Nutrien sees a disruption to the global food supply chain that will last for years

Posts record net profit, will accelerate plans to increase fertilizer production

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Saskatoon-based Nutrien Ltd. posted record net profit on Tuesday and said it would speed up plans to ramp up fertilizer production, signaling it sees continued disruption to the global food supply chain in coming years amid of sanctions on Russia and Belarus.

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The company reported a record $1.4 billion in net profit in the first three months of 2022, up from $1.2 billion in the fourth quarter of 2021, which it attributed to higher commodity prices.

Nutrien also increased its full-year guidance for adjusted EBITDA to $14.5-$16.5 billion, a 45 percent increase on the low end of February, when it expected $10-$11.2 billion. , and announced that it would increase its annual potash production in 2022 to 15 million. tons, 10% more than in 2021.

In an interview with the Financial Post, interim CEO Ken Seitz noted that Belarus and Russia together account for 40 percent of the world’s potash production. For months, he said, Nutrien executives have studied how the Ukraine conflict is stifling the region’s export of agricultural products and fertilizers and have tried to consider how the situation might play out, whether it would quickly end in an occupation or a diplomatic resolution. , or if it may go on for an extended period of time.

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“As this has played out over the last month, I think the world is concluding that the most likely scenario is protracted conflict,” Seitz told the Financial Post.

On Tuesday morning, he told analysts at a conference that his company would significantly increase potash and nitrogen output this year and likely into the future.

“We are discussing supply challenges in the context of 2022,” Seitz said on an earnings call. “However, we believe that these problems could extend well beyond this year. Sanctions on Russia and Belarus have the potential to create more lasting changes in global trading patterns, as customers prioritize reliability of supply.”

Potash at a storage facility in Saskatchewan.
Potash at a storage facility in Saskatchewan. Photo by David Stobbe/Reuters files

Canada, the US and several other countries imposed sanctions on Russian exports earlier this year after it invaded Ukraine. Belarus has been under sanctions since 2020 amid electoral irregularities and human rights abuses.

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Seitz said his company also lowered its estimate for global potash production this year to between 60 million and 65 million tons, down from a previous estimate of as much as 71 million tons.

Nutrien, the world’s largest potash producer, operates six mines in Saskatchewan, and Seitz said the company could increase up to 18 million tons of annual potash production with lower capital costs.

But it would take years, and the company would want to make sure it could sell the extra volumes to cover the higher operating expenses of such an expansion, he said.

“These are decisions that require careful planning as they have long-term impacts on our operations,” he said, promising more details in the company’s virtual update for investors on June 9.

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For some companies like BP Ltd., which had operations in Russia, recent sanctions against the country have resulted in billions of dollars in losses. But Nutrien’s perspective and recent results suggest that business disruptions caused by sanctions are also creating economic opportunities for some companies.

Seitz began the call by expressing sympathy for the people affected by the conflict. But he pointed out that Ukraine and Russia account for a significant part of the world’s supply of fertilizers and other agricultural products.

A farmer spreads fertilizer on a wheat field in Ukraine in April.
A farmer spreads fertilizer on a wheat field in Ukraine in April. Photo by Thomas Peter/Reuters

The global food chain is connected, Seitz explained. As global inventories of grains and oilseeds decline, and the price of corn, soybeans, wheat and other key commodities rise, farmers’ prospective margins on crops also increase. That leads many farmers to plant more acres and apply more fertilizer to capitalize on favorable market conditions.

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While potash itself is not sanctioned, the cumulative effects of the sanctions on banking, shipping, insurance and other parts of the economy are expected to trickle down and affect production.

Jason Newton, chief economist at Nutrien, said he expects potash production in Belarus in 2022 to decline by six to eight million tonnes, while Russia could face a decline of two to six million tonnes.

“It will take some time to rebuild those export capabilities,” Newton said, adding that the two countries were expected to add 60 to 70 percent of new potash supply projected to hit the market in the next five years.

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Overall, Nutrien said the cumulative effect of supply challenges and resulting higher commodity prices more than offset other headwinds, such as a delayed start to the US growing season caused by rain. , which led to lower overall fertilizer sales volumes.

Seitz said many growers are looking for alternative sources of fertilizer, creating opportunities for companies like Nutrien.

He added that “the phones are ringing off the hook” at Canpotex, the Canadian firm responsible for selling potash production outside of Saskatchewan, and where he previously served as chief executive.

“Suffice it to say that certainly from a global demand perspective, Canpotex has a home for potash and higher levels of potash, and that is what drives us, as we said in our opening comments, looking at the potential to accelerate our potash production increase,” he said.

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