Fertilizer International 513 Mar-Apr 2023
31 March 2023
Earnings and affordability
“Higher fertilizer prices – and their underpinning of record earnings – have also shaped that less welcome characteristic of post-Covid fertilizer markets: affordability”
2022 was another very good year for Nutrien, the world’s largest crop nutrient company. The Canadian-headquartered fertilizer giant produces around 27 million tonnes of potash, nitrogen and phosphate products annually from operations and investments in 14 countries, distributing these to agricultural, industrial and feed customers across the globe. Its agriculture retail business, Nutrien Ag Solutions, also serves more than 500,000 farmers worldwide.
Nutrien’s revenues grew by 37 percent year-onyear in 2022 to $37.9 billion. Earnings growth for the year was even more impressive; it rocketed by 71 percent to $12.2 billion (adjusted EBITDA). Free cash flow – a measure of profitability – for 2022 more than doubled on the preceding year to $8.1 billion.
Does all of that sound familiar? Well, yes… in fact there’s an uncanny sense of déjà vu here. Especially if we roll back 12 months and see what we wrote then about Nutrien’s 2021 results (Fertilizer International 508, p13):
“Nutrien’s revenues grew by one-third year-onyear in 2021 to $27.7 billion. Earnings growth for the year was even more impressive; it rocketed by 94 percent to $7.1 billion (adjusted EBITDA). Free cash flow – a measure of profitability – for 2021 more than doubled on the preceding year to $3.9 billion.”
Indeed, placing these 2021 and 2022 financials side by side, the initial impression is of an identical script with only slightly different numbers.
What makes the results of the last two years even more remarkable is that Nutrien’s 2021 financial performance was itself unprecedented and record breaking, with annual earnings up by more than 90 percent on 2020 (Fertilizer International 502, p13).
To place this in context, Nutrien’s consecutive sequence of annual earnings (adjusted EBITDA), 2020-2022, has been $3.7 billion, $7.1 billion and $12.2 billion – more than tripling in just three years.
Commenting on the company’s 2022 performance, Ken Seitz, Nutrien’s president and CEO, said: “Geopolitical events caused an unprecedented level of supply disruption and market volatility across agriculture, energy and fertilizer markets in 2022. Nutrien delivered record net earnings and cash flow in this environment due to the advantages of our world-class production, distribution and retail network. We returned $5.6 billion to shareholders, invested in our global retail network and advanced a number of long-term strategic initiatives that position our company for future growth and sustainability.”
These comments are straightforward and entirely factual. Yet possessing a world-class production, distribution and retail network also benefited Nutrien in one other rather obvious way – it placed the company in a highly advantageous position to capitalise on that key characteristic of post-Covid fertilizer markets: higher net realised selling prices.
To Nutrien’s credit, the company is clear about this. Higher realised prices are specifically cited as factors in the record 2022 performance of its potash and nitrogen businesses. Higher selling prices also improved margins at its Nutrien Ag Solutions retail arm.
Higher fertilizer prices – and their underpinning of record earnings – have also shaped that other less welcome characteristic of post-Covid fertilizer markets: affordability. This has become ever more important in defining fertilizer consumption in recent times, with the International Fertilizer Association expecting affordability to drive global fertilizer use between 2021 and 2023 (Fertilizer International 512, p13).
Clearly, affordability has been – and currently remains – a key factor affecting buying decisions by farmers and, overall, a determinant of global market demand.
Nutrien’s CEO Ken Seitz is right to identify geopolitical events for causing an unprecedented level of supply disruption and market volatility. Russia’s invasion of Ukraine at the end of February last year, in particular, continues to cast a long shadow across energy, agricultural and fertilizer markets.
It is also facile and a misdiagnosis to make a causal connection between the earnings of fertilizer producers and high prices and poor affordability when, arguably, they are bystanders to global events like all of us. The part closure of Europe’s fertilizer industry this winter is testament to that (p13).
But it is often perceptions rather than reality which shape public opinion. And, if energy companies are angrily castigated by European consumers for making excess profits during a cost-of-living crisis, it might be wise to guard against similar public attitudes shaping perceptions of our industry. n
[Note: we will be taking a deep dive into the fertilizer industry’s 2022 financial performance and full-year results in our forthcoming May/June issue.]
