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Nutrien Ltd. (NTR) Q4 2017 Earnings Conference Call Transcript

Motley Fool Staff, The Motley Fool
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Nutrien Ltd. (NYSE: NTR)
Q4 2017 Earnings Conference Call
Feb. 6, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Nutrien Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press "*0" on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Richard Downey, Vice President, Investor and Corporate Relations. Thank you, sir, you may begin.

Richard Downey -- Vice President of Investor and Corporate Relations 

Thank you, operator. Good morning, everyone, and welcome to Nutrien's first investor conference call to discuss our results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien, Mr. Wayne Brownlee, our CFO, and the heads of our four business units. As we conduct this conference call, various statements that we make about future expectations, plans, and prospects contain forward-looking information. Certain material assumptions were applied in making these conclusions and forecasts. Therefore actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report, MDMA, 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.

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Chuck Magro -- President and Chief Executive Officer

Thanks, Richard. Good morning, everyone, and welcome to our first earnings call as Nutrien. Today we will recap the fourth quarter and the full-year performance of our legacy companies and provide insight into how we see the market unfolding in 2018. I would also like to share my thoughts on the strategic priorities for Nutrien, our financial guidance for the year, and additional details on our synergy targets. I'm excited for the future of Nutrien. I believe we have a tremendous opportunity ahead of us and our goal is to ensure we deliver on those opportunities and exceed the expectations of all of our stakeholders.

First, let's talk about our legacy companies' results and Nutrien pro forma. The strength of our global retail business was evidence again this quarter. We achieved record retail EBITDA, driven by strong sales and higher margins across our entire portfolio of crop inputs and services. For the full-year, retail EBITDA rose to $1.2 billion, an 8% increase over the previous year. This growth was supported by higher proprietary product sales, a continued focus on operational excellence initiatives, and contributions from acquisitions. As a result, we delivered further improvement on all retail operational metrics in 2017.

For example, our cash operating coverage ratio declined to 60% and our EBITDA to sales ratio increased to 10%, while our normalized comparable store sales increased by 2%. As such, the majority of our retail targets set for 2020 have now been met or exceeded. It's worth highlighting that our Australian retail operations achieved record EBITDA of $154 million this year, up 26% over last year and more than double the EBITDA in 2012. Our EBITDA margins for Landmark reached 8.8% this year compared with just 3.6% in 2012.

Fourth quarter performance for the legacy Agrium wholesale business benefited from strong potash results but was impacted by lower production and sales volumes in both nitrogen and phosphate. Overall, Agrium generated $1.6 billion in cash from operations during the fourth quarter and $1.3 billion for the year, supported by our integrated business structure, and this is a testament of our operating model strength.

Turning to the legacy PotashCorp results. The fourth quarter continued the trend of improved year-over-year performance for the potash business due to higher realized potash prices and lower costs. For the full-year, PotashCorp benefited from significantly improved global market conditions, as our average realized potash price increased 11% and sales volumes rose by 8%. And importantly our cash costs per tonne declined to 13% in 2017, a direct result of portfolio optimization decisions taken over the past two years. This included the ramp-up of our expanded Rocanville potash mine, the largest and one of the lowest cost mines in the world. Cash costs for this mine were around $50.00 per tonne in 2017 based on production of nearly 5 million tonnes.

Nitrogen margins during the fourth quarter were supported by improved market conditions and an increase in global benchmark prices for both ammonia and urea. Phosphate results for the quarter were impacted by non-cash impairment charges totaling $276 million at our White Springs and feed phosphates facilities. PotashCorp adjusted earnings totaled $59 million for the quarter and $455 million for the year and were supported by improved potash segment results. Cash from operating activities totaled $1.2 billion for the year, which was in line with last year.

Nutrien will release pro forma historical financial information later this month. But to give you a high-level sense of performance this year, our adjusted combined EBITDA totaled approximately $2.9 billion and combined cash flow from operating activities was $2.5 billion. This was achieved in a year that we believe represents a relative low point in the crop nutrients cycle and does not include the $500 million in future merger synergies. With more than 25 million tonnes of primary crop nutrient sales, Nutrien is well-positioned to benefit from the recovery in the fertilizer markets in the next couple of years. In terms of the contribution by business segment, retail accounted for 36% of the total EBITDA, with potash contributing 33%, nitrogen around 25%, and phosphate the remainder. All together, we invested $1 billion in sustaining capital to maintain our assets, which still provided significant free cash flow to return to shareholders and continue to grow our retail business.

Before I speak about our 2018 guidance and strategic priorities, I would like to touch on the outlook of our markets. The 2017-2018 crop year will mark yet another year of above-trend yields for global grains and oilseed production. While this has contributed to more modest crop price environment, it has also supported significant growth in global consumption. In fact, global demands has grown at an annualized rate of 2.7% over the past five years, which is the highest five-year growth period since the early 1980s. In simple terms, this robust agricultural growth story has translated into greater demand for crop inputs, services, and solutions.

