Nutrien (TSX:NTR) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.
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Access the full call at https://meetings.400.lumiconnect.com/r/participant/live-meeting/400243913017
Summary
Nutrien reported record potash sales volumes and strong growth in proprietary products margins for the first half of 2026.
The company raised its potash sales volumes guidance and lowered capital expenditures guidance while increasing the pace of share repurchases.
Nutrien achieved significant automation in its mining operations, exceeding its 2024 target and optimizing capital expenditures.
The nitrogen segment faced planned maintenance but maintained production expectations, benefiting from operational excellence.
The retail segment's adjusted EBITDA increased by 4% in the first half, with strong growth in proprietary crop nutrients despite softer fertilizer demand.
Nutrien generated approximately $1 billion from asset divestitures since late 2024, enhancing portfolio quality and creating flexibility for debt reduction and shareholder returns.
The company is reviewing strategic alternatives for its phosphate business, receiving numerous non-binding bids.
Global agricultural markets are supported by robust demand, with expectations of El Niño conditions potentially increasing crop prices.
Nutrien delivered adjusted EBITDA of $2.4 billion in Q2 2026, with cash provided by operating activities up 12% in the first half.
The company plans to hold an Investor Day on November 30 to outline future growth opportunities.
Full Transcript
OPERATOR
Greetings and welcome to Nutrien's 2026 second quarter earnings call. At this time all participants are in a listen-only mode. The question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded, and I would now like to turn the conference call over to Jeff Holzman, Senior Vice President of Investor Relations and FP&A. Please go ahead.
Jeff Holzman, Senior Vice President, Investor Relations and FP&A
Thank you, operator. Good morning, and welcome to Nutrien's second quarter 2026 earnings call. As we conduct this call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain 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 is contained in our Quarterly Report to Shareholders as well as our most recent Annual Report, MD&A and Annual Information Form.
I will now turn the call over to Ken Seitz, Nutrien's President and CEO, and Mark Thompson, our CFO.
Ken Seitz, President and CEO
Good morning and thank you for joining us today to review our first half performance, progress on our strategic priorities and the outlook for our business. In the first half of 2026, Nutrien delivered record potash sales volumes, strong growth in proprietary products margins and further enhanced the reliability and cost position of our nitrogen assets in a dynamic global operating environment. We raised the bottom end of our 2026 potash sales volumes guidance, lowered our capital expenditures guidance range and increased the pace of share repurchases.
Our results demonstrated strong performance against our strategic priorities that are strengthening our business, driving structural growth in free cash flow and increasing cash returns to shareholders. In potash, we increased production from our low-cost six-mine network and utilized the capabilities of our extensive global supply chain to meet strong customer demand. In the first half, we mined 53% of ore tons using automation, exceeding the top end of our 2024 Investor Day target.
This result reflects the strong execution of our automation strategy while also highlighting additional opportunities to further enhance deployment and performance across the network. These investments are delivering wide-ranging benefits beyond improvements in safety and productivity. Increased automation enables us to mine more ore with the assets already in place, helping to optimize capital expenditures and maximize returns on existing investments.
In nitrogen, our low-cost North American assets remain well positioned with advantaged natural gas costs and a continued focus on initiatives that increase upgraded product volumes and margins. Our first half production was consistent with our previous expectations, including a planned turnaround at our Carsland facility that demonstrated operational excellence in action. The turnaround was the largest in the facility's history and included a debottlenecking project that increased the site's annual production capacity.
Despite a much larger scope than the last major turnaround four years ago, we achieved higher productivity and contractor efficiency through improved planning and execution. The work was completed safely with zero lost-time injuries, ahead of schedule and under budget. Turning to our downstream retail business, adjusted EBITDA increased by 4% in the first half of 2026, underpinned by execution of key growth initiatives that enhance our ability to serve growers with a broader set of products and services integrated through our network.
Our proprietary products business delivered strong growth in the first half, including a 10% increase in proprietary crop nutrients gross margin despite softer fertilizer demand. As growers continue to prioritize solutions that enhance productivity, our performance reflects targeted investments we made to expand capacity and meet increasing customer demand, with sales volumes for certain nutritional products increasing nearly tenfold compared to the prior year.
Together, these results demonstrate how customer insights, targeted investments and disciplined execution are driving earnings growth. Over the last two years, we have taken purposeful steps to optimize our portfolio following a comprehensive review of each asset's free cash flow contribution and returns on invested capital. Since June 2026, we completed agreements to sell non-core assets for gross proceeds of approximately $90 million. Including these agreements and prior divestments, we have generated approximately $1 billion in gross proceeds since the fourth quarter of 2024.
These actions are strengthening our portfolio quality while creating additional flexibility to reduce debt, increase shareholder returns and allocate capital to businesses with superior long-term growth opportunities. As previously announced, we are reviewing strategic alternatives for our phosphate business and are encouraged to have received numerous non-binding bids as part of the process. We also continue to review strategic options for our Trinidad nitrogen operations and each component of the Brazilian retail business.
We remain on track to solidify the optimal path for these businesses in 2026. Overall, our first half results demonstrate progress on our strategic priorities and disciplined execution to enhance earnings quality and free cash flow per share. Across each of our businesses, we continue to focus on areas within our control, namely operational excellence, cost management and capital efficiency. While the external environment remains dynamic, we believe Nutrien is well positioned to create long-term value for our shareholders.
