管理層發言
Greetings, and welcome to Nutrien's 2026 First Quarter Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Jeff Holzman, Senior Vice President of Investor Relations and FP&A.
Thank you, operator. Good morning, and welcome to Nutrien's First Quarter 2026 Earnings Call. As we conduct this call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions is contained in our quarterly report to shareholders as well as our most recent annual report, MD&A and annual information form. I will now turn the call over to Ken Seitz, Nutrien's President and CEO; and Mark Thompson, our CFO, for opening comments.
Good morning, and thank you for joining us today to review our first quarter results and the outlook for our business. The ongoing Middle East conflict has disrupted global fertilizer and energy markets, resulting in higher global benchmark prices and input costs. Despite heightened geopolitical uncertainty, Nutrien's strategic priorities, capital allocation approach and full year guidance remain unchanged. We continue to focus on what we can control, including operating our assets safely and reliably and serving our customers efficiently. Our first quarter results reflect this focus on operational excellence. We increased upstream sales volumes to 6.5 million tonnes, lowered controllable cash costs and delivered strong performance in our downstream retail business. These results highlight the capabilities of our world-class operations, extensive distribution network and strong customer relationships built over many decades. In potash, we achieved a record sales volume of more than 3.5 million tonnes in the quarter, an indicator of the continued strength in global demand. We increased production from our low-cost six-mine network and progressed mine automation investments that have proven to deliver safety and cost benefits. Our potash assets position Nutrien as the most reliable global supplier with a high-quality and low-risk resource base. In nitrogen, we attained an ammonia operating rate of 92% in the first quarter and increased sales volumes of upgraded nitrogen products to agricultural markets from our North American plants, demonstrating the benefits of recent debottleneck projects. Our reduced natural gas cost reflects having 100% of our production from low-cost North American nitrogen plants. In Retail, our network was well positioned to meet strong crop input demand in our core markets. We continue to execute growth initiatives, including expansion of our proprietary products business, network optimization projects and tuck-in acquisitions. In the first quarter, we allocated approximately $45 million to complete a high-quality tuck-in acquisition located in the U.S. Corn Belt with a strong strategic fit within our distribution network. We also progressed portfolio reviews that are being pursued to enhance asset quality and provide greater focus and investment to assets with the strongest returns, free cash flow contribution and competitive advantages. As previously announced, we are reviewing strategic alternatives for our phosphate business and remain on track to solidify the optimal path in 2026. The review includes completing a detailed assessment of individual assets and alternative configurations for our phosphate business. In parallel, we are progressing a sale process and received significant initial expressions of interest. Second, we continue to evaluate all strategic options for our Trinidad nitrogen operations, including exploration of a sale of the facility. This work is aligned with our focus on strengthening our core North American asset base. Lastly, we are reviewing each component of our Brazilian business as we assess the best way to participate in the market's long-term growth. As part of this review, we have commenced a sales process for our Brazilian soybean seed business that is expected to be completed in the second half of 2026. Now turning to the market outlook. Middle East exports are a critical part of global fertilizer and energy trade with the ongoing conflict having the most direct impact on nitrogen and phosphate supply as well as associated feedstock cost and availability. The conflict has directly impacted over 30% of global urea trade and approximately 25% of ammonia and phosphate trade that relies on the Strait of Hormuz to access global markets. Elevated natural gas costs and reduced LNG availability have also impacted nitrogen production and costs for producers in Asia, Europe and other key regions. For phosphate, higher sulfur and ammonia input costs have pressured margins and resulted in lower global operating rates. Looking ahead, the path of supply normalization will be shaped by the pace of three key factors. First, a full reopening of the Strait of Hormuz and key trade routes is required to allow stranded product to reach global markets. Second, in the event that the conflict is resolved, production assets that have been idled would require additional time to restart, albeit with some level of operational uncertainty. Finally, a portion of capacity that is currently offline due to damage either at production sites or upstream will take several months and, in some cases, years to return. Taken together, we expect the normalization of nitrogen and phosphate supply is likely to be uneven. The conflict has not directly impacted potash supply, and we continue to see strong potash demand across all key global regions. We maintained our forecast shipment range of 74 million to 77 million tonnes, with demand trends expected to test existing global operating and supply chain capabilities through 2026. Global potash benchmark prices increased over the past few months have been commensurate with the strong fundamentals as well as increased freight costs. With that overview, I'll now turn it over to Mark to provide more detail on our first quarter financial performance, guidance assumptions and capital allocation priorities.
