Earnings Call Transcript - NTR Q4 2020

Operator, Operator

Greetings, and welcome to the Nutrien 2020 Fourth Quarter Earnings Call. I would now like to turn the conference over to Richard Downey, Vice President of Investor Relations. Please go ahead, sir.

Richard Downey, Vice President of Investor Relations

Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our fourth quarter 2020 and year-end results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien; and Mr. Pedro Farah, our CFO. 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 U.S. 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. 2020 will go down as one of the most challenging years in recent history. And as you listen to this call, I hope that you and your loved ones are safe and healthy. As we look towards 2021, we can see prospects of a much better year, both socially and economically. For Nutrien, this includes stronger agricultural and crop input fundamentals than we have seen in some time. Before I review our results and our outlook, I'd like to take a moment to thank all of Nutrien's employees globally for their ongoing dedication to providing farmers the sustainable crop inputs and services they need during this pandemic. The importance of food security and Nutrien's purpose to feed the world has never been more apparent and important, and your dedication and commitment are truly appreciated. That dedication was also evident in the impressive execution right across our businesses in the fourth quarter. We achieved excellent progress across virtually all key operating metrics, including our best year ever for health and safety results. We remain committed to our long-term strategy of both growing our business in a thoughtful and fiscally responsible manner while also returning capital to shareholders. In this regard, we announced yesterday that we increased our dividend to $1.84 per share on an annualized basis, as well as our intention to implement a new share buyback program in 2021. Last year demonstrated the strength of our business, and we see three factors that have reinforced our conviction for 2021 and beyond. First, we believe there is a cyclical recovery in agriculture underway, aided by some structural catalysts, including solid growth in food and fertilizer demand despite the global economic downturn. Second, Nutrien is very well positioned with earnings leverage from higher fertilizer prices and sales volume growth. And finally, we have plans that will contribute to growth, cost reductions, and the implementation of industry-leading technologies that are within our control, which will further improve our competitive position across the ag input value chain. Now turning to the results. Earnings and cash flow in the fourth quarter were up significantly over the same period last year. On an annual basis, we generated free cash flow of $1.8 billion and $2.4 billion after accounting for improvements in working capital. Even at the low point in the cycle, our dividend was at 56% of cash flow, well within our target of 40% to 60%. Nutrien Ag Solutions delivered an excellent fourth quarter with EBITDA up 29% year-over-year. This was mostly a result of organic growth, stellar performance in Australia and Brazil and a wide-open fall application season in the U.S. Retail gross margins for fertilizer and crop protection products this quarter were both up significantly due to higher volumes and firm percentage margins. Fourth quarter crop protection percentage margins were slightly lower than last year due to a mix effect from the growth in Australia and Brazil, where fourth quarter margins are typically lower than in the U.S. U.S. crop protection margins were up noticeably year-over-year, both in the fourth quarter and for the full year. For 2021, we expect further improvement in our crop protection margins across all of the operations. We intend to continue to strengthen our competitive leadership position through innovation in the retail ag sector, offering new products and services and expanding our full acreage solutions that generate value for our customers and grow our business and margins. Organic growth in 2020 accounted for about 60% of the $200 million growth in annual retail EBITDA, with the other 40% from accretive acquisitions. Our EBITDA per U.S. selling location increased 11%, surpassing $1 million per facility and fast approaching our 2023 target of $1.1 million per facility. Our strong organic growth rates were also demonstrated by the size of the increase in our EBITDA margins across all major regions in 2020. Retail EBITDA to sales increased by nearly 0.5% to 9.7%, while U.S. EBITDA to sales increased almost a full percentage point, reaching 10.6%. Retail earnings outside of the U.S. grew by 32% this year and accounted for just over 30% of total retail EBITDA in 2020. We also lowered retail's average working capital by nearly $900 million this year through supply chain improvements. These actions, combined with low-end inventories resulting from the extended fall season helped drive our retail working capital ratio to a record low 15%, which is even below our 2023 target of 17%. Furthermore, our investments in technology and supply chain enhancements and our ongoing focus on cost reduction also contributed to an improved cash operating coverage ratio in 2020, which declined by 1 percentage point. This improvement was achieved despite the impact from the Ruralco acquisition, which we continue to optimize. Our digital platform sales exceeded $1.2 billion in 2020, more than double our original goal of $500 million and over four times the 2019 levels. We expect to demonstrate continued momentum again this year and are now targeting digital orders of $2 billion in 2021, with the goal of achieving 50% of North