Earnings Call Transcript - NTR Q1 2020

Rich Downey, Vice President of Investor Relations

Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our first quarter 2020 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.

Chuck Magro, President and CEO

Thanks, Richard, and good morning, everyone. Welcome to Nutrien's first quarter 2020 earnings call. Our management team is joining from various locations across North America while adhering to social distancing protocols, and we hope you are listening in from a safe place as well. The significance of the agricultural industry in our daily lives is evident, especially as grocery stores faced lineups and empty shelves. Companies like Nutrien were recognized as essential services by governments worldwide for clear reasons. Our top priority is the safety and health of our more than 25,000 employees globally and the communities in which we operate. This commitment is core to our culture and shapes every decision we make in navigating through this global pandemic. Our COVID response team has worked with leading advisors to create policies, practices, and business continuity plans that safeguard all stakeholders. This commitment extends to our $20 million community investment program, in which we recently increased funding for food-related initiatives by $1 million. Additionally, we donated protective equipment to local health authorities and started producing hand sanitizer at select facilities for community distribution. Nutrien continues to produce and deliver crop inputs safely and efficiently, with COVID-19 having limited direct impact on our operations and demand so far. I want to express my gratitude to all employees for their commitment and dedication to their essential work during these challenging times. Nutrien boasts a strong balance sheet, a stable and growing dividend, and we expect to continue generating strong free cash flow. Our first quarter results met our expectations, and we believe our earnings in the first half will align with what we anticipated at the year's start. The current situation has underscored the advantages of our recent investment in our industry-leading digital platform, which has seen tremendous engagement as it offers a convenient, efficient, and safe way to do business. In the first quarter, over $200 million in orders were processed through the digital platform, including $36 million from our newly launched seed app. Approximately 40% of our retail products available online were ordered via the platform, nearly four times our 2019 results. Our claim of having the best agricultural e-commerce platform is backed by these strong numbers. We plan to build on these strengths by allocating around $60 million in 2020 to expedite new functionalities and tools for our customers and agronomists. Out of caution, we took swift action to enhance our financial flexibility, first by boosting our liquidity and cash position through increased short-term debt facilities and by drawing upon available credit lines. This ensures our operations can run smoothly during these unprecedented times and was a precaution for working capital needs, sales facilitation, and capital structure management. By the end of the quarter, we had over $3 billion in cash and access to another $2 billion in credit lines, along with an additional $1.5 billion in committed credit facilities. Hence, we are in a strong position regarding cash and liquidity to navigate any challenges. Our leverage remains within our targeted range of 2 to 3 times annual EBITDA over the business cycle, and our debt-to-capital ratio is at 41%, significantly below the covenant limit of 65%. Additionally, we deferred more than $0.5 billion of capital projects that do not affect the safety or reliability of our operations. While we adjust to the current circumstances, Nutrien’s strategy stays on course, and the company is in a solid financial position with a robust balance sheet, quality assets, a stable and increasing dividend, and ample liquidity. Moving on to the quarter's results and market update, Nutrien achieved $508 million in adjusted EBITDA during this typically slow season. Retail sales rose 30% in the first quarter, despite lower crop nutrient prices this year, with 60% of growth coming from acquisitions and 40% from organic growth, supported by our strong proprietary products line and online platform performance. Our Australian retail business performed exceptionally well, and we made significant progress in integrating the Ruralco business, exceeding our planned synergy target by over AUD35 million. We are also advancing our growth strategy in Brazil by announcing the acquisition of Tec Agro, a leading agricultural retailer and soybean seed producer. With this acquisition, we anticipate that our existing investments in Brazil will generate $0.5 billion in annual revenue. In potash, our EBITDA declined this quarter due to lower selling prices, although strong North American sales volumes countered weaker international sales. The increase in North American sales was driven by more seeded acreage and solid application rates following several seasons of missed applications. Offshore sales fell about 10% because of cautious spot purchasing in some international markets, and we are maintaining a controlled potash production cost of $60 per tonne. Transitioning to nitrogen and phosphate, nitrogen EBITDA decreased due to lower prices, although we increased sales volumes by around 