Thanks, Ken. As Ken described, our operating performance has progressed well to start the year, and our full year guidance ranges remain unchanged. Adjusted EBITDA in the quarter increased to $1.1 billion, reflecting strong customer demand, higher global benchmark prices and solid execution in our upstream and downstream businesses. Retail adjusted EBITDA totaled $108 million in the first quarter, which is typically a seasonally slower period for our retail business. We saw increased demand across our core geographies in the first quarter, resulting in higher crop nutrient sales volumes and stronger proprietary products gross margins in the U.S. and Australia. Importantly, our expense reductions achieved over the last two years have been maintained as first quarter expense changes were driven by higher downstream sales volumes. We've maintained our full year retail adjusted EBITDA guidance range of $1.75 billion to $1.95 billion. We continue to expect high single-digit growth in our proprietary products gross margin in 2026, supported by the launch of new products, organic growth in our core retail geographies and the expansion of our international business. Similar to prior years, we expect first half retail earnings to account for approximately 70% of the full year total. In potash, we delivered adjusted EBITDA of $578 million in the first quarter, driven by higher global benchmarks and record sales volumes. Nutrien has an extensive midstream distribution network serving key markets across North America and internationally, one of our key competitive advantages. We utilized this network to deliver over 3.5 million tonnes of potash in the quarter and expect annual sales volumes of 14.1 million to 14.7 million tonnes, in line with our historical average share of global shipments. Canpotex is fully committed through the end of June, and we anticipate a similar split between offshore and domestic sales volumes in the second quarter compared to the prior year. Our Nitrogen operating segment generated adjusted EBITDA of $482 million in the first quarter, primarily due to higher global benchmarks. Our sales volumes reflect no production from Trinidad and New Madrid as reflected in our annual guidance assumptions. This was partially offset by higher upgraded product sales volumes directed to domestic agricultural markets from recently completed debottleneck initiatives. We maintained our annual nitrogen sales volume guidance range of 9.2 million to 9.7 million tonnes, which includes execution of planned turnarounds at three facilities in 2026. Prior to the onset of the conflict in late February, approximately 35% of our second quarter planned nitrogen sales volumes were committed, a similar percentage compared to the prior year. In phosphate, we generated adjusted EBITDA of $57 million in the first quarter. Higher sulfur input costs offset the benefit of higher global benchmark prices and sales volumes compared to the same period of 2025. The business demonstrated reliability improvements in the quarter with a 20% increase in production volumes compared to the prior year. Our phosphate sales volume guidance remains unchanged. However, we expect further pressure on phosphate margins in the second quarter due to elevated sulfur and ammonia input costs. As we look forward to the remainder of 2026, we expect free cash flow to be supported by tight global fertilizer supply and demand fundamentals, business improvement and organic growth drivers, combined with a rigorous focus on optimizing our portfolio. Alongside strong operational performance, we view consistent capital allocation as essential to enhancing our competitive position. To that end, our capital expenditures guidance for 2026 remains unchanged at $2 billion to $2.1 billion. Last year, we completed share repurchases of approximately $550 million and reduced adjusted net debt by approximately $600 million. We intend on continuing to repurchase shares on a ratable basis with a pace of approximately $55 million per month thus far in the second quarter, and we see opportunities to further strengthen the balance sheet in 2026. I'll now turn it back to Ken for final comments.
