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Mosaic (NYSE:MOS)
Q1 2021 Earnings Call
May 04, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen, and welcome to The Mosaic Company's first-quarter 2021 earnings conference call. [Operator instructions] Your host for today's call is Laura Gagnon, vice president, investor relations of The Mosaic Company. Ms. Gagnon, you may begin.

Laura Gagnon -- Vice President of Investor Relations

Thank you, and welcome to our first-quarter 2021 earnings call. Opening comments will be provided by Joc O'Rourke, president and chief executive officer, followed by a fireside chat, as well as open Q&A. Clint Freeland, senior vice president and chief financial officer; and Jenny Wang, vice president, global strategic marketing and other members of the leadership team will also be available to take your question. We will be making forward-looking statements during this conference call. The statements include but are not limited to statements about future financial and operating results.

They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release furnished yesterday and, in our reports, filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures.

Our fourth-quarter press release performance data attached as exhibits to yesterday's Form 8-K filing also contain important information on these non-GAAP measures. Now, I'd like to turn the call over to Joc.

Joc O'Rourke -- President and Chief Executive Officer

Good morning. Thank you for joining our call today. Mosaic delivered excellent results in the quarter, with revenues up almost 30% year over year and the gross margin rate at the highest level since early [Inaudible] and our momentum continues to build higher fertilizer prices driven by very strong global demand, tight supply and excellent agricultural fundamentals, combined with our significantly improved cost structure, lead us to a positive outlook for the remainder of the year. Laura, let's go to the analyst questions.

Laura Gagnon -- Vice President of Investor Relations

Joc, we've received several questions about nutrient affordability, its impact on demand and sensitivity to commodity prices. Specifically, how elastic does developed market demand tend to be? And how much application elasticity do you see in emerging markets?

Joc O'Rourke -- President and Chief Executive Officer

Thank you. Generally speaking, within normal ranges, grower demand for fertilizer is relatively price inelastic, whether that be in developed or emerging markets. Accepting that, changes to demand would then be driven by acreage and by yield expectations. However, growers will look at the return on investment of fertilizer applications and particularly, if prices of crops are elevated, or conversely, if they're down, they will adjust their rates higher or lower in order to maximize their yield potential.

It certainly appears that last year and now this year, we're seeing signs of some of those upward adjustments to application rates. In India, maximum retail price is set by the government. As such, Indian farmer affordability may be negatively impacted this year.

Laura Gagnon -- Vice President of Investor Relations

Joc, a few of our analysts had questions regarding our phosphate sales volumes during the quarter. P.J. Juvekar of Citi and Vincent Andrews of Morgan Stanley both asked about our sales volumes being higher than our production volumes despite lower inventories and raw material constraints. Did Mosaic draw down further inventory? And will that offset the sulfur impact?

Joc O'Rourke -- President and Chief Executive Officer

Thank you, gentlemen. Our inventories do continue to be below typical levels for this time of the year. But you must understand that this is normally the time of the year where the strong spring demand means we will run down our inventory, and that's typical of most years. At the end of the quarter, we certainly had lower-than-normal inventories.

However, we also relied on 100,000 tonnes from Ma'aden that flowed through the Phosphates segment.

Laura Gagnon -- Vice President of Investor Relations

John Roberts of UBS and Joel Jackson of BMO asked for additional color around the sulfur market, specifically, is the sulfur shortage only a North American phenomenon? Or are sulfur prices going up elsewhere? Also, do we think the situation could extend into the second half of the year? And what plans do we have in place to resolve the Q2 sulfur shortage?

Joc O'Rourke -- President and Chief Executive Officer

Thank you, gentlemen. This year, the molten sulfur supply was constrained due to COVID impacts on refineries. And this was exacerbated in that freeze at the February of 2021. So, when you ask, is this a local or global issue, certainly, sulfur is tight around the world, but particularly, molten sulfur is very tight right now.

So, you will see that we actually melted more in our melters than we normally would, and that was actually up 27% from a normal of about 20%. Now, we do expect U.S. refinery activity to recover in the second half, which would take us back to more normal levels.

