Earnings Call Transcript - NTR Q3 2023

Operator, Operator

Greetings and welcome to Nutrien’s 2023 Third Quarter Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jeff Holzman, Vice President of Investor Relations. Please go ahead.

Jeff Holzman, Vice President of Investor Relations

Thank you, operator. Good morning and welcome to Nutrien’s third quarter 2023 earnings call. As we conduct this 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 quarterly report to shareholders as well as our most recent annual report, MD&A and annual information form filed with Canadian and U.S. Securities Commissions. I will now turn the call over to Ken Seitz, President and CEO and Pedro Farah, our CFO, for opening comments before we take your questions.

Ken Seitz, President and CEO

Good morning, everyone and thank you for joining us today. Nutrien delivered adjusted EBITDA of $1.1 billion in the third quarter and $5 billion through the first 9 months of the year, down from the record comparable periods in 2022. We saw a number of positive market developments in the third quarter that are constructive for our business, including strong crop nutrient demand in North America and increased stability in global potash markets. In retail, North American crop nutrient sales volumes were up 5% in the third quarter and 10% on a year-to-date basis as growers were incentivized to maximize crop production. North American crop nutrient margins in the quarter increased by $10 per ton compared to the prior year supported by improved margins for commodity fertilizers and growth in our proprietary crop nutritional and biostimulant products. These high value proprietary products contributed nearly $350 million in gross margin through the first 9 months of 2023. Crop protection sales in North America were down from the record prior year due to lower prices for certain commodity products and slightly lower sales volumes, a result of dry conditions in the U.S. Midwest. We ended the quarter with North American crop protection inventories down more than $200 million from the prior year and we will be patient with our approach to restocking inventories. Crop protection inventories in South America remained more elevated resulting in pressure on prices and margins. Crop nutrient volumes for our South American retail business were up 25% in the third quarter, due to improved grower demand and the benefits of our Casa do Adubo acquisition in the fourth quarter of 2022. Nutrien financial sales increased in the third quarter and first 9 months of 2023 due to higher utilization of our financing offerings in the U.S. as well as the recent launch of our digitally enabled financing program in Australia. We are pleased with the uptake of our financing programs and see additional opportunity to drive organic growth for our retail business. In potash, we delivered record sales volumes totaling 3.9 million tons in the third quarter. North American channel inventories were at multi-year lows entering the second half and customers secured supply in anticipation of a strong fall application season. We had a very positive response to our summer fill program, utilizing the strength of our distribution network to deliver 1.7 million tons to customers in North America. Our potash volumes and net realized prices were impacted by logistical challenges associated with the port strike in Vancouver and an outage at the Tampa, Texas export terminal in Portland. Shipments through Vancouver returned to normal late in the quarter and we expect the Portland terminal to be operational by the end of the year. We increased granular potash production to meet the surge in domestic demand and our controllable cash cost declined to $56 per ton in the third quarter, highlighting the advantages of our low cost six-mine network. Our nitrogen realized prices in the third quarter reflected the reset in benchmark values at the time of summer fill programs. Nitrogen sales volumes declined from the prior year due to production outages at our Trinidad, Borger and Geismar facilities. We completed two smaller Brownfield expansions at our Geismar facility and installed the final of 8 N2O abatement projects at our nitrogen sites, which we expect will be a key contributor to reducing our greenhouse gas emissions. Phosphate sales volumes increased in the third quarter due to strong engagement from phosphate fertilizer customers. We did, however, encounter hurricane related downtime in our White Springs facility that impacted production volumes and costs. Excluding this downtime, our phosphate plants have operated well following the completion of reliability initiatives in the first half of 2023. Now, turning to the market outlook, global grain yields are projected to fall below trend in 2023 for the fourth consecutive year, limiting any meaningful recovery in stocks. New corn crop and soybean prices have incurred some seasonal pressure, but remain 10% to 15% above the 10-year average. Fertilizer affordability has improved significantly over the past year and projected grower cash margins are above historical average levels. Harvest in the U.S. has progressed ahead of average, providing an open window for fall fieldwork. We project U.S. fertilizer demand will be up 5% to 10% in the fourth quarter compared to the prior year. Global potash demand has increased in the second half driven by greater price stability and improved grower affordability absorbing the gradual increase in Eastern European export volumes. We now forecast global potash shipments in the range of 65 million to 67 million tons in 2023. We expect robust agricultural fundamentals and the need to replenish soil nutrient levels will support increased potash consumption in 2024. We project global potash shipments next year in the range of 67 million to 71 million tons with the majority of year-over-year growth in Southeast Asia, Latin America, Europe and India. Global ammonia supply has been tight to start the fourth quarter due to outages in Europe and production challenges in other key regions. The urea markets are relatively balanced as Chinese export restrictions and strong import demand in India offset weaker seasonal demand in other regions. Geopolitical conflicts have the potential to create additional volatility for global energy prices and nitrogen supply. Most notably, European natural gas prices have increased by 20% over the past month and nitrogen production in Egypt has reportedly been curtailed due to gas availability. To summarize, agricultural fundamentals remain supportive and we are seeing strong demand for crop nutrients and from our grower customers. Global potash demand has strengthened in the second half of 2023 and we expect this trend will continue into 2024. And we anticipate constraints on global energy and nitrogen supply will continue to provide a positive backdrop for our low cost nitrogen assets. I will now turn it over to Pedro to review our guidance assumptions and capital allocation plans.

