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Nutrien Ltd. (NYSE:NTR)
Q3 2019 Earnings Call
Nov 5, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Nutrien's Third Quarter 2019 Earnings Call. [Operator Instructions].

I would now like to turn the conference over to Richard Downey, Vice President of Investor and Corporate Relations.

Richard Downey -- Vice President, Investor and Corporate Relations

Thank you, operator. Good morning everyone and welcome to Nutrien's conference call to discuss our third 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 conclusions and forecasts, therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report, MD&A, and annual information form filed with Canadian and US Securities Commissions to which we direct you.

I will now turn the call over to Mr. Chuck Magro.

Charles Magro -- President and Chief Executive Officer

Thanks, Richard. Good morning everyone and welcome to Nutrient's third quarter earnings call. The global agricultural industry continues to be impacted by challenging North American weather, trade uncertainty, and short-term dynamics. Our results this quarter and our outlook for the fourth quarter reflect these headwinds, but we believe these issues are transitional, and we remain optimistic on the outlook for 2020. So before discussing our results in detail, I would like to provide a perspective on the business.

First on the ag fundamentals, if you look past near-term market headwinds, the outlook is improving. Grain and oilseed stock to use levels are declining, and we expect a significant increase in US planted acres next year. Today US farmers are looking at corn prices closer to $4 a bushel, and soybeans around $9.50 per bushel, which is higher than at this point last year. We expect improved farmer profitability in crop input demand next year particularly after the weather induced reductions this year.

All this bodes well for our business. Second, let's touch on potash. After a strong start to the year demand paused late in the quarter. Buyer simply stepped out of the market in order to reduce inventories and wait for and India or China contract settlement. In July, we said no deal in China is better than a bad deal and that is exactly where we are at today. This is not the first time we've been in a waiting game, and we will remain patient. The recent India potash contract will help bring price clarity and stability to the market. After two strong years of growth for global potash markets in Nutrien sales volumes, we now forecast global demand at 64 million tons to 65 million tons this year, which is a reduction of approximately 2 million tons compared to last year.

The majority of this decline is due to weather issues in North America, weakness in palm oil prices in Southeast Asia, and customers waiting for the contract settlement. These factors represent short-term challenges not structural changes, with potash affordability remaining high and inventory is expected to be pulled through the channel in the fourth quarter and first part of 2020, we anticipate a strong recovery in demand. When that occurs, Nutrien will be well positioned to ensure that our low cost product is available when the market needs it.

Finally, on retail. We had a strong third quarter, making up for lost business in the first half that was entirely due to weather. In a tough market. Our retail business has outperformed, and we remain on track to deliver another year of growth. We are also focused on transforming the industry through improved efficiencies, scale, and digital leadership. Our digital tools and supply chain investments are enabling us to be more efficient, serve our customers, increase market share, and be prepared to respond to shifting trends. And the early performance indicators are very positive. Consider that in the third quarter, we had approximately 20% of North American crop protection product revenue come through our digital platform. This is an incredible rate considering, we only launched this feature in January. Furthermore, payments made through the customer portal reached $315 million since introducing this feature. We are making big strides that we believe will reshape the industry and drive organic growth across our network.

Now, let's turn to our results for the quarter. Nutrien's adjusted EBITDA declined by 6% compared to the third quarter last year due to lower nitrogen and phosphate prices and weaker potash volumes. While we are not where we thought we would be, adjusted EBITDA through the first nine months was still up 11% and we generated $2 billion in free cash flow, which equates to $3.44 of free cash flow per share. Our cash production costs were in line with the previous year-to-date total and our G&A expenses were down 8%. Retail EBITDA in the third quarter was up 64% as a late spring season pushed fertilizer and crop protection sales into the third quarter. Demand for application services also increased due to the condensed season highlighting the importance of infrastructure and service offerings to our customers.

Gross margin percentages increased across the major product lines due to an increased mix of higher margin specialty and proprietary products and strategic purchasing. In the third quarter, we demonstrated organic growth as we grew our EBITDA per US retail location and our Landmark [Phonetic] products business continued to capture share.

For the year retail margins are similar to 2018, and our normalized comparable store sales are up 1.5%, an impressive result given the challenging spring application season and the late maturing crop.

Turning to potash, EBITDA declined by 14% from last year due to weaker demand. Offshore volumes declined as customers stepped away from purchases drawing from available inventories following a strong first half.

North American sales were the second highest total of any third quarter ever, but trailed the record volumes shipped last year. Our realized potash selling price was down in the second quarter of this year, reflecting lower seasonal summer fill prices in North America, pressure in the offshore spot markets, and a true-up [Phonetic] of Nutrien selling price to Canpotex.

Potash cash cost of product manufactured was $60 a ton through the first nine months of the year, maintaining our position as one of the lowest cost potash producers globally.

Nitrogen EBITDA was down 9% in the quarter due to weaker ammonia prices and slightly lower sales volumes. We continued to benefit from low-cost natural gas supply across our North American network with our overall gas cost declining 17% compared to the third quarter of 2018. Production was down from last year due to some unplanned outages and a longer planned maintenance turnaround at our Redwater facility, which resulted in fewer tons sourced from our lowest cost Alberta plant.