Laura Gagnon -- Vice President of Investor Relations

Joc, Michael Piken of Cleveland Research, Ben Isaacson of Scotia, Andrew Wong of RBC and Steve Byrne of Bank of America, all asked for an update on Canpotex negotiations with China. In particular, they ask that with the domestic potash price in China now well over $100 per tonne higher than the last import contract price and about $100 per tonne above the recent India contract price, what are the implications for a new contract in late 2021? And what might the effect be on 2022?

Joc O'Rourke -- President and Chief Executive Officer

Thank you. Look, Canpotex is committed through Quarter 3, as they've said publicly. And we're seeing strong demand in North America, in Brazil, in Southeast Asia, all of which were seeing prices go up. And this price strength is also occurring in China's spot market.

So, we see all of those markets as having high demand, which is shown by Canpotex' tight supply. And even India now, which was -- had an updated contract is now well out of the money and seems to be outdated. So, we see all of these things as very positive for the potash market moving forward. And I expect they will lead to an earlier and more constructive settlement with the Chinese at some point in the fall or early next year.

Laura Gagnon -- Vice President of Investor Relations

Joc, I have a two-part question here. Michael Piken of Cleveland and Adrien Tamagno of Berenberg and Ben Isaacson of Scotia have all asked about Mosaic Fertilizantes. First, do you have guidance for Fertilizantes from a pricing and margin standpoint? Or how should we think about pricing and margin progression at Fertilizantes?

Joc O'Rourke -- President and Chief Executive Officer

Thank you. While we don't give specific guidance for Mosaic Fertilizantes, we have said that of the pricing sensitivity we provide in our earnings materials for DAP, about 20% of that enterprise impact occurs in Mosaic Fertilizantes. Now, also, we have historically seen distribution margins in the range of $25 to $40 per tonne. We believe that those two together should give you the information you need to model our Brazil business.

In terms of cost, our Quarter 1 was impacted by a few short-term issues related to mine productivity and lower conversion rates, which are temporary in nature and should improve throughout the year. Also remember, there are actions being taken for COVID that will impact our cost short term in Brazil as they are in a fairly serious spot with COVID right now. Finally, depreciation of the Brazilian real has offset the increase in inflationary pressures that we're seeing there.

Laura Gagnon -- Vice President of Investor Relations

The second part to that question, Joc, was a follow-up. Could you discuss seeming disconnect between the magnitude of price appreciation for MAP versus a much smaller increase in average realized selling prices for Mosaic Fertilizantes sales?

Joc O'Rourke -- President and Chief Executive Officer

Thank you. Our average selling price includes blends that have a significant amount of nitrogen, potash and lower-grade phosphate materials in them. A portion of which will vary throughout the season and can have a real impact on our realized pricing. Beyond that, a significant portion of Q1 sales were committed in Q4, which contributed to the pricing lag.

And that is typical in Brazil due to logistics constraints in that country.

Laura Gagnon -- Vice President of Investor Relations

Joc, we've received several questions on India. In particular, John Roberts from UBS and Andrew Wong of RBC asked about our outlook for India's agriculture business, fertilizer demand and nutrient affordability resulting from higher retail prices. They would also like to know if COVID is having any impact.

Joc O'Rourke -- President and Chief Executive Officer

Thanks, gentlemen. Look, good monsoons and full [Inaudible] and even still attractive crop prices continue to point to favorable farmer economics in India. Certainly, COVID is disrupting activity as the country goes into lockdown. And we've seen a bit of a pause in the near-term activity.

So, we're waiting to see how the country addresses the recent outbreaks. While COVID is a near-term headwind, the underlying demand for nutrients remain significant as indicated by the extremely low inventories and still strong crop prices. We will not speculate on subsidy changes, but believe the government is committed to maintaining domestic food security.

Laura Gagnon -- Vice President of Investor Relations

Joc, PJ Juvekar of Citi, Seth Goldstein of Morningstar and Michael Piken of Cleveland Research, have all asked for thoughts on Chinese phosphate supply and demand. What are our expectations for Chinese phosphate exports in 2021? And are we concerned that attractive pricing could lead to higher operating rates?