Pedro Farah, CFO

Thanks again. I will start with our updated guidance for potash. We increased the bottom end of our full-year potash adjusted EBITDA and sales volume guidance to reflect the strength of our market fundamentals in North America. We continue to see strong customer engagement and have increased our domestic reference price for deliveries in the fourth quarter. Spot prices in offshore markets have been relatively stable and Canpotex is fully committed to its sales plan for the remainder of 2023. In nitrogen, we narrowed our adjusted EBITDA guidance range as higher benchmark prices offset lower projected sales volumes. Our North American nitrogen plants are operating at higher utilization rates in the fourth quarter, including isomer, where we have recently completed expansion projects. We made a decision to bring forward a planned outage at our border site to address reliability issues that impacted production in the third quarter. We lowered the top end of our retail adjusted EBITDA guidance range to reflect pressure on crop protection margins in South America and the impact of weaker livestock markets in Australia. We maintain our outlook for the North American retail business as fall fertilizer application rates have been strong and per ton margins are expected to be above historical average levels. Based on these factors, Nutrien’s full-year adjusted EBITDA guidance range was narrowed to $5.8 billion to $6.4 billion and adjusted net earnings was revised to $4.15 to $5 per share. Our effective tax rate on adjusted earnings in 2023 has been impacted by non-cash impairments and an unfavorable geographic mix of earnings. We do not expect these to be recurring items and anticipate our effective tax rate will return to more historical levels in 2024. We are projecting total capital expenditures of approximately $2.7 billion in 2023 and plan to return over $2 billion to shareholders through dividends and share repurchases. We are focused on investments to sustain our assets in highly targeted growth projects in our retail, potash and nitrogen businesses. Based on current planned initiatives, we expect to reduce annual capital expenditures to a range of $2 billion to $2.5 billion going forward. In retail, our focus is on increasing earnings and free cash flow by enhancing margins and asset efficiency. This includes investing in our proprietary production capability and network optimization and digital initiatives, which are all key drivers of organic growth for retail. We continue to evaluate retail tuck-in acquisitions in the U.S. and Australia and will remain selective based on strategic fit and valuation. In Brazil, we believe the long-term prospects for agriculture are very strong and see opportunity for future growth of our retail platform. However, in the near term, we have paused additional investments until there is greater stabilization of the market. We will utilize this period to integrate recent acquisitions and optimize our cost structure. In potash, our mid-cycle scenario assumes global demand returns to historical trend and Nutrien’s sales volume is in the range of 14 million to 15 million tons. This translates into volume growth potential from existing operational capability of 1 million to 2 million tons compared to 2023. We are continuing to focus on further automation of our fleet enhancing safety and productivity. Lastly, in nitrogen, our priority is to complete in-flight Brownfield expansion and reliability projects that support our mid-cycle sales volume scenario of 11.5 million to 12 million tons. Brownfield projects are expected to add approximately 0.5 million tons of nitrogen production capability by 2026 with projected returns well above our hurdle rate. Back to you again.