In phosphate, the market has struggled to find a floor price, and the impact can be seen in our earnings for the quarter. Phosphate EBITDA was down 55% compared to the third quarter of 2018 with weakness in the granular phosphate market more than offsetting stronger industrial product prices.

Phosphate volumes were lower as we completed the conversion of our Redwater phosphate plant to an ammonium sulfate facility in the third quarter. This was an excellent strategic decision given that we generate dramatically higher margins for ammonium sulfate compared to the margins we would have received from producing phosphate product at Redwater with imported rock. We expect the challenging fertilizer market conditions to continue through the remainder of 2019. While there is strong underlying demand for a robust fall application season in North America, there is a risk of a shortened window created by the late harvest in both the US and Canada.

The recent India potash contract settlement should provide Offshore's volume support. However, we do not anticipate a new China contract in 2019. Given these conditions, we have reduced our potash volume guidance to 11.6 million tons to 12 million tons in line with our revised global demand forecast. Short term production curtailments are expected to increase our fourth quarter potash cash cost of product manufactured by approximately $15 per ton compared to the same quarter last year.

We have also lowered our annual adjusted earnings guidance to $2.30 to $2.55 per share and our adjusted EBITDA guidance to $4.0 billion to $4.3 billion to reflect the reduction in potash volumes and continued pressure in the fertilizer markets for the remainder of the year.

2019 will be remembered for unprecedented North American weather challenges and trade disputes, which effectively eliminated global demand growth for crop inputs. However, as we look ahead to 2020, we do see opportunity. Corn and soybean fundamentals are improving, leading to a 10% increase in prices from summertime lows. We expect total US acreage to increase by at least 12 million acres in 2020 including 93 million acres to 95 million acres of corn. Based on these acreage changes, we expect US crop input expenditures to increase by around 7% next year. We are also seeing positive developments in a number of our key offshore markets. Brazilian crop economics remain strong and growers are responding by increasing corn and soybean planting by an estimated 4 million acres to 5 million acres. We expect this will lead to another record year for Brazilian fertilizer consumption. Palm oil prices have improved by more than 30% from June 2019 lows supported by a tightening supply demand outlook and higher global soybean prices.

We see this as a tailwind for a Southeast Asian potash demand in 2020. Agricultural fundamentals are also improving in India by the most favorable monsoon rainfalls in 25 years. Global potash demand grew by approximately 4% annually since 2013 before taking a step back this year. Similar to previous years when there has been a temporary pullback, we expect global potash demand to recover next year to 67 million tons to 69 million tons. The midpoint of this range represents a five year annual growth rate of around 2.5%, which is similar to the long-term historical trend.

We will be ready to bring our extensive and proven incremental capacity as global demand grows. On the retail side, we have acquired some great businesses, and we expect that we will add significantly to our earnings next year. We closed the Ruralco acquisition in Australia at the end of the third quarter. This business is well positioned to bring value to Australian farmers, and we have a strong track record of growth in this important market.

And finally beyond growing the business, we will continue to prioritize returning cash to shareholders. We allocated $5.4 billion to shareholders through share buybacks and dividends over the last 21 months, which is unmatched in our industry. The stability of our retail earnings has supported growth in our dividend, and we will evaluate additional share buybacks on a compete for capital basis.

We will now open the call for your questions on the quarter and the outlook for the business. Thank you very much.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Jacob Bout.

Jacob Bout -- CIBC World Markets -- Analyst

Good morning. Can you comment on your confidence level of your 2020 global potash demand forecast of 67 million tons to 69 million tons? And maybe what are your thoughts, what are the assumptions in China and Brazil in 2020?

Charles Magro -- President and Chief Executive Officer

Sure. Good morning, Jacob. So look, the way we're looking at the potash business, if you step back and you look at the long-term history. But the potash market has been growing pretty consistently at 2.5% to 3% per year, but over that period of time, we have seen pullbacks in demand over the years and really that's because of inventory getting build up in the system, which in the potash world we really can't see with great clarity. But the last five years, if you just look at the last five years of the potash market, it's grown at closer to 4% per year. So was this pull back really expected, not really, but I don't think we can even say it was a surprise. So when you look at 2019, there were two really key drivers that pulled back the expected demand now, One is North American weather, which we've talked a lot about and the second was palm oil pricing being so low in Southeast Asia.

So when we look forward to 2020, we expect both of those to correct themselves. We're going to assume normal weather in North America, and when we look at our, as you recall, we bought a company called Waypoint last year, which is the largest soil sampling business in the United States, and the data that we're getting from that is really quite fascinating and what it is showing us is that there are some areas that are quite potash deficient in North America which shouldn't be a surprise considering the weather we had in the spring and even in the last fall. So we do think the underlying demand in North America is going to rebound next year. When it comes to palm oil, we are seeing prices that are up. There is an increase in demand for biofuels in Asia, and so all of that bodes well for a rebound next year in Southeast Asia. The other markets that we're expecting to grow next year, of course, Brazil, just more acres being put in the production, and then of course, India, which I mentioned, had good rains this year. China, our assumption would be more flat this year, but if you look at the aggregate of all of what I've just described, it is our call today that we would be at the 67 million tons to 69 million tons for 2020, up from the 64 million tons to 65 million tons, and if you just take that number and you go back five years that would put us back on trend point of about a 2.5% annual growth rate. So we are pretty confident with the 67 million tons to 69 million tons today.