Joc O'Rourke -- President and Chief Executive Officer

Thank you. Our base case for 2021 shows phosphate exports relatively unchanged, and we expect them to stay at around the 9.3 million tonnes we saw in 2020. Now, clearly, and even the latest report show the operating rates in China are up, probably exceeding 80%, but most of that is going to internal demand inside the country. So, we have seen so far, exports that are right on our expected target.

Also, there has been several structural changes that occurred last year in China. And I'm going to let Jenny just give a little bit of background on some of the major ones there.

Jenny Wang -- Vice President, Global Strategic Marketing

Sure, Joc. We've seen some structural changes in the Chinese phosphate industry since last year. On the supply side, the Chinese largest producer, BPC, they have shifted their production from producing DAP/MAP fertilizer to other industrialized use of P2O5. For example, they have shifted production to purified cost assets not only for use of -- in the food industry, but also in the emerging growth of electrical vehicle and 5G stations demand to the batteries.

We see this is going to continue in 2021 and going forward. Therefore, we are going to see less P2O5 to be produced at DAP and MAP. The other change is really on the demand side, domestic phosphates tax growing in 2020, which has tipped most of the increased production in Q1 at home. Therefore, we see really little export increases in the first quarter.

Over to you, Joc.

Laura Gagnon -- Vice President of Investor Relations

Joc, following on this topic, John Roberts and Ben Isaacson both asked about the marginal cost phosphate producers, specifically have costs for marginal producers tracked with phosphate pricing?

Joc O'Rourke -- President and Chief Executive Officer

Thank you. Price increases for the integrated producers have largely outpaced production cost increases, including those in China, to the point that most Chinese producers there are experiencing good margins despite higher raw material costs. So, now, the marginal cost producers are predominantly the nonintegrated producers in India and particularly those that are reliant on imported phosphoric acid. Their DAP production costs at the new Q2 phosphoric acid contract price of $998 per tonne is about $615 per tonne, or about $50 per tonne higher than the Indian imported DAP price.

Laura Gagnon -- Vice President of Investor Relations

Joc, we have two questions on our global distribution businesses. First, Mark Connelly from Stephens asked what a good across-the-cycle margin assumption for distribution is now given our operational improvements and growth?

Joc O'Rourke -- President and Chief Executive Officer

Thank you, Mark. Historically, we've targeted around $25 a tonne for our distribution business, but we have seen that improve with economies of scale and efficiencies. And we've seen that margin expand recently. Scale matters, and this has led to this quarter's margin of $40 a tonne and even higher for our combined business in India and China.

Laura Gagnon -- Vice President of Investor Relations

Andrew Wong of RBC also asked what China and India distribution contribute to earnings?

Joc O'Rourke -- President and Chief Executive Officer

Thank you, Andrew. In this quarter, we had a combined gross margin of the two businesses that sat around $30 million. And -- but we have to understand that that margin was enhanced by the upward trajectory of phosphate and potash, which allows for profit from the inventory that was held by those businesses.

Laura Gagnon -- Vice President of Investor Relations

Joc, we have a few questions on free cash flow generation and capital allocation. First, Vincent Andrews asked why net income increased by $300 million quarter over quarter, but cash flow from operations only increased by $130 million. What are the drivers in cash flow from operations this year versus last?

Joc O'Rourke -- President and Chief Executive Officer

Thank you, Vincent. I'm going to hand this straight over to Clint to talk about our cash flow.

Clint Freeland -- Senior Vice President and Chief Financial Officer

Thanks, Joc. I think there are -- specific to the year over year, I think a large part of that is inventory movements between the two years. Last year, we were -- if you recall, we were -- we had very significant inventories, and we're liquidating some of those excess inventories. Where this year, our inventory is built by about $180 million mostly in Brazil and Canada.

