Nutrien - Q2 2024

Transcript

Operator (participant)

Quarter earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference call over to Jeff Holzman, Vice President of Investor Relations. Please go ahead.

Jeff Holzman (Head of Investor Relations)

Thank you, operator. Good morning, and welcome to Nutrien's second quarter 2024 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 are contained in our quarterly report to shareholders, as well as our most recent annual report, MD&A, and annual information form. I'll now turn the call over to Ken Seitz, Nutrien's President and CEO, and Pedro Farah, our CFO, for opening comments.

Ken Seitz (President and CEO)

Good morning. Thank you for joining us today. Nutrien just delivered Adjusted EBITDA of $3.3 billion in the first half of 2024, supported by increased crop input margins, strong global potash demand, and lower operating rate costs. Our upstream fertilizer production assets and downstream retail business in North America and Australia have performed well in 2024, demonstrating our advantages across the ag value chain. The operating environment in Brazil has remained more challenged, and we will discuss today the actions we are taking to stabilize our business in this market. In potash, we generated Adjusted EBITDA of $1 billion in the first half of 2024, which was down from the prior year due to lower benchmark prices. We increased potash production across our 6-mine network and lowered our controllable cash cost of production to $53 per ton in the first half.

The reduction in per-ton costs was driven by higher production volumes and supported by the benefits of mine automation investments. We sold record potash volumes in the first half, utilizing the advantages of our global supply chain to respond to increased demand from our customers in North America and offshore markets. In nitrogen, we delivered Adjusted EBITDA of $1.1 billion in the first half of 2024, as lower benchmark prices were partially offset by lower natural gas costs. Our North American nitrogen assets remain very well-positioned on the global cost curve, and we continue to progress reliability initiatives that contributed to higher operating rates. Nitrogen selling prices in the second quarter increased compared to the first quarter of the year, reflecting the advantages of our extensive North American distribution network and the strong execution of our commercial team.

Phosphate fertilizer markets remained relatively firm through the first half of 2024, and we benefited from lower raw material input costs. Our phosphate sales volumes were consistent with the prior year, as we had extended turnaround activity at our Aurora and White Springs plants in both periods. Retail Adjusted EBITDA totaled $1.2 billion in the first half of 2024, up 17% from the prior year, driven by increased gross margin across all major product lines. Crop nutrient sales volumes were similar to the prior year, as planting delays in May offset the benefits of an early start to the application season in the first quarter. Crop nutrient margins increased by $21 per ton in the first half, supported by the stabilization of fertilizer markets and a lower-cost inventory position compared to the prior year.

Crop protection margins in North America returned to normalized levels, while wet weather in May impacted applications and shifted some demand into the third quarter. We ended the second quarter with retail crop protection inventory down 17% compared to the prior year. The majority of this reduction occurred in our Latin American operations, where we are focused on tightly managing inventory and working capital levels. Overall, we are pleased with the first half performance of our North American and Australian retail businesses. Excluding the impacts of delayed planting in North America, our results were in line with our previous expectations. Now, turning to Brazil, where we have seen more persistent challenges. As outlined at our Investor Day in June, we are accelerating a margin improvement plan focused on further reducing operating costs and rationalizing our footprint to optimize cash flow.

This included the decision to curtail 3 fertilizer blenders and close 21 selling locations in the second quarter. We continue to evaluate our commercial footprint in Brazil to further extract efficiencies and see opportunities to grow our proprietary products business. During the second quarter, we also incurred a loss on foreign currency derivatives in Brazil. We have taken actions to remediate this issue and are confident that these actions have addressed the matter going forward. Now, turning to the market outlook for the remainder of 2024. Global grain stocks remain historically tight, while favorable growing conditions have created an expectation for record U.S. corn and soybean yields. Despite lower crop prices, demand for crop inputs in North America is expected to remain strong in the third quarter, as growers aim to maintain optimal plant health and yield potential.

We anticipate good affordability for potash and nitrogen will support fall application rates this year. Prospective soybean margins in Brazil are currently above 2023 levels, supported by a weaker real. Brazilian soybean area is expected to increase by 1%-3% in the upcoming planting season, and fertilizer demand is projected at approximately 46 million tons in 2024, in line with historical record levels. We are seeing strong underlying consumption trends in most major potash markets in 2024, and raised our full year global potash shipment forecast to 69-72 million tons. Uptake on our Summer Fill Program in North America has been strong, which is supportive of granular grade demand in the third quarter. The settlement of potash contracts with China and India in July is expected to support demand in standard grade markets through the second half.

