Nutrien Ltd (NYSE:NTR) Q2 2019 Earnings Conference Call July 30, 2019 10:00 AM ET
Richard Downey – Vice President-Investor and Corporate Relations
Chuck Magro – President and Chief Executive Officer
Pedro Farah – Chief Financial Officer
Jason Newton – Head-Market Research
Susan Jones – Executive Vice President and Chief Executive Officer-Potash
Raef Sully – Executive Vice President and Chief Executive Officer-Nitrogen and Phosphate
Mike Frank – Executive Vice President and Chief Executive Officer-Retail
- Richard Downey - 投资者和企业关系副总裁
- Chuck Magro - 总裁兼首席执行官
- Pedro Farah - 首席财务官
- 杰森牛顿 - 市场研究主管
- Susan Jones - 执行副总裁兼首席执行官Potash
- Raef Sully - 执行副总裁兼首席执行官 - 氮和磷酸盐
- Mike Frank - 执行副总裁兼首席执行官 - 零售
Andrew Wong – RBC Capital Markets
Steve Hansen – Raymond James
Ben Isaacson – Scotiabank
Joel Jackson – BMO Capital Markets
P.J. Juvekar – Citi
Jacob Bout – CIBC
Duffy Fischer – Barclays
John Roberts – UBS
Christopher Parkinson – Credit Suisse
Adam Samuelson – Goldman Sachs Group
Vincent Andrews – Morgan Stanley
Don Carson – Susquehanna Financial
Mark Connelly – Stephens
Jonas Oxgaard – Bernstein
Michael Piken – Cleveland Research
Steven Byrne – Bank of America
Selka Cook – JPMorgan
- Andrew Wong - 加拿大皇家银行资本市场
- 史蒂夫汉森 - 雷蒙德詹姆斯
- Ben Isaacson - Scotiabank
- 乔尔杰克逊 - BMO资本市场
- P.J. Juvekar - 花旗
- 雅各布布特 - CIBC
- Duffy Fischer - 巴克莱
- 约翰罗伯茨 - 瑞银集团
- 克里斯托弗帕金森 - 瑞士信贷
- 亚当萨缪尔森 - 高盛集团
- 文森特安德鲁斯 - 摩根士丹利
- Don Carson - Susquehanna Financial
- 马克康纳利 - 斯蒂芬斯
- 乔纳斯奥克斯加德 - 伯恩斯坦
- 迈克尔皮肯 - 克利夫兰研究所
- Steven Byrne - 美国银行
- Selka Cook - 摩根大通
Greetings, and welcome to the Nutrien’s Second Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to Richard Downey, Vice President of Investor and Corporate Relations.
Thank you, operator. Good morning everyone, and welcome to the Nutrien’s Conference Call to discuss our second quarter results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien; Mr. Pedro Farah, our CFO; and the heads of our three business units.
As we conduct this conference call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain material assumptions were applied in making these forecasts and conclusions; 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 current quarterly report to our shareholders as well as our most recent Annual Report, MD&A and annual information form filed with Canadian and U.S. Security Commissions to which we direct you.
I will now turn the call over to Mr. Chuck Magro.
谢谢运营商。 大家早上好，欢迎来到Nutrien的电话会议，讨论我们的第二季度业绩和展望。 今天与我们联系的电话是Nutrien总裁兼首席执行官Chuck Magro先生; 我们的首席财务官Pedro Farah先生; 以及我们三个业务部门的负责人。
在我们召开本次电话会议时，我们就未来的期望，计划和前景所做的各种陈述都包含前瞻性信息。 在做出这些预测和结论时应用了某些重要假设; 因此，实际结果可能与我们的前瞻性信息中的结果大不相同。 有关这些因素和假设的其他信息包含在我们向股东提交的当前季度报告中，以及我们向加拿大和美国安全委员会提交的最新年度报告，MD＆A和年度信息表中。
Thanks, Richard. Good morning everyone, and welcome to Nutrien’s second quarter earnings call. As always, I will walk through the results and speak to our outlook, but before doing that, I want to share a few broad comments with you.
First, the weather. In North America, it has been like nothing we have ever seen before. In fact, it has gone into the history books as the worst nine months weather period in U.S. history, millions of acres went unplanted. This resulted in a lot less spend on crop inputs and it is a big reason why we are seeing a pause in global fertilizer demand growth this year.
Second, our business continued to show resiliency and stability. Nutrien delivered higher earnings in the first half supported by the quality of our assets and the strength of our integrated model. Even in Retail, our results were solid despite excess moisture preventing over 10 million acres of prime U.S. farmland from being planted. And that was just the headline number, a shortened application window also reduced crop input spending on many acres that did get planted.
Third, demand for grains and oil seeds is still growing, and supply is tightening. With fewer acres and what will almost certainly be below trend yields. We expect U.S. corn ending inventories to drop by as much as half this year. Markets have started to respond with corn prices up about 20% year-over-year. This is expected to set up for a significant increase in U.S. corn acreage and a strong rebound and crop input demand next year.
The final point is that we remain focused on our controllables, managing our costs and leveraging our ability to invest counter-cyclically is where we are focused. We outlined a plan at our Investor Day in May that provided a path to deliver long-term value and we are advancing it. We have allocated approximately $1 billion so far this year to expand our retail footprint in the U.S. and Australia, and to grow our proprietary products business. We believe market environments like this will play to our strengths.
During the second quarter, we also used our strong balance sheet and confidence in future cash flows to return capital to shareholders. We repurchased nearly 21 million shares during the second quarter alone, which brought our 5% authorized program to a close in less than four months. We also announced the 5% increase to our expected quarterly dividend, raising it to $0.45 a share. On these two fronts combined, we have returned $5.2 billion to shareholders since the close of the merger that is more capital returned over this period than any of our peers.
Now, with the high-level points out of the way, I will turn to our results. Nutrien’s adjusted net earnings for the second quarter was $1.58 per share and adjusted EBITDA was $1.9 billion. Our adjusted EBITDA on the first half increased by 18% to $2.6 billion supported by higher earnings in our potash and nitrogen businesses. We generated $1.7 billion in free cash flow during the first half up 47% from last year. Our cash production costs were in line with previous year and our G&A expenses were down 5%.
Retail EBITDA in the first half was $810 million, down 8% from the previous year. The impact of lower acreage and a limited opportunity to apply other crop inputs were the key drivers. When you consider that corn, soybean and canola acreage was off an estimated 7% that shows up in our bottom line. Gross margins held for all major retail product categories except for crop protection products, which were hindered by a limited window for pre-plant herbicide applications, and delayed pest pressure.
Nutrien’s crop protection sales were down 3% in the first half are relatively strong performance compared to U.S. industry sales that are estimated to be down more than 10%. Fertilizer margins were strong in a condensed application season highlighting benefits of our expensive distribution network. Our potash business continued to deliver excellent results. Potash EBITDA exceeded a $1 billion in the first half, up 42% from last year. Net selling prices rose by 26% with increases in both North America and offshore markets. Our domestic sales were impacted by weather issues in the first half, however, this was more than offset by record demand in offshore markets, particularly from Brazil and China. Potash cash cost of product manufactured with $59 per ton maintaining our position as one of the lowest cost global producers.
Nitrogen EBITDA was up 17% in the first half due to higher realized prices, lower North American gas prices and increased earnings from our equity investments. Our sales volumes and realized prices benefited from the strength of our North American distribution system and the diversity of our customer base. Our realized prices this quarter were also supported by stronger urea benchmark prices and logistical constraints on the river system that resulted in elevated pricing differentials.
Phosphate EBITDA was down 17% compared to the first half of 2018, we maintained our phosphate fertilizer volumes in the first half despite challenging market conditions.