300,000 tonnes this quarter, aided by recent capacity expansions and lower North American gas costs. Phosphate EBITDA declined slightly from last year, as good performance in our industrial phosphate business did not fully mitigate the impacts from decreased gas and MAP prices. Several factors are supporting strong crop input demand this spring. We are witnessing excellent demand for crop inputs across North America and Australia this season. Even with crop prices under pressure from reduced non-food demand, U.S. farmers expect to plant an additional 15 million acres this year, and planting is progressing well despite COVID-19. We project U.S. corn acreage to fall between 94 million and 96 million acres, slightly below the USDA's March estimate of 97 million. The Brazilian harvest is nearly wrapped up, and many growers have secured profits on their current soybean crops, indicating that they have also forward contracted a larger portion of next year’s crop. The economics for Brazilian growers remain strong, and despite some dry conditions, we expect robust soybean acreage growth again this year. Additionally, recent U.S. government programs for agriculture provide support. The U.S. coronavirus Food Assistance Program will grant $19 billion in immediate support to farmers and ranchers impacted by COVID-19, along with food purchasing and distribution initiatives. Congress is also evaluating funding for ethanol producers, and Nutrien collaborates with our biofuel partners to facilitate this support. Furthermore, the Phase 1 U.S.-China agricultural trade deal is being implemented, as demonstrated by recent corn exports to China, and we believe this deal will significantly benefit U.S. growers. However, all companies face recent market volatility, and for us, the uncertainty primarily affects the second half of the year. We have adjusted our 2020 annual adjusted EBITDA guidance to $3.5 billion to $3.9 billion, incorporating the risks we foresee today. The most significant change pertains to our potash business, where we have reduced full-year EBITDA guidance by about $300 million. Despite solid U.S. potash demand, cautious buying in international markets has impacted global demand and prices. The recent China potash contract is expected to clarify the market and expedite offshore shipments in the upcoming months; however, we have also downgraded our 2020 global potash shipment forecast by about 1 million tonnes to 65 million to 67 million tonnes due to the dynamic nature of the China market and a slower-than-expected start to the year outside of the U.S., along with anticipated impacts from reduced biofuel demand. We are collaborating with Canpotex to decide our next steps regarding volumes and contract lengths in China, but it does provide a baseline, and we are already observing greater demand and higher prices in markets such as Brazil. In retail, we are maintaining our 2020 EBITDA guidance of $1.4 billion to $1.5 billion, reflecting the solid fundamentals of the business and our observations so far in Q2. This is despite an expected foreign exchange headwind of $25 million to $50 million for our non-U.S.-based retail operations due to a stronger U.S. dollar. We are closely monitoring the rising risks in the latter half of the year concerning parts of the food supply chain, such as fruits and vegetables, dairy, and livestock, as they may affect crop inputs over time. In nitrogen, some industrial customers are experiencing decreased demand for their products due to COVID-19's impact on the broader economy. Thus, we have lowered our expectations for ammonia and nitrates demand this year. Additionally, we decided to temporarily curtail production at one of our ammonia plants in Trinidad due to the current ammonia pricing. While many circumstances have changed over the past few months, one constant is the importance of food security. Many have come to take for granted that food would always be available at grocery stores. The present situation starkly reminds us that this assumption can no longer be viewed as guaranteed. Nutrien is dedicated to supporting our customers to ensure they receive the inputs needed to supply the world’s food during these challenging times. Our integrated model is designed to provide strong performance amid economic volatility, bolstered by our people, strategy, asset quality, and the inevitability of demand for food and crop inputs. We maintain a solid balance sheet, a stable and growing dividend, and significant potential for free cash flow generation. Our focus remains on long-term value creation, which includes growing our business to meet future food demands and returning capital to our shareholders. Finally, we are committed to leading sustainability efforts in our industry. We released our 2020 ESG report in April, detailing our approach and future initiatives. I’m pleased to announce that Charlotte Hebebrand joined our leadership team as Executive Vice President of Stakeholder Relations and Chief Sustainability Officer. She brings exceptional expertise to this role, placing Nutrien among a small group of Fortune 500 companies with a CSO at this level. Given our status as the largest global provider of crop inputs and solutions, our access to technology, and our strong relationships with growers, we are uniquely positioned to lead in innovative and sustainable agronomic practices, and we are fully committed to doing so. I will now turn it over to the operator for questions.