Global nitrogen markets are being supported by steady demand and continued supply challenges in key producing regions, including the extension of Chinese urea export restrictions into the second half of 2024. U.S. nitrogen inventories were estimated to be below average levels entering the second half, and we have seen strong customer engagement on our summer fill programs in the third quarter. I will now turn it over to Pedro to provide more details on our full year 2024 guidance assumptions.

Pedro Farah (CFO)

Good morning. As Ken highlighted, we raised our outlook for global potash demand in 2024, increased our annual potash sales volume guidance to 13.2-13.8 million tons. Our sales volume range factors in the potential for a relative short duration Canadian rail strike in the second half of 2024. We expect strong North American potash shipments in the third quarter, and we are planning typical annual maintenance turnarounds, with the majority occurring this year in the fourth quarter. In nitrogen, we narrowed our annual sales volume guidance range to 10.7-11.1 million tons. We expect higher year-over-year volumes in both the third and fourth quarter, supported by lower plant turnaround activity in the second half.

Our phosphate sales volume guidance range was lowered to 2.5-2.6 million tons, reflecting the impact of extended turnaround activity and delayed mine equipment moves. For retail, our full-year adjusted EBITDA guidance was lowered to $1.5 billion-$1.7 billion. The primary driver is the expectation for more moderate recovery in Brazilian retail earnings, as well as the impact of delayed planting in North America in the second quarter. We have taken a number of strategic actions in Brazil, including the containment of blenders, that will result in lower near-term earnings potential, but will optimize cash flow. Capital expenditures were down 27% in the first half of 2024, and we maintain our full-year CapEx guidance of $2.2 billion-$2.3 billion.

As mentioned at our Investor Day in June, our capital priorities are focused on initiatives that drive organic growth in retail and operational improvements in potash and nitrogen. The focus in retail is to further expand our proprietary products portfolio and drive network optimization. We are targeting a more than 10% annual growth rate in proprietary products gross margin, which is expected to be a significant contributor to our 2026 retail Adjusted EBITDA target of $1.9 billion-$2.1 billion. The majority of planned investment capital in our fertilizer operations are related to mine automation projects in potash and the completion of low-cost brownfield expansions in nitrogen. These investments support our 2026 target to increase fertilizer sales volume by 2-3 million tons compared to 2023 levels, while improving the efficiency of our operations. I'll now turn it back to Ken.

Ken Seitz (President and CEO)

Thanks, Pedro. Our results in the first half of 2024 highlighted the advantages of our world-class upstream production assets and downstream retail business in North America and Australia. We delivered record potash sales volumes, lowered our operating costs, and improved retail margins. We continue to take actions to enhance the quality of our earnings and cash flow, with a focus on improving our ability to serve growers in our core markets, maintain the low-cost position and reliability of our assets, and position the company for growth. Finally, I would like to say a few words about the CFO transition that we announced yesterday. Mark Thompson will be moving into the CFO role on August 26th. Mark has been with the company for 13 years and has held numerous executive and senior leadership positions, currently serving as our Chief Commercial Officer.

He brings a strong track record of execution, proven financial and strategic acumen, and in-depth knowledge of our business that will support the advancement of our strategic priorities and drive a focused approach to capital allocation. On behalf of the Nutrien team, I would also like to thank Pedro for his service and commitment to Nutrien over the last five years. To support the transition, Pedro will move into an advisory role until the end of the year. We will now be happy to take your questions.

Operator (participant)

... 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 touchtone 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 lift the handset before pressing any keys. Your first question comes from the line of Chris Parkinson from Wolfe Research. Your line is now open.

Speaker 19

Great, thank you so much. You know, just given the performance in retail and the kind of the puts and takes over the last, you know, season or two, could you potentially speak to, you know, what you're seeing in end market grower demands, in both of your major geographies, or I should say three perhaps? You know, what you're hearing from growers, where your inventory levels are, just anything that we could help compartmentalize where we stand today versus, you know, normalized, perhaps more of a normalized, setup for 2025 and 2026. Thank you.

Ken Seitz (President and CEO)

Yeah, great, thanks for the question, Chris. And yeah, obviously with some softening ag commodity prices, we've seen that impact grower sentiment. That's true. At the same time, with, if we look at what you know cost of inputs has done, that grower affordability is still there and all the incentives exist for growers to maximize yields. And but certainly, Jeff can talk about what he's seeing on the ground in key regions like North America and Australia.