For the upcoming North American planting season, we expect relatively stable acreage of most major crops and application rates of crop inputs similar to last year. This should be supported by North American grower crop margins, which are above last year's levels. Our retail business has collected grower pre-paid of over $1.5 billion, which is in line with last year and an indication of solid anticipated spend this spring. We anticipate the crop protection product market to be firm this year, with price appreciation for some products, such as glyphosate and generic products, which is partially associated with higher production costs in China. The seed market is expected to remain flat in 2018, as price appreciation on new technologies is expected to offset some competitive price pressure due to relatively low crop prices.

In potash, we are seeing strong customer engagement and steady to higher prices to begin 2018. Global potash shipments set a new record of approximately 64 million tonnes in 2017, which was driven by strong consumption growth in all major offshore markets. Potash remains highly affordable, and with relatively low inventories across the supply chain, we forecast global potash shipments between 64 million and 66 million tonnes in 2018. Capitex had a record year in 2017 and is actively filling its order book as the growing season approaches in several key agricultural regions.

We had a positive response to our domestic winter fill program announced in early January and are fully committed through the first quarter, with orders taken at prices up $20.00 per tonne for the second quarter deliveries. We expect new greenfield potash capacity will enter the market this year but anticipate the amount of actual supply in 2018 will be limited by typical ramp-up issues as well as announced mine closures and product mix changes by some producers. Therefore we see a relatively favorable environment for potash well into 2018, as supported by the recent price increases in several markets.

Turning to nitrogen, prices remain firm in the early part of 2018, with benchmark prices up between 15% to 40% from the fourth quarter 2017. Chinese production rates have been cut back by ongoing regulatory pressure. That includes reduced natural gas availability, significantly higher natural gas prices, and continued strength in coal. We view these changes as a more structural shift and anticipate lower exports from Chinese urea producers moving forward. North American nitrogen demand is expected to be relatively stable in 2018 and the ongoing ramp-up of new domestic capacity will further reduce dependence on offshore imports. However, due to the slow pace of imports and large offshore exports over the past six months, we expect relatively tight supply in North America between now and the spring application season. Overall, we anticipate an improved nitrogen market compared to 2017 based on the expectations for higher global energy prices, lower Chinese exports, and demand growth absorbing recent capacity additions.

We expect higher sales volumes for potash in 2018 compared to our 2017 combined total. This is in line with the anticipated growth in global potash demand. We also expect our total nitrogen sales volume to be higher in 2018, which is partially due to higher on-stream time for our plants in North America and Trinidad. Our Trinidad operating rate is expected to be higher in 2018 due to improved gas availability.

Based on these market conditions, we announced annual earnings guidance of $2.10 to $2.60 per share in 2018. This excludes incremental depreciation related to purchase price allocation adjustments, share-based payment expenses, and synergy implementation costs. The EPS guidance includes equity earnings from SQM and APC for a portion of 2018 but is excluded in the EBITDA guidance. We also provided EBITDA guidance of $3.2 billion to $3.7 billion for 2018.

Let's now move on to Nutrien's strategic priorities. Over the past month, I've had the opportunity to visit our offices and operating sites and I've been very impressed with the quality of assets in the Nutrien portfolio and the depth of talent within the organization. With this strong foundation in place, the management team and the Board will be focused on a few key strategic areas over the next 6 to 12 months.

First and foremost, our priority will be delivering our integration plan, which includes capturing $500 million in synergies by the end of 2019. While we are only a month into the process as Nutrien, I can tell you that the extensive work completed over the course of 2017 has allowed us to hit the ground running. Integration teams are in place and each business unit is working toward its synergy plan. In the early stages, we will be focused on capturing synergies in the areas such as procurement, transportation and distribution, operations, and finance. In fact, over the first month, we've already captured $40 million in run-rate synergies and have identified a number of opportunities that reinforces our confidence to deliver on our synergies target. Starting in the first quarter, we will report detailed synergies on a quarterly basis.

The second priority is to define strategic areas of focus for each business unit, including a portfolio review of our assets within the first 12 months and the completion of required equity divestments. Many of you will have seen the announcement in January on the divestiture of our 14% stake in ICL. We were very pleased with this outcome and, just to clarify, we received net proceeds of $685 million. We continue to make good progress on the divestiture of the SQM and APC stakes and based on current market values, we believe the sale of these three equity stakes could generate proceeds after tax of between $4.5 billion and $5 billion.