So, I think a year-over-year comparison, that's what's driving a lot of it. But also recall that every year during the first quarter, there are some pretty meaningful accruals that are actually paid out in the first quarter. Those accruals primarily being some tax accruals from the previous year that actually pay out and hit our free cash flow in the first quarter of every year, as well as our short-term incentive accruals that again were accrued the previous year, but paid out in the first quarter of every year. So, that's just something to keep in mind that are recurring things in the first quarter each year.

Laura Gagnon -- Vice President of Investor Relations

Second related question comes from Ben Isaacson of Scotia who asks if Mosaic has revised its thoughts on capital allocation, given the strong free cash flow Mosaic will generate this year, especially as K3 capex line is down?

Joc O'Rourke -- President and Chief Executive Officer

Thank you, Ben. The simple answer here is no, we are not changing our priorities. We continue to have a balanced approach to capital allocation, which balances debt repayment, return to shareholders and investing in the business in high-return, quick payback projects. And there's a couple of things I'd like to highlight here.

Earlier this year, we increased the dividend by 50%. We've committed to paying down $450 million of long-term debt that comes due in November. And the other piece is we've had a number of really good return projects in our transformation. And we continue to invest small but meaningfully in those high-return, quick payback projects.

So, we completely remain committed to doing exactly what we've said all along, which is balancing off all of our positions. And frankly, that's what our investors have said they expect of us. Thank you. That ends our fireside chat.

Now, I would like to open the phone lines up for any further questions from the audience.

Questions & Answers:


Operator

Thank you. [Operator instructions] Your first question comes from the line of Steve Byrne from Bank of America. Your line is now open. You may ask your question.

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

You have reportedly some forward sales into the third quarter of MAP and DAP at prices with the five in the funds that seems like a fairly lofty price. But I have no idea whether the volume is really light. Can you comment on how much forward sales you have into third quarter right now? And maybe compare that to historical levels, are you seeing the distribution channel more interested in building inventories even at these prices than normal? Or are the high prices causing kind of a pull back and a wait-and-see approach?

Joc O'Rourke -- President and Chief Executive Officer

Standby, we've lost connection to the group. We will be right back. [Technical difficulty] Hello, operator. Are we back?

Operator

All right, perfect. And Steve Byrne, your line is now open. You may ask your question, please.

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

OK. I guess you didn't like that question, Joc. Do you want me to run it by you again?

Joc O'Rourke -- President and Chief Executive Officer

I would love you to. I think I got two words into it. So, it wasn't anything about your question. We love your question.

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

OK. It's really about your forward order book. There are some reported sales of phosphate, both MAP and DAP in mid-500s, a short tonne into the third quarter, how much volume have you sold forward? And maybe more broadly, how would you characterize the demand outlook into the fall at this point relative to historical levels? Is the ag cycle causing that distribution channel to aggressively want to rebuild inventories? Or is there risk that we could see a pull back and more of a wait and see until later in the year?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Thanks, Steve. And again, I apologize for the loss of connection there for a few seconds. In terms of the forward order book, if you will, I suspect what you're referring to is, I think, late last week, we started to have people come to us with summer fill needs.

So, the spring season is basically finished from our perspective. And now, the -- some of the larger retailers have come to us looking for positioning material for the fall. It is a little early for a fall program. And frankly, we think the prices were -- we expected some little dip in prices as you go into the summer lull.

But with the tightness that is in the market globally and then in North America, we're starting to see people come to the market earlier. So, we will look at this as a very good sign and a good sign for an early and aggressive fall application season.

Operator

Next question, we have from the line of Adam Samuelson from Goldman Sachs. Your line is now open. You may ask a question.

Adam Samuelson -- Goldman Sachs -- Analyst

Good morning. Maybe along a similar line, Joc. Just trying to think about your phosphate realizations and the gap in your -- kind of what you're talking about in terms of your second quarter price improvement versus what we're seeing in pricing out of Tampa or NOLA, it seems like the benchmark prices have gone up more. Is that a function of the volume shortfall and pre-committed tonnes? I'm just trying to make sure we're understanding, the gap there seems to be wider versus the published benchmarks than history?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Thanks, Adam. Well, I think there's a couple of things there. Of course, there was great demand earlier in the spring season than usual, I think, because of the low inventories we started off with.