Jeff Tarsi (EVP and President, Retail)

Yeah, thanks, Chris, and good question, and obviously we would, you know, growers love to see commodity prices higher. If I look at our business, you know, we had, I think, a very strong print in the second quarter. And more importantly, we had very strong margins across all three shelves of our business, crop protection, seed, and fertilizer. And, you know, if I look at it from a grower standpoint, and if I look at what USDA is projecting from crop yield standpoint, I can tell you that I haven't seen growers pull back on giving their crops the inputs they need to maximize yields going forward. We think that from an inventory standpoint, we're in a really good position right now.

We and we had a real strong focus on getting our inventory down as low as we possibly could. Through the first half, we brought our inventory down roughly $700 million. A large part of that is in the crop protection shelf, and we had a very clear focus on doing that. And probably more impressive is we've been able to bring our inventory down in each of the geographies, and probably more importantly, we brought it down just under $250 million in our Brazil business.

So again, if I look going forward, if we pull the yields off that are projected, there's gonna be an awful lot of nutrient removal from the soil, and if we get an open fall, I would expect that, you know, we would see strong demand for N, P, and K as we go into the fall season. Again, that's gonna be weather dependent. But again, it's a really solid print across the first half. We've seen margins return to what we consider to be historical margins. Some of our sales may be a bit above historical margins.

Operator (participant)

Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is now open.

Andrew Wong (Analyst)

Hey, good morning. Thanks for taking my questions. So just on the potash segment, you know, at the moment, you've got six operating potash mines. They're operating at about an 80-85% operating rate. Could it make sense to maybe curtail production or shut down one of the higher cost mines, like you had done previously at Vanscoy and consolidate production so it's a little bit more efficient around fewer mines, which could potentially save on costs?

Ken Seitz (President and CEO)

Thank you, Andrew, for the question, and I can assure you that we've looked at that very closely over the years. You know, one of the benefits of having six mines and the flexibility in production is the ability to respond to our customers. Because, yeah, you even this year, where we've seen delayed contracts in India and China, which is, or, of course, standard grade products, we have the ability to produce additional granular and serve granular markets while we are watching delays in those standard grade markets. And so that flexibility among that six-mine network allows us to, as I say, meet the needs of our customers. You know, curtailing one mine definitely limits that flexibility because we have some mines that produce more standard grade and some mines that produce more granular products.

So I would say in this environment, again, where we've seen shifting trade flows, we've seen additional volume coming out of Russia and Belarus, and we've seen a mix, a balance shifting between granular and standard grade markets, that flexibility is actually a big advantage for us, and it's an advantage that is playing out certainly as we speak, and one that we want to preserve because it does create value for shareholders.

Operator (participant)

Your next question comes from the line of Jacob Bout from CIBC. Your line is now open.

Jacob Bout (Analyst)

Good morning. I had a few questions about the unauthorized execution of that derivatives contract that resulted in that large charge. Just want to understand, you know, what was the situation that led up to that?

... you know, is it kind of normal course to have such a large exposure? Is this only a Brazil issue? And then maybe just comment on, you know, your use of derivatives as a risk management strategy.

Ken Seitz (President and CEO)

Good. Thank you, Jacob. So to answer your specific question, was this in the normal course? The answer is no. You know, what led up to it was, obviously, we're doing a lot of work in Brazil and some organizational changes that, that led to challenges on segregation of duties and, and some of the, checks and balances, governance and controls that we have in place. We identified that quickly, we dealt with it quickly, and we have remediated the issue. It's certainly only, only contained to Brazil, and we've had our auditors have a look at all of this and certainly, on a path to remediation. You know, with respect to how we, use instruments to hedge, I'll pass that over to Pedro to provide some more explanation.

Pedro Farah (CFO)

Thank you. Jacob, what we use is a typical, you know, combination of forwards and options, so there's nothing too exotic there to basically cover positions that we have short in dollars, for that position. But as mentioned by Ken, I think the issues were more actions that we're taking outside of the normal policy, and those were quickly identified, rectified, and we have all the controls being put in place now that we are quite confident will be totally remediating the situation for the future.

Operator (participant)

Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is now open.

Joel Jackson (Analyst)

Morning, Ken and team, you know, you had your Investor Day in June. It was fewer than two months ago, and I think the focus of that event, really seeing how you're gonna grow retail the next couple of years, you know, from about $1.75 billion this year, it could be $250 million of EBITDA the next couple of years. With your update now, you're guiding down retail, you know, $150 million lower. And what strikes me is: how do you reconcile your view less than two months ago, this is a big growth engine for Nutrien, but now you're guiding down retail, you're making that challenge harder. Do you still stick to those targets? What's changed? Do you need to review everything? What do you think?