We recently announced the acquisition of Agrichem in Brazil and I'm excited about the opportunity in this major growing region of the world. As a leader in Brazilian specialty nutrient markets, the Agrichem team and extensive product profile will be an excellent fit with our Loveland products business. Brazil will be a strategic focus for future retail expansion due to its large and growing agricultural retail and crop input market. We will also continue to focus on growing our footprint through talking acquisitions in our existing regions, particularly in North America. And as such, we acquired 44 locations this past year with approximately $300 million in annual synergies and an average EBITDA multiple of just over 7 times before synergies. Furthermore, we continue to pursue greenfield location builds in seven U.S. states. In 2017, two locations became operational and we expect construction will be completed on another six locations in 2018.

Finally, it is a top priority to establish a clear capital allocation policy. Our goal is to maximize shareholder value and you can expect a balance between return of capital to shareholders and growth of the business while maintaining a strong investment grade rating. We will be in a position to more clearly articulate our plans for returning cash to shareholders in the coming months but I can tell you our priority will be to pay a stable and growing dividend. We will target a payout that would represent 40% to 60% of our free cash flow through the cycle. In line with previous disclosure, Nutrien's annual dividend is expected to be $1.57 per share, which is well within our targeted payout range and should also allow for future growth.

To conclude, Nutrien's integrated business model and unique position within the agricultural landscape provides us with significant levers to create value for our shareholders. With a clear line of sight on $500 million of synergies and significant proceeds expected from the sale of our equity investments, we're coming out of the gate with a strong free cash flow position and a healthy balance sheet. As well, the fundamentals for our business have improved and, in particular, the outlook for potash and nitrogen markets. This affords us with a lot of flexibility to allocate capital effectively and generate excellent shareholder returns.

I'm joined today by members of the Nutrien executive leadership team and we would be happy to take your questions. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. Due to time constraints, we ask that all callers limit themselves to one question. If you would like to ask a question, please press "*1" on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press "*2" if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing "*" key. One moment, please, while we poll for questions.

Thank you. Our first question comes from the line of Jacob Bout with CIBC. Please proceed with your question.

Jacob Bout -- CIBC World Markets -- Analyst

Good morning. Chuck, you seem pretty confident on the $500 million in synergies. Can you talk about what potentially could drive this higher?

Chuck Magro -- President and Chief Executive Officer

Good morning, Jacob. Yeah, I'll give you a summary and then I'll have Wayne just talk a little bit about what he's seeing in his area and maybe Raef Sully, our President of Potash, just talk about what we're doing in potash. But, look, we've been at this for well over a year now and when we look at it, the $500 million of annual synergies, we're confident about that number. And for 2018, just to set the context, we're expecting $250 million on a run-rate basis. And then if you look at our annual guidance, the number that you expect to deliver, we expect to deliver for the full-year, is about $200 million.

And in Q1 we hit the ground running, as I mentioned in my prepared remarks, where we're over $40 million on a run-rate basis. And we're starting to see areas such as leverage from some of our finance service providers, of course, the network optimization when it comes to the production, specifically around our nitrogen optimization and our potash optimization, and then very significant synergies in the supply chain. We're already down 200 rail cars in our fleet. We're reducing our warehouse footprint quite rapidly and that's shedding a tremendous amount of cost. But I'll pass it over to Wayne just to talk about some of the procurement synergies and then I'll have Raef Sully talk a little bit about potash. Go ahead, Wayne.

Wayne Brownlee -- Executive Vice President and Chief Financial Officer

Thanks, Chuck. Jacob, we are on track. We've already reached about $20 million in procurement synergies in the first month, which is a run-rate for the course of the year. We're optimistic that we will find quite a bit more over the course of the year and we'll be well in excess of $100 million by the time we're done and probably closer to $150 million. So that's going very well.

Chuck Magro -- President and Chief Executive Officer

Raef?

Raef Sully -- Executive Vice President and President, Potash

Jacob, one of the largest opportunities we've got, of course, is optimizing our production footprint. As you know, we've got six operating mines. There's quite a difference in the cost of production across those six mines and we're looking to move production to the lowest cost mines. As Chuck mentioned, Rocanville's down to around $50.00 a tonne, cash cost. We actually think there's probably more room to go on that. We're going to look at trying to ramp it past a 54 mark and head up toward 6 over the next couple of years. And we think that there's a fair bit more than the original $50 million we had tagged for that.

Operator

Our next question comes from the line of Andrew Wong with RBC. Please proceed with your question.

Andrew Wong -- RBC Capital Markets -- Analyst

Hi, good morning. I have a couple questions. First, on the guidance, it looks like there might be some sort of disconnect in the EPS and the EBITDA outlook versus the consensus. And I think you touched on some of those things, like the purchase price allocations and the equity earnings. Could you just maybe help us walk through in more detail what's in the outlook and maybe what the outlook would look like if you included the equity earnings on a full-year basis? And then just secondly, if you could provide us an update on some of the sale of your SQM and Arab Potash stakes? Thank you.