Looking forward, we see a number of positive factors. Corn futures have strengthened to multi-year highs and growers holding inventories are benefiting from increased cash prices. Higher crop prices have increased grower incentives to maximize the yield of the current crop and we are seeing good demand in Q3 for topdress nitrogen and crop protection applications.
Historically, our Retail business is seasonally slower in July and August, but this year has been different. The combination of the delayed season and higher crop prices have resulted in our July retail sales being up over 40% compared to last year. With tighter supplies and improved prices, we see potential for around 95 million acres of corn planted next year. Higher corn acreage combined with lower crop input applications this spring should support strong recovery in crop input demand this fall and certainly, in the 2020.
In potash, global prices have remained relatively stable. Assuming an adequate application window, we expect a strong fall application season in the U.S. and a lot of inventory being pulled through the channel. Demand in Brazil is expected to remain robust, supported by favorable crop prices and continued acreage expansion. We expect customers in India to settle new potash contracts before China this fall although we have moderated our view of full-year shipments to these markets.
given weather-related lower North American demands in the first half and some short-term softness in other markets, we now forecast global potash shipments between 65 million and 67 million tons in 2019. We have therefore lowered our potash sales guidance to 12.6 million to 13 million tons. As always, we were able to respond if market opportunities emerge.
Similar to potash, we expect a strong fall nitrogen application season in the U.S. urea prices have outperformed other sources of nitrogen in part due to continued strong demand from India. global ammonia prices weakened through the first half, but we expect that seasonal curtailments in production along with improved demand will provide underlying support to prices in the second half of the year.
We have lowered our annual adjusted earnings guidance to $2.70 to $3 per share given the extreme weather impact from the first half of the year and our adjusted EBITDA guidance to $4.35 billion to $4.7 billion. The midpoint of our annual adjusted EBITDA guidance is up 15% from last year, which still represents strong year-over-year growth, demonstrating the synergy capture and the strengths of our business.
Moving beyond 2019, we see the potential for an excellent year in 2020 and we are making good progress against the long-term strategic agenda we laid out at our Investor Day. in Retail, we are transforming the business through scale, efficiency and digital leadership. We will continue to expand our business in core markets in North America and Australia while prudently building out our network in Brazil. We expect to grow retail earnings by around 60% over the five-year period driven by a combination of organic and inorganic growth initiatives and we have set clear performance targets in each of these areas.
As previously announced, we entered into an agreement to purchase Ruralco Holdings, the third largest ag retailer in Australia. We continue to work through the regulatory approval process and expect to close this transaction late in the third quarter. The retail acquisitions completed in 2019 will make a much greater contribution to our earnings next year.
in potash, we see opportunity to increase earnings in a relatively stable potash price environment through volume growth and further cost reductions. We have five million tons of production capability that we can bring online as demand grows, which is an opportunity that does not exist for any other potash producer. In nitrogen and phosphate, we continue to optimize our network and improve our cost positions. We are completing a number of smaller nitrogen expansion projects that offer attractive returns for our shareholders.
Nutrien’s integrated business model is designed to withstand events such as what happened this spring is also designed to capitalize on a long-term recovery in the ag markets, which we are starting to see positive signs in the second half of 2019. We are a company focused on delivering and we remain committed to building on a track record of performance for all of our stakeholders.
如前所述，我们签署了购买澳大利亚第三大农业零售商Ruralco Holdings的协议。我们将继续通过监管审批流程，并期望在第三季度末完成此交易。 2019年完成的零售收购将为我们明年的收益做出更大的贡献。
We would now be happy to answer your questions. Thank you for listening.
[Operator Instructions] Our first question comes from Andrew Wong with RBC Capital Markets. Your line is now open.
[操作员说明]我们的第一个问题来自RBC Capital Markets的Andrew Wong。 你的生产线现已开放。
Hey, good morning and thanks for taking my questions. So, obviously, 2019 is in pretty difficult operating environment, a lot of market factors, trade disputes, weather disruptions that kind of stuff. But you’ve done well to grow your earnings executing on your controllables. So, if you’re thinking to next year and I know it’s a little early for that, but we’re already into the next ag season, right? So, can you just talk about some of the earnings catalyst we should be thinking about both from a market side of things and company-specific side? I know you touched on some of them in the prepared remarks, but it’d be great to hear more about that.
嘿，早上好，谢谢你接受我的问题。 所以，显然，2019年处于相当困难的经营环境，很多市场因素，贸易纠纷，天气中断那种东西。 但是你已经做得很好，可以增加你的可控制器上的收益。 那么，如果你想到明年，我知道它有点早，但我们已经进入下一个农业季节，对吧？ 那么，你能谈谈我们应该从市场方面和公司特定方面考虑的一些盈利催化剂吗？ 我知道你在准备好的评论中谈到了其中的一些，但是听到更多关于这一点的信息会很棒。
Good morning, Andrew. Sure. So, it is a little bit early, but I think that the backdrop that we’re seeing right now is that we do expect a pretty significant rebound in the market fundamentals in 2020 and you can see it in crop pricing futures, but you can also see it in some of our business that we’re seeing in retail with crop protection in the third quarter. The fall season we think, will be quite strong as well. It’s going to be of course, the weather dependent and see if we have the application window. But I think 2020 is setting up to be a very good agricultural year and that’s going to be company independent.
from nutrien’s perspective of course, we’ve been aggressive with our M&A activity in retail and I think you’re going to see the full value of the those investments from a shareholder perspective in 2020 in a more, what I say, normal or strengthening year. And so that is certainly going be something that’ll be on full display when it comes to nutrien’s specific earnings growth for retail. I think the work that we’ve done in our production businesses in nitrogen and phosphate, but also in potash to take our costs out and to optimize the network. So, there’s still some of the full value that you were going to see from the synergy capture that we’ve delivered and the incremental work that we outlined at our Investor Day in May. I think you’re going to see continued improvement in our cost in the production business and of course, the demand increase is particularly in potash. I think we’ll be one of the few companies that can kind of rise to the demand needs that we think will happen in 2020.
So, overall, things are early to really comment definitively, but what we see is that I think we’re going to be having the company fundamentals that we’ve been focused on and investing on for the last couple of years beyond full display for 2020. But the backdrop of the agricultural fundamentals in 2020, I think it’s going to be quite a rebound year based on what we’re seeing so far.
Our next question comes from Steve Hansen with Raymond James. Your line is now open.
我们的下一个问题来自Steve Hansen和Raymond James。 你的生产线现已开放。
Yes. Good morning, guys. Thanks for the question. Just wondering if you could quickly discuss the demand outlook for potash into China and India, where you’ve notably pulled back your expectations a little bit on the back half of the year and just any nuances around the settlements that you’ve previously alluded to at the event that you might settle? Thanks.
是。 早上好家伙。 谢谢你的提问。 只是想知道你是否可以快速讨论钾肥进入中国和印度的需求前景，在那里你明显地在今年下半年略微回调了你的期望，以及你之前提到的定居点的任何细微差别 在你可能解决的事件？ 谢谢。
Sure. I’ll give you a high-level perspective and then I’ll have, Susan Jones, our potash CEO talk about some of the specifics. So, you’re right, Steve, what we did with the guidance we did reduce it by two million tons. and that’s simply because we believe that in North America, we’ve lost somewhere around 800,000 tons, maybe even a bit more because of weather, and not being able to get the applications down. We are seeing some what I call short-term softness in Southeast Asia due to corn prices, which we believe will improve next year as well. And so that’s all in the consideration of the reduction in guidance.