Now, turning to the market outlook, global agricultural markets are supported by robust grain and oilseed demand. Risks to crop production and trade have increased due to geopolitical uncertainty and forecasts indicating El Niño conditions, which are expected to place upside pressure on crop prices. Potash margins remain constructive due to favorable affordability, healthy demand in all major global markets and stable supply relative to other commodities.
We've maintained our forecast for global potash shipments of 74 to 77 million tons in 2026 as projected shipment levels are expected to be consistent with consumption. Global urea prices declined in the latter half of the second quarter during a seasonal low for demand that was exacerbated this year due to evolving geopolitical developments. Global urea fundamentals have firmed in the third quarter, driven by ongoing trade flow disruptions, production outages, elevated energy prices and increased demand.
We expect these factors will continue to shape the outlook for nitrogen markets over the remainder of 2026. In this environment, Nutrien's North American nitrogen assets are well positioned to benefit from secure, low-cost feedstock supply and dependable market access. With that overview, I'll now turn it over to Mark to provide more detail on our second quarter financial performance, guidance assumptions and capital allocation priorities.
Mark Thompson, CFO
Thanks, Ken. Nutrien delivered adjusted EBITDA of $2.4 billion in the second quarter of 2026, and first half adjusted EBITDA was $3.5 billion, up 6% from the prior year. Cash provided by operating activities rose by 12% in the first half, providing opportunity to further advance our capital allocation priorities. At potash, we generated adjusted EBITDA of $658 million in the second quarter, reflecting higher global benchmarks and strong operational and supply chain execution.
Our second quarter and first half potash controllable cash cost of product manufactured was flat compared to the prior year due to cost control measures and the benefits of our automation program that Ken articulated. We continue to target our controllable cash cost below $60 per ton on a full year basis. For 2026, we raised the bottom end of our 2026 potash sales volumes guidance to 14.2 to 14.8 million tons due to the strength of first half sales and increased visibility on the second half order book.
Canpotex is fully committed for third quarter sales volumes and we had a favorable response to our domestic summer fill program. We anticipate a similar split between offshore and domestic sales volumes in the third quarter compared to the prior year. Our nitrogen operating segment generated adjusted EBITDA of $635 million in the second quarter. Net selling prices were in line with higher global benchmarks and the timing of order book sales, with approximately 35% of total segment volume sold prior to the onset of the Middle East conflict.
Nitrogen sales volumes were down from the prior year, reflecting no production from Trinidad and New Madrid, planned maintenance at Carsland and some deferred customer purchases late in the quarter during a period of increased market volatility. Looking ahead, the majority of our Q3 nitrogen fertilizer sales volumes are now committed to and aligned with summer fill values set in late June and early July. We maintained our 2026 nitrogen sales volume guidance of 9.2 to 9.7 million tons, with planned turnarounds scheduled at our Lima and Redwater nitrogen facilities in the third quarter and higher ammonia operating rates expected in the fourth quarter.
In phosphate, adjusted EBITDA declined in the second quarter due to elevated sulfur costs, which have placed unsustainable pressure on global phosphate producer margins. We maintained our 2026 phosphate sales volume guidance, supported by reliability improvements achieved in the first half, while we continue to closely monitor customer demand and sulfur input costs in the second half of the year. Our downstream retail business delivered adjusted EBITDA of $1.24 billion in the first half, up 4% compared to the prior year.
Following a strong start to the application season in the first quarter, North American retail crop nutrient volumes declined in the second quarter, in particular for phosphate and nitrogen. The reduction in commodity fertilizer volumes was offset by strong proprietary products performance. We maintained our full year retail adjusted EBITDA guidance of $1.75 to $1.95 billion, with the midpoint of the range underpinned by three key items. First, we continue to project high single digit growth in our proprietary products gross margin in 2026 supported by organic growth in our core retail geographies.
Second, we expect higher crop nutrient margins per ton to offset a reduction in sales volumes compared to the prior year. We anticipate firming crop prices and an earlier start to the North American fall application season will support nitrogen and potash applications similar to historical average levels, with phosphate demand expected to remain below historical levels. Third, we anticipate recent favorable weather to improve winter planting prospects in Australia and continued strength in livestock markets through the second half.
As we look toward the remainder of 2026, we expect free cash flow to be supported by constructive fertilizer market fundamentals, strong operational execution, capital discipline, as well as ongoing portfolio optimization efforts. Reflecting this focus on capital efficiency and returns, we have reduced our capital expenditures guidance by $50 million to a range of $1.95 to $2.05 billion. We increased share repurchases in the first half of 2026 by 26% compared to the prior year and have stepped up our repurchase pace in the third quarter to approximately $75 million per month.
This is consistent with our capital allocation approach of increasing cash returns to shareholders and maintaining a strong balance sheet as we structurally grow free cash flow. I'll now turn it back to Ken for final comments.
Ken Seitz, President and CEO
Thanks, Mark. The results we shared today demonstrate the progress towards strengthening the business and positioning Nutrien for long-term growth and resilience across Nutrien. Our teams continue to identify initiatives to further improve performance, unlock value from existing platforms, efficiently serve our customers, and advance future growth. Together, these efforts are expected to structurally increase free cash flow per share and enhance long-term shareholder returns.
To that end, we intend on hosting an Investor Day on Nov. 30 in Toronto where we will outline the next phase of opportunities to create additional value across the business to close. I'm encouraged by the team's execution in the first half of 2026 and the momentum we continue to build across Nutrien. With that, we'd be happy to take your questions.