American retail sales in the next three years. Moving to our potash operations. Sales volume surpassed expectations in the fourth quarter due to exceptional demand in the U.S. this fall and continued strength in offshore markets. We leveraged our flexible network to meet demand, and we were able to increase our volume in North America. On an annual basis, volumes were up 1.3 million tonnes over last year. From a cost perspective, we achieved record low cash cost of $59 per tonne for 2020. We are progressing our continuous improvement in automation programs that will further reduce cost and improve safety in our operations. Similarly, for our nitrogen business, we saw excellent sales volumes, both for the quarter and the year. We increased our nitrogen sales volumes by 700,000 tonnes in 2020, due to strong North American operating rates and benefits from our debottlenecks and optimization projects and good agricultural demand. These factors also contributed to a significant decline in our controllable cash cost position. In addition, as part of our ongoing portfolio review, we sold our 26% equity position in the MOPCO nitrogen facilities in Egypt for $540 million as we believe we can reallocate this capital to higher return usage. Shifting to the outlook. The setup is excellent for the spring season in North America, assuming we get normal weather. We could be seeing the start of a multiyear cyclical recovery in agriculture and crop inputs. Crop prices have improved for several reasons. While recent crop yields in North and South America have been slightly below trend, the major factor has been stronger demand, which we believe is more structural in nature. China is importing more grains and oilseeds to help ease food inflation as domestic corn prices are over $11 per bushel. We believe that China will need to rely more heavily on crop imports going forward as they transition their hog industry to professionally manage large-scale operations utilizing feed rations as they rebuild their herds following the devastation caused by African swine fever. We also see the potential for increased demand for crops in the future for use in biofuels to meet climate change objectives set by many countries around the world. In response to higher crop prices, we expect higher planted acreage globally. In the U.S. alone, we anticipate total planted acreage to increase by approximately 10 million acres. With strong crop prices and the highest U.S. grower margins in at least seven years, there will be strong crop input spend in 2021, which is supported by our level of customer prepay and soil sampling activity. Our annual guidance is for adjusted EBITDA of $4 billion to $4.5 billion, with all business units expected to achieve significantly higher year-over-year growth. We have good line of sight to a strong first half of 2021, and we'll continue to refine our outlook as we get more insights on the second half of the year. Nutrien Ag Solutions expects to benefit from higher planted acreage, increased discretionary spend in North America and continued growth in Australia and Brazil. For potash, prices are firming in every market. The U.S. has seen the strongest price rise so far, but Brazilian prices are now transacting at $300 a tonne. In Southeast Asia, standard potash prices have lagged the increase seen elsewhere as they often do in a rallying market. However, we believe prices will firm further in the coming weeks and could approach $280 a tonne in certain regional Asian markets. We continue to fill our order book at higher price levels, and we are fully committed on domestic and international sales through April without positioning or selling volume to India or China. Our 2021 sales volume guidance is for 12.5 million to 13 million tonnes, and we expect to match strengthening market conditions. In nitrogen and phosphate, prices and demand are being supported by stronger demand from higher crop prices and improved industrial conditions as well as a higher cost curve. We are also positive about these markets in 2021. 2021 will also be a significant year from an ESG perspective for Nutrien. We will unveil a comprehensive long-term strategy with performance metrics in the first half of the year, which will demonstrate our continued leadership in this area. In regards to our new carbon farming program, there has been overwhelming interest in this one-of-a-kind program by growers around the world. We have 100,000 acres lined up for our pilot program across the U.S. and Canada this spring, and we'll continue to work on scaling the program in the future. Nutrien is well positioned to lead in carbon management and its monetization in agriculture, with our unique capabilities and expertise, including direct connection to growers and our investment in digital agriculture. We believe Nutrien is the best-positioned company in the ag sector to capitalize on improving market fundamentals across the value chain. We have levers to grow our business and our earnings with actions under our control and exceptional leverage to improving market conditions. And as always, we will focus on what we can control and follow through on our commitments. At our recent Investor Day, we outlined a pathway to generate $1 billion in value over the next five years that is under our control. This plan, plus the cyclical recovery in agriculture, presents a very compelling value creation opportunity we are currently experiencing. Finally, I wanted to let you all know that Mike Frank has decided to step down as Executive VP of Nutrien's retail business. On behalf of the entire Nutrien management team, we thank Mike for his valuable contributions over the past three years and wish him all the best in the future. With that, operator, let's open it up for questions.