Ken Seitz, President and CEO

Thanks, Pedro. I will just make a few final comments. We are encouraged by the positive market developments over the second half of 2023 and particularly the strength of crop nutrient demand in North America and increased stability in global potash markets. We are optimistic on the outlook for our business going forward and we will continue to position the company to efficiently serve the needs of our customers. Our focus is on initiatives that strengthen the advantages of our integrated models, drive operational efficiencies and increase free cash flow. As Pedro highlighted, we are proceeding with highly targeted investment opportunities and will maintain a balanced and disciplined approach to capital allocation, including the return of meaningful capital to our shareholders. We would now be happy to take your questions.

Operator, Operator

Thank you. Your first question comes from the line of Andrew Wong from RBC Capital Markets. Your line is now open.

Andrew Wong, Analyst

Hi, good morning. Thank you for taking my questions. So, Nutrien recently paused on adding some potash capacity, which looks like it was the right decision for the market. But then, now one of your competitors, BHP announced that they want to accelerate a Phase 2 project at Jansen. What’s your thought on the economic rationale for that project? How does Nutrien view the future supply additions to the market and how Nutrien will respond to those changes in the market and just the broad impacts? Thanks.

Ken Seitz, President and CEO

Great. Good morning, Andrew and thanks for the question. So, yes, as we have discussed, we are in a growing market in our potash business and that’s owing to the growing population and decreasing rate of arable land expansion. Back-casting over the last couple of decades, we have seen those growth rates at a 2.5% average annual growth rate. So as we have talked about, we get to the end of this decade and we are at 80 million tons. So, a market that’s growing, we continue to maintain our sort of 20% market share. And we have always had a Phase 2 in BHP’s plans in our supply and demand forecast. So, this is not a surprise to us. What I will say is for our part and our ability to continue to expand volumes, yes, we have paused, but we have talked about our 18 million tons of low-cost additional capacity and the ability to expand beyond that in a demand environment that is growing. And I will also say that, as we look at 2023, first production announced at Jansen is in 2026. I mean, these are challenging projects. We have 50 years of experience with that. Soft rock mining and ramping up in Phase 1 takes time. It’s technically challenging and certainly going beyond that. So we are talking about volumes in Phase 2 that are in the next decade. In the meantime, Nutrien, with a flexible six-mine network and the investments we have made in our supply chain will continue to serve those customers as the market grows.

Operator, Operator

Your next question comes from the line of Ben Isaacson from Scotiabank. Your line is now open.

Ben Isaacson, Analyst

Thank you very much and good morning. Maybe to follow up on Andrew’s question in terms of potash, can you talk about the market balance for potash in 2024? You have said that you are looking for further demand growth in ‘24 closer to the 67 million to 71 million ton level. Some people are concerned about a slowdown in Southeast Asia because of El Nino. The Indian subsidy seems to be a little bit tepid for potash demand and Chinese inventories are high. And so how do you balance that against increasing production and exports out of Belarus and Russia? I guess the bottom line question is do you see the market being tighter in ‘24 than where we are right now? Thank you.

Ken Seitz, President and CEO

Yes, a lot going on there, Ben. Thank you for the question. So, yes, we are constructive. The experience we are having here in 2023, North America and Brazil, where we have seen strong demand is encouraging. And now that’s on the back of much improved affordability among our grower customers. As they appear into 2024, again, we are constructive. I will hand it over to Mark Thompson to talk about the details, but we can see that grower affordability continuing. We have seen destocking of the channel. We have seen some depletion of crop nutrients in the soil, and yet some supply-side challenges persist; but Mark, over to you to maybe walk through some of those details.