Ken Seitz (President and CEO)

Yes, thanks for the question, Joel, and we absolutely still believe in those targets and are, in fact, progressing toward those targets. When we talk about our North American and Australian business, organic growth are what we can do on proprietary products and network optimization and some of the investments we're making in our digital platform. If we look at the margin improvements in the first half of 2024, we're very encouraged by the path that we're on in North America and Australia. When we talk about guiding down at the moment, you know, we essentially have two challenges. One is what we talk about in Brazil, and, you know, as it relates to Brazil, we can talk more about the challenges that we've seen in terms of taking longer for that market to stabilize.

You know, we were looking to for inventories to clear out through 2024, and so we could emerge into 2025 in a better position. That said, we've seen some changes with grower buying patterns, where there's been a shift to generic crop protection products and even straight commodity fertilizers, which is having the effect of taking longer for in-country inventories to clear through the system. We've also seen some unfavorable weather conditions, and we're also dealing with a change in buyer behavior, where it's just-in-time purchasing on the farm, and that obviously creates challenges through the supply chain and so on. We do have a plan in Brazil, and it is a plan where we're going to, you know, and as we speak, improving margins. We've talked about closing 21 locations.

We've talked about curtailing three blenders, cost reduction initiatives, and certainly working down our inventories, and that's happening as we speak. You know, when we step back, we believe in our presence in Brazilian agriculture, and we believe in that market. It's just taking time to stabilize. So again, when we talk about the challenges and the guide down in our retail EBITDA, Brazil plays a huge role in that, and we are on a path to a better day in Brazil. The other one is, you know, we're always dealing with weather in agriculture, and it is true that we had a wet spring in May in North America, that we didn't see all the product go to ground that we would normally have seen. We're heading into the fall application season here.

This, this crop in North America is gonna pull a lot of crop nutrition out of the ground. We had a very strong summer fill program, and so that as we head into the fall, we're looking to, you know, weather pending, a strong fall application season. So it's all to say, Joel, that we absolutely believe in what we talked about in Investor Day. We're dealing with some near-term challenges here that we have a plan for.

Operator (participant)

Your next question comes from the line of Ben Theurer from Barclays. Your line is now open.

Benjamin Theurer (Analyst)

Yeah, good morning, and thanks for taking my question. Just two real quick ones. So one, as you look into the upgrade of your potash volumes globally, but then at the same time, your internal guidance raise is a little more muted.

... Could you quantify what your, your expectation is as to potential disruption on the rail strike that you've mentioned?

Ken Seitz (President and CEO)

Yes. Thanks, Ben. And, and, you know, when we guide on potash volumes, we have considered the potential for a short rail strike. But, yeah, there's a lot of moving parts there, so I'll, I'll pass it over to Mark Thompson.

Mark Thompson (Chief Commercial Officer)

Yeah, thanks, Ken. Good morning, Ben. So yeah, first and foremost, obviously, we're, we're concerned about the potential for the rail strike, as Pedro mentioned in his comments, given the impact that this would have, not only on nutrients but on our customers and the broader economy. And, given the dependence, particularly of our offshore potash exports through Canpotex on Canadian rail on a consistent basis, really any work stoppage would have some impact on the business. So with the uncertainty surrounding the situation in recent months, you know, we've done a few things that are within our control, charge up our domestic distribution network, and, Canpotex has also worked to take proactive steps to support customers and, and charge up their network to the, to the degree that that's possible.

Just on your question on guidance, look, I think there's some unknowns here, given this is relatively unprecedented. But, you know, in our guidance, we've embedded, we'll say, a few days to a maximum of a week of potential impact from a rail strike. And if we were to see that, type of eventuality, we would expect that we would be trending towards the, the lower end of our potash sales volume guidance. Now, in the event that, we move through this situation and we don't see a logistics interruption, that would see a situation where, you know, we'd be trending more towards the midpoint or potentially even the upper end of our potash sales volume guidance, all else equal.

So when you take that into account, and you look at us raising our full year global shipment estimate by about a million tons, I think that probably helps square up the plug on, you know, a typical market share for us in that 19%-19.5% range that we've talked about historically.

Operator (participant)

Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is now open.

Vincent Andrews (Analyst)

Thank you. Good morning, everyone. I'm wondering if you could talk a bit more about Brazil and maybe crop chemicals in particular. You know, your suppliers or some of your suppliers have reported they've obviously been speaking about the challenges down there as well. It seems like there's price competition being led by generics, but maybe broader than that. I'm just wondering, you know, are you seeing? You know, are your inventory positions there in terms of your cost? Are they where they need to be? Are you getting concessions from the suppliers, or is there more work to be done there? You know, how much is crop chem of the $150 million reduction in EBITDA for the year?