Operator, Operator

Your first question comes from the line of Jacob Bout from CIBC.

Jacob Bout, Analyst

Hoping to get your thoughts on the recent activity in international potash markets. We've got one producer that was settling with China and India below market prices. I guess my questions are, do you see producers selling at similar prices? Is this a year that we could see India and China moving to a spot market? And if you were to speculate, why would a producer settle at such a low price?

Chuck Magro, President and CEO

Yes. Jacob, so there's lots going on right now in the potash market for sure. What I'd say is, yes, you're right. We've had one, but only one major player sign contracts with India and China. Our perspective has been pretty clear right from the beginning on this. We feel that these contracts were actually rushed and certainly are not reflective of the current market conditions we're seeing around the world. Now we can't change that, and we're certainly not going to dwell on it. But for us, what we're seeing is just strong demand basically around the world. So if you look at North America, last year, we increased our sales volume by over 1 million tonnes, primarily driven by strong domestic demand here at home. And prices now are quite high relative to, say, the contracts that have been signed in India and in China. Brazil has really good momentum going forward. Prices are moving up quite nicely there, and we're pleased with the progress and the demand book that we have for Brazil. So what I'd say right now is that, for us, the way we're thinking about India and China is all options are on the table. And when we look at it, those markets now are clearly our lowest net back. So we're going to allocate our volume accordingly. And I certainly don't expect us to put significant volumes in those markets at disconnected price levels from the rest of the world. So we'll have to see how things unfold. And obviously, Canpotex is active in the discussions, but we have better places to put our potash, and we're going to prioritize those for 2021.

Operator, Operator

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

Ben Isaacson, Analyst

Chuck, can you talk about the decrease that we're seeing right now in North America and retail exposure, especially in the Southern Plains area? What is the risk? Are there positives? Are there negatives? And then maybe just as a follow-up, can you talk about what the goal is for your retail EBITDA margin? You guys hit 9.7%, I believe, overall, slightly higher in the U.S., but how should we think about that growth of that EBITDA margin?

Chuck Magro, President and CEO

Yes, Ben. So look, on the decrease that we're seeing, it has not impacted our retail operations. So it has impacted the nitrogen industry more broadly. And I'll have Raef Sully comment on that because it's probably important to talk through. But let me answer your retail questions first. So right now, we're seeing very good movement even in Canada with fertilizer. And if you recall, last fall, the fall application season was cut short in Canada. We've got very strong canola prices up here, and we're expecting just a very solid spring season and fertilizer is still moving to the farm right now for storage and supply chain management right now in Canada. In the U.S., obviously, the weather has slowed down some of the retail activity, but we're expecting an incremental 10 million acres being planted. We're expecting more corn in the south. And I would say, generally, there's strong optimism for a solid spring season across the U.S. So the weather really hasn't had much of an impact there. Before I turn it over to Raef just to talk about what we're seeing in nitrogen with the weather, to your question on EBITDA margin. So we're seeing very good growth. In fact, I was looking at it the other day. And if you go back 10 years, this business had a 7.5% margin. So we have driven up the retail EBITDA margin slow and steady. And we think that there is a lot more opportunity to continue on that journey. The strategy is very clear. It's a strategy that we've been employing for at least five years. What we're trying to do, of course, is sell higher-margin products. Part of that is our proprietary products portfolio, and at the same time, optimize our overall network and drive supply chain efficiencies and reduce our cost. And then if you layer in now the digital platform on top of that, we think that there's going to be some opportunity to streamline our back office and make the relationship with the farmer more efficient, and we think that, that, over time, will drive margins as well. So I don't want to give you a number, except to say that we think that there is significant upside, and it's on the same path that we've seen. So what you should expect is a slow and steady increase in overall EBITDA margins for retail. Raef, do you want to just comment quickly on what we're seeing from a weather perspective in nitrogen in the U.S.?

Raef Sully, Analyst

Yes. Thank you, Chuck. As Ben mentioned, the recent cold weather has affected the entire nitrogen industry, particularly impacting gas supply. We have seen around 8 to 10 plants go offline in the past few days, and many of them are offloading their gas supply due to pricing effects. One plant has shut down due to mechanical issues. Currently, we are operating at about 80% to 85%. We anticipate that the industry will largely be operational again by the end of the week as the cold weather subsides. While there may be slight supply constraints at the start of the spring season, this could lead to ongoing pricing firmness. Most plants have gone offline mainly because it's advantageous for them to sell their gas in the market.

Operator, Operator

Your next question comes from the line of P.J. Juvekar from Citi.

Prashant Juvekar, Analyst

You talked about Chinese rebuilding of herds. How long would that continue? I think for pigs, it takes about 9 to 12 months. So is that something that will continue into sort of '21 into '22? And then maybe you can mention on the biofuels opportunity that you talked about and how much sort of demand growth for grains, would that come from?

Chuck Magro, President and CEO

Yes. P.J., I'm going to have Jason Newton, our Head of Market Research, just to answer your questions. Go ahead, Jason.