So, now when it comes to the China, what I’d say is that so far this year, we’ve seen good demand. in fact, it’s one of the reasons why I think we’ve had a good first half of the year and we do believe that China needs even more of the potash this year. So, what I think will happen though is that we will see probably a delayed, a timeline for the contract in China simply because they know that a demand in the U.S. has been off. And for us, our position is quite clear when we set our guidance, you can see it in the downside. And then in the upside of our guidance is we believe that certainly in the short-term, no deal with China’s better than a bad deal, because the overall fundamentals for potash are improving and the global markets are tightening and as we move into the fall and into 2020, we think that we’re going to see strengthening in the potash markets. And so we’re going to be patient with the contract negotiations for China this year. Susan, do you want to add a little bit more color, maybe comment on India.
Sure, Chuck. Good morning, Steve. As Chuck mentioned, the demand into China, the first half this year has been particularly robust and our expectation of imports into China year-over-year will be up a million ton. They have indicated that they will not be allowing seaborne imports into the country after the end of August. While we do know that port inventories are higher than this time last year, we also know that inland inventories are low and what’s going to really determine when they settle their contract will be how soon the NPK producers will start taking products and draw them from the ports. But what I can say is that the longer they delay the contract settlement, the higher the demand is going to be for 2020. It’s going to set us up really nicely for that year. in terms of India, our intelligence is that they do expect to be actually settling their contracts this fall and we do expect they will come in and settle before China. They have certainly had some delays in demand due to lower monsoon, but we are expecting that that is a short-term and they will come in for about normal to maybe a little bit less than last year.
our next question comes from Ben Isaacson with Scotiabank. Your line is now open.
我们的下一个问题来自加拿大丰业银行的Ben Isaacson。 你的生产线现已开放。
Thank you. Good morning. nice job stick handle in Q2. Just a question on nitrogen and potash; on nitrogen, I keep hearing how the fall is setting up to look really strong and I was hoping you could frame that or add some goalposts. given farmer economics, where a dealer and even farmer inventories and how do we kind of break up ammonia, urea and nitrates and kind of maybe a trade war resolution. What does that mean? on potash, you’ve talked a lot about demand and seeing some pockets of softness there. What are you seeing on the supply side? Any abnormalities or any surprises coming out of Russia, the Bethune project or anything else like that? Thanks.
谢谢。 早上好。 Q2的好工作棒。 只是关于氮和钾肥的问题; 在氮气方面，我一直听说秋天是如何设置看起来非常强大的，我希望你可以构建或添加一些球门柱。 鉴于农民经济学，经销商甚至农民库存，我们如何分解氨，尿素和硝酸盐，以及可能是贸易战的解决方案。 那是什么意思？ 在钾肥上，你已经谈了很多关于需求并且看到一些柔软的东西。 您在供应方面看到了什么？ 来自俄罗斯，白求恩项目或其他类似的任何异常或任何意外？ 谢谢。
Good morning, Ben. So, what we’ll do is we’ll have Raef Sully talk about that the nitrogen in the fall. I think it may be helpful to also have Mike Frank talk about what are you seeing at the farm level and the retail level. and then we’ll move over to Susan for the potash demand supply question. So, go ahead, Raef.
早上好，本。 那么，我们要做的就是让Raef Sully谈论秋天的氮气。 我想让Mike Frank谈谈您在农场和零售层面看到的内容可能会有所帮助。 然后我们将转向苏珊，寻找钾肥需求供应问题。 所以，继续吧，Raef。
Thanks very much. So, Ben, we've very bullish on the outlook for nitrogen in the second half is a few things here. obviously, in Chuck’s comments, we noted that crop prices are supporting large corn acres in 2020. That’s going to drive a very good fall application for just across all of the nutrients. but nitrogen though, let me just start with the ammonia, if you look globally at the supply and demand, supply is tightening. in 2018, there was a net addition of at 1.1 million tons of merchants ammonia.
in 2019, it’ll be about 0.6 million tons against that global demand is increasing by 2 million tons to 2.5 million tons a year. So, it wasn’t for the fact that we had such a bad spring application of ammonia, I think you’d start to see tamper moving up already. It rolled last time. So, it’s flat at 215. We think that’s the bottom of the market. We think we’ll start to see at tightening and going up. urea showed some strength through the season. that’s been helped offshore demand. So we expect to see urea process tick up as well and you will have noted CS being out in the market in the last couple of days with the UAN fuel price. We feel pretty confident about it. if there is a narrow application window, we think that’s actually an advantage to us. in narrow application windows, we have the depth of distribution to be able to get the product after the customers. So, we actually feel that’s an advantage to us.
And then Mike, why don’t you talk about nitrogen demand for the fall that you’re seeing at the retail and farm level.
Sure. Thanks, Chuck. So Ben, maybe, I’ll first start a little bit about our fertilizer sales in the first half of this year, even though as you know, we’ve lost over 10 million acres of planted acres, our retail business performed very well on fertilizer. Our volumes were about flat in potash, and up about 3% in nitrogen and our margins were up about $10. And so it really demonstrated our supply chain in the challenging market, will be delivered at the farm-gate. As we talked to farmers right now about their plans for 2020, most of these acres that didn’t get planted we expect are going to go into corn, there’s going to be more corn on corn. And so it’s easy to see 95 million plus acres setting up for 2020 especially with where commodity prices are today.
And our customers are all already talking to us about making sure that we’re going to be ready to service their fields this fall as soon as the window opens up. And so we need a window to get some fertilizer down this fall. last fall was a challenging window. We didn’t get down as much as we expected. So, the window does matter, but we do expect demand for NP&K to be extremely strong going into 2020.
Thanks. Susan, why don’t talk about potash supply please?
Okay, thanks. Good morning, Ben. just before I get into the supply side, I do want to address the second half domestically, because I was discussing offshore in my last question. So, in terms of a fall application, assuming the weather enables a strong application season this fall, we do expect to see robust demand in the U.S. Given the lack of application both this spring, but also last fall, because they need to replenish the nutrients removed. And just to give you a sense of that, we ran a very successful summer fill program. We were oversubscribed on this and we had to close it early. And as recently as last week at the Southwest Fertilizer Conference, there was a lot of optimism by retailers expressed by their growers on both second half shipments that continued affordability of potash, but also looking out into 2020.
In terms of supply, yes, I would say that perhaps we’re not surprised, but we have seen continued flow ramp-ups from our competitors. You asked about K+S, they did recently announce lower volumes due to longer turnaround to address all the issues and it looks like they’ll be coming in as they have stated at about 1.7 million tons this year on the lower end of guidance. in addition to that, EuroChem did announce the delay of the VolgaKaliy operation till 2020 and Eurokali has indicated further issues with us too. So, as expressed at Investor Day, I think this continued slowness of ramp up, is what we would expect to see as these ramp-ups continue, but it’s also helping to support the firmness and the supply demand balance.
Our next question comes from Joel Jackson with BMO Capital Markets. Your line is now open.
我们的下一个问题来自Joel Jackson和BMO Capital Markets。 你的生产线现已开放。
Thanks. Good morning everyone. maybe a two-part question, just following up on the inventory situation. Maybe, Mike could talk about what we’re seeing in the channel for inventories of the different crop protection chemicals and seeds. And then maybe Chuck, you could talk about, I think, you did many share buybacks in the first half of the year as largely, you closed the authorization, could we see more buybacks in the second half with the new authorization? Thanks.
谢谢。 大家，早安。 也许是一个由两部分组成的问题，只是跟进库存情况。 也许，迈克可以谈谈我们在渠道中看到的不同作物保护化学品和种子的库存。 然后也许Chuck，你可以谈谈，我想，你在今年上半年做了很多股票回购，因为很大程度上，你关闭了授权，我们可以通过新的授权在下半年看到更多的回购吗？ 谢谢。
Thanks, Joel. Mike, go ahead and talk about inventory please.