OPERATOR
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised, and should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. The first question comes from the line of Chris Parkinson from Wolfe Research.
Please go ahead.
Chris Parkinson, Analyst at Wolfe Research
Great. Good morning. Just want to circle around the second half outlook for potash. It seems like demand has been pretty stable across Asia, Southeast Asia, some of your core markets. I'd love to hear your perspectives there versus your initial Jan 1 expectations, run through the Americas. And then in terms of your order books, do you feel pretty comfortable where you are now heading into December, especially that you know your Cali is taking some maintenance downtime and some other stuff.
Would just love to hear both the puts and takes, how you're thinking about that. Thank you so much.
Ken Seitz, President and CEO
Great. Thank you, Chris. Yeah, we are certainly constructive on potash for the second half and for the year. We continue to say 74 to 77 million tons of shipments this year, and you will have seen that we raised the bottom end of our own guidance, now at 14.2 to 14.8 million tons, and this is largely owing to favorable affordability, of course, and, to your question, healthy demand in all major global markets. We started the year with low inventories that are being replenished, and here we are in the second half.
We've had a favorable response to our summer fill program, we're now heavily committed through Q3, and of course Canpotex is fully committed to Q3 and expecting year-over-year growth in offshore markets. So yes, constructive on the setup. But maybe, to your question, Chris, I'll hand it over to Chris Reynolds to just talk about region by region.
Chris Reynolds
Yeah, good morning, Chris. Thanks for the question. And as Ken said, we are feeling good about demand for potash for the balance of the year. As you know, still globally the most affordable nutrient out there, and we're seeing that in our major markets. And so as you suggest, as we go around the world here, North America: we had a good response to our summer fill program and then subsequent to that a price increase we took, where we've taken some orders against that already, and also a fairly slim import lineup as we look out over the next couple of months.
Brazil: Q3 is always a little seasonally quiet in Brazil, but despite that, prices have been holding pretty steady around that $400 mark. And the uptick in ag commodity prices we've witnessed has also helped sentiment down there. We estimate there's still a lot of buying to be done yet in Brazil for the balance of the year, somewhere around 4 million tons, and so feeling good about things there. We actually just got back from a trip to China, talking to customers there.
And although port inventories have grown a little bit year over year in China, what we heard from our customers is that in-country channels are reasonably slim. So when you think about 20 million tons of consumption as the expectation there for China, and port inventories around 3 to 3.3 million tons, certainly not overbearing in terms of supply and demand. And the other message we got loud and clear while we were there is that the government and the buyers there are prioritizing security of supply, and they also like the outcome of an early settlement for this 2026 contract.
Southeast Asia demand continues to be underpinned by really good palm oil prices, but also a little bit of concern in terms of the potential El Niño impact in that region. So overall, Chris, feeling good about demand for potash for the balance of the year and the continuing stable market.
OPERATOR
Thank you. Your next question comes from the line of Ben Isaacson from Scotiabank. Please go ahead.
Ben Isaacson, Analyst at Scotiabank
Thank you very much and good morning. Ken, my question is, can you please talk about Nutrien's roadmap to expanding potash capability towards 18 million tons from somewhere around 15 today? It seems like you're getting close to your limit of capability. And given that supply is coming to market and given where demand growth is, what is the timing? What is the capex and do you still want to be in a 19 to 20% market share range in four or five years from now? Thank you.
Ken Seitz, President and CEO
Great. Thank you, Ben, for the question. And, you know, the short answer just to start on the demand side and market shares: yes, 19 to 20% historically has been sort of the market share that we've had globally. And then, you know, that's owing to the fact that we've had customers in each of these regions for many decades and those customers are growing in each of their regions as demand for potash continues to grow and we grow along with them. We've become a reliable supplier of high-quality volumes around the world for those decades now.
And like I said, our customers want to grow with us. So then when we look to our own network and, to your question, we ask the question, well, how are we going to continue to meet demand and 19 to 20% market share? We do have our six-mine network. Low cost, sits very well on the cost curve. Mark just mentioned we've been successful at keeping cash costs per ton below $60. Part of that is the mine automation work that we've been doing. But that mining automation work means that the next ton that we mine is also more efficient than the last.
And so as we continue to deploy those automation efforts, we look to where we're going to unlock that next ton. And, you know, it sort of happens in a way that we move from mine to mine depending on the all-in lowest cost, you know, capex capital charge included, where we get that next ton from. You know, today that has meant Lanigan expansion, but we have options at five of those six mines to continue to expand production. And again, with mine automation those options are growing for us.
This year we would say that we have about 15 million tons of production capacity. To your question, Ben, we like to think about sort of a year lead time to unlock additional volumes and maintain that 19 to 20% market share. So lead times are actually relatively short, and it's really getting mining machines in place and belting to the shaft, given that our milling capacity and tailings management areas are built. You know, it may require some loadout investment in some of our mines, but again these are relatively, and I do say relatively, shorter-term investments than something like a greenfield development.
In terms of cost, we say the next increment of production in time is sort of $200 to $300 a ton, and that would be, as you know, as we're witnessing, an order of magnitude lower than a greenfield development. As we go from 18 million tons and beyond, we do experience a bit of a step change in capital, but again, we're talking about $700 or $800 a ton — you know, again, maybe a third or less of what a greenfield development would be. So, you know, suffice it to say that we have these plans, we have this mapped out, we've done the math, we've talked to our customers, and every year we just continue to demonstrate that we grow our volumes.