Mark Thompson, Industry Analyst

Thanks, Ken. Good morning, Ben. So look, maybe we will just parse out your question into a few different pieces. I think just to reiterate, as Ken said, we have been encouraged by the stability that we have seen in prices and the attractive affordability levels that have really accelerated the return of demand to the potash market, which has certainly been a positive in 2023. I think just bridging to 2024, we’ve got to talk about 2023 a little bit. The story on 2023 versus where we were in August on our Q2 call is really about three markets. First of all, in North America, we’ve seen continued very strong engagement and our total sale program has been very strong. We have seen continued interest from retail customers and growers for product going to ground, and things are moving well in Q4. Obviously, that whole backdrop has contributed to our Midwest reference price, moving from sale value at $370 to $420 per short ton level. So North America certainly has been a positive story in 2023. The two markets internationally that have really contributed to that demand growth in 2023 versus prior expectations are Brazil and China. Overall in Brazil, we’ve continued to see very good engagement on fertilizers. Despite the fact that growers are still a little more hand to mouth in that market, we are seeing consumption levels back at 2021 levels, which is a positive indicator. Trade in recent weeks has been relatively thin there, which is normal; but if we look at inventory levels in Brazil, they are similar to a year ago, but significant imports are required over the next two months to meet demand for safrinha. If that doesn’t materialize, inventories will be very tight. So we expect a positive transition in the demand side in Brazil heading into ‘24. Coming to your question on China, 2023’s big increase in shipments is primarily due to two factors. The first is that apparent consumption in China is very strong. Across all the nutrients, we’re looking at consumption levels that appear to be demonstrating growth of about 5%. Domestic production in China is down in our expectation somewhere between 750,000 and 1 million tons this year and that has led inventories in September to levels just below 2.5 million tons. Now, we do expect that by the end of the year, some of the shipments will have gone to rebuilding inventories to some extent, but as we look at 2024, as you will see in our materials, we do project a bit of a step back in China next year. Other markets are really driving that growth in 2024, those markets we’ve called out are Southeast Asia, India, and Europe with continued growth in Latin America. In Southeast Asia, shipments were down this year but we have seen conditions improve; inventories have been drawn down, and we’ve seen good interest returning in Q4. Palm oil prices, rice prices, and fundamentals are particularly strong there. We do expect a rebound in shipments. Of course, to your point, we will be watching dryness in the region as a risk factor, but we expect a meaningful rebound there next year. You also asked about India; we expect growth in India next year. Indian inventories are improving, but they are still relatively tight. Even with the subsidy changes, these were about as expected for us. Importers are still making just over a 10% margin in that market, and shipments in 2023 were depressed by historical standards. So we do expect good things in 2024 in India, and Latin America has been a positive surprise this year, we expect continued growth there. Europe’s another market that has worked through its high-cost inventory, and in Q4, we’ve seen good engagement. As Ken said, transitioning into 2024, we see demand stepping up by another 3 million tons next year, which will support market fundamentals.

Operator, Operator

Your next question comes from the line of Jacob Bout from CIBC. Your line is now open.

Jacob Bout, Analyst

Good morning. I had a question on the nitrogen division. I think this is the first time that I’ve seen three outages in the same quarter. How much of this is coincidence? Could you perhaps talk through any maintenance and reliability issues? And then any comments on Trinidadian gas supply contracts and availability?

Ken Seitz, President and CEO

For sure, Jacob. Thank you for the question. Yes, we had outages at Geismar, Borger, and Trinidad sites for varying reasons including some of those that you mentioned. I’ll hand it over to Trevor Williams, our President of the Nitrogen business, to talk about those pieces.