Chuck Magro -- President and Chief Executive Officer

Good morning, Andrew. Yeah, so look, let's start with the guidance. And I'll give you our view on how we set the EBITDA guidance and what's in it and what's not, importantly. And then I'll ask Wayne to talk a little bit about the EPS guidance. But that is being affected, of course, by some of the merger accounting. And then Wayne can also address your question on the equity stakes.

So we provided EBITDA guidance because I think it's the best view for our recurring earnings for the core of the business. And of course that range we set now is $3.2 billion to $3.7 billion, with a midpoint of $3.45 billion. And it's important to note that the equity stakes, so the equity pick-up, and last year that was about $170 million, that is not included in the EBITDA guidance range. So that's really important to communicate clearly. And that's simply because we do intend to sell them because of the regulatory settlements that we made with the government. So that's the first set of adjustments that I think needs to be kind of observed. In all cases for guidance, though, we're assuming that retail growth is EBITDA. The other thing we're assuming in all of the guidance numbers that we've provided is that we deliver our synergies because we have strong confidence that we will hit our synergy targets.

So then when you look at the range, $3.2 billion to $3.7 billion, really the difference is all market price. And it's really fundamental in terms of what the market price is for nitrogen and potash. And if I can just paint the bookends for you. So at $3.2 billion of EBITDA, and that's the low end, retail growth, we deliver our synergies, but the market prices are basically where they were in 2017. Clearly that's not where we are today. It's probably a bit conservative in my eyes. But that's the one end of the guidance bookend. The other end of the bookend, $3.7 billion, we grow retail, we hit our synergies, and the market prices are up somewhere between $30.00 and $40.00 a tonne. And if you look at that, that's the massive leverage that this new company has to the upside when it comes to market pricing.

So then you look at the midpoint, $3.45 billion, retail growth, we deliver on our synergies, and you need market pricing to increase around $20.00 a tonne on nitrogen and potash versus last year. And that's up almost 20% then versus the $2.9 billion that the pro forma company delivered last year. So I'd say that's pretty significant operational improvements and growth and the combination is retail growth, delivering our synergies, and a little help from the market. Now when you move to EPS, of course, there's the merger accounting and I'll let Wayne explain that and then Wayne can also address your question on the equity sales.

Wayne Brownlee -- Executive Vice President and Chief Financial Officer

Thanks, Chuck. The big item that we are still working through is the purchase price accounting. As you know, the market value, since accounting-wise Agrium was the acquiree, the market value was $10 billion higher than the book value. So we have to adjust for that. We're going through an evaluation process right now that we expect to wrap up by close to the end of the first quarter. That range of additional amortization or depreciation could be somewhere in the range of $150 million to $300 million. So we need to set on that and we'll come back and we'll give you pretty good directional guidance by the end of the first quarter. So that will be the biggest adjustment. It's, of course, a non-cash item. It's just purely accounting speak. And that will have the biggest impact on the earnings per share.

As Chuck noted, the equity investments are not included in the EBITDA. We fully expect to incur some income from them over the course of the year. They will show up as discontinued items in our financial statements going forward. But they would have otherwise normally have been in the EBITDA. So that adjusts for the difference.

With regards to the sales process, as you know, we concluded the Israel Chemicals sale in January. Still we're continuing to work through Arab Potash Company and SQM. We have a robust bidding process in both of those two entities and it's speculative in some ways to try and determine when the sale of those equity interests will take effect. Because not only do we have to reach an agreement with a third-party but we will also have to probably go through any regulatory hurdles that may be required to close those sales. So we expect that to continue this year. We're hoping that by the end of the second quarter we might be in a position on the Arab Potash Company. That remains to be determined. And we'll continue to work through SQM and, once again, the timing of that will be determined. But the bidding process to date, on a very preliminary basis, has been quite robust.

Operator

Our next question comes from the line of Don Carson with Susquehanna. Please proceed with your question.

Donald Carson -- Susquehanna Financial Group -- Analyst

Yes, thank you. Chuck, you talked a bit about optimization of your potash operations. What about permanent capacity closures? You've got 22 million tonnes name plates. Obviously it'd take you a long time to get up to needing all of that name plate capacity. So as you ramp up Rocanville and some of your other lower cost mines, are you looking at permanent closures of smaller Saskatchewan mines and New Brunswick?

Chuck Magro -- President and Chief Executive Officer

Good morning, Don. Look, I'll let Raef Sully, our President of Potash, give you his view and then I'll give you my thinking longer term, in terms of the strategic overlay in terms of the potash market. But go ahead, Raef.

Raef Sully -- Executive Vice President and President, Potash

Sure. Look, Don, all of those things are on the table. We're certainly looking at those options. At the minute, as I said, we're looking just at optimizing the plants we have running. You know that New Brunswick isn't producing at the moment. It's down. We took a quarry down to white only recently. And prior to that, we had Allan and Lanigan taken down an amount too. So I think in the short-term, we need the six running. We'll look at that again halfway through the year and at the end of the year, seeing what the second half does. And if we need to, we'll make some decisions.

