FILE PHOTO: An interior view of the storage warehouse is seen at Nutrien's Cory potash mine near Saskatoon, Saskatchewan, Canada August 12, 2019. REUTERS/Nayan Sthankiya/File PhotoNayan Sthankiya/Reuters
Canadian fertilizer titan Nutrien Ltd. NTR-T is in full-scale retreat mode, blaming unprecedented volatility for the wrong call on the global fertilizer market that led it to launch an ill-timed massive expansion plan.
Saskatoon-based Nutrien is indefinitely suspending plans to ramp up its potash production, slashing its capital expenditure by billions, and cancelling plans to build a new U.S. ammonia plant, as a prolonged slump in the potash market, and unforeseen farmer behaviour takes its toll.
The company reported an 88-per-cent plunge in its second-quarter profit, cut for the second time its full-year profit forecast, and cautioned investors that it is scaling back its ambitions in key export markets such as Brazil.
Last year, the company’s shares raced to a record high of $144 after major potash producer Russia invaded Ukraine. Investors bet that sanctions inflicted by the West on Russia would indefinitely buoy the commodity price.
Not long after that, Nutrien announced a plan to increase its potash production to 18 million tonnes by 2025, a run rate that promised to deliver gangbuster profits and growth, as it repeatedly pledged to fulfill its mission to “feed the world.”
What the company did not foresee was Russia, alongside Belarus, which had also been subject to sanctions by the West, would find ways to workaround those restrictions, and ship potash to willing buyers such as China.
Nutrien executives also did not predict that farmers would balk at paying astronomically high prices for potash and in many cases skip applying the fertilizer entirely.
Over the past year, both the commodity and Nutrien’s share price have come crashing down, forcing the company to indefinitely pull the plug on its big production push.
“They made expansion decisions last year that were based on the best available data,” said Steve Hansen, analyst with Raymond James Ltd. “Many of those assumptions in those case studies have proven to be incorrect.”
In a conference call with analysts on Thursday, Ken Seitz, chief executive of Nutrien, fielded questions concerning the about-turn on potash, and repeatedly referenced volatility in the markets as the rationale, but he did not take any direct responsibility.
Brendan Caldwell, CEO of Caldwell Investment Management Ltd., whose clients own a small amount of Nutrien shares, says while corporate executives rarely admit to making strategy mistakes, it would be better if they did.
“I do think it’s much better to say ‘oh yeah, we totally called that one wrong,’ ” Mr. Caldwell said.
Mr. Seitz declined repeated requests for an interview with The Globe and Mail.
Formed in 2018 after PotashCorp of Saskatchewan acquired Agrium Inc. Nutrien is one of the world’s largest fertilizer producers of potash, nitrogen and phosphate. It is also a major agricultural retailer in the United States, Canada and Brazil, selling fertilizers, seeds and pesticides.
Questions were also raised in the Nutrien conference call on Thursday about whether farmers may have started to permanently apply less potash on their crops, and whether there’s any proof that yields have fallen as a result.
“It’s really difficult to nail down a precise yield impact of changes in potash application rates over time,” said Jason Newton, chief economist and head of market research at Nutrien, in the conference call.
While evidence points to farmers’ yields falling over the past few years, weather may be the culprit, he said.
Mr. Newton argued that potash continues to be an important weapon for farmers to aid in drought resistance for crops, and to help make nitrogen, another key fertilizer, more efficient.
As Nutrien scales back its potash production plans, more output is set to come online over time in the company’s home province, thanks to the pending entry of a global giant.
There, the company already competes with Tampa-based The Mosaic Company and Germany’s K&S AG, but in a few years it will go head to head with Anglo-Australian mining giant BHP Group Ltd., which is building a massive new potash mine called Jansen in the province.
After hitting a high in April, 2022, Nutrien shares closed on Thursday on the Toronto Stock Exchange at $86.24 apiece, a 40-per-cent decline.