Operator

Okay. And your next question comes from the line of Vincent Andrews.

Vincent Andrews -- Morgan Stanley -- Analyst

Thanks. Good morning, everyone. Just wondering if you can comment on when you think you'll start your potash assets back up. And as we think about shipment number for you, for next year, how should we think about the interplay between your production and shipments given you're probably carrying some inventory into next year as well?

Charles Magro -- President and Chief Executive Officer

Good morning, Vincent. I have Susan Jones to answer your question.

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

Good morning, Vincent. Yes, we did announce curtailments in September due to the temporary softness in the market. And just to be clear, we have not curtailed production completely. We will continue to build the pipeline and as we always do, we move our product into the US market in time for season. So, what you've seen in Q3 is that we've moved what was a very robust fill program into the US retailers in time for their season, as that starts to deplete, we will continue to refill that with the expectation that it will be full for the spring for robust expected spring application.

We also will continue to move our product out from Saskatchewan to the ports ready to move into the international markets for the spring season.

Operator

And your next question comes from the line of Ben Isaacson.

Ben Isaacson -- Scotia Capital -- Analyst

Thank you, and good morning. BHP CEO came out a week ago, and said that their Board is gaining confidence in potash. And my question is, a two part question, when you make curtailment decisions like you've made recently, are you focused only on the current environment or also in terms of what the implications are to potential new entrants? And then as a second part to that question, you have about 6 million tons of spare operational capability, you talked in your Investor Day about potentially up to another 5 million tons, and the BHP potentially around the corner, is there room for all of that potash over the next decade? Thanks.

Charles Magro -- President and Chief Executive Officer

Good morning, Ben. So look. Yes, when we're looking at our production profile, we're squarely focused on just global demand. Our role is really to meet the demand of our customers. That's what we plan to do. Given the headwinds we saw this year based on weather and then the contract negotiations in India and China, we felt it was prudent to pull back on the supply. But when we do our long-term planning, we're looking at demand growth in the potash markets and how we can best meet that with the highest quality lowest cost tons.

To your second comment, you're right. So right now, we would have about 6 million tons of underutilized capacity, and we've been very clear with our plans. We're going to put those tons into the market as global demand for potash grows. We have a great network, we're investing a lot of money into automation and to drive our cost even lower. I mean, we're just seeing some terrific progress in that area. But we also, because we pre-invested over the last 10 years or so with all these capacity, we have the lowest cost path when it comes to capital to increase our capacity by an additional 5 million tons, and this is really important because these 5 million tons, we don't required to sink the shaft, we don't need another mill, these are pure brownfield expansions in the existing fix mine [Phonetic] network, which will be some of the lowest cost tons on the planet. And right now, the engineering assessments that we're doing look really promising. So we're excited that we can bring another 5 million tons into the market as demand grows along with our 6 million tons, and I think that that will set up our shareholders just brilliantly for the next 10 years to 15 years of incremental capacity as demand grows.

Ben Isaacson -- Scotia Capital -- Analyst

Thank you.

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

Ben, it's Susan here. Just in addition to what Chuck is saying with respect to monitoring demand -- we obviously are looking at what's happening with new supply coming into the market. And you recall last year, we did move an extra million tons into the market. The issue here, we want to make sure that we are able to be nimble, quick, and move volume into the market to make sure there is stability of price, and we can obviously meet the demand instantly out in the field.

Ben Isaacson -- Scotia Capital -- Analyst

Thank you.

Operator

And your next question comes from the line of Don Carson.

Don Carson -- Susquehanna Financial Group -- Analyst

Thank you. Chuck, you mentioned that, I think on Slide 23, you're seeing 6% to 7% increase in input spending next year. How would you characterize that between say fertilizer crop chemicals and seed? And if you could also just expand on your very strong crop chemical results in Q3, was that all just catch up from a late-season or was there some other changes going on?

Charles Magro -- President and Chief Executive Officer

Good morning, Don. Yes, I'll have Jason Newton, answer your questions. He's our Chief Economist, and then we can have Mike Frank talk about crop protection in retail, in the quarter. Go ahead Jason.

Jason Newton -- Chief Economist and Head of Market Research

Yes, good morning, Don. As we look at the crop protection -- or the crop input spend this year, we saw the biggest declines was in seed because of the loss of both corn and soybean area. As we look forward to next year, that 12 million acre increase in corn and soybean acres really benefits seed. We also expect to see higher crop nutrient and particular crop protection spend next year, but there is some offset in the crop nutrient side because prices are lower today than they were a year ago.

Michael Frank -- Executive Vice President and President of Retail

Don your question relative to our results in Retail in Q3. So a big part of it was catching up from the delayed season. And so we saw, especially in the crop protection side of the business, strong demand for herbicides into the month of July, which is kind of unusual, but we also had a good fungicide season. But in addition to that, we continue to gain share in the marketplace. Our supply chain performed very well. There was a strong demand for custom application, which we have those services. And so, in the crop protection side of the business where we have really good point of sale data for the entire marketplace, we're seeing that we're picking up about 1.3% market share in across the US market in this year. And so those results really help drive and fuel our Q3 earnings.