Chuck Magro -- President and Chief Executive Officer

Yeah, Don, it's Chuck. So, look, when we look at the market for potash, certainly what we see right now is demand is quite robust in all global markets. And so if you look at our guidance that we provided, we're only going to take our sales book up about 3%. But there's a lot of optimization with the 3% that we can get significantly lower costs by moving product to the lower cost facilities and then trying to maximize sales for the higher premium potash business. And then there's this notion of the integration into retail with some of the higher premium product. So all that's under way. When we look at that, the synergy creation is quite substantial. And then we need to understand, if the market continues to grow at 2.5% to 3% per year, what ultimate capacity are we going to have to need from our production. And those decisions are going to take a little bit more time for us. We're going to have to look at demand in the second half of the year as we move into 2019. But we're going to, rest assured, look at the best long-term optimization decisions for that business.

Operator

Our next question comes from the line of Ben Isaacson with Scotia Bank. Please proceed with your question.

Oliver Rowe -- Scotia Capital -- Analyst

It's Oliver on for Ben. Thanks for taking my question. Could you just give us some color on the implied phosphate EBITDA outlook? It looks like you're expecting 2018 to be a pretty challenging year there. And then on that note, could you give us an update on how the strategy to turn that business around is going and maybe what we could expect that business to look like when you come out on the other side?

Chuck Magro -- President and Chief Executive Officer

Okay. Good morning, Oliver. I'll have Susan Jones, our President of Phosphate, answer your question.

Susan Jones -- Executive Vice President and President, Phosphate

Good morning, Oliver. Yeah, our EBITDA range for the year is going to be between $150 million and $200 million for the phosphate business. And fortunately we have had global phosphate prices firm in the first quarter so we're out of the gate with fairly robust demand and pull, which is nice to see. I did want to address your turnaround question. And first and foremost, we are very, very much focused on the synergy number. We have a target of $80 million in synergies that we have been discussing with shareholders since the time that we announced the merger. And in essence, this is replacing third-party rocks from our Redwater facility with excess capacity at our Aurora, North Carolina and White Springs, Florida facilities.

Now, we are looking at three options to address this right now. One is moving rock to Redwater to upgrade to MAP. Another is moving acid to Redwater to upgrade to MAP. And finally just moving finished MAP straight into Western Canada and looking to repurpose our Redwater facility. And. of course, in any of these scenarios, we're going to be looking to use the legacy PotashCorp's active capacity and combining that with Agrium legacy's retail demand to create the synergy. So as a part of this, what is really key is we need to look at the capital to be spent to achieve the synergies. And it's looking right now as if the least amount of capital is just to simply move the finished MAP.

But that's the synergy plan that we're focused on and I'm very confident we're going to be able to achieve those synergies. And we are, of course, going to have phosphate as part of the overall portfolio review. We're looking at the feed business, we're looking at the industrial business, and they'll be more to come on that as we go through the course of the year.

Operator

Our next question comes from the line of Chris Parkinson with Credit Suisse. Please proceed with your question.

Graham Welds -- Credit Suisse Securities -- Analyst

Hi. This is Graham Welds on for Chris. Just had a quick question on the potash outlook that you guys put out. If I take a look at the incrementals for your volume guidance for Nutrien as well as the volume guidance for the industry, it looks as though you guys would be gaining a little bit of share. I know you talked a bit in the prepared remarks about your expectation that the greenfield projects coming on line won't be able to produce as much, as well some facilities that you expect to be winding down, but I was wondering if you could kind of walk us through a little bit more of the specifics of that dynamic and what you see kind of driving that outcome? Thanks.

Chuck Magro -- President and Chief Executive Officer

Good morning. Hi, it's Chuck. I'll take your question. So, look, I think when we gave the guidance, here's the backdrop. The demand is quite strong, especially in the first half. And some of the new capacity that's coming into the market we don't believe will have saleable tonnes, certainly in the first half, of any big significance. So second half, we'll need to see. Some of the operators that are bringing new capacity have already kind of extended the timeline of when they thought that the tonnes would be into the market. So we think that the testament that market prices now, even in North America, are up $20.00 a tonne, spot prices in Brazil are up, I think that that's all good signs that the market is strong and getting healthier.

For our guidance, when we look at our production and our sales, it's up a relatively small amount, 3%. Last year, the combined pro forma company was up much more than that. And I don't have the exact market shares, but I would say that the journey is sort of a flat market share and we're trying to sell a lot of those tonnes in the first half of the year because that's where the demand is. And then we'll see what happens in the second half of the year. That's why we gave a range for guidance. But I think we're quite aware of the market dynamics. We like how the market is improving. It's getting healthier. And we just don't think there's enough tonnes in the market, especially in the first half.

Operator

Our next question comes from the line of Steve Byrne with Bank of America Merrill Lynch. Please proceed with your question.