OPERATOR
Your next question comes from the line of Andrew Wong from RBC Capital Markets. Please go ahead.
Andrew Wong, Analyst at RBC Capital Markets
Hey, good morning. Thanks for taking my questions. I just wanted to ask about the pace on share buybacks. The Q2 dollar amount was up pretty meaningfully versus Q1. And then when we look at Q3 to date, the repurchases, and we kind of average it out through the quarter, it puts you on another similar pace in terms of sequential increase. So is this your new regular buyback rate, or was there something that was driving this increase more temporarily, like because of cash flows or how you see the value in your shares?
Thank you.
Ken Seitz, President and CEO
Yeah, thanks, Andrew. And, you know, we do have, I would say, a pretty disciplined capital allocation structure and framework that we stare at as we make these decisions. We talk about it quite a bit with our board, but I will hand it over to Mark to just provide the color around that framework.
Mark Thompson, CFO
Yeah, thanks, Ken. Good morning, Andrew. And just before touching on the specific buyback pace, I think it's important to provide some context on the overall capital allocation philosophy because the buybacks are but one component of a broader set of objectives that we have to add value for shareholders. So as Ken has said, and I've said numerous times, you look back at our 2024 Investor Day, and since that time we've provided numerous avenues to grow structural free cash flow from the business.
We've had the upstream fertilizer sales volume growth we've demonstrated, the retail earnings growth, and the continued optimization of cost structure and capital expenditure structure, all of which have grown that structural base. As you heard Ken say this morning, we've now generated since the fourth quarter of 2024 about a billion dollars in divestiture proceeds, which has put our balance sheet in a great spot. And as we've mentioned numerous times, the return of capital philosophy is anchored in the idea that at mid-cycle prices we want to be around one and a half times net debt to EBITDA.
And we're getting quite close to those levels today. And we're very comfortable with the balance sheet and feel like we're in a great spot on that front. So when it comes to being disciplined on capital allocation, we now have a very streamlined and targeted set of growth investments in the business where our core strengths exist. And I really believe that we can demonstrate strong returns to shareholders by reinvesting in the company in those areas.
But that also has allowed us to grow that stable cash base. And as demonstrated, and as you noted, this has allowed us to increase the pace of ratable share repurchase activity. That ratable share repurchase activity is also linked to the ability to grow dividends per share over time without growing dividend expense. So when you zoom in on that framework and you look at this year specifically, we've gone from starting the year at a pace of around $50 million per month to around $55 million per month, and now in the third quarter, $75 million per month.
And what I'd say is with the second quarter behind us and the strong execution that we've outlined this morning and demonstrated in our results, there's confidence in cash generation for the year. I think as we zoom out even further and think about that buyback over time, there's certainly going to be this structural component to the buyback that as we grow free cash flow, the opportunity to increase that ratable buyback grows over time. Inevitably with our business, there's also a cyclical component to that buyback as we move through cycles where we'll be looking at the balance sheet and looking at where we are in the cycle.
But for the remainder of the year, we anticipate that we will remain in and around these levels. And as we get into 2027, we'll be looking at all the factors that I just talked about and that Ken's outlined as we continue to level set that ratable buyback. But the most important component of this is that shareholders can expect that Nutrien will continue to be a strong returner of capital. And the share repurchase mechanism is our preferred avenue to do that.
OPERATOR
Your next question comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.
Joel Jackson, Analyst at BMO Capital Markets
Hi, good morning. A little preamble to my question, but I've noticed, you know, in Q2 for retail, obviously a big quarter for retail, it was the lowest domestic fertilizer volumes like forever since 2013. We all know that Agrium and Nutrien have been acquisitive in retail since then. Volumes are down a lot year over year. We all know what happened with commodity prices across Q2. But I was wondering if you could talk about it. And this also lets, you know, Nutrien EBITDA — excuse me, retail EBITDA — being down in Q2.
Can you talk about exactly what was happening in the domestic retail fertilizer market? Was there a buyer's holiday because of commodity prices, fertilizer prices? And what does that set up for the rest of the year in terms of inventories in the market?
Ken Seitz, President and CEO
Yeah, thanks, Joel. You know, as the sort of spring unfolded, we were, and at the start of the year, we were expecting lower fertilizer volumes in our downstream business, albeit maybe not to the extent that you describe. And so what was going on there is we did see phosphate volumes down about 10%. And, you know, we can use the words demand disruption and the reasons for that. We've talked about, obviously, what's going on in the sulfur market and I think the phosphate business in general as phosphate producers have struggled and shut in facilities.
So, you know, and heading into the second half here, we expect we'll continue to see demand destruction as it relates to phosphate. Nitrogen volumes were down, you're correct, and down about 7% in our downstream business, owing to a few things. Obviously, year over year, corn acres are down, and that certainly plays a role in nitrogen applications. We did have a larger fall application season in 2025, so we did see some significant volumes go down last fall.
And we had a delayed start to the Western Canadian planting season, which also had an impact. And yes, we did see some demand deferral into the second half. And that's, you know, what happened to urea prices — that run-up and then, you know, the sort of seasonal lull as we came out of the season and growers stepping back and watching prices come down and delaying purchases. So, yes, that contributed as well, albeit to a lesser extent. And, you know, potash was pretty much as expected.