Thanks, Mark. Nutrien is well positioned to generate value for shareholders under any market scenario. We operate low-cost and reliable upstream assets, a midstream network that has the reach and flexibility to capture efficiencies across the value chain and a downstream network that is positioned to reliably serve growers with a comprehensive portfolio of value-added products and services. We continue to take purposeful steps to simplify the business, strengthen and grow our core asset base and improve capital efficiency. These priorities are designed to drive structural free cash flow growth and generate sustainable returns through the cycle. To close, I'm encouraged by the team's execution in the first quarter and positioning of the business for the remainder of 2026 as we continue to stay the course on our strategic and capital allocation priorities. With that, we'll be happy to take your questions.
分析師問答
First question comes from Andrew Wong from RBC Capital Markets.
I wanted to ask about the longer-term implications that you see from the Iran war and the Strait being closed. We've had two major fertilizer food shocks now in less than five years. Are you seeing countries that are net fertilizer and food importers looking to build up more inventories? Could that drive more demand that's a little bit more elevated in the next year or two?
Andrew, thanks for the question. Yes, there's a lot to unpack there, obviously, given that it's still early days in terms of questions like building inventory. We're still short of product given what's going on in the Middle East. But we sort of think about it given the impacts with more than 30% of global urea trade being impacted and 25% of ammonia and 25% of phosphate. You sort of think of it over three time horizons where we're watching milestones for each signpost. The first one is just the opening of the Strait of Hormuz and the inventory that's caught upstream of the Strait in the Persian Gulf and the pace at which, once the war is over — and we're all hoping and watching for that — the pace at which those volumes reach the customer, unload and then get back into being filled back up again. So that's one. Two is, of course, we know that a significant swath of production in the Middle East is not operating at the moment. We'll be watching very closely for signposts that say those facilities are starting back up. We know that start-up of those types of facilities can be bumpy. We have experience with that ourselves. And so the pace at which we see normalization of operations, to the extent that's possible on the back of normalized logistics. That would be the second piece, and it would be a bit further out in time. And then third would be watching for actual damage of physical infrastructure, whether that's on nitrogen production facilities themselves or on gas. Of course, the damage in the South Pars gas field and impacts to Qatar LNG could have serious implications for the huge export markets, Europe, South Asia and Southeast Asia that are dependent on Qatar gas. Those three things and the pace at which that happens and what that means for volumes, we can't say at the moment. What we can say is we believe it's going to be tight for a period of time here, given just the huge role that the region plays. I will say that other things to watch in the market, consistent with what you're saying about inventory building, for example, India has established a task force on nitrogen and is devising plans in light of how much natural gas they import and their own nitrogen infrastructure to ensure that they get the volumes. Similarly, China is looking to restrict urea exports. We're seeing 3 million to 4 million tonnes perhaps compared to the 5 million tonnes last year. Europe is facing elevated TTF pricing and depending on Tampa ammonia for economics. So there's a lot of moving parts. Again, we're watching those three milestones as it relates to opening of the strait, normalization of production and then what happens with actual infrastructure damage. But we would say that we expect prices to be tight for some period of time.
Your next question comes from the line of Vincent Andrews from Morgan Stanley.
Wondering if you could speak a little bit more to what you're seeing in retail, both for the remainder of the Northern Hemisphere season, but also how you think the back half of the year would play out. We're definitely sensing some investor concern about farmers' economics and thrifting and things like that. So if you could talk about sort of what, if anything, you're seeing on that and what gives you the confidence to stay within the guidance range for the year? And maybe just a reminder of what we saw last time around when maybe in the post Russia-Ukraine time period when we had some high prices as well.