Operator, Operator

Our first question comes from Jacob Bout of CIBC. Please go ahead, your line is open.

Jacob Bout, Analyst

Good morning. So we're seeing some storm clouds brewing for U.S. corn. Concerns on coops and optimal demand, meat demand and further ramp in trade wars here. How should we be thinking about the farmer response input demand in the second half of 2020 and into 2021?

Chuck Magro, President and CEO

Good morning, Jacob. So I'll turn that question over to Mike Frank. He's closest to it, and then I'll give you a couple of high-level points after that. So go ahead, Mike.

Mike Frank, Executive Vice President

Good morning, Jacob. Currently, new crop corn futures are around $3.30 a bushel, down from about $4 just a couple of months ago. This shift impacts the economics for our grower customers in the U.S. As they evaluate the economic threshold for products like fungicides and insecticides, there is a change in calculation. We are experiencing very strong demand from the start. Our first quarter was robust, and as Chuck mentioned, we are performing well in our second quarter. There are indications of plans to plant between 94 million and 96 million acres of corn. Fertilizer sales have been strong, and there has been an increase in pre-plant herbicide usage this year. Overall, things are going well from a retail perspective. However, I believe that once we enter the summer months, changes in commodity prices and government programs will significantly influence how farmers approach finishing off the crop.

Chuck Magro, President and CEO

And Jacob, just a little bit more. So obviously, when corn approaches $3 and soybeans at $8, if you step back and you look at just the basic farmer economics, growers that have rented land, they're underwater. If you have your own land, you're still making a margin on it, but it's not a great margin. So in other words, what we think will happen is, of course, these pricing levels are not sustainable, and over time, you'll start to see acreage shift, which I think will be natural and be healthy for the market. But what we also think will happen specifically this year, as Mike mentioned, is that there is a lot of government support programs right now. So we don't think it's a liquidity issue from a farmer perspective. In fact, their behavior right now is one of getting the crop in and investing quite well in the crop. But over time, if these prices persist and we don't have the government support programs, we would expect that we would see acreage shift to tighten up the supply demand. And all of that, we believe, is healthy for the market.

Operator, Operator

And our next question comes from the line of P.J. Juvekar from Citi. Please go ahead, your line is open.

P.J. Juvekar, Analyst

Yes. Hi, good morning. Chuck, you talked about liquidity availability. What do you think, post planning, liquidity would be in the system? And are you incentivizing any credit withdrawals globally? And what are your thoughts on potentially...

Chuck Magro, President and CEO

PJ, we're having a hard time hearing you. Can you just repeat your question, maybe get a little closer to the mic?

P.J. Juvekar, Analyst

Hello?

Chuck Magro, President and CEO

That's better PJ. Thanks.

P.J. Juvekar, Analyst

Yes, I'm sorry. Sorry about that. Did you hear my question or should I repeat?

Chuck Magro, President and CEO

No. Can you please repeat it?

P.J. Juvekar, Analyst

Yes. Sorry about that. So you mentioned liquidity in the system, but sort of what do you think is the liquidity or credit availability for growers post planting if this virus were to extend, the impact of the virus? And are you extending any credit to growers? And if yes, can you give us some more details about expected potential for bad debt, etc.? Thank you.

Chuck Magro, President and CEO

Yeah. Thanks, PJ. So look, we are extending credit to growers. I think we've got a great insight on that with our new Nutrien Finance business. And I know Pedro Farah and his credit team have been all over this. So Pedro, why don't you take that question?

Pedro Farah, CFO

Yeah. Thank you, Chuck, and thanks PJ, thanks for the question. We have not seen yet abnormal behavior. We are monitoring it very closely because we're expecting some of the credit to be withdrawn from banks. But so far, both the request and the orders for credit have been normal, and the payment has been normal. So the liquidity seems to be adequate for our customers. We have not seen an increase in overdues or delinquencies. As a matter of fact, even after a bad year like last year was, in which we had record bad weather, we were able to improve our collections, our delinquency and we actually reversed some of our reserves. So, so far, so good, but we will maintain very alert as we go forward if the situation changes. But so far, there seems to be adequate liquidity and we intend to continue to extend liquidity to our customers.