We saw 1% growth in potash, and that's owing to probably being the most affordable of the three crop nutrients once again. Heading into the second half here, I mean, the crop is advancing well, which could lead to an open application season. So, you know, we continue to expect good volumes this fall. On the year, you know, could we be down a little bit on volumes? Yes, but we expect a higher gross margin per ton on crop nutrients again in the second half that will offset those lower volumes.
More broadly for our downstream business, for our retail business — you know, if you're talking about a tale of two halves — proprietary performed very well in the first half. Crop chemistry as expected, Australia is performing well. We had some higher costs as it relates to fuel, but coming out of the second half, we've maintained our guidance at 1.75 to 1.95 million tons. And it's really just owing to the ongoing high single-digit percentage growth in our proprietary product gross margins — structural growth as it relates to proprietary products.
Again, I talked about crop nutrients. Crop protection is performing well. I saw that in Q3 as farmers seek to maintain plant health. And so again, you know, those point to the midpoint of our guidance, those assumptions. And again, maintaining that 1.75 to 1.95.
OPERATOR
Your next question comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead.
Vincent Andrews, Analyst at Morgan Stanley
Thank you. Good morning, everyone. Just sticking with retail, there was a callout in the retail section on the COVID page about the strong Australian livestock season. I see that shows up in services and other and it certainly helped the second quarter. Could you just give us a little more detail on that? It's not an area I particularly have a lot of expertise on. And will that carry forward into the balance of the year and how will it play out? Thank you.
Ken Seitz, President and CEO
Yeah, thanks, Vincent. Yes, livestock markets are very strong, not just in Australia, but yes, certainly in our Australian business. We have got a combination of good weather in Australia and a strong livestock market. Yeah, I'll hand it over to Chris Reynolds just to provide some more color.
Chris Reynolds
Yeah, thanks, Ken. Yeah, good morning, Vincent. Thanks for the question. Yeah, we were expecting actually livestock prices to come off a little bit in Australia after a pretty good run-up there in 2025. But on the continued strength of export demand for both lamb and beef, we've seen those prices continue. And so where that comes from for us is those stock agent commissions. That's the revenue stream we have in Australia in terms of, obviously, a percentage off the price of sheep and cattle mainly that we are instrumental in helping our growers sell in the Australian market.
We also saw the Chinese government put some import restrictions on particularly Australian material and product, but we haven't seen that impact prices yet. So we're on the watch-out for that a little bit, but have been very pleased with the performance of that business year to date.
OPERATOR
And your next question comes from the line of Kristen Owen from Oppenheimer. Please go ahead.
Kristen Owen, Analyst at Oppenheimer
Thank you. Good morning. While we're here in retail, let's stick with that. I wanted to ask about your proprietary products growth — up about 3% year over year here in the second quarter, but 16% gross margin growth, larger than that if we look on the first half. So two questions. First, can you help us unpack the drivers of that gross margin strength there? And then second, you know, we've heard from some others in the space maybe a bit of timing shift from here in North America from 2Q to 3Q — any color that you can provide on any timing shifts that you may have seen, and again, the drivers of that gross profit growth.
Ken Seitz, President and CEO
Yeah, thanks, Kristen. Yeah, proprietary products, as you say, performing very well. We believe this continues to demonstrate structural growth in gross margin contribution from proprietary products. We've launched 26 new products this year and again are seeing strong demand in our core geographies. The first half, that was once again a story of our crop nutritionals in light of volatile fertilizer markets, and we're constructive on the second half as well.
You know, I'll hand it over to Chris to give more color on some of the drivers of that growth. But, you know, as it relates to timing shifts — and really just pointing to nitrogen — again, we saw a bit of difference out of H1 into H2 in our downstream business. And the way the fall is setting up here, we're expecting good applications of NPK in the fall. So, you know, that would be sort of the timing shift that I'd point to. But again, Chris, back to you... for proprietary products, structural yield.
Chris Reynolds
Yeah, thanks, Ken, and Kristen, thanks for the question. We've been really pleased, obviously, with the performance of our proprietary products range so far this year. And as Ken said, underpinned by the introduction of a number of new products and a terrific response from the market to those new products. You know, growers are obviously very focused on yield right now, although commodity prices have moved up a little bit, which is helping sentiment.
As we walk the fields with our growers, all of that conversation is around: How do I increase yield? How do I preserve the yield that I have in this crop? And so really that comes back to increasing the efficacy of commodity fertilizers. And particularly when a product like phosphate gets high, it's: Okay, how can I enhance the efficacy of this phosphate product with some proprietary products? And that's what we're seeing in the marketplace. I think some of that spill from Q2 to Q3 — we're seeing that particularly in fungicide demand growth.
We've had wet weather through many parts of the Midwest, and so growers are keen to protect their crop against potential fungal disease, and we're helping them do that. So lots of conversation about yield preservation and how our proprietary products can help them to do that.
OPERATOR
Your next question comes from the line of Edelaine Rodriguez from Mizuho. Please go ahead.
Edelaine Rodriguez, Analyst at Mizuho
Thank you. Good morning, everyone. In the global product shipments outlook of 74 to 77 million that you have given, the affordability of potash and strong demand—what gets us to the low end and what gets us to the high end of that range?