Yes. Thanks, Vincent. So maybe I'll just say a few words about what we're seeing thus far into the year and then hand it over to Mark for our guidance assumptions and what gives us confidence to maintain our guidance range of $1.75 billion to $1.95 billion in EBITDA out of our downstream business. I'd say notably, corn prices have been hovering for December corn up around $5, and that is a bit of a tailwind. And that's true for soybean prices as well. We have seen strengthening thus far into 2026. We've had strong customer engagement with our grower customers, and that's been in line with price expectations and prior expectations. It's supported by above-average planting progress for this time in the year and the need to replenish crop nutrients in the soil given the huge corn and soybean crop that was taken off last year. So we're maintaining our estimate of acres: 94 million to 96 million acres of corn, 84 million to 86 million acres of soybeans. Thus far into the year, we're not seeing farmers switching. So again, maintaining those ranges and therefore maintaining our own guidance ranges. I'd just say growers are going to do what they need to do to maximize yields in this environment. We saw that with our proprietary products business in the first quarter and in April as well. And we've seen healthy crop input demand over the first four months of 2026. So on balance, up to this point, that's what we've seen so far in 2026. For the balance of the year and our guidance assumptions, I'll hand that over to Mark.
Thanks, Ken. Look, I think Ken summed it up pretty well. I think the main punchline is that the business is performing well. We've seen strong customer engagement year-to-date. We feel very confident in the midpoint of our guidance and the range that we laid out to start the year. And the majority of the assumptions that we laid out at the start of the year actually remain the same across the business. Just to reiterate, we expect high single-digit growth in our proprietary products gross margin this year. And again, that's coming from new product launches in North America, increased demand in core retail geographies and the expansion of our international business and our business in Australia. We assume that favorable weather in Australia and a stronger livestock market over last year will result in some improvement there. And of course, our continued efforts to manage cost across the business. If there's been any changes or small shifts, it's that I think relative to February, we would now anticipate that higher crop Nutrien gross margins on a per-tonne basis would be ahead of our prior expectations. And we think that will at least offset any potential reduction in demand we might see, which is primarily in phosphate, as we've talked about, and some higher fuel expenses as a result of the war in the Middle East. But if you step back and look at the business as a whole, we don't really see any change to margin expectations across our other product segments, and we've largely maintained our acreage projections, as Ken said. So you sum all that up, and we feel really good about the guidance for the year and what we're seeing from customers so far this spring.
Your next question comes from the line of Joel Jackson from BMO Capital Markets.
I know you don't give a lot of guidance, but could you talk about like you would think with the better price we've seen in nitrogen, there's a lot of puts and takes, the better price of nitrogen, some better price in potash. Like are you feeling better about this year's outlook and earnings than you were three months ago? Maybe you can try as best as possible to kind of bucket some of that? And why didn't you raise the retail EBITDA guide? It would seem like you may get some markup in inventories. It would seem like you get something better from a higher commodity price environment. Maybe you can just elaborate on that, please.
Thanks for the question. Yes, I think it's fair to say we are feeling better than at the start of the year. And as you appropriately put it, there's a few reasons for that. If we talk about potash and the very strong global demand that we're seeing, our 74 million to 77 million tonnes that we're maintaining — that's low inventory starting the year in Brazil, multiyear lows. We saw that in China as well with a very early settlement in February at $349, and yet Chinese inventory is going to remain low at roughly 2 million tonnes at the port. I mentioned the huge crop that came off in 2025 and the need to replenish that. For our part, we had a fully subscribed winter fill at $355 a short tonne and our latest posted price is $385 a tonne. Southeast demand is strong. So we look around the world and on potash, we're constructive, and we've seen that in some firming in the price, and that really is owing to the potash fundamentals, the fact that potash continues to be the most affordable of the crop nutrients and the fact that potash is certainly less impacted than other crop nutrients given what's going on in the Middle East. So as you said, looking at the different buckets, that's one, and we're constructive on nitrogen. Our plants are running well in this environment. And so with prices where they're at, given this conflict in the Middle East and some of the discussion that we've had about the potential duration of that, yes, we've been constructive on nitrogen. Our focus will continue to be to safely and reliably run those plants now with half of them enjoying Henry Hub pricing and the other half enjoying AECO pricing. And phosphate is a different story. We've talked about that. Phosphate is challenged for all the reasons that we talk about: sulfur pricing, ammonia pricing and a market that was frankly tight even prior to this conflict in the Middle East. So that will continue to be a challenge for us. And then Retail — you mentioned our Retail guidance. Yes, we're watching the spring. We're not through the planting season yet. And so a lot can happen through the planting season. We are absolutely constructive on our retail business. That's the reason we've maintained our guidance range, but we're not going to, at this stage in the planting season and in the year, start to make prognostications about how the balance of the season could go. We are just confident in that range.