Jason Newton, Head of Market Research

When the hog herd rebuilding began, predictions indicated it would take around 2 to 3 years for recovery. The Chinese government estimated in late 2020 that the herd had been rebuilt by about 90%. However, private estimates suggested that the actual rebuild was significantly lower. We anticipate a somewhat uneven recovery since current pork prices are strong, leading hog farmers to sell into the meat market instead of focusing on rebuilding the breeding herd, which could slow progress. Additionally, periodic disease outbreaks, which are common in China, may also interrupt the rebuilding process. On a positive note, we have observed robust demand for feed grain in China as the herd is being rebuilt with more commercial-style hog barns and feeding rations. Regarding biofuels, unlike the previous renewable fuel standards, much of the potential growth in this sector has not been clearly defined or mandated, leaving some uncertainty about its future. However, with the clean fuel standards being discussed in the U.S., Canada, and the EU, there is potential for biofuels to contribute to the fuel supply and reduce emissions. For instance, a move to a 15% blend rate in the U.S. by 2030 could result in an additional 2 billion bushels of corn demand. While this is seen as a positive development, the impact remains uncertain due to the lack of strict mandates, aside from the more stringent biodiesel blending regulations in Indonesia and Malaysia.

Chuck Magro, President and CEO

Yes, P.J., I would like to add a comment about the hog herd in China. While the rebuilding process is one aspect, the way they are doing it with professionally managed feed rations is significant. We believe this trend could continue for the foreseeable future. My earlier statement in the prepared remarks highlighted the start of a new structural demand for additional soybeans or corn rations due to their approach to rebuilding the herd. This is what we are currently observing.

Operator, Operator

Your next question comes from the line of Chris Parkinson from Crédit Suisse.

Christopher Parkinson, Analyst

Great. Just very quickly, Chuck, beginning on retail. So there's an acreage growth in North America. Can you just give us an update on all of your other initiatives across that platform to drive above-market growth and expand margins? So third-party product penetration, digital ag, etc. And if you could also include just a quick update on your Australian ops that would also be great?

Chuck Magro, President and CEO

The plan for retail is multifaceted. We aim to achieve a retail EBITDA of $2 billion within the next five years, which is the midpoint of our initial guidance. At the same time, we want to enhance the EBITDA margins. Our strategy involves investing capital in retail, which we have been actively pursuing. Our approach consists of three main strategies. First, we are focusing on implementing higher-value products, services, and technologies, with our digital platform playing a significant role. We have developed a proprietary product platform that operates successfully in both Australia and Brazil, which is helping us improve margins and differentiate our offerings for customers. Second, we are experiencing substantial geographic growth, particularly in Australia, where we're establishing strong platforms. The acquisition of Ruralco is making good progress, and through this integration, we have already revised upwards our synergy expectations. Additionally, we made several smaller acquisitions last year in Australia that have contributed positively. In Brazil, our achievements during the pandemic were noteworthy, culminating in two significant acquisitions. Following our latest acquisition announced two weeks ago, we now operate 40 retail locations in Brazil, generating a sales run rate of about $500 million, putting us on track to reach our revenue goal of approximately $1 billion in that market. The third strategy involves network optimization, where we are investing in our supply chain and forming closer partnerships with our suppliers. This often means working with fewer suppliers who hold larger shares of our business and collaborating on technology solutions or exclusive new products for Nutrien. This has been the direction we've been pursuing, and we are beginning to see positive results, particularly in 2020, through the integration of technology, new products, geographical diversification, and optimization of our core business.

Operator, Operator

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

Adam Samuelson, Analyst

I wanted to follow up on retail and discuss the outlook for 2021 in more detail. The EBITDA guidance is projected to grow by 5% to 12%. Additionally, your forecast for crop expenditures in key markets shows an increase of around 4% across all major areas of operation. I'm trying to understand how you define the low and high ends of this range, given that this appears to be the strongest crop input market you've encountered in at least five years. There also seems to be a favorable trend as farmers invest in higher quality inputs. Can you help clarify the various potential outcomes, especially regarding the investments you're making that might affect what could be strong operating leverage in a robust volume environment?

Chuck Magro, President and CEO

That's right. I think it's clear that we are expecting significant EBITDA growth in retail. Looking at the midpoint, we anticipate around an 8% increase year-over-year. Last year, our retail business grew by 16%, and since the start of 2018, it has increased by 25%. This signifies strong growth. In 2020, 60% of that growth was driven by our organic initiatives. Additionally, our EBITDA per location has surpassed $1 million, moving toward our target of $1.1 million. For 2021, I would suggest that we expect similar growth, largely fueled by our organic initiatives as previously mentioned, with mergers and acquisitions supporting it as well. If asked how to reach the upper end of our expectations, I would say that engaging in more M&A earlier in the year could be the key. Currently, we have a solid pipeline of M&A opportunities in both North America and globally. The current agricultural landscape is quite favorable for retail, with an increase in planted corn, soybean, and cotton acres, which will positively impact our retail operations. In the latter half of the year, we anticipate an uptick in discretionary spending on yield boosters, adjuvants, and micronutrients—areas that have not seen significant engagement in the last few years due to crop pricing considerations.