Ken Seitz, President and CEO
Great, Edelaine, thank you. Yes, we've got a set of assumptions, as you might expect, on both ends, and I'll hand it over to Mark to walk through them.
Mark Thompson, CFO
Thanks, Edelaine. I think your question was about both the global supply construct, but also maybe a few comments about our own range in the context of that. As Ken set up in his prepared remarks, and I think Chris has alluded to this morning already, there is very robust demand for potash across the world. That continues to be underpinned by the availability of supply that we believe exists at the midpoint of our global shipment guidance range, affordability and stability of prices, and the fact that inventories have not been building disproportionately in any part of the world.
These are the factors that lead to the construct that, if these are the factors we see going forward, potash demand is healthy and can continue to grow over time. If we look to the upper end of that range, truth be told, we already believe that we're testing global supply chain capability. At the very top end we would need to see the effective capacity be available to serve all markets across the world for the remainder of the year. That would be the primary constraint as we get into the top end of the range.
At the bottom end of the range, I think we're looking at some of the factors we've talked about today in terms of the onset of potential risks related to El Niño in Southeast Asia, how inventories evolve for the rest of the year in global markets, and of course supportive weather allowing potash to reach global markets and go to ground. If we look to our own range, our potash production has continued to be very stable and consistent as we've alluded to this morning.
At the high end of our range we would really expect that, for us to be there consistent with our targeted market share, global markets would have to be trending to the top end of that range. At the lower end it's the typical factors you would look at in terms of any disruptions to the supply chain, the availability of good weather in North America for the fall application season, and all of those typical factors. As of today we feel quite comfortable with the midpoint of our guidance, and that's been evidenced by the bump in the lower end of the range.
OPERATOR
Your next question comes from the line of Jeff Zekauskas from J.P. Morgan. Please go ahead.
Jeff Zekauskas, Analyst at J.P. Morgan
Thanks very much. I think in your retail segment, for the quarter and for the first half your SG&A costs are up about 6%, and I realize that last year they were down. What's causing that level of inflation? And secondly, your seed gross profits were down about 20 million in the quarter. Was that a particular line of seeds or type of seeds that caused that shortfall, or can you explain what's going on there as well?
Ken Seitz, President and CEO
Yeah, thanks for the question, Jeff. There are a number of moving parts there on the SG&A front. I'll hand it over to Mark. Yes, it was also on seed—just a particular crop—but I'll hand it over to Mark to talk through what we're seeing on cost in a little more detail.
Mark Thompson, CFO
Yeah, thanks, Ken. Good morning, Jeff. Obviously, as always, there's a number of moving parts. When we step back and think about the structural changes that we've made to the cost profile in our retail business, but also more broadly across Nutrien, we believe that we're maintaining those structural cost savings that we've delivered. The single biggest factor that's driving the higher retail expense in the first half is something that we talked about post the quarter on our May call in terms of our guidance assumptions, which was higher expenses coming primarily from retail fuel and fleet costs, fuel being the biggest of those factors.
With the significant increase we've seen in global energy prices and the significant fleet that we have and the importance of fuel to execution of the business, we put a number of safeguards in place, but of course we're not immune to those costs. As we look to the second half of the year, we continue to look at the factors that we can control in terms of cost discipline in the retail business, but that's the largest factor I would point to. And then maybe I'll hand it over to Chris to talk about the seed portion of your question.
Chris Reynolds
Yeah, thanks, Mark. Good morning, Jeff. I think what you're referring to would be mainly the impact of lower rice acres—so a fairly significant decrease there that we weren't expecting. I think that was the main reason for the dip in seed sales.
OPERATOR
Your next question comes from the line of Matthew DeYoe from Bank of America. Please go ahead.
Matthew DeYoe, Analyst at Bank of America
Morning. Not to beat up more on retail, but nutrient margins saw a nice tick up sequentially but are still running down year over year. Just wondering if that's mix. I would have assumed a better margin pull-through given what we saw on the price increases in the market in 2Q. And then on CP, similarly pretty strong performance—I'm just wondering where volumetrically that comes in, because I would have assumed given farmer profits we might have seen weaker overall sales.
I'm assuming that growth is not price.
Ken Seitz, President and CEO
Yeah. Thanks, Matt. With respect to the first part of the question, just on margins, I'll hand it over to Mark. On CP, again, the first half laid out pretty much exactly as we expected. And as Chris mentioned earlier, for the second half, farmers are getting out protecting their crop, and so we've seen strong crop protection movement of volumes in the third quarter. Part of the story about maintaining guidance for the year is crop protection playing out as expected.
But Mark, do you want to talk about margins?
Mark Thompson, CFO
Thanks, Matt. Good morning. Not a lot to add to the portions of the comments we've had this morning on guidance. When you look at the downstream crop nutrient segment as a whole and you take the comprehensive look at that, as we indicated in our May commentary, we expected that fertilizer sales volumes would be down. With the quarter now behind us, and as Ken described, we saw that being a little bit more significant than we expected, particularly on phosphate and nitrogen.
As we also said on the May call, we expected crop nutrient margins to be stronger. That dynamic is something that we continue to expect to occur into the remainder of the year—that year over year we're going to have crop nutrient margins be stronger than what we saw last year—and that will partially offset some of the weakness we saw in volumes in the first half. And then of course in the second half, as we've laid out today, expecting phosphate to be down, but nitrogen and potash crop nutrient sales volumes closer to historical average levels.