So, there's always a big lag in this as we sell early Q1, even Q4, we're not rev racking them until well into this quarter. So, there's always that, and then there's the people who are buying early. And that's when they -- when the prices get set when they buy. So, If we look at the ending price or the high price of in the 5 90s, it was only there for a short period of time, and it was probably for the just-in-time deliveries as opposed to the people who'd plan better.

So, we expect now we're going to see Q3 average net rise again as we sell into the summer fill. And basically, we'll move into the fall with that. And we don't have much lower-price carryover anymore so the lag will decrease.

Operator

Thank you. The next question comes from the line of John Roberts from UBS. Your line is now open. You may ask a question.

John Roberts -- UBS -- Analyst

Thank you. It sounds like you're not thinking about any big investments. But since conditions are improving, when that time comes, do you think it will first be in potash or first in phosphate? Or the distribution acquisition? Or maybe back in -- further back integration into ammonia? Where do you think your big opportunity comes from?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Well, look, the way I would probably characterize this is I'd like to see the money in the bank before we talk about how we're going to spend it. So, our first priority is continue to be that. We've talked about the paying down debt.

We've talked about the priorities being the returning money to shareholders. And we're not going to rush out and spend a bunch of money on anything until -- till and if the right opportunity comes where we believe that we can add real value and get an extraordinary return for the shareholders. So, I wouldn't think about any of those three as being our priority. I think we'd look at all opportunities, but they have to have a great risk return -- risk-adjusted return.

Operator

Thank you. The next question comes from the line of PJ Juvekar from Citi. Your line is now open. You may ask a question.

PJ Juvekar -- Citi -- Analyst

Yeah. One of my questions is if you look at OCP and Russians, at today's prices, they can import here, pay the CBD and still make more money than what they did a couple of years ago when they were exporting a lot. Do you expect that those volumes to come in here as the market remains tight?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Thanks, PJ. Let's start by saying there have been a number of new importers into the U.S. such that I think Quarter 1 volume of imports into the U.S.

were pretty much on par with what they were here. So, it's not that we've got less imports, it's just we have different importers or different people coming into this market. In terms of OCP and the Russians, I mean, they're welcome to come into this market, but it doesn't really make sense with an OCP with a 20% tariff that they wouldn't go to a market, another market like India or whatever, which is not being tariffed right now. So, I think they'll go to where their profits are the highest, which would not be North America at this point.

There's other markets with the same price without the tariff.

Operator

We have the next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is now open. You may ask a question

Joel Jackson -- BMO Capital Markets -- Analyst

Good morning. In terms of a capital allocation, the lockup for the Vale shares have been over for quite some time. How much priority do you put on maybe saving some cash, getting some dry powder to kick out those shares -- to clean up the share in one day?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Thanks, Joel. Well, I think we said before that we would certainly look at participating if Vale shares came to the market. And, I guess, the way I would look at that is, although they're really no different than buying back anyone else's shares, the reason for participating would be more to make sure that the -- that there was a more orderly and less disruptive impact on the market.

So, we think we would participate, we'll participate based on our cash position at the time. And we'll look at it at the moment. At this stage, we don't have official word from Vale on what they're going to do with those shares or when. But it will be public, they'll be the ones to tell us when they're going to sell them.

And if they do, we'll certainly look at how much and how aggressively we participate.

Operator

Next question comes from the line of Mark Connelly from Stephens.Your line is now open. Please ask a question.

Mark Connelly -- Stephens Inc. -- Analyst

Thank you. Joc, I was hoping you could talk to us a little bit more about your aspirations for biologicals. We usually see seed net chem companies focused on that. You've got a couple of partnerships now, you talked about nitrogen fixing soil enhancements.

Can you give us a sense of how broad your interest there goes because those things really run the gamut?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Thanks, Mike. But look, what we're looking at with that is how do we extend our product lines, how do we use our beneficial distribution system. I mean we've got a big distribution system, for instance, in Brazil, where we can really help these products get to market.