Yes. good morning, Joel. So as you know, the entire retail industry brought a lot of inventory into the 2019 year. on crop protection and everyone was set up for a strong both seed and fertilizer market. And of course, the way they first half played out with weather and then acres ultimately not getting planted, it had a significant impact. As Chuck mentioned in his opening remarks, the crop protection market based on point-of-sales data is down 11% in the first half of the year. And yet our business is only down 3%. So, we performed extremely strong in the crop protection market. Our inventory, I can’t speak to the rest of the industry, but our crop protection inventories are now coming out of the end of the first half. We’re flat with last year. And as chuck mentioned, we’ve had a really strong July in fact, we’ve continued to sell a lot of herbicides through the month of July.
So, we’re now pulling down inventory on a comparable basis. And so we feel good going into the second half of the year as we prepare for 2020 in the year that’s coming, our crop protection inventories are back in line with where we want them to be. Seed inventories, of course, we have some of our own seed business, where we’re going to be carrying higher inventories into next year, because of acres that didn’t get planted. And on third-party seed that we sell, that does get returned to our supplier. And so we’re restocking that seed right now. We’re checking for quality and we’re setting up to get ready for next year’s season.
So, overall, both on crop protection and seed, we feel good about where we’re at with inventories. finally, with fertilizer again, this season didn’t play out exactly as we expected, but we did a good job of de-inventorying our fertilizer. We’re up in a couple of areas like ammonia for example, which this spring just didn’t allow for the ammonia to go down as we expected. But we’re restocking fertilizer right now in preparation for a window this fall.
And Joel, on your buyback question, so we look at what we’ve done so far since the merger, January 2018, we’ve purchased 11% of the shares outstanding, spending about a $3.7 billion at an average price of just over $51 a share and we’ve been very aggressive. And we’ve communicated that very clearly, I think to our stakeholders and the most recent buyback as we referenced in the prepared remarks, we did the 5% in about four months. And so what I’d tell you right now to your question on what’s next is our capital allocation priorities really haven’t changed. We’ve been very consistent that we want to have a combination of growth and significant returns to shareholders.
And I think we’ve lived to that both of those objectives. We’re seeing some very good opportunities right now in the M&A pipeline. We’ve got some other things we’re looking at as well. But what I’d say right now from a buyback perspective is everything’s on the table. The markets have been quite volatile and we have the balance sheet and the free cash flow to make smart quick decisions to create shareholder value. So that’s how I would answer the question is I’d say right now everything’s on the table.
Our next question comes from P.J. Juvekar with Citi. Your line is now open.
我们的下一个问题来自花旗的P.J. Juvekar。 你的生产线现已开放。
Yes. Hi, good morning. A couple of questions, if your prevent planting acres were in corn, were close to 10 million acres, how did your overall sales in the retail seed sales in the retail go up? Was there pricing? Was the pricing that much better or are you gaining share? And then second question on chemicals, you mentioned that crop chemical inventory for you is flat and maybe, you’re exhibiting really well and your inventories are flat. What do you think and when – where do you think inventory levels are in the channel from the producer to the farmer and are those high compared to sort of five-year average? Thank you.
是。 早上好。 如果你的防止种植面积是玉米，那么几个问题接近1000万英亩，你在零售种子销售中的整体销售额是如何增加的？ 有定价吗？ 定价是更好还是你获得了份额？ 然后关于化学品的第二个问题，你提到你的作物化学品库存是平的，也许，你的展品非常好，你的库存是平的。 您如何看待以及何时 - 您认为从生产者到农民的渠道中的库存水平在哪里？与五年平均水平相比是那么高？ 谢谢。
Good morning, P.J. We’ll have Mike answer those questions for you.
Hello, P.J. our seed business performed extremely well this year and just like with crop protection, we know that we’ve gained pretty significant share in the marketplace. on the revenue line, as you’ll see in the first half, we’re up about 2% on revenue. When we look at pricing, pricing both in corn and soybeans was pretty flat year-over-year. Replants were up. And so we do, we do know that about 4% of our sales were replants. And so kind of if you net that off, our seed sales are probably down 2% in terms of kind of apples-to-apples. But again, in the market that’s extremely strong performance and you’re seeing that I think as other companies are announcing their earnings and showing significantly lower seed sales than that.
Look, we – again, I can’t comment, because we don’t know what inventories are for our competitors. you asked about farm-gate inventory on crop protection. For the most part, at least what we do is if our customers changed their plans and they don’t need a product, then we restock it and we sell them the product that they need. And so I would say are our customers inventory at the farm-gate are non-existent, because they don’t hold inventories and we serve them in a different way than maybe some other retailers do.
看，我们 - 再说一次，我不能发表评论，因为我们不知道哪些库存对我们的竞争对手来说。你问过关于农作物保护的农场库存。在大多数情况下，至少我们所做的是，如果我们的客户改变他们的计划并且他们不需要产品，那么我们重新进货并向他们出售他们需要的产品。所以我想说我们的客户库存是不存在的，因为他们没有库存，我们以不同于其他零售商的方式为他们提供服务。
Our next question comes from Jacob Bout with CIBC. your line is now open.
Good morning. I had a couple of questions on U.S. retail. I guess first off, market share, what is it currently? How aggressive do you expect to be in tuck-ins for the remainder of the year and what type of multiple are you looking at? And then maybe just to wrap it up, just when you’re thinking about U.S. retail, how are you looking at buying versus actually doing greenfield?
早上好。 我对美国零售业有几个问题。 我想首先，市场份额，目前是什么？ 你期望在今年余下的时间里有多咄咄逼人，你会看到什么类型的多重？ 然后也许只是把它包起来，就在你考虑美国零售时，你是如何看待购买而不是实际做绿地？
Good morning, Jacob. Mike, go ahead.
Yes. Good morning, Jacob. Our market share in the U.S. is definitely ticked up this year. We made some good acquisitions at the start of the year. A couple of large retail multi-branch retail companies in the Midwest, strengthened our position there. But our base business just from a market share standpoint, we think we probably grew in the range of 140 basis points to 160 basis points of market share. And so it’s extremely strong and it really speaks to both the transformational efforts that we’re focused on our digital efforts and just our supply chain capability and our people in the marketplace. So, overall, we’ve talked about our market share being in the 20% range. Look, there’s still some way to go – that goes out 2019 and so at the end of the year, we’ll update that number, but we do believe that we’re gaining market share.
on tuck-ins, we do expect there to be a busy season in the second half of the year. It is typically when things do pick up and our phones are ringing. We’re going to continue to look for high quality assets. And like we did at the beginning of the year, we really liked buying multibranch, retail outlets that fit well with our business. We’re not seeing really a change in multiples. And so depending on the quality of the assets, it’s anywhere from five to seven, is a typical tuck-in multiple. And we would expect that to probably continue to be the range that we’re going to be investing in the future.
And then finally, how do we look at tuck-ins versus greenfields? We’re now operating about 16 new greenfields that we’ve set up in the last 18 months. they’re performing as expected, which is good. We have nine more that are in various states of build right now. And so we are continuing our greenfield investments. That being said, I think, whenever we can acquire an existing business that fits into our footprint either, where we have a gap or where we can consolidate branches, that would be our first preference. When you make an acquisition, you get a customer list, you get sales people. and so you can hit the ground running. And so, we’ll continue to focus primarily on acquisitions and tuck-ins. And then just use our greenfield strategy either to consolidate multiple retail points or to look for open space, where we don’t have an opportunity for tuck-ins.
是。早上好，雅各布。我们今年在美国的市场份额肯定会上升。我们在年初做了一些很好的收购。中西部的几家大型零售多分店零售公司巩固了我们在那里的地位。但我们的基础业务仅从市场份额的角度来看，我们认为我们可能会在140个基点到160个基点的市场份额范围内增长。因此它非常强大，它真正说明了我们专注于数字化努力以及我们的供应链能力和市场人员的转型努力。总的来说，我们已经谈到我们的市场份额在20％的范围内。看，还有一段路可走 - 2019年结束，所以在年底，我们会更新这个数字，但我们确实相信我们正在获得市场份额。
Our next question comes from Duffy Fischer with Barclays. Your line is now open.