Your next question comes from Hamir Patel from CIBC Capital Markets.
In Brazil, you pointed to a process for the soybean seed business coming to fruition in the back half. What's your latest thinking on the total opportunity to improve returns in Brazil? And what portion of that would be the soybean seed business?
Thanks, Hamir. What I'll say is that the soybean seed business itself is immaterial in the context of materiality, but we are pursuing a sale of that. If we look at the broader business that we have on the ground in Brazil and the actions that we've taken, which we've talked about — idling blenders, selling three of the five we planned to sell, steps that we've taken on cost reduction and reducing headcount in that part of the world to focus on collections, idling unproductive locations — 64 of them — and getting that business into a position where it's, albeit small, generating a bit of EBITDA. In the backdrop of all that, making portfolio decisions, seeds is one of them. Our proprietary products business continues to do well in Brazil, and we continue to focus on that, which leaves our retail operations in Brazil. That really is going to be the focus of the balance of 2026: how we think about exiting that retail business. We're working on that at the moment. Brazil continues to be a core market for us. It's a growing agricultural region. We supply a lot of potash to that part of the world, one of the largest suppliers. And we know that's going to continue to grow as the Brazilians open up more acres, which they do every year along with the infrastructure build-out required to get those volumes onto acres. So again, Brazil is very important for us for supply of fertilizer potash and proprietary products; the balance of it, we intend to have some conclusions on at least the plan by the end of this year.
Your next question comes from Ben Isaacson from Scotiabank.
Just a quick question on rising freight, logistics and overall cost inflation. Can you talk about your ability to keep your netbacks stable or rising? And once the Iran war winds down and the Strait of Hormuz opens up, will there be improvements? Or have you — or do you expect to see structural changes? And ultimately, will this just be passed on to customers? Or will there be a temporary risk to your margins?
Thanks, Ben. The reality for our upstream business is that these are highly commoditized, competitive markets. As we look at moving products around the world and increased freight prices, that plays into the commodity space and the industry's cost to serve. At the moment, we would say that certainly for potash and for nitrogen, the increased freight costs are being more than offset by what we're seeing with prices. In potash, that's the fundamentals at work and those were at work prior to any conflict in the Middle East. For nitrogen, that is clearly a result of what's going on in the Middle East. So that's more than offsetting the freight cost. Whether it's a structural shift in freight costs, it's fair to say we don't know. We're watching that closely, but questions remain around any risk premium to product that comes out of the Middle East now and even in a post-war environment — insurance costs, crewing ships and all those things. We'll be watching that closely. We are watching our own fuel and freight costs closely to make sure we're managing that to the best of our ability. I'll pass it over to Mark for a few more comments.
Thanks, Ken. I don't have a lot to add. I think Ken really nailed it. As it relates to our own fuel consumption in the business, as we mentioned this morning in retail, we've been looking for efficiencies, optimizing and offsetting those cost increases where we're seeing them, and we think we're doing a good job of that. And as we mentioned, it really hasn't affected our view of the business; we're still very constructive on our retail outlook and have maintained our guidance at midpoint, as Ken said. On the potash side, Ken also framed it very well. It's really the supply-demand fundamentals that are at work. We've seen a slowly firming price prior to the conflict, and that's continued. While we've seen some marginal increases internationally, primarily in the cost to serve, we think those are being more than offset by the recent strengthening in prices we've seen as a result of tight supply-demand fundamentals in international markets. At this point, it feels like market forces at play, and we see positive signs for the business.