Trevor Williams, President of Nitrogen Business

Hey, good morning, Jacob. And thanks. Year-to-date, actually, the majority of our assets have actually run quite well, averaging about 97% capacity utilization, excluding our planned turnarounds. However, we did experience some issues with three of our facilities, primarily Trinidad, Borger, and Geismar. At Geismar, we undertook and completed a 5-year major overhaul in Q3. However, during the outage and coming out of it, we experienced issues with some large rotating equipment due to some quality challenges, which forced us to come back down a couple of times for repairs. Thankfully, those repairs have been completed, and now the site is back up and running well. In Trinidad, challenges arose from gas curtailments, leading us to take some plants offline. We experienced equipment failures that required us to come down for repairs. Those repairs are underway, and we expect the site to return to normal levels of operation here in November. We are working with the National Gas Company to negotiate better management of these curtailments to prevent further compromise of the Trinidad facility. Regarding Borger, we had scheduled reliability equipment-related issues that we decided to address in a planned outage for Q4 to ensure operational safety and efficiency before the next major turnaround. As part of our overall reliability program, we are enhancing uptime and efficiency across our facilities, implementing data analytics, skills development, and organizational changes. Additionally, we have just commissioned a remote operations center in Loveland, Colorado, to monitor and optimize overall operations.

Operator, Operator

Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is now open.

Joel Jackson, Analyst

Good morning. Usually when the potash corporate nutrient grows, we see global shipments rise so much since you hold the excess tons. Usually, you would gain disproportionately share. This year, obviously, the Belarusian and Russians picked up to about 80%, 85% of capacity utilization. Now you’re modeling a very bullish outlook next year for 3 million tons of further potash demand next year. How much of that 3 million tons are you assuming Nutrien should be able to benefit? So yes, how much more of the 3 million tons should we assume in your base projection, that Nutrien should get?

Ken Seitz, President and CEO

Good morning, Joel. Yes, thank you for the question. So, yes, obviously, when we say 65 to 67 million tons, that’s up from last year, and as Nutrien, we continue to maintain our market share. We have been deploying our tons into the market. There have been a few challenges this year, such as logistics challenges we experienced due to the strikes on the West Coast. While our shipments have returned to normal, we continue to deal with outages at our Portland facility, which we expect to be back online by the end of the year. As we look toward 2024 with 67 million to 71 million tons, we expect to face challenges with Eastern Europe exports. While we don’t anticipate these exports to return to pre-conflict levels, we believe that Canadian and Nutrien potash will play a significant role in filling some of that void.

Operator, Operator

Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is now open.

Vincent Andrews, Analyst

Thank you. I just kind of wanted to follow-up on that in terms of your expectations for the normalization of Russian and Belarusian supply. It seems like maybe they were able to export a little bit more than you thought earlier in the year. I’m wondering if that’s again going to be the case next year versus what you thought 3, 6, or 9 months ago? If that’s true, what is allowing them to get more product out faster than you previously anticipated?

Ken Seitz, President and CEO

Thanks, Vincent for the question. Yes, I would say volumes are at the top end of expectations coming out of that region this year. There’s, of course, a lot of uncertainty. We see volumes going into China via rail from Belarus and see varying prices depending on Chinese demand. As for the shipments from Russia, there are a lot of moving parts. We believe Belarus and Russia will continue to face challenges due to existing sanctions and the ongoing conflict, which may create instability in supply. But there are still unexpected logistics opportunities, which may impact how quickly volumes can come to the market. I’ll hand it over to Jason to dive deeper into some of those details.

Jason Newton, Industry Analyst

Okay, thanks, Ken. Good morning, Vincent. Yes, if we look at the exports coming out of Russia and Belarus, the majority of the increase from what we expected quarter over quarter for 2023 has been from Russia. We have seen that exports have been operating at a higher rate than we anticipated and are shipping more through St. Petersburg. Looking forward to 2024, we expect volumes will continue to increase from Russia, but we are less optimistic about seeing growth to pre-war levels. We expect an additional million tons of supply. As for Belarus, the situation remains constrained. Monthly shipment patterns show variability, and while there’s been some growth, it’s not significant. We are observing a priority on shipping via lower cost logistical routes, limiting overall upside potential. Although we see some seasonal increase to China, the logistical cost remains high, making it a less competitive market overall. As we project into 2024, we don’t anticipate major increases in Belarusian volumes; overall, the region is expected to remain variable depending on broader market conditions.