Operator, Operator

Thank you. And our next question comes from the line of Adam Samuelson of Goldman Sachs. Please go ahead, your line is open.

Adam Samuelson, Analyst

Thank you. Good morning everyone. I would like to get some more insight into the outlook for potash and the recent changes. I noticed that you have lowered your expectations for market growth, which makes sense. I'm curious about the response from producers. It seems the guidance suggests that both your company and other producers will likely take significant downtime again in the second half of the year, similar to last year. There is at least 1 million tonnes of new capacity expected in the market from EuroChem, K+S, and some contributions from SQM. I just want to ensure I'm interpreting that correctly and understand your thoughts on the production outlook for this year.

Chuck Magro, President and CEO

Good morning, Adam. As you pointed out, we have revised our forecast and now expect potash demand this year to drop by about 1 million tonnes. The main factor behind this decline is biofuel demand, particularly from palm oil, which we believe will reduce demand in Southeast Asia. The situation with China and the recent contracts there have provided more clarity in the market, and we are beginning to see a rise in demand and slightly higher prices in other regions, which is positive. However, given the pricing levels established in China, we are hesitant to increase our demand from that market in the latter half of the year. Therefore, we have lowered our sales expectations from China. Additionally, considering the scenario of $3 corn, we are currently experiencing a strong application season, but its success will depend on developments in the United States during the second half of the year for fall applications. Overall, we anticipate the market to decline by approximately 1 million tonnes. In terms of our production and sales guidance, we have also reduced our sales projections due to a slowdown in global demand, but we still expect to outperform last year's sales. We will continue to balance our supply with market demand as we typically do. Currently, we are seeing decent movement, and we had a strong first quarter with continued good movement of potash into the second quarter. Nevertheless, there are increased risks for the second half, which we have factored into our annual guidance.

Operator, Operator

And our next question comes from the line of Ben Isaacson of Scotiabank. Please go ahead, your line is open.

Ben Isaacson, Analyst

Thank you very much. You guys have talked about weak industrial demand for nitrogen. And on the supply side, we're seeing coal prices move lower. Can you talk about how the supply and demand is shaping up for the rest of the year and what's marginal cost right now? Thank you.

Chuck Magro, President and CEO

Yes. So Raef Sully can answer those questions for you, Ben.

Raef Sully, Executive Vice President

I believe it's too early to determine what will happen on the industrial front. However, on the agricultural side, we are experiencing a very strong spring. As you noted, we saw an increase of 300,000 tonnes year-over-year in the first quarter, and this trend is continuing into the second quarter. There are some industrial products linked to GDP that may be affected if we encounter a recession post-COVID-19. It's premature to provide a specific forecast at this time. We plan to adjust our product distribution accordingly. If there is a decline in industrial demand in the third and fourth quarters, it could influence agricultural prices during that period. We will strive to redirect our industrial products, such as ammonia and others, into the agriculture sector as needed.

Chuck Magro, President and CEO

No. Look, I think you captured it. Ben, look, with the general slowdown in the broader economy, it just stands to reason that there's going to be less industrial production period. And that's going to have an impact on industrial demand for nitrogen and nitrates. And so we've tried to factor that in, and we're looking at our sales book for the second half of the year. If the economy starts to come back in the second half of the year, then we probably won't have the impact that we're expecting. But based on what we see today in a slower recovery assumption in the second half of the year from a general broader economy, we think that there's going to be just less demand for our industrial nitrogen, which could have a spillover effect into the agricultural markets.

Operator, Operator

Thank you. And our next question comes from the line of Steve Byrne of Bank of America. Please go ahead, your line is open.

Luke Washer, Analyst

This is Luke Washer on for Steve. You talked a little bit about the strength of your online platform earlier. I wanted to ask, how do you think COVID-19 may have accelerated interest in this platform? And do you think this is relatively sticky in that your existing customers could start using that more often in subsequent years? And could that present maybe margin or market share opportunity for you? Thank you.