Your next question comes from Chris Parkinson from Wolfe Research.
I just want to get back to the global potash markets. When you take a step back and you look at whether it's Latin America all season, it seems like things are doing better than expected. Southeast Asia, I thought you initially thought it could be down. It seems like it could actually be flat to up. The United States had a little bit of delayed reaction, but products are moving. Is there any reason to believe that would be below the midpoint of your guidance? Is there potential upside? I'd love to hear your perspectives on that, especially given Canpotex is sold out through the end of the second quarter.
Chris, I think you characterized it quite well. If you look market to market, we are seeing strong shipments, and we're seeing low inventories, which means that product is going to ground. If we look at the markets where we had anticipated growth this year — markets like Latin America, India, China and even a little bit in North America — we see that happening. It's playing out that way. That gives us confidence in the 74 million to 77 million tonne range. I will say that when we get to the higher end of that range, we start to see operating rates and global logistics being tested. You start to hit a ceiling there. So if we get to that upper end, constraints could become operating rates and logistics. In the meantime, Southeast Asia is strong. They had built some inventory last year so we had expected flat from last year, but palm oil prices are supportive and we've seen some strengthening there. Again, potash remains the most affordable of the crop nutrients. That has given us confidence to maintain our 74 million to 77 million tonnes. Last year it was 74.5 million. Do we think it's going to be more than last year? Things appear to be playing out that way.
Your next question comes from Steve Hansen from Raymond James.
I just want to follow up on the prior question, actually. In the event that the sales prospects do improve through the year, how do you feel about your ability to flex at the operational level, considering all parts of the value chain and the actual operations themselves, the logistics of the West Coast, et cetera? How do you feel about the ability to flex up if the demand warrants?
Thanks for the question, Steve. We feel good. We feel good about our ability to produce. We've guided this year to 14.1 million to 14.7 million tonnes and we've talked about the roughly 15 million tonne operating capacity. Given our warehousing and volume of product that sits under roofs across the continent, we have the ability to flex inventory as well. We have our turnaround schedule in our potash business laid out and we may have some opportunity to flex that. So we have tools in the toolbox that we can use to meet the needs of our customers. When we think about that top end of 77 million tonnes and the role we would play in that, which reflects the top end of our own guidance, we feel confident.
Your next question comes from Duffy Fischer from Goldman Sachs.
Question just around two of your strategic reviews. So your phosphate business and Trinidad — the events in the Middle East are obviously making the pie in Trinidad a lot bigger, whether that's to split that and share that with the government or to offload that asset to somebody else. Is that helping the process there, do you think? Is it demonstrable enough that it moves the needle? And same question for phosphate. Obviously, it's a little bit more mixed. You've limited global supply of phosphate with what's happening in the Middle East, but you've hurt the cost position on sulfur. So has the Middle East stuff changed either the direction of either of those two strategic reviews in your mind?
Thanks, Duffy. We're in the market with both of those portfolio reviews, and we're testing the market as we speak. With respect to Trinidad, the question becomes: is there confidence around developing additional gas in the region in light of what's going on in the Middle East? Some of the major E&P companies are having that discussion. Does that give someone who might be interested in acquiring the asset more confidence? It could, but that remains to be seen as we test the market. It's the same story in phosphate. We're testing the market. We know that given the current environment, something has to change; it's an unsustainable environment for the phosphate business. We'll be watching that closely. In the meantime, we have seen significant interest in our phosphate assets immediately after we talked about testing a sales process, and that interest has remained. We'll see what happens; it's early days in those discussions. Given the interest in our phosphate assets and the potential for gas development in and around Trinidad, we'll be working hard on maximizing the value of those assets.
Your next question comes from Jeff Zekauskas from JPMorgan.
Your urea prices moved up very nicely. So when I look at your ammonia prices year-over-year, maybe they're up $60 a tonne. Is there a reason why they're not up more given that the ammonia market has really been pretty strong? I think the movement at some of your competitors has been a little bit higher. Can you talk about your general ammonia values? Is there something constraining? Is there opportunity coming up?