Operator, Operator

The next question comes from the line of Steve Hansen from Raymond James. Your line is now open.

Steve Hansen, Analyst

Yes, good morning. Well, thanks for the time. Your ability to move record volumes in the face of the logistics constraints you outlined is impressive. Can you give us the latest update on when you expect the Canpotex terminal to be back up and running? What potential risks do you face in not being able to serve the demand you’re speaking to? And as a related question, how do you feel about the relative price spreads? We’re starting to see between North America and Asia. Do you expect normalization of those spreads over time? Thanks.

Ken Seitz, President and CEO

Yes, thank you, Steve. Regarding logistics, our supply chain and Canpotex have managed the challenges well. Bottlenecks in barge movements along the Mississippi and rain delays in Panama have posed difficulties, but we successfully met customer needs. The Vancouver terminal is operational again, while the Portland terminal is expected to return by year-end, allowing us to pursue full export capacities in 2024. Regarding price spreads between North America and Asia, these are distinct markets that have seen robust demand, especially for granular products in North America during fall application. As for standard grade markets, we anticipate there might be some narrowing of these spreads in 2024, but this will depend on regional market dynamics and pricing structures.

Operator, Operator

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.

Adam Samuelson, Analyst

Yes. Thank you. Good morning everyone. I was hoping to dig a little more on the retail side. I know you provided some color on crop protection in your prepared remarks, but could you discuss the channel inventories in your retail system across North America, Australia, and Brazil, looking through the end of the year? Have you seen any changes in grower behavior based on some of the supplier delays? And do you think there is a normalization point looking into next year?

Ken Seitz, President and CEO

Great. Thank you, Adam for the question. Yes, crop protection inventories have been drawing down in North America, and we will continue to be quite selective there. It's a bit different in Brazil, where we are still working through some higher cost inventory, but I will hand it over to Jeff Tarsi to discuss that further.

Jeff Tarsi, Retail Director

Yes, good morning, Adam. As Ken mentioned, we worked diligently to reduce our crop protection inventory this year. We have managed to reduce retail business inventories by about $200 million below last year. We feel confident in our positioning in the U.S. market. Pedro mentioned earlier that the Brazilian markets are facing difficulties with more product available. By the end of the year, we believe we will have addressed the majority of the crop protection inventory in Brazil. Regarding suppliers, we are being opportunistic in our purchases in Q4, and I think the word 'normalizing' fits well. Purchases have stated to normalize over the last 12 months, as growers are not as concerned about supply constraints.

Operator, Operator

Your next question comes from the line of Steve Byrne from Bank of America. Your line is now open.

Steve Byrne, Analyst

Yes. Thank you, Ken. I’d like to tap into your past experience with Canpotex concerning the current pricing in potash. If you considered a supply shock where tonnage out of FSU is down by 5 million tons and with favorable agricultural fundamentals, would you expect that Canpotex to be sold out for the rest of this year while spot pricing remains moderately above levels from two years ago? Does that logic hold?

Ken Seitz, President and CEO

Good morning Steve, and thank you for the question. The dynamics since the Eastern European conflict began have caused volatility in supply, and we've seen big inventory movements. As inventories were drawn down, buyers entered the market, understanding the strong fundamental agricultural demand remains firmly in place. From a Canpotex perspective as we look into 2024, we are optimistic due to strong demand in China and Southeast Asia as well as overall agricultural fundamentals. We expect a stabilization in Canpotex’s volumes, and we remain constructive on market conditions moving forward.

Operator, Operator

Your next question comes from the line of Michael Tupholme from TD Securities. Your line is now open.

Michael Tupholme, Analyst

Thank you. Within the nitrogen business, the brownfield projects that were completed in Q3, can you talk about how much incremental annual production volume those contributed to Nutrien? What do you expect to add in terms of volumes in 2024 from any additional projects and possibly the resolution of the gas contract in Trinidad? Larger picture, what are your thoughts on year-over-year nitrogen volume growth in 2024 versus 2023, both for the overall market and specifically for Nutrien?