Operator, Operator

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

Joel Jackson, Analyst

Chuck, let's revisit the topic of global potash pricing and the differences between granular and Asian pricing. Can you address a few questions? What has made it difficult to raise prices in Southeast Asia, particularly in China and India? Also, if BPC and the Belarusians have different objectives compared to you and other competitors, and if they are focused on securing volume to ensure stability and cash flow from China and India without worrying about pricing, as well as locking in prices in Brazil up to a year in advance that you need to match, how do you manage that? How do you find a balance, considering you need to sell a significant amount and BPC has access to plenty of sales opportunities as well?

Chuck Magro, President and CEO

Okay. So there's a lot there to talk about, Joel. First of all, what I would say is no one company can sell all the volumes in every market. This is a massive global market, and it's growing. And so don't forget, this year, we are expecting up to 2 million tonnes of incremental growth in terms of global demand and not that much incremental supply coming into the market. So we like the backdrop. But to answer your question on Southeast Asia, let me pass that over to Ken Seitz because he's working this day-by-day right now with Canpotex, and he can provide you a perspective. And then I'll come back with some other comments on the rest of your questions. Go ahead, Ken.

Kenneth Seitz, Analyst

Yes, thank you, Joel. We are observing some improvement in Southeast Asia. I believe that the reported prices are not fully reflecting the current situation in that region. There was significant demand disruption in Southeast Asia when palm oil prices declined in 2019. However, we noticed a recovery in demand in 2020 as palm oil prices rebounded. Palm oil prices are continuing to rise, and into 2021, we expect Southeast Asian demand to return to levels similar to 2018, indicating strong demand. Malaysia, Indonesia, and Southeast Asia are active markets, but their purchasing of potash is somewhat seasonal due to their tender system. In the next month and a half, we anticipate another round of tenders. We expect to see strengthening in Southeast Asia during this tender cycle. Although the reported prices may lag behind, we believe that Southeast Asia will align with the global trend as potash prices increase.

Chuck Magro, President and CEO

Yes, Joel. So just to wrap up, we like the backdrop that we're seeing in the potash business. If you just look at global operating rates, we are expecting continued tightness. Even year-over-year 2021 versus 2020, the global operating rate is going to increase. Our expectation is that it will be somewhere close to 95% in terms of a global operating rate, which usually means we're going to have forward momentum in pricing because the supply/demand is going to be quite tight. So I think that Nutrien will be able to move the volumes that it wants to move into the market. As I said before, we're going to prioritize the markets where we have the highest netbacks, but make sure that we service our customers the way we need to.

Operator, Operator

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

Steve Byrne, Analyst

One of your slides indicates that your proprietary products generated 23% of retail EBITDA in 2020 and 2019. I would like to hear your view on what gives you confidence you can drive that to 29%, given flattish the last two years. And do you see this as being driven more by the Loveland brand or the Dyna-Gro brand? And how do you think you're going to get there?

Chuck Magro, President and CEO

Yes. Steve, so we think that when we look at the investments we've made over the last couple of years, we've added Actagro to the portfolio. We've added Agrichem the portfolio in Brazil. So we've got a more robust, I'd say, broader set of offerings that are all kind of wrapped up in that phrase proprietary products. And so we're very confident that we've got just a suite of products that are going to add tremendous value to farmers' bottom line. And we are expecting to be able to grow. Certainly, when you look at crop protection, if you look at even the fourth quarter last year, our CPP margins were up. And for the full year, they were actually up in the U.S. And so we just need to move through now the CPP products through the new channel that we have with Ruralco in Australia. So that's just getting kind of sorted out right now. And of course, the new acquisitions that we have in Brazil. So I'd say from a crop protection perspective, we're well positioned to continue to grow that percentage. Now you mentioned the seed and Dyna-Gro. And what I'd say there is that we've got germplasm that is second to none, and we've just had tremendous success, I think, with Dyna-Gro in our core markets. So we have a lot of optimism around what that will do. If you just plainly look at our order book for 2021 for our Dyna-Gro seed, it's up versus this time last year. So we are seeing good forward momentum, I think, in terms of the percentage of our proprietary products. And that's what really drives the confidence that we'll be able to get to the numbers that you indicated.

Operator, Operator

Our next question comes from the line of Mark Connelly from Stephens.

Mark Connelly, Analyst

Chuck, I was hoping you could sort of put the puts and takes of higher freight and complicated logistics into context for us. My sense is it's probably a net positive in nitrogen, at least in the spring, but I'm just sort of curious if you could walk us through the businesses.