Chuck Magro, President and CEO

Good morning Luke. Yeah. So Mike Frank can take that question.

Mike Frank, Executive Vice President

Yeah. Good morning, Luke. So when you think about COVID-19, firstly, I would say, having a trusted relationship with our customers is more important than ever. Even though we've seen a significant uptick in the use of our digital tools, it's also clear that having a deep relationship with our customers, where we know their fields, we know their priorities, makes a huge difference. Now obviously, we do think that the digital platform, which is beyond simply e-commerce, it's also about planning the field, providing sustainability metrics, providing field-specific insights on weather and moisture conditions. This all comes together in a tool that our customers are getting a lot of utility from as well as our salespeople. And in fact, if anything, I think it's driving a deeper relationship between our field sales team and our customers. And so we really see these things fitting together. And the outcome will be more efficiency and ultimately, it will drive organic growth. In fact, we think we're seeing that already because it's providing more convenience for our customers. Obviously allows them to deal with us in a very safe manner today from a COVID-19 standpoint and convenience and scalability for our sales organization. So the investments that we're making have definitely paid off. And as you can see from the slide presentation, there's a number of enhancements that we're also bringing through the rest of the year that are also going to continue to drive the stickiness of the platform.

Operator, Operator

And our next question comes from the line of Chris Parkinson of Credit Suisse. Please go ahead, your line is open.

Chris Parkinson, Analyst

Thank you very much. You just hit on this a little, but just further diving into it. Can you just talk about just your outlook for the retail M&A strategy for the remainder of the year and into '21 in both the U.S. and Brazil? Just any updates on your thought process there. And then just also as the corollary of that. How do you feel your U.S. competitive positioning is in terms of the digital ag supplier relationships versus some of your larger peers? Thank you very much.

Chuck Magro, President and CEO

Good morning Chris. Mike Frank why don't you take those?

Mike Frank, Executive Vice President

Sure. Let me start with the M&A side. The acquisitions we made last year are performing very well. Ruralco is off to a great start, and the integration is progressing well with a clear synergy capture plan in place. Ruralco in Australia is transforming our business and performing strongly. Actagro, which was a significant acquisition last year in the U.S., is also performing exceptionally well. This year, we announced a couple of acquisitions in Brazil, including Agrosema, which closed in the first quarter and is off to a promising start. Our Agrichem business, closed last year, is performing well too. We also recently announced a larger acquisition of Tec Agro, which we expect to close very soon, adding not only retail capabilities but also a substantial proprietary seed business. Typically, there’s more activity in tuck-in acquisitions in the U.S. during the second half of the year, and the COVID-19 situation could impact our ability to conduct due diligence and close deals. We are monitoring this and having many discussions with potential targets, indicating a viable pipeline. There are also more targets in Brazil. We previously discussed aiming for a $1 billion business in Brazil. With the acquisitions we've made, including Tec Agro when it closes, we'll reach about a $0.5 billion run rate, putting us well on track in Brazil. On the digital ag front, we are leading the industry from a retail perspective. As Chuck mentioned earlier, we are the only national company with a platform that combines e-commerce, digital insights at the field level, and tools our sales team can use to create scalability and convenience for our customers. Therefore, we are significantly ahead of the industry in digital agriculture.

Operator, Operator

And our next question comes from the line of Steve Hansen from Raymond James. Please go ahead, your line is open.

Steve Hansen, Analyst

Yeah, good morning guys. Chuck, your comments earlier on the China potash settlement we've seen suggests the price point might be a little lackluster relative to your expectations. I think you suggested that you might be steering some volumes away from there. I'm just trying to get a sense for how you guys feel about the pricing environment. I thought there was still a bit of demand there. But maybe just give us some context around the spot market behavior you've been seeing after the settlement and why you think price opportunities might be better elsewhere relative to the broader picture in China? Thanks.