OPERATOR
Your next question comes from the line of Ariana Milane from CIBC Capital Markets. Please go ahead.
Ariana Milane, Analyst at CIBC Capital Markets
Hi, good morning. On nitrogen, do you still see some level of cautiousness among buyers just given continued volatility in the market and related to both the Middle East conflict and Russia and Ukraine, or was lower prices all that was needed to sort of return to normal? And then on that note, do you expect us to see to some degree a geopolitical risk premium in the nitrogen market over the medium term?
Ken Seitz, President and CEO
Yeah. Thank you for the question, Ariana. With respect to the first part of the question, the answer is no. Much of what we've been discussing—crop is progressing well. There were some deferrals of nitrogen out of the first half that are going to have to be made up for in the second. Notably, we ran our summer fill programs and had very strong response on nitrogen, and so that certainly gives us confidence. We're 85 percent committed into the third quarter here.
And again, with an open fall application season, with nitrogen and urea prices having come off, we're constructive on N and K for the fall, as Mark just explained as well. With respect to an ongoing geopolitical risk premium, it's a difficult one to answer. We talk about what's obviously going on in the Middle East with respect to disruption of trade flows and volumes that continue to be sequestered upstream of the Strait of Hormuz—that million and a half tons a month that's not coming into the market as long as the strait is closed—and really no conclusion there in terms of volumes being able to flow freely.
So let's see how that plays out into the fall. Beyond that, we look to potentially longer-term disruptions as we consider damage to infrastructure—fertilizer production facilities, certainly natural gas facilities in the region that export LNG to other places that produce nitrogen. There's a lot going on there. It plays out today; you're probably seeing $20 natural gas in Europe. Thankfully our assets continue to sit in geographies that are structurally advantaged as it relates to feedstock.
It's that combination of things—constructive on the fall and where our assets sit—that make us constructive overall in nitrogen.
OPERATOR
Your next question comes from the line of Benjamin Theurer from Barclays. Please go ahead.
Rahi, Analyst at Barclays (for Benjamin Theurer)
Hi everyone. This is Rahi on for Ben. Sorry to bring it up again, but for potash—you mentioned the strong demand globally, but I guess just more color on what gives you confidence that farmers will not cut potash spend in order to save up for nitrogen. Maybe if you can point to other periods in the past at a similar scenario, like higher nitrogen pricing, lower potash, relatively low grain pricing, maybe higher inputs. I know there's been some debate in the industry on whether there will be growth or decline in global potash shipments this year.
So just looking for your perspective on that. Thank you.
Ken Seitz, President and CEO
Yeah, thank you, Rahi. What we're seeing with our grower customers and in our wholesale regions around the world is that with demand disruption in phosphate, for example, if you look at the share of wallet that farmers deploy toward fertilizer purchases, with the relative affordability of potash, we're actually seeing strong potash demand as farmers adjust the mix of what they're putting on the ground. We are seeing potash go to ground. Signposts in the market include our successful summer fill program in North America; we're heavily committed here into Q3 and talking about this open application season in the fall; and maintenance of that global shipments range of 74 to 77 million tons, with domestic being a part of that. Potash volumes were up a little bit in the first half. In terms of commitment levels at Canpotex, Canpotex is fully committed through Q3 and expecting overall volumes to be up this year compared to last. That's on the back of strong demand in just about every region that we supply, and Chris walked through that earlier.
Put it all together and we say 74 to 77 million tons—Mark walked through our assumptions on each end of that range—and then the role that we're playing in that 19 to 20% market share and the confidence that we have in increasing the bottom end of our guidance range from last quarter.
OPERATOR
Your next question comes from the line of Lucas Beaumont from UBS. Please go ahead.
Lucas Beaumont, Analyst at UBS
Thanks. Good morning. I just sort of had one on phosphates. So, I mean, you haven't had to reduce your sort of segment volume outlook there at all. It seems you guys haven't had to curtail production from the cost pressures that are coming on the input cost side, so I just wanted to understand how you are managing that compared with the others in the industry. And then just in terms of the strategic alternatives there, given the current market disruption we're seeing this year, do you think you'd be able to get the value you want for that asset this year if you're looking at a sale, or would it be better to maybe come back to that in 12 to 24 months once things settle out there? Thanks.
Ken Seitz, President and CEO
Great. Thank you for the question, Lucas. Yeah. So with respect to our current operations in our phosphate business, we've spent an extraordinary amount of time and effort over recent years to diversify our product mix, developing premium products and also focusing on cost reduction, and those efforts have been successful. Today the operations are running well; they're running safely. It's true that we continue to watch sulfur prices and contribution margins, but today contribution margins are in the black and, like I say, we can continue to run those operations.
That could change given the volatility in the sulfur market, but again, today, given the product mix, our focus on cost and, of course, the quality of the Aurora asset, we continue to run our operations. With respect to the process, it's a good question with respect to the volatility and uncertainty of the market. As we entered the process, being, of course, conscious of what's going on in the market, we assumed that any prospective strategic buyer would look through the current volatility, knowing that the phosphate market today is completely unsustainable.
Something has to change and will change, and again that any strategic buyer would look through the current market and understand the quality asset that Aurora is and assessing White Springs and our feed plants. That's exactly what's happened, Lucas. As we've invited interest in those assets, we're encouraged by what we see. We've had a number of responses. We're in the process now of shortlisting, and I can tell you we've had companies interested in all of the assets, some of the assets—everything in between.