How much of that's associated with crop chem, to the extent you can estimate?

Ken Seitz (President and CEO)

Yeah. No, thanks, Vincent. And I think you identified a lot of the challenges in crop protection at the moment. And certainly, as you say, the switch to generic crop protection among some farmers is certainly having an impact. But I'll pass it over to Jeff Tarsi to provide more detail.

Jeff Tarsi (EVP and President, Retail)

Yeah, Vincent, thanks. And look, I don't think that anyone's exempt from the market pressures that we've seen in Brazil over the last 18-24 months. And that pressure has been particularly intense around the crop chem sector, really starting back half of last year. And what we have seen, I think it was mentioned a little bit earlier, is that we're seeing more entrants on the generic side of the market, and we're seeing growers as they're squeezed financially as well looking for lower cost options, particularly around generic chemistry from that standpoint. And I think we'll continue to see that for a bit.

You, you mentioned, you know, what portion of our business is from a crop chem basis, and we're, we're basically a third, a third, a third there from a crop chem, fertilizer, and seed standpoint. From an inventory standpoint, as I mentioned earlier, we brought our inventory down quarter-over-quarter, roughly about $250 million, and a large portion of that. And $250 million for Brazil, and a large portion of that is in the crop chem sector. So I like where we've got ourselves positioned from a crop chem standpoint. And, you know, again, we continue to see margin pressure there.

While we've done a good job of getting our inventory down, what's important, as we go forward, is that the rest of the retail industry get their crop chem in that same position if we want to see some alleviations on margins. As Ken mentioned a bit earlier, we're just super focused right now on margin improvement across all three shelves of our business, cash generation, and again, managing our inventories down just as tight as we can possibly get them.

Operator (participant)

Your next question comes from the line of Ben Isaacson from Scotiabank. Your line is now open.

Ben Isaacson (Analyst)

Thank you very much, and good morning, everyone. So back to Brazil. Ken, you mentioned that you have a plan in place for operational improvements in the near term, but maybe a bit of a longer-term question. You guys have taken roughly $800 million of write-downs in the region over the past year or so, and then another $200 million of this FX issue. So $1 billion of challenges against a business that generates somewhere between $80 million-$100 million in EBITDA. Is that right? And so what are we playing for here, and what's still at risk, and has that run rate changed, given that you're making some pivots in the region? Thank you.

Ken Seitz (President and CEO)

... Yeah, thanks, and thanks for the question, Ben. Yeah, we, you know, we're obviously doing a complete commercial review of our business in Brazil. We're still a small percent of the market, less than 2% of the market in Brazil. And we've been through just an exceptional period of extraordinary volatility, you know, ever since really the conflict in Eastern Europe. And we're at a time in the market that's challenged for all the reasons that we've talked about today. And of course, Brazilian agriculture and Brazilian retail won't be challenged forever because that region it continues to grow in terms of agriculture, and farmers continue to look for maximizing yields and therefore appropriate crop input. So the market is going to come around. We know that.

It's a matter of time for us as Nutrien. Yeah, we have been assessing how it is that we continue to gain access to Brazilian agriculture as one of the largest potash suppliers into the country. As we look at proprietary products and the opportunity to grow that business in Brazil. And for the balance of it, yes, a strategic review on what makes sense for us going forward, to your point, Ben.

Operator (participant)

Your next question comes from the line of Jeff Zekauskas from J.P. Morgan. Your line is now open.

Jeffrey Zekauskas (Analyst)

Thanks very much. You lowered your retail guide by about $150 million. How much of the lowering came from the weather in the U.S., and how much came from South American operations?

Ken Seitz (President and CEO)

Yeah. Thanks, Jeff. And certainly, the majority of that change was really to everything that we've talked about with respect to Brazil. You know, the impact of a wet May in North America. It contributed to about a third of that adjustment.

Operator (participant)

Your next question comes from the line of Joshua Spector from UBS. Your line is now open.

Lucas Stoneman (Analyst)

Thank you. This is Lucas Stoneman for Josh. I just wanted to follow up on the pathway for retail towards the 2026 targets. I mean, you're sort of pointing to about $1.6 billion in EBITDA this year, and then bridging that to the $2 billion. I mean, over the last five years, retail's only kind of grown EBITDA a mid-single digit kind of rate. To hit the $2 billion, you're gonna need to get up to kind of 12% a year the next two years. So could you please just kind of walk us through the buckets of the growth algorithm of how you see yourself getting to be able to deliver on that? Thanks.

