Saskatoon-based fertilizer giant Nutrien Ltd. surged to all-time high profits in the first six months of 2022 as the war in Ukraine destabilized agriculture markets and heightened global food security fears.
The Canadian company, which is the largest fertilizer producer in the world, raked in US$5 billion in profits in the first half of the year as crop input prices soared to multi-year highs.
For the three months ended June 30, Nutrien’s net profit increased 224 per cent to US$3.6 billion. (The company said its earnings for the second quarter were affected by a non-cash impairment reversal related to its phosphate operations of US$450 million.)
On Wednesday, the company revised its full-year earnings guidance for 2022 to between US$14 billion and US$15.5 billion, down from a previously forecast US$14.5 billion to US$16.5 billion, due to lower nitrogen pricing and higher natural gas costs.
However, in spite of the slightly lower outlook, interim CEO Ken Seitz told analysts on a conference call Thursday that the ripple effects of the conflict in eastern Europe will continue to drive demand for Nutrien products for many years.
“We believe structural changes to global energy, agriculture and fertilizer markets will provide a support environment for Nutrien well beyond 2022,” Seitz said.
Record high temperatures in Europe this summer have reduced summer crop yields, Seitz said. While crop commodity prices have been affected over the past month by broader market volatility, they are still 25 to 35 per cent above the 10-year average, he said.
While the recent deal to reopen Ukrainian wheat exports through the Black Sea would be a positive development for global food security if there is a sustained increase to shipments, Seitz said, it won’t be enough to stabilize global agriculture markets.
“Analysts believe volumes will continue to be challenged by labor and logistical constraints in addition to ongoing military strikes in the region,” he added. “Ukraine’s grain production and export levels are projected to be down dramatically compared to 2021, leaving little buffer for any supply issues in other regions this growing season.”
In June, Nutrien announced plans to increase its potash production capacity to 18 million tonnes per year by 2025, a 40 per cent increase over 2020 levels, to meet rising global demand.
Seitz told analysts Wednesday that potash shipments from Russia and Belarus were down an estimated 25 per cent and 50 per cent, respectively, in the first half of 2022. While Russian potash exports are not currently sanctioned, they have been impacted by restrictions on financing activities that facilitate exports.
“The impact of sanctions on Belarus supply has been more significant due to the loss of access to tidewater through Lithuania,” Seitz said.
Nutrien’s potash sales volumes for the three months ended June 30 were 3.7 million tonnes, a second-quarter record high.
Nutrien, which was created in 2018 as a result of the merger between PotashCorp of Saskatchewan and Calgary-based Agrium Inc., has six potash mines in Saskatchewan and two large phosphate mines in the U.S. It is also the world’s third-largest producer of nitrogen. (Potash, phosphate and nitrogen are the three main plant nutrients used in commercial fertilizer.)
The company exports its products around the world, with Brazil, China, India, Indonesia and Malaysia accounting for 70 per cent of its offshore sales.