Steve Byrne -- Bank of America Merrill Lynch-- Analyst

Yes, thank you. The 6% increase in global shipments for potash that you noted in 2017, you assess that as being commensurate with end-user consumption. From an agronomy perspective, what do you think was driving that increase in potash consumption in 2017? And then you're basing that, at least largely, on your assessment of channel inventory levels in all of the key regions, China, India, Brazil, U.S. What's your confidence level that channel inventory levels are indeed lower than they were a year ago?

Chuck Magro -- President and Chief Executive Officer

Good morning, Steve. Look, we're very confident that the potash went to ground. Very sure of that. And I'm going to have Jason Newton, our head of Market Research, walk you through those dynamics and why we believe that the potash went to ground.

Jason Newton -- Director, Market Research

Yeah, good morning, Steve. I think there's a few things leading to the high amount of demand growth that we saw last year. No. 1 is that we saw a stable and firming pricing environment which gave downstream buyers confidence in the market to take a position. But also, if you look at the price of potash and where it's increased to today, it's very affordable at the farm level compared to crop prices. And historically when we've seen that combination of steady and increasing prices at affordable levels, we've seen firm demand growth. And that's what we saw last year.

If we look at inventories in four of the major markets, so North America, China, India, and Brazil, what we've seen, and there definitely isn't perfect inventory data downstream, but the inventory data that we've seen showing those markets is down about 5% year-over-year. So obviously we're seeing a lot go to ground. In the North American market, we have the insight from our retail group that says that demand is very strong, channel inventories were tight at the end of the year, and we expect to see flat demand in the first half of the year within North America. I think the second half is more of a question mark. So we're a bit conservative on the shipment range, but that's just driven by how strong all applications use was this year. And we've really seen limited build in inventories.

Chuck Magro -- President and Chief Executive Officer

And Steve, it's Chuck. Just a little bit more color for you and it's just color at this point. But certainly in Brazil, the phenomena of the structural change of moving pasture land to agricultural land, it's there. It was there last year. That's driving demand. That's why they hit a record potash demand in Brazil. And we think that that phenomena will continue over the foreseeable future. In India and China, the governments are starting to mandate now soil sampling by their farmers. And our intelligence would suggest that the data is quite worrisome and I think that finally they're starting to see that, if they don't change the soil health dynamics, they could have long-lasting implications. And we're starting to see good application rates as a result of some of the soil sampling we're seeing in India and China. Now, will it continue? We don't know but we certainly saw that clearly last year.

Operator

Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question.

Daniel Jester -- Citigroup Global Markets -- Analyst

Hey, good morning, everyone. It's Dan Jester on for P.J. I was looking at the appendix of your deck and you have some targets for your ammonia production capacity. And I'm just looking at, for total Nutrien, it looks like the aspiration is to go from about 90% utilization to 98% utilization in the next couple of years. So I was wondering if you can kind of dive into what's driving that. And if you add back Joffre and Trinidad, what do you think the ultimate operating capacity of the business is? Thanks.

Chuck Magro -- President and Chief Executive Officer

Morning, Dan. I'll have Harry Deans, our President of Nitrogen, take your question.

Harry Deans -- Executive Vice President, Nitrogen

Thanks, Dan. I appreciate the question. We've got lots of growth plans for our business. We think we can actually take the learnings that we've had from both the Agrium and the TCS side of our business and apply it elsewhere. So we're planning to run our plants hard. We're planning to make sure that we have efficient turnarounds, where it's both cost-efficient and we reduce the amount of time that our plants are actually down. Also taking learnings that we've had from other parts of our plant, in terms of reliable operations. So risk-based inspections and also minimal trips that make sure that we protect the key pieces of our assets.

So we're very confident. As you see from the charts, in Agrium, we got the utilization up from 89% to 93%. And the PotashCorp, it was a similar trend, and we're very confident that we can get our assets up to a higher utilization rate. The reason we exclude Joffre and the reason we exclude Trinidad is they're subject to availability of their feed stock. Hydrogen for Joffre and natural gas for Trinidad. But we're confident we can repeat that story at those units when we get the feed stocks that we require.

Operator

Our next question comes from the line of Joel Jackson with BMO Capital Markets. Please proceed with your question.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, good morning, Chuck. I have two questions on the synergies. So if the most likely scenario is now that you'll be shipping finished MAP from the East Coast to Alberta, instead of shipping rock or acid, how is it the synergy bucket could be exactly $80 million still? Maybe you could walk us through that math. And on the potash costs, I believe you talked about maybe $50 million from running Rocanville at a harder rate. But wasn't running Rocanville full-out and running PotashCorp mines, other mines, at lower rates a key and well-established, multi-year plan from PotashCorp as a stand-alone company? So if you're not shrinking other mines, how is that a synergy?