Don Carson -- Susquehanna Financial Group -- Analyst

Thank you.

Operator

Your next question comes from the line of Andrew Wong.

Andrew Wong -- RBC Capital Markets -- Analyst

Hi, good morning. Chuck maybe could you just provide some thoughts on capital allocation plans over the next 6 months to 12 months? Obviously some of your cash is tied up right now on working capital just seasonally, but I'm sure that gets freed up as we move through the spring, so could we expect something maybe early next year.

Charles Magro -- President and Chief Executive Officer

Good morning, Andrew. Yes. So look, here's how we're thinking about capital allocation. First of all, we were quite pleased with the cash generation of the company. I mentioned in the prepared remarks that in the first 9 months, we've generated about $2 billion of free cash flow. So even in the market conditions that we saw this year with the difficult weather and such, the company is still generating very significant cash flow, and we also have a very strong balance sheet. And so when we look at it, we believe we have just a lot of options to allocate capital to grow the company and to return capital to shareholders. And if you recall, we've returned a total of about $5.4 billion with a combination of dividends and buybacks since January 2018. and really what we try to do with our capital allocation strategy is invest for long-term value creation. Now with that, though, we do believe that we have some options and opportunity to continue to invest to grow our business, primarily our retail business, but we're looking at all options right now given where we are with the market fundamentals and trying to make some decisions on how to create some value for shareholders. But we have lots of opportunity, and maybe I'll just turn for a few comments over to Pedro on capital allocation.

Pedro Farah -- Chief Financial Officer

Yes, Andrew. The one thing I'll add to this is that we have been a lot better at managing working capital in retail. Our inventories this year, it's actually lower than last year at the same time with higher sales and greater market share. So that has been very good for us. And just a word about dividends because our dividends are still pretty much well funded. We have ample room to continue to fund growing and stable dividends out of our retail cash flow, so that provides us a lot of stability in terms of our dividends going forward.

Operator

Your next question comes from the line of Steve Byrne.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Yes. I'm assuming that your retail customers, almost all buy fertilizer from you, but curious what would you say the percentages of those retail customers that buy crop chemicals and seed from you? What would you say the direction of change of those two metrics has been? And I'd like to hear your view on how you see your digital program driving further penetration of those two verticals?

Charles Magro -- President and Chief Executive Officer

Good morning, Steve. I'll have Mike Frank answer the question for you.

Michael Frank -- Executive Vice President and President of Retail

So Steve, our customer base today, as we look across our three shelves of fertilizer, seed, and crop protection, obviously, it's a mixed bag. Some customers buy only fertilizer, some buy only seeds, some buy only crop protection, and of course some buy all three shelves from us. Clearly, we do see the digital platform as a tool that can help us grow our share of wallet and grow our penetration across all three shelves with our customers. You know and if you just step back and think about where we're at with our digital journey, over the last year and a half, we've really been building foundational capabilities. We launched the platform in July of ' 18. We launched our e-commerce capabilities in January of this year, and as Chuck talked about on the call, the adoption of the tools have been extremely strong, and we've been really pleased with how the adoption and the use of the tools have ramped up what's really exciting as we kind of go into this next phase is we're adding more and more value added tools onto the platform. In the next month or so, we're going to be launching our crop planning tools. So where we'll sit down with our customers and plan their farm field by field using insights to drive the best agronomic practices. We believe that these types of tools and value-added parts of our digital platform will help us grow our penetration across our customer base with respect to seed, fertilizer, and chemistry. And so it's very exciting, and we're just at the beginning of the journey, but we've already had strong results.

Charles Magro -- President and Chief Executive Officer

Yes, Steve, just a couple of other comments. So there are some slides on the performance of the digital platform starting Page 14 of the slide deck. And as Mike mentioned -- so it is early days, but the progress in the uptake that we've seen has exceeded our expectations. It's clear that this is going to be a leading platform and there is strong demand for it, and I'm just pleased with how our customer base is sort of adopting to the new tools, and I think that the opportunities here are quite significant for our retail business but not only our retail business, but also to transform the industry over time.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

And if I may, can I squeeze in one on your urea, the NOLA price in the last months has fallen hard and I just wondered what your views were on that, is it a slug of exports out of China or cost curve related? Would welcome your views on that.

Charles Magro -- President and Chief Executive Officer

Okay. We'll have Raef Sully, who heads up our Nitrogen and Phosphate business to answer the question.

Raef Sully -- Executive Vice President and Chief Executive Officer of Nitrogen and Phosphate

Look, I think it's a lot of what you mentioned, one of the issues here is that because of the delayed planting, there has been delayed harvest and delayed fertilizer application in the fall. We had pretty good inventories getting the quarter [Phonetic] slow getting it out. So there has been a bit of trade down there in all of [Phonetic] its course, some of these prices decline. I don't think -- I think that they'll hit the other way pretty quickly as soon as we start to see the application pick up in the field.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

And your next question comes from the line of Christopher Parkinson.