Thanks for the question, Jeff. Urea, ammonia, ag and industrial markets show different movements, so I'll pass it over to Chris Reynolds.
Thanks for the question. What we like about our Nitrogen business is the diversity we have between those finished ag markets and also the industrial markets. About 60% of the products we produce in our nitrogen portfolio go towards the agricultural market and about 40% to industrial. We like that diversity and our cost position in North America, given the gas fundamentals. In terms of the mix between ammonia, urea and UAN pricing, we're not concerned. We have industrial contracts that are linked to the Tampa index, which moved up recently. So again, we feel good about our position in both of those main markets and our cost position. No concerns there. As Mark mentioned in his prepared remarks, I've been really pleased with our operational reliability in nitrogen as well.
Your next question comes from Ben Theurer from Barclays.
A lot of ground being covered, but I wanted to get your views as to what potential implications weather phenomena such as El Niño could have as it relates to demand, particularly in South America, which tends to be hit hard if something like that were to happen. What does that do to your outlook, particularly in retail as we think through the main planting season that is yet to come in South America?
Great, Ben. As usual, we're looking at the different parts of the world and the markets that we serve and the weather. It's once again a mixed bag. I'll hand it over to Jason Newton, our Chief Economist, to talk about our assumptions and what we're seeing.
As we look at the markets that we're in, we don't expect to see any major impacts in North America or South America for the growing season we are entering now. So no major areas of concern driven by typical trends from El Niño. The areas where you typically see impacts from El Niño are Southeast Asia, in some cases India and Australia. Australia is going into the planting season with much better soil moisture generally than was the case a year ago.
Your next question comes from Edlain Rodriguez from Mizuho.
Ken, a quick one for you. There are concerns that as nitrogen prices have surged, farmers will try to lower the fertilizer basket costs. Typically, this might come at the expense of potash and phosphate in terms of application rates. What's your view of that? Is that a risk that you contemplated for the rest of the year or early next year?
Thanks, Edlain. We are not seeing that across nitrogen and potash. We have seen some of that in phosphate, and we've seen a bit of that in the spring in phosphate as well. But as it relates to nitrogen and potash, we have not seen farmers materially reduce potash application. We've seen an active, normal spring thus far into the year. We've had strong grower engagement and the volumes are moving. We have the corn acres we forecast and we don't see shifts there. So 94 million to 96 million corn acres has a certain nitrogen requirement. Looking out over the balance of the year and the post-emergent application window, we expect a constructive setup here. Farmers are generally looking to maximize yields in this environment, especially after significant nutrient removal from soils by the large 2025 corn and soybean crop. That's what we're seeing and how we're thinking about the balance of the year.
Your next question comes from Mike Sison from Wells Fargo.
When you think about second quarter and where nitrogen urea prices are setting up, do you sense that these levels are peak-ish in nature? And then when you think about beyond the conflict and things start to normalize a little bit, do you think that prices, because of the damages that potentially are out there and the time it takes to get everything back on, could stay elevated into potentially next year and beyond? How do you see the longer-term impact from the conflict?
Mike, thanks for the question. I'd go back to what we talked about earlier in terms of the signposts we're watching if things normalize in the region. The reality is these are highly commoditized markets and, prior to the conflict, markets were relatively balanced with the exception of phosphate. This is a huge supply shock we're experiencing now, especially at a time of year when Northern Hemisphere farmers are planting. How this plays out depends on those signposts. The big ones are how much infrastructure damage there is in the region and, for a market that was balanced prior to that damage, what that means for tightness of supply and demand. The other is any risk premium the world might place on shipping out of that region — impacts on freight and insurance costs and potential geographic diversification. Could we see an elevated price environment into 2027? That's certainly one of the possibilities; duration is uncertain and outcomes could be uneven in terms of reopening the Strait, normalizing production and repairing infrastructure.