Ken Seitz (President and CEO)

Yeah, thanks, Josh. Sorry, it's Lucas. We, we certainly have that bridge and the path from here to there, and I'll pass it over to Jeff to provide that.

Jeff Tarsi (EVP and President, Retail)

Yes, Ken laid out, Josh, a little bit earlier. You know, we laid out in our investor strategy 2019 to 2021, and we continue to see a path to that number. As I look at it, I see three different buckets that we need to achieve on to deliver that 2019 to 2021. Number one, it starts with the continued momentum in growing our proprietary products business, particularly, and we emphasize our plant nutrition and biologicals. We've been growing that business at a pace greater than 10% a year, and we believe we can continue that trajectory through further penetration in our core retail markets. And what's also important is, as well as our growth in our international and wholesale channels and working with our commercial teams there.

So that's gonna play a significant part in it. But also, you know, we, we wanna have steady and stable growth in our base operations in North America and Australia, you know, consistent with what we delivered over the last five years. And that's going to include network optimization, which we're working on really hard right now. It's gonna include organic growth within those base businesses and then some tuck-ins going forward. And then last but not least, and we talked a lot about this this morning, is our Brazil business and that seeing that market stabilize some to that effect. So those are the three buckets that we see, and we still think that we're on a path to achieving that.

Operator (participant)

Your next question comes from the line of Steve Byrne from Bank of America. Your line is now open.

Steve Byrne (Analyst)

Yes, thanks. Pardon me. Jeff, in response to your comments just now about growing proprietary 10% per year, it looks like your proprietary seed, chemical, and nutrients as a % of the platform slipped in the first half of the year. Is there anything that you can call out that drove that? And as you look into a year where, you know, grower margins are looking tight, does that favor a shift to your proprietary products, or do you see risks that they seek out more generics?

Jeff Tarsi (EVP and President, Retail)

Yeah, thanks, Steve. And I first of all do think that when we get into these tighter marketing conditions, it favors it, not only just around the crop protection shelf, but I think it favors it a bit on our proprietary seed business. And again on our biologicals and crop nutritions and how we feed the crop as we go along through the season with that standpoint. And again, we've seen excellent growth again this year in our plant nutrition and biostimulant space. You know, I'm particularly pleased around one of our products, Terramar, which we had about a 300% increase in usage last year. We're up another 75% this year, so we continue to be encouraged by that sector.

And then it doesn't get mentioned a lot, but, you know, our adjuvant sales year-to-date are up 7%, Steve. And, you know, adjuvants make up 5% of our crop protection space, but they contribute 13% of our margins. And so this tells us that our people are very focused, and our growers are very conscious on continuing to use the products to give them the best chance of efficacy. When you mention that as a percent, it looked like our proprietary business was less. You have to factor in last year that that would have looked larger due to what we saw as the reset in the fertilizer market last year in the first quarter. And so that would have thrown those percentages out.

But, our, our business, our proprietary products business continues to be a very bright, bright spot for us. And, and again, we've got, we've got a lot of plans for big growth in that space going forward.

Operator (participant)

Your next question comes from the line of Aron Ceccarelli from Berenberg. Your line is now open.

Aron Ceccarelli (Analyst)

Hello. Hi, good morning. Thanks for taking my question. I would like to ask a question about potash on the supply side. After the renegotiation of the contracts, clearly, it seems like both India and China are coming back. I would like to understand on the supply side, what you guys see from Laos, and how should we think about, you know, capacity addition from these guys for the remainder of the year? Thank you.

Ken Seitz (President and CEO)

Yeah, thanks, Aron. Yeah, you know, we looked at 2024, and on the demand side, what we've seen has been quite strong this year. That led us to increase our view, 69-72 million tons of shipments through the year, with just about every market increasing demand. On the supply side, you know, we look at a balanced market, and that does involve Laos, and it does involve supplies out of Russia and Belarus. But I'll pass it over to Mark to talk about those numbers.

Mark Thompson (Chief Commercial Officer)

Yeah, thanks, Ken. Good morning, Aron. So maybe just to, you know, kind of summarize how we're looking at the potash market as a whole. I think starting on the demand side of the equation, obviously a very strong demand profile in the first half of 2024 across granular markets. We've seen a demand recovery in Southeast Asia, and that's been combined with the continuation of strong domestic consumption of potash in China. As we've said before, this has all been supported by solid affordability and really what we see as agronomic need to replenish potash levels globally after a few years of under application in key markets. So with the offshore contracts now in place, we do expect a global price floor to be established and standard demand to remain strong through the second half of the year.