Chuck Magro, President and CEO

Yeah. So thanks, Steve. Look, I think that the price in China is too low. I'm not going to mince a lot of words around that. China tapped their strategic reserves during the negotiation. A country can do that when you're negotiating with a country, and that provides them with leverage. Also the fact that, and this is no surprise to anyone on the call, that there's excess capacity of potash in the market right now. So where we are right now is we're trying to get our head around, and we're working with Canpotex to determine our next steps. But given how unattractive the price is for Nutrien, it's going to be difficult for us to provide a long-term commitment at these price levels. Now what it has done, though, is it's pretty clear now that there's been clarity in the market. We're seeing a pickup now in demand in other markets, say, like Brazil, and prices have also started to rise in those core markets. So I think there's two things about the China contract: one is, we don't like the price, and we'll have to determine what we do when it comes to the length of the contract and the volume. But the other markets are starting to pick up because there's now some clarity in the global market. So there's some good news to that as well. And it's best that I probably leave it there since we don't have an arrangement with China yet. But those would be my thoughts.

Operator, Operator

Our next question comes from the line of Michael Piken of Cleveland Research. Please go ahead. Your line is open.

Michael Piken, Analyst

Yeah. Just wanted to touch base a little bit on how the retail business is going to be approaching sell season. Presumably with a good spring season, you'll probably end with fairly low inventories, I would imagine, on most fertilizer products. But I'm just wondering, given the uncertainties in the back half of the year, how retail is thinking about participating until the summer?

Chuck Magro, President and CEO

Yes, Mike Frank, why don’t you take that question please?

Mike Frank, Executive Vice President

Yeah. So Michael, we're very focused on working capital. And we're also watching, of course, if there's going to be appreciation in the fertilizer markets. And so right now, based on our commitments for the spring and summer months, we expect that we'll be going into the fall season right now with empty sheds. And so we'll position ourselves with the ability then to restock for the fall season ahead. So look, there's been very strong demand. In Q1 alone, our tonnes were up almost 30% and all of those tonnes went on the ground. And we continued to see strong demand here in Q2. And so we're going to have our powder dry going into the fall season to refill our fertilizer sheds. And I would say it's the same from a crop protection standpoint. We're committed to the spring and mostly through the summer right now. But we anticipate that there's going to be significant de-inventorying in our total working capital from both a crop protection and a fertilizer standpoint.

Operator, Operator

Our next question comes from the line of Joel Jackson of BMO Capital Markets. Please go ahead. Your line is open.

Joel Jackson, Analyst

Chuck, your partner at Canpotex issued a different potash demand forecast this week, predicting about 1 million tonnes less growth this year compared to your expectations. Given that many of your sales are linked to Canpotex, if this pessimistic scenario occurs, do you anticipate Nutrien will experience little or no potash volume growth this year, especially considering the inventory build from Eurokali and the new volumes from EuroChem and other players? Thank you.

Chuck Magro, President and CEO

Yeah. So we certainly don't communicate or discuss our views. You can clearly see that they're different. And certainly, from a Nutrien perspective, we would stand by our numbers in terms of 65 million to 67 million tonnes. And as such, when we look at that and we look at our customer commitments and the demand that we're expecting, we're pretty transparent with our planned sales, Joel. So I'll leave it there to say that we are expecting slightly weaker market than we had thought in February for the reasons I've already outlined, but still growth year-over-year. And as such, when we see global growth year-over-year, we expect our sales to be up year-over-year as well.

Operator, Operator

And our next question comes from the line of John Roberts of UBS. Please go ahead. Your line is open.

John Roberts, Analyst

Yeah. Thank you. Yes. Glad you all sound well. Your partner in Canpotex also made the case that 2016 makes for a lot of parallels with the current potash market. Do you have a view on that?

Chuck Magro, President and CEO

Certainly, I don't know. I think maybe what I'll do is I'll pitch it over to Ken, who is sort of running Canpotex at that point and he'll have probably the best perspective. So Ken, why don't you take that question?