We're going to be working through that over the coming months. Again, as we've shared, we expect to have some conclusions on our strategic review by the end of this year. So it's a good question, but we are encouraged by what we're seeing.
OPERATOR
Your next question comes from the line of Stephen Hansen from Raymond James. Please go ahead.
Stephen Hansen, Analyst at Raymond James
Oh yes, good morning, guys. Thanks for the time. I just wanted to circle back on some of the earlier comments on long-range potash outlook planning. I'm just curious, if you're looking at your existing logistical network, how you feel about that in a couple of contexts. I guess we've got the major projects planning here in Canada and some nation-building efforts pushing for additional infrastructure spending on the West Coast, but then you've also got your plans to perhaps move into the Pacific Northwest as well for a terminal.
So just thinking about—or just like to get some commentary on how you feel about the current status of the network and ultimately how you view that network is set up to handle some of this longer-term planning that you're thinking about. Thanks.
Ken Seitz, President and CEO
Yeah, thank you, Steve. And we're very thoughtful about that. If you look at global demand and what's happening—2.5% average annual growth rates per year—and there's significant runway there given that the world habitually underutilizes potash and what we can do globally with respect to yield, plant health, disease resistance, drought resistance with more potash. Like I say, there's a long runway. So we plan for long-term growth. We have the customers and end markets to achieve that.
And of course we have the volumes underground here in Saskatchewan to provide to them. As you say, it's everything in between that we need to be thoughtful about, and we are. So with respect to the end markets, whether it's North America, we say that set of infrastructure is built out more than probably anyone has done in our business, right through to our wholesale customers in North America and on to farms. It is true we continue to scrutinize cost and efficiency among that network, and we do see opportunity to get better there.
But we expect the majority of our potash volume growth to take place offshore, overseas. And to your question, Steve, how are we thinking about preparing for that? Today, via Canpotex, we have sufficient port capacity to meet near- and medium-term volume growth. We have the rail contracts in place to get to those terminals. And of course our loadout facilities, as I mentioned earlier, are sized to meet growth, and over time, when we talk about an incremental step change in capital beyond 18 million tons, part of that is the loadout facilities.
We'll have to build some more loadout, but we'll be planful and thoughtful about that with lead times that accommodate the volumes to flow. With respect to terminal infrastructure for the long term, yes, one, we like to have some options. We don't like all volumes going through one location, so we'd like to diversify that. Two, we know that we need more terminal capacity over the long term. And so yes, that led to our announcement exploring Longview as an option for us to construct a terminal for that long-term growth.
Put that whole picture together, and we don't see impediments to our continued growth in potash production as we serve our customers globally.
OPERATOR
Your next question comes from the line of David Simmons from BNP Paribas. Please go ahead.
David Simmons, Analyst at BNP Paribas
Okay, yeah, thanks for the chance to ask a question. A couple for me, please. The first one's a bit of a conceptual one. How are you thinking about increasing biofuel mandates around the world in relation to the amount of fertilizer the world will need in the next five years? I saw a UN piece on food security risk yesterday. It strikes me that with a lot of tension around the oil market there seems to be a big increase in biofuel mandates. And secondly, your retail business has a lot of agronomists across the U.S. There's a lot of debate about weather conditions in the Corn Belt, particularly around having had a quite a dry July. Do you have any view on the yield for U.S. corn this year? Thank you.
Ken Seitz, President and CEO
Yes, David, thank you. A couple great questions. So I will hand it over to Jason Newton, our Chief Economist, who studies both of your questions quite closely. So, Jason.
Jason Newton, Chief Economist
Thanks, Ken. Good morning, David. Yeah, there's a number of different biofuel mandates that are expanding globally that have been providing support to grain demand and prices already. So if we look at Southeast Asia—and we've mentioned already the strength in palm oil prices—and part of that's driven by strong vegetable oil demand, expanding biofuel mandate in Indonesia, which is moving to a B50 mandate there, that's expanding domestic demand. And so that's been supportive of palm oil prices and grower economics in that region. In North America we also see support for biofuels and potential expansion into year-round E15, expansion of renewable diesel production in the U.S. We've seen recent expansion announcements for crushing capacity for soybeans, and so that's really supportive of demand. And we've seen strong demand for grains and oilseeds tighten those supply-demand balances versus what was expected earlier this year.
And as we look over the medium term, with that increased certainty, we expect increased domestic demand in the U.S. to be supportive of grower economics and acreage. To your second question on weather in the U.S., yeah, we've seen across numerous geographies globally challenges with weather conditions. We've seen really hot and dry weather in Europe and dry weather especially in the western Corn Belt of the U.S., and consecutive reduced condition ratings in the U.S. providing potential downside on yields, and we'll watch how that develops going forward. Of course we know that nutrient application rates were down as well, and that could provide additional uncertainty with respect to yields given the importance of adequate nutrition in terms of drought resistance and so on. And so as we look toward the fall, the tightening supply-demand balances from that strong demand and reduced crop yield potential is supporting a more optimistic view of ag economics and supply and demand fundamentals.
OPERATOR
There are no further questions at this time. I will now turn the call back to Jeff Holzman. Please go ahead.
Jeff Holzman, Senior Vice President, Investor Relations and FP&A
Thank you for joining us today. The investor relations team is available if you have follow-up questions. Have a great day.
OPERATOR
Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation. You may now disconnect.
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