Q4 2023 Earnings Summary
- Nutrien expects global Potash demand to recover towards trend levels in 2024, projecting shipments between 68 million to 71 million tonnes. Demand growth is anticipated in key markets such as Southeast Asia and Europe, supported by low inventories and favorable agricultural economics . This increased demand could lead to higher Potash prices, positively impacting Nutrien's earnings.
- Nutrien anticipates improved production and reliability in its nitrogen business in 2024, projecting an increase in nitrogen sales volumes by approximately 500,000 tonnes. This is underpinned by higher operating rates at U.S. and Trinidad plants following reliability improvements and debottlenecking projects.
- Nutrien's retail segment expects significant improvement in crop protection margins, particularly in Brazil, due to better inventory positions and an anticipated recovery in margins in the second half of 2024 . The company's proprietary products continue to contribute positively, with plans for further growth in proprietary plant nutritional and biostimulant product lines, which could boost retail earnings.
- Ongoing reliability issues in the nitrogen business and asset impairments may impact production and earnings. Nutrien faced reliability challenges at certain facilities, notably in Trinidad, leading to longer-than-expected maintenance turnarounds and asset impairments.
- Margin pressures in the crop protection business, especially in Brazil, due to high inventory levels may continue to affect profitability. Nutrien's crop protection margins remained challenged in Brazil due to persistent high inventory in the channel, which may prolong margin recovery.
- Weakness in Potash prices with uncertainty over price recovery could impact earnings despite volume growth. Potash prices have been drifting lower in most markets, and while Nutrien expects potential firming, there is uncertainty about price increases in 2024.
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Mid-cycle EBITDA Outlook
Q: Is the $7-7.5B mid-cycle EBITDA by 2027 still achievable?
A: Management believes achieving the $7-7.5 billion mid-cycle EBITDA target by 2027 is attainable. This depends on returning to normalized retail margins, targeting $1.9 to $2.1 billion from retail, and driving organic growth through proprietary products, network optimization, and digital investments. They plan to add 1-2 million tonnes of Potash capacity and 1-1.5 million tonnes of nitrogen capacity via investments. Mid-cycle assumptions include Potash prices of about $400 per tonne globally and in North America, which is above current international prices but considered reasonable due to structural market changes.
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Potash Market Catalysts
Q: What catalysts will drive the Potash market and price outlook?
A: Management expects Potash demand growth to 68-71 million tonnes in 2024, supported by low inventories and the need to rebuild soil potassium levels. Key growth markets include Southeast Asia, Europe, India, and Latin America (excluding Brazil). While Brazil and China have higher inventories, consumption remains strong. They anticipate price stability and potential firming due to attractive pricing for growers and supportive market fundamentals. The company is prepared to meet customer needs without curtailments, having flexibility in operations to adjust production as required.
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Nitrogen Production Improvement
Q: Why will nitrogen production reliability improve in 2024?
A: Management has made investments to enhance reliability, including pulling forward major turnarounds and restarting an idled facility in Trinidad for greater operational flexibility amidst gas curtailments. Despite some longer-than-expected outages, plants have been running extremely well since returning to operation. North American assets, excluding one turnaround, operated at 100% capacity utilization in the quarter. These improvements add nearly 500,000 tonnes to the 2024 production forecast, giving confidence in higher production and reliability.
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Crop Protection Outlook
Q: Is crop protection a threat or opportunity for retail?
A: Management views crop protection as an opportunity. Challenges are regional, particularly in Brazil, where inventory liquidation pressured margins in Q4. They anticipate significant improvement in the Brazilian market in the back half of 2024. In North America, crop protection margins were just under 25%, aligning with historical levels, and inventories are well-positioned, down about $400 million year-over-year. This strong inventory position provides leverage with suppliers and sets them up favorably for 2024.
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Capital Allocation and Buybacks
Q: Will free cash flow and buybacks in 2024 be similar to 2023?
A: Management has adjusted their capital program, reducing investment dollars and focusing on areas like proprietary products, retail network optimization, digital investments, mine automation, and nitrogen debottlenecking. They expect cash conversion to return to normalized levels of about 70%. Share buybacks remain an option—they renewed the NCIB—but will be considered as the year unfolds, depending on market stabilization and Potash returning to trend-level demand.
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Potash Supply from Russia and Belarus
Q: Are Russia and Belarus Potash exports back to 2021 levels?
A: Management does not expect volumes from Russia and Belarus to return fully to 2021 levels in 2024. In 2023, Russia's shipments were down nearly 2 million tonnes and Belarus's down around 3 million tonnes compared to 2021. They anticipate the region's production to increase by about 1.5 million tonnes in 2024 versus 2023, but not reaching pre-sanction levels.
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Impact of Corn Prices
Q: Will sub-$5 corn prices affect fertilizer demand?
A: Management is not concerned about corn prices below $5, as input prices have also declined. Farmers generally follow crop rotations and plant the best genetics requiring optimal nutrition for high yields, which is crucial in a lower price environment. Strong fall fertilizer applications, up 15%, and robust seed bookings indicate positive grower sentiment and commitment to maintaining yield through proper fertilization.
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CapEx Reduction and Focus
Q: Why is CapEx reduced by $400-500 million in 2024?
A: The company is intensifying focus on high-conviction opportunities and has completed investments that provide flexibility and capacity to meet customer needs and growth. They continue to invest in sustaining assets and critical areas like proprietary products but have paused expansion of the retail network in Brazil to integrate past acquisitions. The adjusted CapEx level of $2.2 to $2.3 billion supports sustaining assets and targeted investments without overextending capital spending.
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