Chuck Magro -- President and Chief Executive Officer

Yeah, good questions, Joel. So, look, with the way we're thinking about this in terms of phosphate is it's a synergy simply because we have -- we think we have multiple paths. And I have to tell you, we're not decided yet. But what we're trying to do is minimize the amount of capital spent. But we have a channel in Western Canada with 280 retail facilities. So we have a captive demand channel there. And we're trying to find the lowest cost way to get a finished product into that channel. And then if we repurpose our Redwater facility, is it exactly $80 million? No. Susan didn't say that. We'll give you the exact numbers probably as soon as we make the final decision. But it's going to certainly be in that ballpark. And it's going to be a combination of, I think, changes. The shipping changes, in terms of a margin enhancement from let's say the southeast part of the U.S., and repurposing our Redwater business, we think actually the synergy could be very close to the $80 million, maybe even a bit more. And we're just finished the analysis on that.

Now, to your potash question, obviously it's been a long-standing legacy PotashCorp issue to get Rocanville up to capacity. The difference now in terms of where the synergies lie will be on two fronts. When you add Vanscoy to the mix, we are able then to further shift the demand. Because you have to remember that with the Vanscoy production comes the Vanscoy sales book. So when you look at that, we need to line up the assets and look at where the cost optimization is. And last year we said it publicly. Rocanville produced 5 million tonnes. So if we could get Rocanville up to 6 million tonnes, because of the demand we have, and then the other lower cost plants, that is clearly an operational synergy without impacting the overall potash market. And that's what we're highly sensitive to.

So there is a cost optimization of the network. There is a way to save costs, to share resources, to reduce the overall fixed costs of these facilities by shifting the tonnes and rebalancing the headcount and the fixed costs. So we said many times in the past that we used to run Vanscoy what I would consider to be a fairly unnatural state because we had one mine and we needed to make the spring season. And so over time, costs and things like that were excessive because we needed to make sure that we delivered the tonnes to the market. All of those costs savings now are going to be part of the synergy bucket and we won't have to run any of our plants in an unnatural state. And once you do that, the costs will come down quite substantially.

Operator

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Neil Kumar -- Morgan Stanley -- Analyst

Hi. This is Neil calling in for Vincent. Do you see any changes in the crop chemical marketing dynamics now that the industry has begun to consolidate with DuPont and Dow and Syngenta ChemChina?

Chuck Magro -- President and Chief Executive Officer

Good morning. I'll have Mike Frank, our President of Retail, take your question.

Mike Frank -- Executive Vice President and President, Retail

Hey, good morning, Neil. So at this point in time, the companies that have already completed their mergers, really for the 2018 season, it's really a continuation of their 2017 programs. And so we are sitting down with all the companies. I think we've got a new opportunity to create more strategic alignment as this industry consolidates. But in the short-term, we're not seeing any changes, per se, to their marketing programs on crop protection or other products.

Operator

Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, thanks. Good morning. A question on the retail outlook and really just trying get a little bit more on the pieces, the 1.2% to 1.3%. There is some growth versus the '17 number. I know there's been a small accounting change and how you're going to treat some of the financing, presume the customers there. But maybe just calibrate kind of the growth in crop nutrients and unit margins versus crop protection with some of the inflation, seeds, operating expenses, impact of tuck-ins from 2017 that should impact '18, etc. Thank you.

Chuck Magro -- President and Chief Executive Officer

So I'll have Mike Frank take your question, Adam.

Mike Frank -- Executive Vice President and President, Retail

Yeah, good morning, Adam. Well, as you saw in the results, we come out of '17 with lots of momentum. We're growing our share of the market, we're increasing our EBITDA margins through operational excellence, and our proprietary business is growing. And so it's really those fundamental strategies that we're going to continue to drive into 2018. We do see some inflationary impacts on crop protection but it's a bit lumpy. Some products are up 5% to 10%, a lot of products are flat. We expect overall there to be probably a lift in crop production selling prices of 2% to 3%. Seed, we're expecting seed to be relatively flat to last year. And in crop nutrients, coming out of, again, the fourth quarter, we had great growth from a volume standpoint and margins were roughly flat. And so we expect that to continue into the spring season of 2018. And, again, with our momentum, that's why we're confident that we can drive continued growth in this retail business.

Operator

Our next question comes from the line of Jeff Zekauskas with JP Morgan. Please proceed with your question.

Nicola Cook -- JP Morgan -- Analyst

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

Chuck Magro -- President and Chief Executive Officer

Good.

Nicola Cook -- JP Morgan -- Analyst

I have a question on the domestic potash market. So the seed and crop chemical companies seem to believe that everything will be geared toward the second quarter and that the first quarter will be relatively light in terms of orders and shipments. Do you see domestic potash demand follow a similar pattern?

Chuck Magro -- President and Chief Executive Officer

I'll have Jason Newton take your question.