我们的下一个问题来自Duffy Fischer和Barclays。 你的生产线现已开放。
Yes. Good morning. A couple of questions, first just your outlook for Latin America, kind of however you want to define it, how much you think corn, soy acres will be up down there and kind of inputs per acre. Just I mean, how good could Latin America be this fall? Second, the retail acquisitions you’ve done so far if you assume that Ruralco closes this year, how much incremental EBITDAs at next year? And then the last one on the digital platform, will you be able to start to price for that next year do you think? Or is it still kind of in the penetration phase, where we’re more than a year away from pricing for it?
是。 早上好。 有几个问题，首先只是你对拉丁美洲的看法，你想要定义它的种类，你认为玉米的数量，大豆种植面积将会增加，以及每英亩的投入量。 我的意思是，今年秋天拉丁美洲有多好？ 第二，如果你假设今年关闭了Ruralco，那么你到目前为止已完成的零售收购，明年增加多少EBITDA？ 然后是数字平台上的最后一个，您认为明年可以开始定价吗？ 或者它仍然处于渗透阶段，我们距它的定价还有一年多的时间吗？
Okay. Duffy, so we’ll have Jason Newton just to talk a little bit about what we’re seeing in Latin America and then we’ll move over to the retail questions.
好的。 Duffy，所以我们让Jason Newton谈谈我们在拉丁美洲看到的东西，然后我们将转向零售问题。
Yes. Good morning, Duffy. Just in terms of Brazilian acres that we expect to be planted, I guess in our fall and next spring. I think if you look at where soybean prices are currently in Brazil, actually, they aren’t – they definitely are weaker year-over-year and in some sense falling that the global fundamentals in that market. And so we don’t – we don’t see acreage increasing probably, about the same as it did a year ago. So, in the range of 1% to 2% year-over-year. And as we look toward corn, I think a lot rides on the uncertainty with respect to the U.S. production. And so there definitely is upside in Brazilian corn planting for the safrinha crop depending on what happens from a U.S. perspective. And the U.S. acreage and yield turnout has sort of the base case of the scenarios project, I think there is more upside and soybean are in corn acreage in the safrinha crop in Brazil. As a result, we expect strong nutrient demand as we move into later this year and into the spring of planting period.
是。早上好，达菲。就我们期望种植的巴西种植面积而言，我想在秋季和明年春季。我想如果你看看目前巴西的大豆价格在哪里，实际上，它们并非如此 - 它们肯定会逐年减弱，从某种意义上来说，这个市场的全球基本面也会下降。所以我们不这样做 - 我们看不到种植面积可能增加，与一年前相同。因此，在1％至2％的范围内同比增长。当我们关注玉米时，我认为很多因为美国生产的不确定性而存在。因此，根据从美国的角度来看，肯尼亚种植的巴西玉米种植肯定会有上涨空间。美国的种植面积和产量也是情景项目的基本情况，我认为在巴西的safrinha作物中有更多的上涨和大豆种植玉米种植面积。因此，我们预计今年晚些时候进入种植期春季的营养需求将会强劲。
And then just on Ruralco, so we’re still working through the antitrust process and we do still expect the deal to close in the late third quarter. And then I’ll just turn it over to Mike just to talk about sort of what we could expect to see from an earnings perspective, let’s say for 2020, not really the second half of this year. And then your last question, Duffy. Go ahead, Mike.
然后就在Ruralco，我们仍在努力完成反垄断程序，我们仍然预计该交易将在第三季度末完成。 然后我会把它转交给迈克，只是为了谈谈从盈利角度看我们可以期待看到的东西，比如说2020年，而不是真正的今年下半年。 然后是你的最后一个问题，达菲。 来吧，迈克。
Yes. good morning, Duffy. So, in terms of, obviously, we’re – as Chuck said, we’re expecting to close ruralco late third quarter of this year. And so we’ll get a bit of a sub-year with ruralco this year as well as with aftergrowth. So, if you look at 2020, with those two businesses and compared to say 2018, where we didn’t have any part of their business, we would expect an EBIDTA lift of about $100 million between those two businesses. And so they’re both expected to contribute significantly to our 2020 earnings.
On digital, so with corn prices going up, we do expect the digital services that we provide our customers today that we do largely charge for like variable rates planting prescriptions and variable rate fertilizer prescriptions. That part of our business continues to grow. So, you’ll see that in our services line. And so we do expect that to grow. our large focus right now is also getting our customers and our employees engaging in our digital tools and we’re off to a really solid start in 2019.
As you may know, we launched our customer portal about a year ago. We’ve got close to 60% of our customers now signed up and engaging with us on the portal. And we turned on the ability at the beginning of this year for our employees and our customers to use the portal to order – to put orders online directly to create efficiency and more price transparency and we’re getting great feedback on the platform and every month and every week, in fact, we see the adoption of those tools go up. And so we’re really pleased with where we’re at on our digital journey. there’s obviously a lot still ahead of us, but the tools we’re putting in the marketplace are hitting the mark right now.
如您所知，我们大约一年前推出了客户门户网站。我们有近60％的客户现已注册并在门户网站上与我们互动。我们在今年年初启用了我们的员工和客户使用门户订购的能力 - 直接在线下订单以提高效率和更高的价格透明度我们在平台和每个月都获得了很好的反馈事实上，我们每周都会看到这些工具的采用率上升。因此，我们非常满意我们的数字化旅程。显然还有很多事情要摆在我们面前，但我们现在投入市场的工具正在崭露头角。
And operator, it’s Richard Downey, can I ask all the participants to limit yourself to one question? Thanks.
Our next question comes from John Roberts with UBS. Your line is now open.
Thank you. How do you think about China hog feverish, you do your planning for the next few quarters in next year?
Yes, John. Jason will give you sort of our latest thinking and then I’ll give you a bit of color commentary. Go ahead, Jason.
是的，约翰。 杰森会给你一些我们最新的想法，然后我会给你一些颜色评论。 来吧，杰森。
Hey, good morning, John. As we look at the African swine fever, there really hasn’t been a lot of updates in terms of what’s happening there compared to what we’ve talked about in quarter and on Investor Day. I mean it’s a significant issue for African swine numbers and the numbers are anywhere from 20% to 40% and even above in terms of the loss of the numbers in the swine herd. Now, it seems as you look at the actual impact in terms of global grains, but to date it’s been a relatively muted. And actually, if you look at the USDA’s current forecast for 2019 both global feed demand, and if you look at global meal demand are both projected to be at above trend levels even with flat to lower demand in China. So, they’re expecting to see a rebound in feed demand in other markets globally.
And if you look at livestock prices, we did see a significant increase in livestock prices earlier in the year as the news of the problem and the fears about the problem increased and those have come back down also. So, there does seem to be a bit of a delayed impact and what’s happening in China. A part of that is that there really is a lot of uncertainty about how much loss of a herd size there has been. Some is that the existing herds both within China and throughout the world are growing to higher weights and there’s increased supplies coming out of frozen stocks and so on that is limiting the supply tightness.
So, on a short-term basis, we definitely haven’t seen some of the impacts that would have been feared even a few months ago. And I think if we look longer-term, we don’t expect that global meat consumption trends will change. And so if you look on a global basis, we expect that meat consumption will continue to rise in the developing world and returned to more normal levels in China and ultimately that’s what drives global feed consumption in terms of crop input demand globally.
Yes. John, from my perspective, the market’s behaving the way it should. Protein prices are increasing and other markets are compensating. So, we’re not – we’re not factoring or forecasting a significant reduction in global grains and oil seeds in there for crop inputs.