Lucas Brunner -- Credit Suisse LLC -- Analyst

Hi, guys, this is Lucas Brunner on for Chris. Just wanted to dig a little deeper on the Chinese potash contract, if we could. So have you had any recent casual customer conversations, and if so, does it look like the bid ask there is kind of narrowing post the recent global curtailments, or is it really just the Belarusians and the Russians sort of leaking those discussions, any more detail on your thoughts would be great?

Charles Magro -- President and Chief Executive Officer

Good morning. I'll have Susan Jones answer the question.

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

Good morning. Yes, what we know right now is the port inventories are still, remained quite high. And what we're expecting to see is as we move into the spring season, and as a reminder, the Chinese New Year is fairly late this year. So it will be coming near the end of January. As they're ramping up for their spring season, they're going to need to have our product in place to provide for their farmers. So certainly there is demand in the region, and we have customers that certainly are keen to prepare for the spring season. But we, first of all, need to see the inventory depletes from the ports and we expect that to start to move as we move into spring season.

Charles Magro -- President and Chief Executive Officer

And I'll just add one other comment though. The Indian contract has provided all the clarity the market needs. So when I look at their site, I think what we're going to see is now that there has been a market size with the India contract, and you have the soil issue that we've talked about in North America, you've got growing demand in Brazil, I think it's only a matter of time where you're going to see an increase in demand. The supply demand fundamentals are tightening in potash and I think all that bodes well for a pretty good 2020.

Lucas Brunner -- Credit Suisse LLC -- Analyst

Great, thank you.

Operator

And as a reminder please ask one question to allow participants to ask questions. And your next question comes from the line of Joel Jackson.

Joel Jackson -- BMO Capital Markets -- Analyst

Good morning. Chuck, if I look at, I know you're going to be for half of the equation, but if I look at you and your Canpotex partner Mosaic, overnight you've lowered -- you lowered your potash amount about 2 million tons expectations for this year. You and Mosaic have together lowered your individual potash sales by about 140 million tons[Phonetic]. So basically if I take your aggregate guidance, Nutrien Mosaic have taken all of the pain for lower volume this year. So can you really comment on that? And are these low 60% operating rate sustainable or is it something you're willing to do for the foreseeable future or at some point maybe the question is what is the threshold where you can't really stay at a certain rate for too long?

Charles Magro -- President and Chief Executive Officer

Yes, Joel. If I understand your question -- so look, we see it slightly differently than that. In fact, we're trying to match our supply with our customer demand. That's where it starts. I don't think that it's much more complicated than that. We felt that given that we didn't want to put any undue pressure on getting the wrong deal in India or China, we thought it was a prudent short term decision to curtail our production and all we do is we look at what's best for our customers and our organization.

But look, we read the same press you do. So there has been numerous other curtailments, because I assume that they're looking at the same order books with their customers, and so I don't see it as a Canpotex led or not led issue, I think that what we saw this year was a pretty unusual set of circumstances where the US market curtailed because of weather. We saw the Southeast Asian pull back from palm oil and of course we saw the contract negotiations drag on a bit. And every supplier kind of looked at their order book and decided what was best for them. That's exactly what we've done.

Now, If you're asking about our network. So look, we have six mines, and we've talked about having underutilized capacity. We feel fairly confident right now that the decisions that we've made are appropriate decisions for the 2020 plan that we have, and so we're very comfortable going forward with that plan. And Susan already mentioned on the call today that she will make decisions about ramping up our supply over time. But, look, we're always looking at the optimal network to ensure that we have the lowest cost to meet our supply, but we also believe, and we saw it last year that demand can increase quite rapidly. And last year we were the beneficiary of it, right. So the market grew. And we got probably the highest percentage of that growth, where our sales hit over 13 million tons last year. And that's because we had extra capacity in our network, and so we like that. We believe that if that happens again then we want to be ready to put the tons into the market.

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

And Joel, if you take a look at our five year market share average what we're estimating for our volumes this year at the midpoint are actually slightly above that. We absolutely are maintaining our market share and intend to do so as we go forward.

Operator

And your next question comes from the line of Jonas Oxgaard.

Jonas Oxgaard -- Bernstein -- Analyst

Hi, good morning. I think last year around this time you, you talked about the rising input costs from China, but you said you had secured pretty much all the inventory you needed for 2019. So, here we are, and it's now lapping, Chinese cost although seen to have gone down any. How should we think about your raw material cost for 2020? And is there a possibility of raising prices to compensate for it?

Charles Magro -- President and Chief Executive Officer

Good morning. We'll have Mike Frank, it's a good question, we'll have Mike Frank address it .

Michael Frank -- Executive Vice President and President of Retail

Yes. Good morning, Jonas. So yes coming into 2019, we did have higher crop protection industries in particular in anticipation for rising costs, and we did see rising costs throughout the year, especially in the first half. It put pressure on margins as we were reordering some products, and I think even as you look at our proprietary margins, we've had an impact because of rising cost out of China, both from a third party supply standpoint but also within our proprietary business.

Now going into 2020 as we talked to suppliers and talk to, whether it be third-party suppliers of our major crop protection products or even for our proprietary products business, we're expecting probably more of a normal price increase in that 2%-2.5% range. So we have the inventory coming into the fourth quarter of this year of crop protection. We're down over 10% in our crop protection inventories, which we think will put us in a good position going into 2020.