You know, we've mentioned already that we upped our global shipments estimate by 1 million tons on both ends of the range, and this is largely owing to stronger than expected shipments into China. So to come back to your question on the supply side of the equation. On the supply side, I'd say for us, really as expected, in terms of where the incremental supply has come from to serve this growth in demand this year, it's really the FSU, incremental supply from Canada and then Laos. And, and really, we've seen the pace of shipments from the FSU in the first half, generally in line with the levels we saw in the second half of last year. Russian supply is effectively back to 2021 levels.

And similarly, with Laos, we've seen shipments in the first half generally in line with the second half of last year. And I think stepping back more broadly on Laos, you know, as we've continued to read in publications and are aware, and I think that Laotian producers have announced themselves, continue to experience challenges with production. You know, we understand there's been continued water inflow issues that have hindered the achievement of production levels that were previously targeted. And as we look out over the medium term, you know, say the next two to three years, we do expect that we will see some incremental supply from Laos, you know, potentially 1 million tons in our S&D. However, disclosures out of Laos have also, you know, taken larger expansions off the table from the previously targeted timeframe.

So yeah, I think when we step back from all that, as Ken said, we continue to see a relatively balanced market in 2024 with supply and demand. And I think actually, as we look out to the next couple of years into 2025 and 2026, we expect to see global demand continue to grow, but there is less incremental supply available over that period. So we expect we could see some tightening and firming in the market over that time horizon.

Operator (participant)

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.

Adam Samuelson (Analyst)

Yes, thank you. Good morning, everyone. Maybe just continuing on that line of questioning, Mark. Just with—you're taking the range on global shipments up 1 million tons. I mean, you guys talk about 20% or so market share, so that's 200,000 tons. It's what you lowered, increase certainly the low end of the range. Why wouldn't... Is it just the rail strike that would take you away from increasing the high end? Is it just the inventories coming out of the first half and known turnarounds in the fourth quarter? And I guess, how-

... Should we think about the uptake on summer fill in North America and what you're seeing from a North American affordability demand for corn and soybean growers, where certain new crop prices don't point to a lot of profitability for the grower over the next 12 months?

Ken Seitz (President and CEO)

Yeah, great, Adam. Yeah, I'll quickly pass over to Mark here. But I think you've actually identified as many of the moving parts within our guidance range. And, you know, if you look today without a rail strike, certainly we expect to see strong volumes, and you see that reflected in our own production volumes in the first half. You see that reflected in our cash cost of production, $53 per ton. And if without some challenges on rail, you know, the year is shaping up from a volume perspective to be a very good one, maybe one of the best. And then, yeah, Mark can certainly talk about additional color on guidance range and rail. And then also, yes, very strong uptake on our summer fill. But over to you, Mark.

Mark Thompson (Chief Commercial Officer)

Yeah, thanks, Ken. Good morning, Adam. So, yeah, again, I think you and Ken both summarized it well. I think if you were to look at what we've said in terms of a rail strike earlier in the call, you know, in absent that, you'd see our typical market share targets be right in line with what our guidance is implying relative to our global shipment guidance. And so obviously we continue to watch that situation closely. We're hopeful that there's a resolution there that doesn't impact the business. But ultimately from a commercial perspective, really nothing has changed with respect to our marketing strategy or, you know, our typical market share. You know, I think in North America, as you pointed out and has been said earlier in the call, we are seeing some softness in commodity prices.

You know, I think potash affordability is really in a strong place. We had an opportunity a couple of weeks ago to meet with all of our major customers in North America. You know, I would say across the nutrient complex, sentiment is certainly the most positive on potash, you know, in terms of that affordability driving a strong bent towards consumption in the second half of the year. If you look at our summer fill program, you know, we came through the spring season, notwithstanding some of the weather challenges, with extremely depleted inventories across the channel in North America. Certainly, we saw that with all of our customers. We saw that within our Nutrien Ag Solutions business, and that set us up very well for a very strong summer fill program.

So at this point, you know, we're effectively sold out through the third quarter and effectively shipping into the first portion of October to deliver on that fill program. So yeah, I think the response we've seen on potash has been very good. We're not concerned on the consumption side of the equation in North America, but I'd say really that channel behavior is certainly normal.

Operator (participant)

Your next question comes from the line of Richard Garchitorena from Wells Fargo. Your line is now open.