Ken Seitz, Executive Vice President

Yeah. I don't know that my answer is so much better than yours, Chuck. And that is, OK, we sit here at the beginning of the first quarter behind us in 2020. And yes, we're seeing some stability in the market, as Chuck said, with the China contract. We're seeing prices up in Brazil. So that's kind of analogous to what we saw in 2016. But at the same time, I think as the year unfolds, there's some real unknowns that have been talked about on this call and biofuel as being one. So I think you'll have to ask Mosaic further about their comparisons to 2016. I think it's suffice to say that we'll just stick with our view here of our current guidance that Chuck's been talking about, 12.1 million to 12.5 million tonnes. On demand, it's in that sort of 65 million to 67 million-tonne range and avoid full comparisons to what happened in 2016.

Chuck Magro, President and CEO

Yes, John, maybe I'll have Jason Newton, who is on our line with our Chief Economist. He studied this stuff for a living. So, Jason, do you have any further thoughts?

Jason Newton, Chief Economist

Yeah. John, the one thing I'd add, I think there are a number of parallels in terms of what we see in demand in spot markets. So if you look at Brazil, for example, had been drawing down inventories, and we think there's some pent-up demand there, which is similar to what the case was in 2016. And I think also similar to 2016, we got down to similar pricing levels, and we know you're approaching marginal cost, and there's quite a few producers that are cash negative at or below where current prices are. So that's a lot the same as was the case in 2016. And the market's quite a bit bigger today than it was in 2016 as well. I guess, from a differences standpoint, I mean, the big one is the uncertainty regarding palm oil and biofuels as mentioned and then overall economic uncertainty as we look forward second half of the year.

Operator, Operator

And our next question comes from the line of Vincent Andrews of Morgan Stanley. Please go ahead, your line is open.

Jeremy Rosenberg, Analyst

Hi, this is Jeremy Rosenberg on for Vincent. Thanks for taking my questions. I'm just wondering, looking at your guidance, if you could just help us frame up, what gets you to the high end of your sales tonne ranges for both potash and nitrogen? Thank you.

Chuck Magro, President and CEO

Yeah. So at a high level, if you look at the guidance range, when we set our guidance back in February, we weren't thinking of the impact, of course, of COVID in North America, and at that point, oil prices were $50. So literally, it's a different world today. And then, of course, back in February, corn was over $3.50. So the way we think about the guidance range right now is that we have factored in the risks as we see them. And we don't expect to see a significant increase in terms of price recovery, whether it's nitrogen or potash. But to get to the higher end of the guidance range, we would be at the higher end of our volume. So think about a V-shape type recovery, that's what we would be considering when we think about the high end of the range, that industrial demand would start to see some return, biofuel becomes economic again, and you start to see demand for biofuel pulling through corn and ethanol, and then, of course, potash in Southeast Asia. So that's sort of some of the color that we would articulate for the top end of the guidance ranges, is that you start to see the economy open up.

Operator, Operator

Our next question comes from the line of Jonas Oxgaard of Bernstein. Please go ahead, your line is open.

Jackson Kulas, Analyst

Hi, this is Jackson Kulas on for Jonas. Thanks for taking my questions guys. So I have two quick questions, if you don't mind. The first is that several crop inputs companies have indicated that strong early demand has caused farmers to pull forward purchases from the second quarter into the first. Have you seen this in your retail business? And if so, can you quantify the impact? And the second question is just, can you talk about what projects you delayed to achieve your $500 million in planned capex reduction? And what you would need to see to resume activity there? Thanks.

Chuck Magro, President and CEO

Okay, we'll have Mike Frank answer the pull forward question and then we'll have Pedro Farah into the project question. So go ahead, Mike.

Mike Frank, Executive Vice President

Sure. Jackson, so you're referring to obviously the suppliers to retail talking about pushing a little bit of inventory into the channel in Q1, potentially because of both COVID and anticipation of a larger market. And I would say what we did with our suppliers is we pulled forward a product set that we anticipated we were going to need based on the larger acreage and in Australia, the really good weather and the rains that they got that really set up a much better year in Australia. If you think about the retail side of the equation, our side, it's really hard to pull forward fertilizer and chem sales because those go on the ground. Most of our total addressable market is bulk, a lot of it's custom applied. And the same with fertilizers. Really, there's very little ability for farmers to store fertilizer. When you look at our seed sales, our seed sales were up about 11% in the first quarter. And again, that's consistent with our expectation of a larger market. So we didn't see a material pull forward. We did see good weather. We saw good weather in Australia. We saw good weather in much of the U.S. That allowed us to get more fertilizer down and more crop protection on the ground. And so that really is what drove our 30% increase in revenue quarter-over-quarter.