So look, I think for further evidence, if you look at our crop protection margins in the third quarter, you'll see that they've bounced back to kind of the normal range. And so once we got into the busy season, we were able to pass along the price increases or the cost increases through to the farm-gate and that would be our expectation going into 2020.

Jonas Oxgaard -- Bernstein -- Analyst

Thank you.

Operator

And your next question comes from the line of P. J. Juvekar.

P.J. Juvekar -- Citigroup -- Analyst

Yes. Hi, good morning. So, Chuck, you've been very disciplined in potash market, shutting down capacity or curtailing capacity when the markets are slow, why not use the same discipline in the phosphate market too? The phosphate market is oversupplied, would you be willing to cut back on capacity? Thank you.

Charles Magro -- President and Chief Executive Officer

Good morning, P.J. Look the dynamics are completely different in my view, phosphate is, in my opinion, in a structural oversupply. And so for us to try to do something in the market, I think others would just increase capacity and it would be low cost tons out of North Africa or the Middle East, and it would be a futile game. So I don't believe that the industry structure, I don't -- I believe that there is there still new capacity coming online, and phosphate is very different than potash in our view the phosphate businesses is in a structural oversupply. And in that situation, it's very, very difficult, I think to really try to have a supply led price-driven response.

Operator

Your next question comes from the line of John Roberts.

John Roberts -- UBS Securities Inc. -- Analyst

Thank you. Could you update us on your progress in building out the retail in Brazil? And is there any prospect for a deal there, that might accelerate that or the price is still just too high?

Charles Magro -- President and Chief Executive Officer

Yes, Mike Frank can answer the question.

Michael Frank -- Executive Vice President and President of Retail

Good morning, John. We continue to look at the opportunities for acquisitions across Brazil. I would say we've accelerated our look at, the opportunities that are in the marketplace right now, and we think there are a number of interesting opportunities, nothing to announce today, but we would expect going into 2020 that Brazil will be high on our list of opportunities to acquire some retail footprint and really transform our retail is done in Brazil. Today, the retail industry is extremely fragmented in Brazil, and we think we can bring a new and value-added approach to retail that really makes a difference for farmers there. So we're excited about that, and stay tuned, we think there'll be opportunities as we enter 2020.

John Roberts -- UBS Securities Inc. -- Analyst

Thank you.

Operator

And your next question comes from the line of Jeff Zekauskas.

Jeffrey Zekauskas -- J.P. Morgan Securities Inc. -- Analyst

Thanks very much. Can you compare your digital platform in retail to Bayer's FieldView? Why do farmers use your platform? Where do they use FieldView -- is FieldView positive for you or negative for you or neutral in your opinion over time?

Charles Magro -- President and Chief Executive Officer

Good morning, Jeff. We'll have Mike answer the question.

Jeffrey Zekauskas -- J.P. Morgan Securities Inc. -- Analyst

Thanks.

Michael Frank -- Executive Vice President and President of Retail

Jeff, I would say the platforms are very different. And so with Bayer's FieldView platform, it's really around visualizing. You're planting and you're harvesting, doing some analytics on fields based on your specific field, and our platform today is really our retail platform that allows us to engage with our customers in what we call an omnichannel way, and so they can manage their account, they can order products, they can pay their bills, and more and more as we move into the future, they can also get access to a broad [Phonetic] the information. So this year we partnered with BASF on some of their digital tools that are now available through our platform, the same with Lindsay irrigation, and so we've got an open architecture where we'll continue to look for partners that can bring value added insights to our customers that they can get access to our portal. And so I would say with Bayer, which who we work with very closely as both the seed and crop protection supplier, we do work with them, on their climate platform. It is part of how we engage with our customers as well. So I would say there're complementary but they're very different.

Jeffrey Zekauskas -- J.P. Morgan Securities Inc. -- Analyst

Okay. Great. Thank you so much.

Operator

Your next question comes from the line of Mark Connelly.

Mark Connelly -- Stephens Inc. -- Analyst

Thanks. So as business moves through that digital platform even faster, does that imply that your bricks and mortar footprint has to shift or does it mean that your distribution channels have to shift faster? I'm just trying to get a sense of what it means to your overall distribution and logistics that farmers are embracing this new way of doing business so much faster than you thought.

Charles Magro -- President and Chief Executive Officer

Good morning, Mark. Go ahead, Mike.

Michael Frank -- Executive Vice President and President of Retail

So Mark, again I think when we talk to our customers, they really value our local supply chain, they highly value the relationship they have with our sales agronomist, and so we think that that's really important, not only today but into the future. The digital tools are just one more element to what we can bring to add convenience and value to our customers.

Now, we do believe that with time and as we build out our greenfield builds, we can serve a large area through fully operational retail facilities. And so as we look at supply chain, we do believe that there is more efficiency that can be gained by leveraging our scale and really looking at our entire asset base from a bricks and mortar standpoint to see what's the lowest cost, a way that we can bring a product to our customers farm-gate, and so that's something that we're looking at. We do think there is opportunities through the digital interface, but again, we're going to have a large presence at the local level where we're supporting local communities and we're there to serve our customers.