Richard Garchitorena (Analyst)

Great. Good morning, everyone. If I could ask on capital allocation. So you've got a strong balance sheet, fairly low leverage, a strong free cash flow this quarter. You've cut your CapEx needs for this year by $400 million-$500 million versus last year, and you've also guided, obviously, on the Investor Day, to significant production growth, to 2026, which, you know, we would assume is supported by ongoing demand growth. So my question is, you know, we have all these factors in play. Your stock price has been fairly weak. You know, what would we need to see for you to step up return of capital in the form of buybacks? And how should we see that play out potentially over the next 6-12 months?

Ken Seitz (President and CEO)

Yeah. Thanks, Rich. Yeah, I think you identified some of the numbers there. In our CapEx program, $2.2 billion-$2.3 billion, which includes about $500 million, and that's split between what we've talked about in retail, proprietary, and network optimization. And then the other half goes into our upstream business, looking at nitrogen, brownfield investments, debottlenecking, and mine automation, and potash. So we have a very targeted, and I would say, exciting program on the investing side, that along with sustaining CapEx, adds up to that $2.2 billion-$2.3 billion. As you say, we've got about $450 million in leases and then about $1 billion for the dividend. So that all adds up to about $3.7 billion.

As we watch the year unfold and as we head into the fall here, you know, and into 2025, as you say, as we look at incremental cash above those levels, certainly we will look at buying back our shares, among other opportunities, which could include ongoing retail tuck-in opportunities in North America and Australia, and maintaining the flexibility for those when they come up, but also, as you say, share repurchases.

Operator (participant)

Your next question comes from the line of Edlain Rodriguez from Mizuho. Your line is now open.

Edlain Rodriguez (Analyst)

Thank you. Good morning. And forgive me if that question was asked before. On phosphate, you seem to have some concerns about affordability, given the persistence of the high prices there. But yesterday, like, the biggest player in the space didn't seem to have any concern about the high prices. They think they can last for a long time, and the disconnect between phosphate and potash prices shouldn't be an issue. But, like, what makes you concerned about, like, the high prices of phosphate and how detrimental it could be to demand and affordability going forward?

Ken Seitz (President and CEO)

... Yeah, thanks for the question, Edlain. Yeah, you know, we just talked about affordability and margins as it relates to potash and, you know, our summer fill program. It is a bit different situation in phosphate with some of the tightness in the phosphate market. And what we can tell you is what we're seeing talking to farmers through our downstream channel. And so I'll start with Jeff to maybe provide some of that color, and then maybe over to Mark to talk a little bit about the fundamentals.

Jeff Tarsi (EVP and President, Retail)

Yeah, and as I stated earlier, you know, when I look at the fall and the second half of the year, obviously, fall fertilizer activity and application will be weather dependent. We've had three good years in a row, and, I'm banking on a fourth year here. If I look at the three nutrients, and Mark talked about this earlier, you know, potash is appearing probably very in line from an affordability standpoint. The phosphate side of it is a bit more of a question mark, and I think that growers were probably expecting that price would come more in line with some of the other nutrients.

So if I think there's if there's a weakness out there in the fall from an application standpoint, I think that, you know, we're seeing early on that that could be in the phosphate market. I don't wanna really project it what I think that could be for the fall, but we do see some softness in that side of it, and we see growers asking a lot of questions from an affordability standpoint. Mark, I might kick it over to you.

Mark Thompson (Chief Commercial Officer)

Sure. Thanks, Jeff. Good morning, Edlain. Yeah, I think I'll just reiterate almost exactly what Jeff said from a different perspective, which is, you know, when we've been talking to our customers, you know, across the retail channel, particularly in North America, it's true that global supply-demand is very tight currently for phosphate. So that has led to good participation in fill programs because phosphate's needed. You know, at the same time, as Jeff pointed out, we've got a pretty large price disparity between potash and phosphate currently in the market. So certainly in those discussions with our customers, similar to Jeff's discussion with his team and growers, there are concerns about affordability and concerns about, you know, potential demand destruction in portions of the phosphate market, as we get into later in the fall season.

Now, when you look at our phosphate business in particular, you know, obviously we've got a very diversified phosphate business across both ag and industrial markets. We don't see an impact from that a volume standpoint for us because we are positioned a little bit differently. But certainly for our customers and down at the grower level in Nutrien Ag Solutions, it's something we're gonna continue to watch very closely.

Operator (participant)

There are no further questions at this time. I will now turn the call back to Jeff Holzman. Please continue.

Jeff Holzman (Head of Investor Relations)

Hey, thank you for joining us today. The investor relations team is available if you have follow-up questions. Have a great day.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.