Chuck Magro, President and CEO

Pedro will take the capital project question.

Pedro Farah, CFO

Certainly, thanks. Jackson, what we are delaying is two types of investment. Number one is the investments that have a very long payback, typically associated with productivity gains, and we are favoring shorter payback type projects at this point in time. And the other one is there is a natural delay because of timing on some other projects that we have because of supply chain issues with critical equipment or the need for social distancing. As we execute on those projects and to preserve social distancing, we cannot implement the projects at a time that we had originally planned. So those were sliding into next year. So that is kind of the bulk of our $500 million delay.

Operator, Operator

And our next question comes from the line of Jeff Zekauskas of JPMorgan. Please go ahead. Your line is open.

Unidentified Analyst, Analyst

Good morning. It's Silke for Jeff. How are you?

Chuck Magro, President and CEO

Good.

Unidentified Analyst, Analyst

I have a question on the North American potash market, and it has two parts. Like the first one is, could lower corn acres in 2021 have any impact as to how much potash North American farmers might want to buy at the end of the year in the fourth quarter and how do you think about that? And the second question is on North American potash prices, and that is your price in the first quarter was like $196 a tonne FOB. In the fourth quarter, it was like $226. And I was wondering if you could just talk about the trajectory for potash prices domestically in April and May. Thank you.

Chuck Magro, President and CEO

Okay. It's best to have Jason Newton, I think our economist to answer those questions.

Jason Newton, Chief Economist

Sure. So with the decrease in corn acreage expected in 2021, we anticipate a negative impact on overall potash demand as well as general new turn demand. However, it’s important to highlight that there are compensatory factors. We believe much of the corn acreage loss will be offset by an increase in soybean planting. If we see a shift of around one million tonnes from corn to soybeans, it results in a loss of about 40,000 tonnes for corn, but we gain back approximately 25,000 to 30,000 tonnes from soybean demand. Therefore, there is a balance with soybean supply. Regarding fall demand, weather is the primary factor influencing farm-level fall demand, making it the key driver for the latter half of the year. We anticipate that the retail side of the supply chain will approach inventories with caution as we progress into the second half, which has impacted our outlook for that period. Concerning potash prices, the U.S. market has generally mirrored global trends, although U.S. prices have remained more resilient and, in fact, were at a premium compared to Brazil before recent price increases there. Historically, the U.S. market has trailed behind global pricing. Looking ahead to the second half of the year, we expect typical seasonal patterns during the summer fill season and will monitor how demand evolves in the fall.

Chuck Magro, President and CEO

Yes, maybe just a couple of other comments at the highest level in terms of our view of potash pricing going forward, whether it's 2021 or 2022. So look our view is constructive. We believe that what we're seeing right now. Now, part of it is the economy and the COVID-19-related. Part of it is we have new capacity coming into the market. But generally speaking, the demand has been growing quite nicely on average. And we would expect that if potash demand continues to grow globally at that 2.5% per year level, once we see the COVID situation and the oil prices stabilize a little bit, you're going to see the supply-demand for potash tighten quite readily. And as the market supply-demand starts to tighten, I think you're going to see prices follow. So we're quite constructive on potash still. It's a market though that has had a tough year in terms of 2020. And I think what we're seeing right now in terms of the China potash contract settlement at the levels that it did. We are starting to see some constructive behavior in the market when it comes to increased demand and price momentum. And I think longer term, we expect that, that will continue because we do see that demand for potash over time will continue to grow.

Operator, Operator

And there are no further questions in queue at this time. I will turn the call back over to Chuck Magro, CEO.

Chuck Magro, President and CEO

Okay. Thank you all. I think that was all the questions in the queue. Look, IR is available for any follow-ups that you have. I really appreciate the interest in the company, and I hope that you're all well and safe. Take care and we'll talk soon.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.