Your next question comes from Lucas Beaumont from UBS.
I wanted to talk about Retail. As we come out of the season, are you anticipating challenges in refilling inventory into the channel for the industry and growers given current pricing dynamics on nitrogen and phosphates? With growers potentially expecting that prices are high and may come down through the year, the incentive to purchase and refill in the near term could be depressed. How do you see that flowing back into the wholesale market on the nitrogen side? Is that going to create a large demand air pocket as we move into the middle part of the year that we should consider?
Thanks, Lucas. Coming into the season, we had purchased the product we needed for our grower customers right through the channel. From an inventory perspective, we were well set up for the spring planting season. As we come through the spring, Nutrien reaches right through the value chain: our upstream business producing potash and our nitrogen business servicing North American customers and farms. We have a lot of confidence in refilling the channel. Chris, I'll ask you to add a few more words about that.
Lucas, thanks for the question. From a distribution point of view, we expect not just our own distribution but that of our wholesale customers to be fairly empty as we come towards the end of the spring. We're not concerned about containment or things backing up. There's going to be room to put product even if there is some hesitancy to start filling immediately after the spring season. A lot will depend on the length of the conflict in the Middle East, the reopening of the Strait and the recovery of production facilities. The industry will be watching those dynamics and making purchasing decisions accordingly. We feel confident in our production capability and, importantly, in our distribution network that can be deployed even if there's some hesitancy at the start of the summer fill period.
Your next question comes from Mazahir Mammadli from Rothschild & Co Redburn.
I have one question on the Nitrogen segment. I appreciate you've communicated that the Trinidad operations have been shut down and the gas supply agreement has expired. Is there a scenario where perhaps Nutrien strikes an agreement with the Trinidad government, perhaps in coordination with U.S. or Canadian governments, to temporarily restart production because those volumes are desperately needed in the market? I'd be curious to hear your opinion.
Thanks, Mazahir. We are in the market in a sales process at the moment. In the meantime, gas availability and gas pricing continues to be a challenge in Trinidad. Some port fees that are being charged to us remain a challenge and access to the port associated with those back fees continues to be an issue. We have conducted a safe shutdown of the facility and are in the market through a sales process. Our focus at the moment is engaging with prospective buyers in the region or otherwise to see what the value of those assets would be.
Your next question comes from Laurence Alexander from Jefferies.
You alluded to the impact of higher sulfur costs and sulfuric acid. Could you break out what your sensitivity is there? And more importantly, how do you think the industry could handle or adapt to the Strait of Hormuz being closed for longer? We've talked with other companies with exposure to sulfur, and everyone seems to have the view that the fertilizer complex is the one that's going to adjust. How do you think that adjustment might happen?
Thanks, Laurence. In terms of specific sensitivity to sulfur costs, as a general rule of thumb, it's roughly a one-to-one ratio of sulfur to a tonne of P2O5. When you do the math, a $25 increase in sulfur costs equates to about a $35 million reduction in earnings for our phosphate business. Mark, do you want to talk more broadly about how the industry could adapt?
Laurence, Ken answered your direct question about sensitivity. More generally, from an industry perspective, ammonia and sulfur benchmark prices or input costs have risen more than finished phosphate pricing since the beginning of the conflict. Hence our comment that as we enter the second quarter, we expect elevated pressure on phosphate margins. We don't see the situation as sustainable long term, but in the near term that's the challenge. Ken laid out the financial sensitivity. Regarding how the fertilizer complex might adjust to a prolonged Strait of Hormuz closure, the world is highly dependent on fertilizer inputs and raw materials coming from the Middle East, so there is no easy or rapid adjustment to what we've seen. Even with reopening of the strait, normalization could take time. In the absence of that, we expect continued tight supply-demand fundamentals for nitrogen and phosphate.
There are no further questions at this time. I will now turn the call back over to Jeff Holzman.
Thank you for joining us today. The Investor Relations team is available if you have follow-up questions. Have a great day.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.