是。 约翰，从我的角度来看，市场表现应该如此。 蛋白质价格上涨，其他市场正在补偿。 所以，我们不是 - 我们没有考虑或预测作物投入的全球谷物和油籽的显着减少。
Our next question comes from Christopher Parkinson with Credit Suisse. Your line is now open.
我们的下一个问题来自瑞士信贷的Christopher Parkinson。 你的生产线现已开放。
Great, thank you. Can you just talk a little bit more about your outlook for ammonia from both an ag perspective as well as industrial? Just you have any strong views on the U.S. under Caribbean market developments for the second half of 2020; just any comments on that operates would be appreciated. Thank you very much.
太好了谢谢。 您是否可以从农业和工业角度谈谈您对氨的前景？ 你对2020年下半年加勒比市场的发展情况对美国有任何强烈的看法; 对此操作的任何评论都将不胜感激。 非常感谢你。
Good morning, Chris. Raef Sully can answer your question.
克里斯，早上好。 Raef Sully可以回答你的问题。
Yes. look, I mean, I’m not sure, I’ve got too much color to add, what I mentioned previously. Again, just starting with global perspective, merchant available ammonia and the supply of that has been gradually decreasing compared to where it was three to four years ago. The global market is growing at 2 to 2.5 million tons a year. So, I think we’re just seeing 10 per roll from 215 in August. obviously, we’re waiting to see what happens next month. But there should be a tightening globally in ammonia. Urea continues to be tight to globally, again, when you look at the projects that we’re in the market for additional urea and ammonia three to five years ago. We just don’t see that overhang today. There’s much less supply coming on and so again, that the market is tightening.
是。 看，我的意思是，我不确定，我有太多的颜色要添加，我之前提到的。 同样，从全球视角开始，与三到四年前相比，商家可用氨和其供应量逐渐减少。 全球市场每年增长200万至250万吨。 所以，我认为我们只看到8月份每卷215张。 显然，我们正等着看下个月会发生什么。 但全球氨应该有所收紧。 当你看到我们三到五年前在市场上增加尿素和氨的项目时，尿素继续在全球范围内变得紧张。 我们今天看不到这种悬念。 供应量大大减少，市场也在紧缩。
Yes, Chris. from my perspective, the midterm here and now, I think Raef covered it very well, but long-term, we’re constructive on nitrogen. Most of the major global supply now is in the market. The demand continues to grow at historical demand growth rates and we think that there’s going to be a significant tightening over the next couple of years. And so that’s why when you look at what we’re doing from an allocation of capital perspective, we have some very high return expansion; the bottleneck type projects are very small. They’re in multiple plants. So, the risk to do this for us is quite low, but we also think that that’s the best way to add low risk incremental tons into the market in the next two to three years.
Greenfield economics still don’t make any sense with today’s prices. So, we think that what will happen is that the market will continue to tighten over the next couple of years. And we’re the third largest nitrogen producer in the world. So that’s beneficial for us. And we have a third of our gas on AIKO gas and a third of our gas on NYMEX gas in the U.S. So, I think the outlook for us is pretty healthy.
Our next question comes from Adam Samuelson with Goldman Sachs Group. Your line is now open.
我们的下一个问题来自Adam Samuelson与Goldman Sachs Group。 你的生产线现已开放。
Yes. Thanks. Good morning everyone. Questions in Retail, just trying to get a little bit more color around the gross margin kind of drivers in the quarter, I guess specifically in crop protection and seed, just trying to disaggregate a little bit, just market pressures from just acres down versus input costs versus mix on the proprietary product side. And then just within Retail also, just a little any color on the growth in operating expenses relative to gross profit in the quarter or in the first half and I presume there’s some M&A that creates noise in that calculation, is there any color on how that performs? Thank you.
是。 谢谢。 大家，早安。 零售方面的问题，只是试图在本季度的毛利率类型的驱动器上获得更多的颜色，我想特别是在作物保护和种子方面，只是试图分解一点，只是市场压力从英亩下降与输入 专有产品方面的成本与混合。 此外，就零售业而言，与季度或上半年的毛利相比，营业费用的增长只有一点颜色，我认为在该计算中存在一些产生噪音的并购，是否有任何颜色如何 施行？ 谢谢。
Good morning, Adam. Yes, Mike, go ahead.
Sure. Hello, Adam. So, you can see our gross profit is down on a percent basis year-over-year and it was an extremely competitive marketplace. As we talked earlier, the retail channel broadly carried a lot of inventory into 2019, and when the market didn’t develop, Q1 was quiet, because it was wet in Q2 continue to be quiet, because it was so wet and then acres didn’t get process. there was extreme competition in the marketplace. And so when customers were buying, the prices got beat up and it was more competitive. And so we saw that in our margins.
The second impact from a margin standpoint from our business is that in the Midwest, where we do a lot of custom application that was the market that was most impacted by the delay and the unplanted acres. And when we do custom application not only do we charge for custom application, but we also see higher margins. And so just from a mixed standpoint, a mix of custom application acres that also had a material impact on our margins in the first half. Now again, as we look to the second half of the year and July specifically, we’re seeing margins rebound back to kind of historical norms. And so we do believe it was a seasonal impact and that will get back to normalized margins going forward. And really kind of similar in seed, when there’s – the entire retail channel is prepared to sell 90 or 91 million acres of corn seed and same for soybeans and you drop off kind of 11 million acres of market. The market gets more competitive as everyone’s trying to get rid of their inventory. And so that was the same thing that we saw in the seed business. Again, overall, we’re – we think we did a good job of not only maintaining our business, but growing share, but margins were challenging.
From an OpEx standpoint, look, when we look at year-over-year increase obviously, wages and then specific investments in digital and supply chain transformation, our core costs are up about $7 million. Other increases in costs, as you said, is really coming from things like the M&A and so there was about $50 million of increased costs coming into this year, just from an M&A standpoint of tuck-ins and other businesses that we acquired in the last 12 months.
从我们业务的边际角度来看，第二个影响是在中西部地区，我们做了大量的定制应用，这是受延迟和未种植面积影响最大的市场。当我们进行自定义应用程序时，我们不仅要为自定义应用程序收费，而且还会看到更高的利润率。因此，从混合的角度来看，混合的定制应用领域也对上半年的利润率产生了重大影响。现在再次，当我们看到今年下半年和7月份时，我们看到利润率反弹回到历史规范。因此，我们确实认为这是一个季节性影响，并将恢复到正常化的利润率。在种子方面真的有点类似 - 当时有 - 整个零售渠道准备出售90或9100万英亩的玉米种子和大豆相同的产品，你可以从1100万英亩的市场中脱颖而出。随着每个人都试图摆脱他们的库存，市场变得更具竞争力。因此，这与我们在种子业务中看到的情况相同。总的来说，我们认为 - 我们认为我们不仅在维持业务方面做得很好，而且在增加份额方面做得很好，但利润率却很大。
Our next question comes from Vincent Andrews with Morgan Stanley. Your line is now open.
Thank you and good morning everyone. Just looking at your presentation slide, Slide 16 with the Corn S&D. I’m just – you mid-take is for 7% stocks to your high take of 10%, you’re looking into 3%, right? And if I look back at the bar chart, the last time, we had 7% corn was almost $7 and December 2020, right now think about 415. So, why do you think that the commodity markets haven’t responded? The corn market hasn’t responded faster to what’s happening in the ground. It’s already the end of July. Where do you think the market’s waiting to see if we’re really headed to 7% stocks to you?
谢谢大家早上好。 只需看看你的演示幻灯片，幻灯片16与玉米S＆D。 我只是 - 你的中途收购是7％的股票到10％的高位，你看3％，对吧？ 如果我回顾条形图，最后一次，我们有7％的玉米价格接近7美元和2020年12月，现在考虑415.所以，为什么你认为商品市场没有回应？ 玉米市场对地面发生的事情没有更快的反应。 已经是七月底了。 您认为市场在哪里等待我们真正转向7％的股票？
Thanks, Vincent for the question. Jason Newton can answer it.