Chuck Magro, President and CEO

Yes. So maybe what I'll do is I will have Raef talk a little bit about the nitrogen logistics, and then I can have Ken do the same in potash for you, Mark. So go ahead, Raef.

Raef Sully, Analyst

Okay. I'm sorry, Mark, could you just give me a little bit more on the question that you're looking for?

Mark Connelly, Analyst

I'm trying to understand how higher freight rates and the complications we're hearing about in logistics are impacting your business, both globally for nitrogen and in terms of product movement for the spring season.

Raef Sully, Analyst

We have had some recent successes in obtaining better rates. We operate a network of around 300 terminals or warehousing locations nationwide, which has been beneficial for us. By utilizing this network, we have managed to get ahead of the spring season and placed a significant amount of product closer to our customers. I'm not entirely sure if that fully addresses your question, so I’ll stop here. If you have any specific points you'd like to discuss further, please let me know.

Chuck Magro, President and CEO

Well, let me jump in here then, Raef. So I think you've answered the question, but if you look at the overall network, so we do have one of the largest distribution and storage networks in North America when it comes to ag inputs. It is highly integrated between the upstream business and the retail downstream business. Literally, we were able to store and if you just look at the spring season market, I think if you look at what's in front of us, the product is forward placed right now and ready to go for the spring season. I'm not sure we can say that about all of our peers in the industry. We just had a review actually last week, and when we looked at fertilizer crop inputs in the seed, it's exactly where it needs to be in anticipation for a wide-open spring. I think from an international perspective, we also have some advantages, and Ken, you can talk to that, I think, for potash.

Kenneth Seitz, Analyst

Yes, absolutely, Chuck. And Mark, I would just say domestically, rail movements and our 300 managed warehouses between ours and our customers continue to serve us well. We saw that in the fourth quarter of 2020, where we mobilized that infrastructure to meet growing demand. So while it's true that inventories are low in North America at the moment, very low, we are utilizing our supply chain effectively to meet our Q1 and Q2 order book, which, as I said earlier, is heavily committed. Internationally, it's true that we've seen some ocean freight rates go up, but those are mostly in the capesize vessels and the ones carrying iron ore. We expect that the ocean freight market will tighten as global commodity prices go up and more volume is moving around the globe. But I think, as you say, Mark, that is a net positive for us. So as it stands today, we're expecting, again, record potash demand, and we expect absolutely to be able to meet all those commitments.

Operator, Operator

Your next question comes from the line of Jeff Zekauskas from JPMorgan.

Jeffrey Zekauskas, Analyst

Can you give us your impressions of the tightness in the phosphate market? I know for a while you were a little bit bearish about that. Do you view that market differently now?

Chuck Magro, President and CEO

Yes. Jeff, Raef, do you want to talk about what we're seeing in the phosphate market right now?

Raef Sully, Analyst

Yes, certainly. I think the tightness in the phosphate market is ongoing. Much of what we're observing in North America is related to the jury's ruling we encountered. We'll know by March 25 if that decision stands. Even if it doesn’t proceed, there remains an underlying shortage in the phosphate market. I believe that toward the end of the year, we will begin to see increased production from OCP and others. We might also see some imports coming into the country in the second half, but I anticipate that the tightness will continue. Structurally, supply is tightening.

Operator, Operator

Your next question comes from the line of John Roberts from UBS.

John Roberts, Analyst

Does the buyback authorization imply they were unlikely to see any significant acquisition activity in retail, especially in Brazil?

Chuck Magro, President and CEO

John, no, it does not. So what we expect to do with the plan this year, as we talked about was for retail, when we look at the growth opportunities we've got in front of us, the plan is really predicated on stronger organic growth. But we've always looked at M&A opportunities, and we have a very good pipeline, as I mentioned, and we'll be able to do both. So if you think about where we're sitting, I think we finished the year last year with net debt to EBITDA, right in the middle of the zone where we'd like it to be around 2.6x. So we have the financial capacity. We're going into a market of expanding margins. We expect to generate very strong free cash flow in 2021. So we will prioritize and we'll look at the best returns longer term for shareholders. But you can expect it would be a mix. The buyback is certainly an important part of that, that the Board approved yesterday, but we do expect to allocate capital to grow the retail business in 2021.

Operator, Operator

Your next question comes from the line of Andrew Wong from RBC Capital Markets.

Andrew Wong, Analyst

I want to focus on the EBITDA guidance. Looking at the past, in 2019, we recorded $4 billion. Comparing that to 2021, retail metrics are obviously improved due to acquisitions and acreage. Nitrogen and potash volumes have increased, and I assume costs have decreased thanks to synergies and other improvements since then. While pricing contributes to some of the changes, the market fundamentals are also quite robust. So, is it fair to suggest that there may be some conservatism in the guidance range you are providing?