Charles Magro -- President and Chief Executive Officer

Yes. And Mark just another comment on this. So we think it is important that we're in the local communities, but we may not have fertilizer or all of our products in the community, and the supply chain is being evolved right now, you've heard us talk about the hub-and-spoke model for years. With the digital tools, we think it's going to give us just a bit more insight to have a better planning accuracy when it comes to where these products should be and when. And so that's where we think that the benefit will come, it will be in a working capital optimization over time.

Mark Connelly -- Stephens Inc. -- Analyst

That's super helpful. Thank you.

Operator

And your next question comes from the line of Adam Samuelson.

Adam Samuelson -- Goldman, Sachs & Co. -- Analyst

Yes, thanks. Good morning, everyone. I was hoping to get a little bit of color on the ammonia market and you're Trinidad operations, if you could just -- how you see the emerging ammonia market playing out over the next 6 months to 12 months especially given weakness in

the phosphate markets, and any comments you could have on your gas cost and your utilization and Trinidad would be helpful. Thank you.

Charles Magro -- President and Chief Executive Officer

Okay. Good morning, Adam. Go ahead Raef.

Raef Sully -- Executive Vice President and Chief Executive Officer of Nitrogen and Phosphate

Yes look. So, I mean you're aware that in Trinidad, we got new gas contracts, they started in 1st of January, you see they are more expensive, they're also tied though to the price of the merchant ammonia. So as tamper has come down, the price of gas to the Trinidad plant has come down as well. I think if you just step back and look at the global market, I think we're pretty bullish around the supply and demand fundamentals. The market itself is about 150 million tons, that's nitrogen total. It's growing at 1.5% to 2% per year. That means 1.5 million tons to 2.5 million tons of capacity needs to come on each year. If you stop and you look at the projects in the pipeline, you will see that this year net additions are about zero. Then if you look forward to 2020 and 2021, 2022 net additions are less than 2 million tons and may have been less than 1 million ton in each of those years. There's no doubt from our perspective that the overall market is tightening for nitrogen. That should be good for Trinidad. As I mentioned before, the gas prices there are higher than we see in the US, but they're still competitive compared to the rest of the world even with Europe, where it is [Phonetic]

.

Adam Samuelson -- Goldman, Sachs & Co. -- Analyst

Okay.

Operator

Your next question comes from the line of Michael Piken.

Michael Piken -- Cleveland Research Company -- Analyst

I was wondering if you could talk a little bit about your plants turn around schedule in nitrogen for the next several quarters. You mentioned you had several unplanned outages. If you could talk about how long each one is going to be down and what it was in third [Phonetic], fourth quarter and into 2020 that'd be great.

Charles Magro -- President and Chief Executive Officer

Okay. Good morning, Michael. Go ahead Raef.

Raef Sully -- Executive Vice President and Chief Executive Officer of Nitrogen and Phosphate

Yes. So look, a couple of things, we actually had some very large planned outages in the third quarter, which led to some of the volume reduction. The biggest one there was Redwater. Redwater is a plant that is 50 years old, and the turnaround we did this year was one that had been planned for some time to replace a number of end of life pieces of equipment, in fact this turnaround was the biggest turnaround the site has ever had in its 50-year history. At some point we had 3500 [Phonetic] people that are working there. It's done. It was on budget, on time. We've now got through most of all of the end of life issues that were required there, it's running well.

Trinidad as you know for various reasons. And most of it was related to the, making sure we had a supply contract we could live, we deferred maintenance on two of the Trinidad plans for over 7 years. So in Trinidad, 2 of the plants, they're half their capacity are into the turnaround now but not surprisingly over the last couple of years as a result of us pushing that turnaround schedule back so far, we have had increased outages. We're hoping the turnarounds that we're undergoing now, we'll fix those and we'll see a return to better utilization and reliability numbers there as we've seen across the rest of the system when we've gone through and we've kept up our maintenance.

Charles Magro -- President and Chief Executive Officer

And just so for you to plan going forward. The way I think about our network now is, we basically have 4 plants in Canada, 4 in the US, and 4 in Trinidad, so you can imagine if we're on a four-year turnaround cycle, one plant in each of those jurisdictions need to go down every year for planned maintenance, which means that you should see a consistent amount of nitrogen supply out and nutrients network and that will keep our plants with high reliability and safety standards that we want to have those. So that's the way I think about it. It is just, you're going to have three plants per year go down and the volumes will be about the same because we're on a four year turnaround schedule.

Raef Sully -- Executive Vice President and Chief Executive Officer of Nitrogen and Phosphate

Yes, look and Chuck, the only thing I'll add is that there has been a bell wave of end of life activity, we're through the majority of that, and we are now getting into a pretty steady state as Chuck said, with one plant in each system will be down each year.

Operator

And your next question comes from the line of Duffy Fischer.