Yes. Hi, Vincent. It’s a great question. And in our opinion, the market today is trading an S&D probably more like the high scenario that we showed in the slide deck. And then there is a lot of uncertainty with respect to both planted and harvested acres as well as yield. And so I think, I think there is a wide range of scenarios. If you look back to 2012, 2013 when we had 7% stocks we used that was with an extreme amount of demand rationing. And so that’s probably more like our low case scenario than the mid case. And we are in a bit of a different world at this point. And we were in 2012, 2013 with a larger production base in Brazil. At that time, you had large production responses from both Brazil and Ukraine and that’s stuck around to some extent.
And so it’s reduced the importance to some extent of the U.S. on its own, but I think if you look in any of the scenarios, we’d expect to see a significant decrease in corn adding stocks and stocks to use ratio. And we see that today with where corn prices are, which are in the range of $0.40 per bushel above where they were a year ago and we saw a significantly higher prices even just a month ago. And so I think from a corn supply and demand standpoint, we’re tighter and prices are higher than they were at this point a year ago and supportive of our acreage outlook for next year.
Our next question comes from Don Carson with Susquehanna Financial. Your line is now open.
我们的下一个问题来自Don Carson和Susquehanna Financial。 你的生产线现已开放。
Thank you. Chuck, a question for you on phosphate. On your commentary, you expressed some reservations about the phosphate outlook just due to increased supply from the Middle East and North Africa, higher China exports. So, is this just a near-term weakness that you see or what’s your longer-term view and phosphates are relatively small business for you given this outlook, any thoughts as to perhaps exiting that business from a wholesale standpoint?
谢谢。 查克，关于磷酸盐的问题。 在您的评论中，您对磷酸盐前景表示了一些保留意见，原因是中东和北非的供应增加，中国出口增加。 那么，这看起来只是近期的弱点，或者你的长期观点和磷酸盐对于你来说是一个相对较小的业务，考虑到这种前景，是否有任何关于从批发的角度退出该业务的想法？
Well, good morning, Don. So, our view is that, right now, there is probably more pressure on the phosphate business than the other businesses in entities short-term in fact; the demand growth for phosphate globally looks pretty good. When you get a little longer term though, we are still concerned about some of the new supply that is still going to come into the market from the low cost global players. So that’s a little bit of a different from a fundamental perspective than what we have in nitrogen and potash, where nitrogen is behind us, potash is right, most of it is behind us now, and phosphate, there’s still more to come. So, the longer term S&D for phosphate I think is a little bit more concerning for us when we look at the outlook.
So, to answer your second question, in terms of the strategic direction for our phosphate business, we’ve made some very good moves as part of the merger. We’ve went from three facilities down to two. We’ve expanded some production in those two and they’re very strong regional players with a good mix of ag phosphate and industrial phosphate. So, we are diversified and consolidated when it comes to the market, but also diversified from the product slate. And now, what we’re focused on is just finalizing the synergy delivery. Remember that at the end of the first quarter, we were at about 620 million of synergies and we started a little bit to go, because we needed to bring up the ammonium sulfate business in Canada. So that’s what the phosphate business team and what the organization is focused on.
Longer-term, we’ll have to see; right now, the business is making a modest return. And I think it fits well with our network and we are using some of the ag tons in our retail business. But over time, we’ll have to kind of assess the business. But right now, we’re very pleased with actually the synergies that we have delivered, because of the merger has made the business at least now positive from a contribution of a margin perspective.
Our next question comes from Mark Connelly with Stephens. Your line is now open.
我们的下一个问题来自Mark Connelly和Stephens。 你的生产线现已开放。
Thanks. Chuck, I was hoping you could just bring us up to date on private label where you see the growth from here? Where you have meaningful gaps in your portfolio? And how much of your private label is geared towards real crops?
谢谢。 Chuck，我希望你能把我们带到最新的自有品牌，你可以看到这里的增长吗？ 您的投资组合中存在哪些有意义的差距？ 您的私人品牌有多少面向真正的作物？
Good morning, Mark. Mike can answer that question for you.
Mark, good morning. So, as you can see in our mix this year, we were focused on selling what we had an inventory. And so we changed the trend line a little bit, where we really de-inventoried our branded products and that did have an impact on our mix of proprietary. We also expect that to straighten out going forward, because we really do like our proprietary products business. It adds value to our customers and obviously, it creates margins for ourselves.
And so we expect that business to continue to have a long runway of growth. From an active ingredient standpoint, we don’t have a lot of holes in our portfolio. And so we’re not looking to add a number of new products from our crop protection standpoint, but we continue to look for other areas to grow that business, seed treatments, microbials; in that part of our business, we do see long-term growth in our proprietary products business. And so that’s kind of where we’re focused, Mark, we don’t really look at it as a private label business. This is a value added business, where we’re bringing unique products to our customers.
Our next question comes from Jonas Oxgaard with Bernstein. Your line is now open.
我们的下一个问题来自Jonas Oxgaard和伯恩斯坦。 你的生产线现已开放。
Hi, good morning, guys. I’ve been trying to wrap my head surrounding your Brazil retail strategy and I’m a little bit of a loss. My understanding of Brazil is that it’s really a large inland market, but out any retail presence and then a coastal market with a lot of retail, but with zero profitability. And so neither of those two things to fit with your U.S. retail strategy, can you expand little bit on what you’re trying to do in Brazil? And how that fits with the rest of you?
嗨，早上好，伙计们。 我一直在试图围绕你的巴西零售战略，我有点不知所措。 我对巴西的理解是，它确实是一个巨大的内陆市场，但是在任何零售业务，然后是一个有大量零售的沿海市场，但盈利能力为零。 所以这两件事都不适合你的美国零售战略，你能否在巴西尝试做些什么？ 那怎么和你们其他人相符呢？
Yes. Good morning. I’ll take the question and Mike can add any comments after. Certainly, if you look at Brazilian agriculture and even in this first half of the year, we would have loved to have a bigger retail business in Brazil. So, it does help from a diversification of our business and our strategy. But we’ve been in the Brazilian market now since 2012 and we’ve been operating what I would consider to be Nutrien’s full service Retail business in the south with great success. And by that, I mean we’ve grown our sales year-in and year-out and our margins are almost equivalent to the United States. So, we believe that our offering would be unique as you mentioned, but value enhancing for both Brazilian farmers and for Nutrien’s shareholders.
And so that is really the overall goal is to bring something different. Our Retail business would be different in Brazil, but we think there’s a lot of value that can be added. And our plan now is to prudently grow our retail footprint through a series of acquisitions and greenfield builds, which we have several under construction now to enter the market. because the market we want to be cautious and we want to make sure we get this right. But certainly what we’ve seen with the pilot program as I will call it, since 2012, is that there is a lot of value creation potential with a full service offering of not just fertilizer chemistry and seed, but agronomic knowledge and high technology. Mike, anything to offer?
Yes. A couple things, so Jonas, to your point, we’re not looking to copy what’s already happening in Brazil. If you think about it from a farmers’ point of view, they got somebody calling on them to sell them fertilizer, somebody else calling on them to sell them seed, somebody else calling on them to sell them crop protection products. And even within crop protection, there’s a Bayer channel, and there’s a Syngenta channel, and there’s a BSF channel. What we’ve done is we’re bringing full acre solutions to the growers and that’s our model that we’re bringing to Brazil. We’ve been successful with that model in every one of the other markets that we operate in.
And as Chuck said in the pilot that we’ve been running in Brazil for the last six years, six, seven years, we’ve been successful with it. And so we’re looking to bring full service, full acre solutions, where we can serve as customers both from a fertilizer, seed and a crop protection standpoint and really serve them what they need on their farm to maximize yields and to minimize risks. And so that’s our model and that’s what we’re building right now in Brazil.
