as you said, by the actions that we've taken on both Trinidad and White Springs.
So in tandem with the focused growth opportunity that Ken just alluded to, having a strong balance sheet today and our anchor point that we've talked about of targeting 1.5x leverage at mid-cycle fertilizer prices, this has significantly enhanced our capacity to not only grow the company, but to ratably support share repurchases through the cycle and grow dividends per share in concert. So, we believe this framework is going to continue to drive value for shareholders, and we have a lot of confidence in this framework, as Ken said. We'll continue to look to that as our North Star on capital allocation.
Thank you. There are no further questions at this time. I will now turn the call back to Jeff Holzman for closing remarks. Thank you.
Thank you for joining us today. The investor relations team is available if you have follow-up questions. Have a great day.
Ladies and gentlemen, this concludes for today's conference. You may now disconnect.