But I would say, look, it's early days. We are making some small, but well thought out investments. And what we're doing right now is trying to fill a pipeline, and that pipeline will be filled over time. And if you think about it, no different than the MicroEssentials, which took years to develop, these will take years to develop.

I think Anuvia's -- or our Sus-Terra product is now just going to market. We would expect our Sound products to go to market in the next, I guess, year or two. And then, our AgBiome would go to market probably in the year after that. So, I mean, these are long-term small investments that are likely to do well over time, but we have to get into it first.

Operator

Thank you. [Operator instructions] Next question comes from the line of Adrien Tamagno from Berenberg. Your line is now open. Please ask a question.

Adrien Tamagno -- Berenberg Capital Markets -- Analyst

A question on the phosphate division, please. Can you comment on expected evolution of utilization rates of U.S. phosphate assets going forward?

Joc O'Rourke -- President and Chief Executive Officer

Sorry, I missed -- utilization, the utilization rate, did you say, of phosphate? Yeah. Look, the U.S. is a relatively stable, mature market. But what we are seeing and particularly with the advent of the precision agriculture, actually, the farmers are really looking hard at what they need to do in terms of putting better fertilizers, better technology into their crops.

And one of the things that's benefiting from that is probably a higher usage of phosphate fertilizers and particularly our MicroEssentials, which is an efficiency improving fertilizer.

Operator

Thank you. We have a follow-up question comes from the line of Adam Samuelson of Goldman Sachs. Your line is now open. Please ask a question.

Adam Samuelson -- Goldman Sachs -- Analyst

Thanks. Joc, I was wondering just with the improving kind of market outlook in the potash space, how you maybe kind of restarting or bringing back some of the idled Colonsay capacity and what it would take from the market to think about bringing that capacity back on?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Thanks, Adam. That's an important question that we're spending actually a fair bit of time on right now because the demand for potash has been strong. Now, look, we fully expect to meet the demand of our customers, and we're seeing an increased demand, particularly internationally.

So, when we can legitimately bring back Colonsay because it's got a price for enough, we expect price for long enough, we'll be doing just that. And right now, we're able to supply our needs through our ramping up K3 and our Bell Plaine. But there will be a time soon or in the next year or two, I suspect, where Colonsay may be required, but it will also require a sustained price, probably a little higher than what it is even today.

Operator

Thank you. We have the next question comes from the line of Adrien Tamagno from Berenberg. Your line is now open. You may ask a question.

Adrien Tamagno -- Berenberg Capital Markets -- Analyst

Thanks for the follow up. Sorry. Earlier, I was referring to the utilization of your own operations in Florida, not in the market. It was down to 77% in Q1 -- yes.

Joc O'Rourke -- President and Chief Executive Officer

Yeah. Yes, our expectations, Adrien, are that we will run those plants probably pretty hard for the next six, nine months because -- and the limit will be, like we've said earlier, I think the limit to production may be, at least in the near term, will be the sulfur availability. So, we expect to run those with allowing for turnarounds and regular maintenance, but we expect to run those close to full capacity.

Operator

Thank you. [Operator instructions] Next question comes from the line of Jeff Zekauskas from J.P. Morgan. Your line is now open. Please ask your question.

Jeff Zekauskas -- J.P. Morgan -- Analyst

Thank you very much. Given your sulfur shortages, you said that your second-quarter tonnes would be about equal to your production. What's your current level of production? And then secondly, in terms of the tariffs on phosphate in the United States, can they be changed over the next few years? Or are they in place for the next five years as a base case?

Joc O'Rourke -- President and Chief Executive Officer

OK. So, yeah, let me answer, first of all, I think our sales in last quarter was about 2.1 million tonnes of which -- and I think production was in the range of the 1.9 million tonnes. I think what we can be looking at in the second quarter probably is slightly down from that. We may drop inventory slightly, but I would have expected that same range in that 2 million tonne mark would be probably about where our production will be, exempting what we're predicting for sulfur limitations.