Our next question comes from Michael Piken with Cleveland Research. Your line is now open.
我们的下一个问题来自Michael Piken和Cleveland Research。 你的生产线现已开放。
Yes. Good morning. I just wanted to talk a little bit more about kind of the global cost curve for nitrogen and what type of impact you might think that, that’ll have in terms of where prices can go. And then secondarily, some of the nitrogen or urea plants down in China, you have a chart in your slide deck on Page 20 that shows some of the capacity closures like how much of the capacity closers could come back online theoretically?
是。 早上好。 我只是想谈谈氮气的全球成本曲线的类型，以及您可能认为的影响类型，这将具有价格走向的地方。 其次，在中国的一些氮气或尿素工厂，你在第20页的幻灯片中有一张图表，显示了一些容量关闭，例如理论上有多少容量关闭器可以重新上线？
Good morning, Michael. Jason Newton can answer your question.
Good morning, Michael. Yes, obviously, the evolution of the cost curve in nitrogen in 2019 has been negative for prices. especially in Europe, the hub based prices are down significantly from where they were a year ago. And that’s pressured, particularly ammonia UAN prices, but also urea, but for urea, you mentioned that in the second part of your question. I mean, if you look at Chinese costs year-over-year, they’re down. But putting marginally – but if you look at prices both in China and the Rest of the World, their op and so the profitability levels have increased in China and production levels have stayed higher as a result. And that’s part of the reason why they’ve had more supply to increase exports. And then why we increased our range of exports for Chinese urea in the second part of the year.
Second part of your question on whether they can bring these plants back on stream, we really haven’t seen that yet. And I think a lot of the plants were shut down in not great condition and require significant investment in environmental controls in order to start back up that as well as additional investment, because of the condition that they’re shut down and for the last period of time before their shutdown, they were really run without any maintenance. And so these plants require investments. And while the plants today are making money at current levels and our operating rates have increased with the existing production base.
We don’t think there’s enough there is enough spare to justify investments in plants at this time. And really, we’ve seen that if you look at where production rates are, over the past couple of years as they really peaked out at similar levels in 2019 as they did in 2018, and just – and just held higher levels for longer periods of time.
迈克尔，早上好。是的，显然，2019年氮气成本曲线的演变对价格是负面的。特别是在欧洲，基于枢纽的价格与一年前相比大幅下降。这是压力，特别是氨UAN价格，还有尿素，但对于尿素，你在问题的第二部分提到了这一点。我的意思是，如果你看一年中国的成本，它们就会下降。但略微下调 - 但如果你看一下中国和世界其他地区的价格，他们的运营等盈利水平在中国有所增加，因此生产水平保持较高水平。这也是为什么他们有更多的供应增加出口的部分原因。那么为什么我们在今年下半年增加了中国尿素的出口范围。
我们认为现在没有足够的空余来证明工厂投资的合理性。事实上，我们已经看到，如果你看一下生产率在哪里，过去几年，因为它们在2019年真正达到与2018年相似的水平，而且只是 - 而且只是在更长的时期内保持更高的水平时间
Our next question comes from Steven Byrne with Bank of America. Your line is now open.
我们的下一个问题来自Steven Byrne和美国银行。 你的生产线现已开放。
Yes. Thank you. Buyer indicated this morning that that came to beans out there, a little more than half of the soybean market in the U.S. Can you just give us an update on what you’re seeing in terms of dicamba drift? What kind of a liability is that for you and it doesn’t appear that you experienced the same pricing pressure that they did?
是。 谢谢。 买家今天早上表示那里的豆子已经到了那里，比美国大豆市场的一半多一点。你能告诉我们你所看到的麦草畏漂移的最新情况吗？ 对您而言，这是一种什么样的责任？您似乎没有遇到与他们相同的定价压力？
Good Morning, Steve. Mike Frank, go ahead.
Yes. Good Morning, Steve. The Xtend soybean technology, what also represents about half of our mix? Probably, we’re maybe a little bit more than half. So, it’s a big part of our soybean sales. Look, as I said, it was a very competitive marketplace this year. And so I haven’t seen what they reported, but prices were under pressure, but again, we believe we performed very strong in that challenging market. In terms of the stewardship with dicamba to apply over Xtend soybeans; it’s a very important issue. Our custom applicators are very well trained. We make sure that they know exactly what to do. We record the wind. We look for inversions and we make sure that when we’re applying dicamba over the top of Xtend soybeans that the product is hitting the intended target. And so we haven’t seen an issue with that. From a weed control standpoint, dicamba is doing a very good job of controlling the weeds that they’re talking about is being had before. And I would say our customers are very satisfied with the technology.
Our next question comes from Jeff Zekauskas with JPMorgan. Your line is now open.
我们的下一个问题来自Jeff Zekauskas和摩根大通。 你的生产线现已开放。
Good morning. It’s Selka Cook for Jeff. I have a two-part question, but they are both quick. The first one is you given the – given the stages like were corn, I guess, soybean part setting as and everything being delayed. Is there a scenario, where the harvest could be late and if that’s the case, is that factored into the bottom end of your guidance? And my follow-up question is that I was wondering what the expectation for North American potash prices are sequentially in the second half based on success of the summer fill program? Thank you.
早上好。 这是杰夫的塞尔卡库克。 我有一个由两部分组成的问题，但它们都很快。 第一个是你给出的 - 鉴于像玉米这样的阶段，我猜，大豆部分设置为，一切都被推迟。 是否有一种情况，收获可能会延迟，如果是这样的话，是否会影响到指导的底端？ 我的后续问题是，我想知道根据夏季填充计划的成功，对下半年北美钾肥价格的预期是多少？ 谢谢。
Yes. I’ll have Susan Jones talk about second half potash prices and then I’ll address the harvest delay question.
是。 我将让Susan Jones谈论下半年的钾肥价格，然后我将解决收获延迟问题。
Yes. good morning. In terms of the second half, potash fill program, we’re about 50% committed for the second half. So that answers the question in terms of how we’ve set it with summer fill, it’s about 50% of the volume. And just as a reminder, we do have industrial potash that and specialty that flows through as well.
是。 早上好。 就下半年的钾肥填补计划而言，下半年约占50％。 因此，我们如何通过夏季填充设置它来回答问题，它大约是音量的50％。 而且，作为一个提醒，我们确实有工业钾肥和特产流经。
Yes. And then just to your question on corn and late harvest in our guidance assumption. So, the short answer is the low end of our guidance, it still assumes that we have a fall application season. It doesn’t have to be a normal fall application season, but it can’t be what we saw in 2018. The other thing that I would say is that what we’re seeing today from a retail perspective in Q3 is supportive of say, the upper end of our guidance range. So, there is a scenario, where we believe we can get to the upper end of our guidance range. And in the lower end of our guidance range, what I’d say is that, it’s absolutely needed that we have a fall application season and – but it doesn’t have to be a normal season it just can’t be like last year.
是。 然后就我们的指导假设中的玉米和晚收的问题。 因此，简短的回答是我们指导的低端，它仍然假设我们有一个秋季应用季节。 它不一定是正常的秋季应用季节，但它不能是我们在2018年所看到的。我要说的另一件事是我们今天从零售角度看到的第三季度支持说 ，我们指导范围的上限。 因此，有一种情况，我们相信我们可以达到指导范围的上限。 在我们的指导范围的下端，我要说的是，我们绝对需要一个秋季应用季节 - 但它不一定是正常的季节，它不能像去年一样。
Thanks, everyone. Thanks for calling in. And if you have any other questions, all our guys are ready to answer on the phone. Thank you.
感谢大家。 感谢您的来电。如果您有任何其他问题，我们所有人都准备好通过电话接听。 谢谢。
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