Chuck Magro, President and CEO

Andrew, this year, we found it challenging to pinpoint the guidance range as fertilizer prices have been very volatile. To clarify the range we provided, there is naturally a lag between realized prices and the benchmarks, which is common across our companies because we need to forward sell to move our products. If you analyze the current market prices for NPK fertilizer over a year, we would exceed the upper end of our guidance range. We anticipate some typical seasonal pricing trends, particularly for nitrogen and phosphate, and expect prices to decline somewhat after the spring season, but with higher lows compared to last year, which is key. The lower end of our range assumes a more significant seasonal adjustment due to changes in supply and demand. To summarize, if current prices persist throughout the year, we would be well above our guidance's upper limit, and it would require a considerable adjustment to approach the lower end. We will keep the market informed as we gather more information. Currently, the crop in North America isn't yet in the ground, and this period has been particularly tough as fertilizer prices are rising rapidly.

Operator, Operator

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

Vincent Andrews, Analyst

Looking at Slide 24 regarding your global potash deliveries for 2021, could you provide some insights on North America? It appears you're forecasting it to remain flat or decline, which, given the favorable economics and good acreage, may even place it below the levels seen in 2017 and 2018. What is the reasoning behind this?

Chuck Magro, President and CEO

Jason Newton can answer that question for you. Go ahead, Jason.

Jason Newton, Head of Market Research

Yes, Vincent, we certainly expect to see strong applications of potash in the spring season and throughout 2021, just given the fundamentals and high acreage expectations. We did see a really historically strong fall application season in 2020, driven by weather. The range would assume more of a normal weather scenario throughout 2021. You point out 2017 and '18, which were years where we saw a channel inventories build in the North American market. Our assumption would be that channel inventories remain flat through the year to come up with that 9.5 million to 10.5 million tonne range.

Chuck Magro, President and CEO

And just maybe one other comment. So with the Waypoint soil sampling data that we have now, it's been really interesting to watch the data come in. We've seen that there's actually an increase in the number of soil sampling in the U.S. up by about 25%. So farmers are really looking at their soils, and there are pockets of fertilizer deficiencies. But on average, what we're seeing is that the soil levels for fertilizer are about constant over the last two or three years, which is good. So I think what that showed us is we were concerned that there was a lot of forward pull into 2020 at the end of 2020, and there wasn't. If you look at our customer prepay in retail, that is also up about 25%. So there's a strong indication here of a very solid spring season. I think the way Jason has phrased that is absolutely accurate. But I think that where the determining factor will be in the second half of the year. We won't know that until we sort of get through the first half.

Operator, Operator

Your next question comes from the line of Michael Piken from Cleveland Research.

Michael Piken, Analyst

I guess this is sort of related to a follow-up question that one of the other analysts asked. Looking at the nitrogen segment significantly, one of your competitors earlier said that they're viewing this as potentially one of the most favorable backdrop for nitrogen in nearly a decade. It looks like in your presentation, you were talking about Chinese exports maybe only being 3 million to 5 million metric tons this year. So I guess what sort of are the factors that you think might cause nitrogen prices to be well enough to the point that you're getting to your numbers in light of that and the rising global cost curve and your demand expectations?

Chuck Magro, President and CEO

Yes. So the nitrogen outlook, we would certainly agree that the backdrop is positive, certainly for the first half. We're seeing it in our order book. I've mentioned the other kind of barometers that we're monitoring. There is no question that nitrogen is going to have a very strong spring season around the world. It's driven by quite a tight supply/demand but also a steeper cost curve in Europe and in other parts of the world. I think the fundamental question that we have to ask ourselves is what happens after the spring season. There is some new capacity that was deferred from 2020 that we do expect to start up in 2021. Now there are in jurisdictions that normally have a bit of a rocky start-up. So when do they come online? How much do they produce? Those are all things that we need to understand as we get through the next several months or quarters. Beyond that, if we think past 2021, we would agree that nitrogen from an overall supply/demand after this new capacity comes online, there isn't a lot of new capacity. Our expectation in 2021 is a good spring season. So we expect some new supply in the second half of the year, which could have a reset effect. But I think longer term, the supply-demand fundamentals are quite strong in nitrogen. That's why if you look at nutrient and how we've allocated capital, we're in the middle of several brownfield expansions, adding about 1 million tonnes of capacity between last year and this year and 2022. That's because we are constructive on the overall supply/demand for nitrogen.

Operator, Operator

Your next question comes from the line of Steve Hansen from Raymond James.