And recognize those will meet sales. The second -- sorry, Jeff, just repeat your second part of your question, I was rushed to write it down. John? What was the second question?

Operator

Thank you. The next question comes from the line --

Joc O'Rourke -- President and Chief Executive Officer

Can you repeat the question, Jeff? Let me finish, sorry, the CBD question. I lost -- write it down quick enough. So, in terms of the CBD, there is a yearly review of that amount and even as we move forward, there is an opportunity for some level of a review of those, both the damages and of the actual numbers. And so, there could be some change from either the -- from the Department of Commerce in terms of what they look.

And we believe we have actually good reasoning why the CBD rates actually should be higher. So, we'll see what happens there. But I suspect there wouldn't be major changes in that in the next year or two. But after that, there will be annual reviews that will tell us whether they continue or whether they can be modified.

Operator

And we had last question comes from the line of Rikin Patel from Exane. Your line is now open. Please ask your question.

Rikin Patel -- Exane BNP Paribas -- Analyst

Good morning, and thanks for taking my question. Just one on potash, with your upgraded shipment guidance for 69 to 71 million tonnes, I'm just curious what sort of puts and takes are required to get you to that 71 million tonnes on the upper end? And then maybe just more broadly speaking, on the Phosphate business, given ammonia is a key input over there longer term, I'm just curious how you think about decarbonizing that production process. And any thoughts around green ammonia and how that might factor into your thinking going forward?

Joc O'Rourke -- President and Chief Executive Officer

OK. Thanks, Rikin. Well, let me start with our potash. If we look at the expectations on potash this year, I'd start by saying the North American demand appears to be very strong, and that's one of the gain areas.

Brazil will be strong. Again, we're expecting record use of fertilizer in Brazil since year after year. We're seeing a big rebound, let's call it, in Southeast Asia, particularly Indonesia, Malaysia with their palm oil, but all the way across Southeast -- all the way across Asia, we're seeing good demand. And again, probably the only place where it will be flat year-on-year as probably going to be India.

And although we expect a decrease in phosphate use, we sort of expect use in potash. So, overall, that would be the -- those would be the drivers. And if those do better, we could get up to the 71%. Otherwise, we'll probably be more in that 69 to 70% range is kind of our base case.

In terms of decarbonization, if you will, we've set some fairly aggressive ESG targets. We said we would reduce our greenhouse gases by about 20%. Sorry, we would decrease our greenhouse gases by 20%. A lot of what we're doing there involves how we're running our phosphate businesses.

We've put a lot of effort and resources into how we can use recycled heat to make power. And over time, we see that, along with just other uses to use less power, etc. In terms of the nitrogen, I guess a couple of the nitrogen producers are talking about green and blue nitrogen. At this stage, those really haven't got to the market yet, I would assume that if we can buy a lower intensity, carbon intensity nitrogen for our usage, ammonia for our usage, we would certainly go that direction.

Operator

Thank you. We don't have any questions as of the moment from the queue. Please proceed, presenters?

Joc O'Rourke -- President and Chief Executive Officer

Yeah. So, thank you, everyone. I guess we're going to give you back a little bit of time. But let me just close by saying we -- what we're seeing today is the culmination of all the effort we put into for a long time.

And now, that these markets have started to move forward, we're starting to really reap that benefit. And we see that strength going well into the second quarter and through the rest of this year. So, with that, have a safe and productive day, and thank you very much for listening.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Laura Gagnon -- Vice President of Investor Relations

Joc O'Rourke -- President and Chief Executive Officer

Joc ORourke -- President and Chief Executive Officer

Jenny Wang -- Vice President, Global Strategic Marketing

Clint Freeland -- Senior Vice President and Chief Financial Officer

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

Adam Samuelson -- Goldman Sachs -- Analyst

John Roberts -- UBS -- Analyst

PJ Juvekar -- Citi -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Mark Connelly -- Stephens Inc. -- Analyst

Adrien Tamagno -- Berenberg Capital Markets -- Analyst

Jeff Zekauskas -- J.P. Morgan -- Analyst

Rikin Patel -- Exane BNP Paribas -- Analyst

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