Ken Seitz, President and CEO

Yes. Thank you, Mike. We certainly expect increased volumes in 2024, getting above 11 million tons; but I will hand it over to Trevor Williams to discuss those details.

Trevor Williams, President of Nitrogen Business

Alright. Thanks, Mike. So regarding the debottlenecks we completed this year, we expect to add about 150,000 to 200,000 tons in UAN, with a little bit on the ammonia side this year. Next year, we have a couple of small debottlenecks of 40,000 to 50,000 tons likely within the ammonia portfolio. As mentioned, we provided our guidance this year, and next year we project volumes to be just above the 11 million ton mark, and moving toward our 2025-2026 expectation of 11.5 to 12 million tons annual run rate going forward. Mark, any comments on the market outlook?

Mark Thompson, Industry Analyst

Yes. Trevor summed up the volume story quite well. From a nitrogen standpoint, we are experiencing a constructive market overall, and supply constraints have led to significant tightness. We expect healthy corn planting and demand for nitrogen is strong. While there are important variables to monitor moving forward, the outlook is positive for nitrogen demand both for the overall market and for Nutrien’s anticipated growth.

Operator, Operator

Your next question comes from the line of Richard Garchitorena from Wells Fargo. Your line is now open.

Richard Garchitorena, Analyst

Great. I wanted to follow up on potash demand and your expectations moving forward. With 2024 expected to see demand in the range of 67 million to 71 million tons, in contrast to at least 1 million to 3 million tons more coming from Eastern Europe, what are your thoughts on expansion plans and timeline we should consider for when Nutrien might move forward quicker on the mid-cycle target of 14 million to 15 million tons? Additionally, does your CapEx guidance of $2 billion to $2.5 billion include any spending for growth in potash or nitrogen, or is that directed mostly at sustaining CapEx?

Ken Seitz, President and CEO

Thanks for the questions, Rich. With respect to 2024 and our potash expansions, we expect demand to continue to grow. When we discuss mid-cycle growth at 14 million to 15 million tons, we are committed to meeting customer needs as we are on a growth trajectory that allows us to deploy additional low-cost volumes into the market. Regarding the $2 billion to $2.5 billion CapEx, it certainly includes investments for potash growth. However, our current focus is on automation and predictive maintenance initiatives and overall enhancing productivity while optimizing safety. We are committed to providing value to our customers in terms of meeting their demands while ensuring we manage our capital effectively.

Operator, Operator

Your next question comes from the line of Joshua Spector from UBS. Your line is now open.

Lucas Beaumont, Analyst

Good morning. This is Lucas Beaumont for Josh. So, just sticking with potash, I mean the top 6 million to 7 million tons of capacity, the cost curve accelerates rapidly in terms of cash costs from low $200s to around the $350 range. With incremental capacity from BHP plus rollback in Russia and Belarus, that could bring 10 years of historical demand growth in the market. Do you think the top portion of supply could be pushed off the cost curve? If that were to happen, does that imply pricing support may revert back to 2016 to 2019 lows versus your mid-cycle pricing assumptions?

Ken Seitz, President and CEO

Thank you, Lucas. I believe you have highlighted several moving parts that contain unknowns. However, we have strong conviction that our growing market will remain. The reasons it is growing—disease resistance, drug resistance, yield—indicate that potash usage will continue, and growth rates remain at 2.5%. We recognize that some FSU plant production has been delayed, and new volumes may take years to materialize. Thus, combined with uncertainties of implementing new phases from projects, we feel confident there is room for growth in the market to support overall demand. We are closely monitoring supply and pricing structures while continuing to support our operational strategies.

Operator, Operator

There are no further questions at this time. I will now turn the call back to Jeff Holzman. Please continue.

Jeff Holzman, Vice President of Investor Relations

Thank you for joining us today. The Investor Relations team is available if you have any follow-up questions. Have a good day.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.