Duffy Fischer -- Barclays Capital Inc. -- Analyst

Yes, good morning. Couple of questions around retail. So the 12 million potential acres next year that 7% volume increase, what percent of your retail business, will that hit or should we kind of build that into would be one? And then two, if you do get that kind of demand oftentimes that leads to an improved pricing environment. So should we expect if we get that 7% volume increase that prices, particularly in seeds in ag chem can move higher next year? And then just the last one is, can you talk through what the pest pressure looked like this year around North America to set us up as a baseline to next year where we're kind of below, above or kind of normal pest pressure this year?

Charles Magro -- President and Chief Executive Officer

Good morning, Duffy. Go ahead, Mike.

Michael Frank -- Executive Vice President and President of Retail

Duffy, so when we look at the acres next year for the most part, we think it's going to be corn and bean acres. Based on our market share, if you take it all the way through the EBITDA, a million acres of corn is worth approximately $6 million to us, and a million acres of soybeans is about $3 million. So that kind of helps you kind of frame the value depending on where the acres come.

With respect to demand, we do expect a high demand year, and just like we got into the the high demand season in Q3 this year, we saw margin stabilized. Now, we wouldn't expect margins to go over the historic levels, but we think that our historic margins on seed and crop protection will hold. As you can see in fertilizer, we had a very solid year from a margin perspective. We think that will also hold and we continue to sell more nutrients on top of NP&K and that's also a margin builder for us. And so, yes, I would say as we look forward to 2020, the acreage that are going to come in are definitely going to be high value acres because they're corn and bean acres. We're well positioned in that part of the marketplace and when things get really busy depending on how the fall plays out, that's when our supply chain and our infrastructure really deliver.

With respect to your last question on pest pressure, we did have a good year this year, both in fungicides and even insecticides were up a little bit this year over 2018. So we did see solid pest pressure. Again the window was tight, and so we were there to serve our customers with custom application equipment and opportunities and that boded well for us. And so we would expect the same to happen next year and in fact with the extra acres that will all translate to what we think is shaping up as a very strong 2020 for us.

Duffy Fischer -- Barclays Capital Inc. -- Analyst

Great, thank you guys.

Operator

And your final question comes from the line of Fai Lee.

Fai Lee -- Odlum Brown Limited -- Analyst

All right. it's Fai here. Chuck, AECO gas prices, natural gas prices have been extremely low levels, but history suggests they won't stay that way forever. Could you comment on your outlook and strategy around natural gas in Alberta?

Charles Magro -- President and Chief Executive Officer

Yes, good morning, Fai, I'll have Raef Sully just can you give some comments.

Raef Sully -- Executive Vice President and Chief Executive Officer of Nitrogen and Phosphate

Yes, Fai. Look I think you'll continue to see AECO below NYMEX. I think there is an oversupply that continues there. It's not interconnected with the US system. LNG exports are continuing to increase but not as much. I think you'll continue to see AECO trading below NYMEX for another 5 years to 10 years at least. I think at some point it will come up, either the interconnects get done, and you get enough LNG being traded you should start to see it trade inline with NYMEX, but I think as a whole, we're expecting NYMEX and AECO to continue at similar levels through next year.

Charles Magro -- President and Chief Executive Officer

Yes, Fai, just a couple other comments. So look, we're bearish on gas, especially in Canada where we can't build pipelines. So there's a lot of gas. There's a lot of low cost gas, and so certainly when I look at our network being a third in Canada and a third in the US, we do believe that we're going to sit quite comfortably on the low end of the cost curve for the foreseeable future. And even when you look at LNG and what's under construction, we don't think there is a material impact of the supply demand of gas.

So I think from an overall long-term competitive position, I think we like our position and that's why even we would consider investing in, in a little bit of expansion money. It's not greenfield, of course, that doesn't make any sense. But in our plants in Canada and the US, Just to optimize energy infrastructure as well as brownfield tons.

Fai Lee -- Odlum Brown Limited -- Analyst

Okay. Thank you.

Richard Downey -- Vice President, Investor and Corporate Relations

I'd like to thank everyone for joining us for the call today, and IR is available for any questions you might have after the call here. Thank you.

Duration: 54 minutes

Call participants:

Richard Downey -- Vice President, Investor and Corporate Relations

Charles Magro -- President and Chief Executive Officer

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

Jason Newton -- Chief Economist and Head of Market Research

Michael Frank -- Executive Vice President and President of Retail

Pedro Farah -- Chief Financial Officer

Raef Sully -- Executive Vice President and Chief Executive Officer of Nitrogen and Phosphate

Jacob Bout -- CIBC World Markets -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Ben Isaacson -- Scotia Capital -- Analyst

Don Carson -- Susquehanna Financial Group -- Analyst

Andrew Wong -- RBC Capital Markets -- Analyst

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Lucas Brunner -- Credit Suisse LLC -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Jonas Oxgaard -- Bernstein -- Analyst

P.J. Juvekar -- Citigroup -- Analyst

John Roberts -- UBS Securities Inc. -- Analyst

Jeffrey Zekauskas -- J.P. Morgan Securities Inc. -- Analyst

Mark Connelly -- Stephens Inc. -- Analyst

Adam Samuelson -- Goldman, Sachs & Co. -- Analyst

Michael Piken -- Cleveland Research Company -- Analyst

Duffy Fischer -- Barclays Capital Inc. -- Analyst

Fai Lee -- Odlum Brown Limited -- Analyst

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