Steven Hansen, Analyst

The digital strategy is clearly exceeding expectations thus far, from a sales standpoint, you've outlined a $2 billion target for this year. Chuck, your opening remarks also made some reference to 50% penetration, I believe. I just wanted to get some color around that rollout from here to there and how confident you are in that? And is it possible to give us just a sense for how many of your customers are actually using the platform at this point as opposed to just the dollar value? A lot of your peers and a lot of the other players in the digital space, of course, talk about acres. I don't think that's super relevant. But just trying to get a sense for the penetration rate you've actually seen with the number of customers you have today?

Chuck Magro, President and CEO

Yes. So Steve, we have some of the data available, and then we have to deal with some of it offline, I think. But generally, like I said, in the way you phrased the question is absolutely accurate. We're very pleased with the progress of the digital platform. COVID probably helped to be very honest last year with the restrictions in mobility. To have $1.2 billion of orders coming through the platform, we are expecting $2 billion this year. So continued really good growth. We're also seeing an increase in online payments, which we do expect to see from customers to actually double in 2021. We will have to get you the percentage of customers. But the customers that are digitally active, we do have some data now that is quite interesting. Customers that are digitally active have a 30% improvement in share of wallet. The revenue we get from customers that are digitally active is actually double that of nondigital customers. Our churn rate is 60% less. These are all very good indicators that the program is value-adding for our customers, for both them and for us. If you look at the program that we're rolling out in 2021, we're pretty excited about our offering. We're going to add even more of our products to the platform. We're still working on the percentage of our products to get on the digital e-commerce platform. We've rolled out the field planning capability, which is really exciting. Growers can go in now and basically create an entire field plan for each of their fields for their crops. I call it a digital model of their farm. They can take that plan to a contract right away, a digital contract with us, and they can even order the products and services now online. So the digital experience goes right from the beginning of the planning process to the commercial connection to Nutrien. Just in January, we tied in our Nutrien finance capability on a set of pilot programs with our very large, digitally active customers. The feedback we're getting is really quite strong and positive, and that we think that will be another good reason to get digitally engaged with the Nutrien platform for growers. The journey we're on is more investment, trying to drive up more of our customers on the platform. As they hear more about it, the feedback we're getting is quite positive. We will have to follow up with you on the exact numbers. I don't have those on my fingertips.

Operator, Operator

Your next question comes from the line of Jonas Oxgaard from Bernstein.

Jonas Oxgaard, Analyst

Looking at your potash forecast, it appears that outside of other Asia, nearly every region is projected to be flat for '21 compared to '20, which is surprising given the strength of the agricultural environment and your comments. So, I have a two-part question: first, does that account for the strong fall application that utilized some of the '21 volume? And second, what are your thoughts on the variability here? Is it possible that we could see more than your projections suggest?

Chuck Magro, President and CEO

I think we need to delve into some details here. Ken, could you please review each region and share your insights on demand? This should help clarify that we anticipate global market demand will increase by a couple of million tonnes, and we expect Nutrien's volumes to align with that. While that sets the broader context, let's also take a quick look at the regional specifics. Go ahead, Ken.

Kenneth Seitz, Analyst

Yes, thanks for the question. One of the key points is that we experienced record shipments and consumption in various regions around the world in 2020, starting with global demand reaching 68 million tonnes. China consumed 16.1 million tonnes, which is their highest ever. Brazil reached 11.5 million tonnes, surpassing the previous record of 10.5 million tonnes. With this already significant global demand, we're anticipating an increase of 1 million or 2 million tonnes. In China, we expect a slight rise in demand on top of last year's record levels. In India, after seeing a 1 million tonne increase from 2019 to 2020, we predict demand will be in the range of 4.5 million to 5 million tonnes, reflecting the three-year average. North America has shown strong demand, as previously discussed. In Indonesia and Malaysia, we also expect an increase in demand this year. Overall, building on last year's record global demand, we are projecting further growth into 2021.

Operator, Operator

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

Michael Tupholme, Analyst

At your Investor Day in late November, you provided an expectation for 2021 global nitrogen demand of 156 million tonnes or up about 2.5% year-over-year at that point. Just wondering if that still holds true. Or if you have any updated views on global nitrogen demand expectations for this year?

Chuck Magro, President and CEO

Okay. Michael, Jason Newton can answer that question. Go ahead, Jason.

Jason Newton, Head of Market Research

Michael, that's in line with where we'd expect the demand growth to be in 2021. I think versus where we were in November 2020, it probably ended up a little bit stronger. It's still 2.5% growth in 2021, but from a stronger base in 2020.

Chuck Magro, President and CEO

Operator, we're coming up to the hour here, and we know there's another call after this. So we thank everybody for joining us today. If you've got any questions, Investor Relations is available. Thank you.

Operator, Operator

That concludes today's conference call. Thank you, everybody, for joining. You may now disconnect.