Jason Newton -- Director, Market Research

Yeah. Good morning. I think what we'd expect to see from a shipment standpoint in North America is pretty similar to what we saw last year. We saw very strong shipments in the first half of the year and we'd expect that to be similar this year. We are seeing, as far as weather conditions, it doesn't appear like the applications are starting very early. So I think a pretty seasonal shipment in the first half.

Operator

Our next question comes from the line of Jonas Oxgaard with Bernstein. Please proceed with our question.

Jonas Oxgaard -- Sanford C. Bernstein & Co. -- Analyst

Morning, guys.

Chuck Magro -- President and Chief Executive Officer

Morning.

Jonas Oxgaard -- Sanford C. Bernstein & Co. -- Analyst

So in the last quarter, you also had some operational issues in your nitrogen units and now they still seem to be rearing their ugly heads. So what's going on? Is there a continuing issue that can bleed into Q1 as well?

Chuck Magro -- President and Chief Executive Officer

Good morning. I'll have Harry Deans talk about what happened in the fourth quarter but it's an isolated incident. But, Harry, go ahead.

Harry Deans -- Executive Vice President, Nitrogen

Jonas, thanks for your question. Yeah, we did have some carryover from Q3, as discussed in our last call. We had a very heavy turnaround program, especially in Alberta. And in Q4 we had the continuation of that, where we took our facility in Joffre down to align with the planned maintenance from our supplier of hydrogen. So what that did is it meant we had a very, very limited amount of inventory to continue the rest of the year with. Also in our facility down in Borger, Texas. As you recall, we started that up in January of this year. And as you find with most of these new plants, there's some tweaking required after a period of time where there are some things that you actually don't like the way it's operating. There's other things you want to fix to make the plant more reliable. So we took that opportunity toward the tail end of the year to take that plant down and put some fixes in place to make the plant more reliable.

If I look at the January numbers, Jonas, just to give you a feel for where we're running January, excluding Joffre as we always do and excluding Trinidad, we're running about 96% to 97% utilization rates. And some plants are setting records. So the investment we put in the plants to refresh them, particularly in Redwater, are actually paying off, which is very pleasing to see.

Operator

Our next question comes from the line of Vincent Anderson with Stifel. Please proceed with your question.

Vincent Anderson -- Stifel -- Analyst

Good morning. Thank you for taking my question. I'm wanting to get your thoughts on the specialty fertilizers market. Obviously retail investment is the priority and oil specialty nutrients are dwarfed by the MPK business. It's an area you don't have much wholesale exposure in and you actually divested out of a couple of years ago. So is this purchase in Brazil an indication that you see micronutrients and specialty fertilizers as a place you feel you need to integrate? And if so, is your preference ultimately to buy a larger scaled asset or are you happy to buy good product profiles like Agrichem and then scale production and distribution yourself?

Chuck Magro -- President and Chief Executive Officer

Yeah, Vincent. It's Chuck. I'll give you the strategic overlay and then I'll have Mike Frank give his perspective as well specific to retail. So you're right. Years ago, we actually sold -- I guess it was a specialty business but it was really focused on turf and ornamental. And the T&O business isn't really what we do. So we actually kept our micronutrients and our coated urea business, our ESN business, and the specialty portfolio and we still have those businesses today and they're good margin makers.

So from a specialty perspective, we always start with the farmer and work backwards. So it's not like we want to collect these assets for the sake of building up the portfolio but we're really focused on the share of wallet for the grower and if we can help them maximize yields. And what we've noticed is that the Loveland type specialty fertilizers are the ones that really have good growth rates, high margins, they fit well with our channel strategy for retail, and that's why we made the Agrichem investment in Brazil because there's a nice fit there. And maybe I'll have Mike just talk a little bit about that acquisition and what we actually bought.

Mike Frank -- Executive Vice President and President, Retail

Sure, Chuck. So it's clear that, especially chem nutrient business is growing. In fact, in Q4, with our fall market, we saw growth over 20% in the U.S. and that's products that are being supplied through our Loveland business. And so as we think about building out our retail business in Brazil, Agrichem is really a strategic acquisition for us because it really allows us to feed them specialty nutrients into what we want to have as an expanding retail footprint in Brazil. So it's a market, as Chuck said, that's growing. It's adding value for growers and there's nice margins in that product space.

Operator

Our next question comes from the line of Michael Piken with Cleveland Research. Please proceed with your question.

Michael Piken -- Cleveland Research Co. -- Analyst

Yeah, hi. I was wondering if you guys could give a little bit more color on your expectations for when we might see India return to the nitrogen market as well as your outlook for 2018 Chinese urea exports.

Chuck Magro -- President and Chief Executive Officer

Jason Newton's in the best position to answer those questions, Michael.

Jason Newton -- Director, Market Research

Good morning, Michael. To be honest, a little surprised that we haven't seen India come back in. I think it was widely expected that they'd be in in the last couple of weeks and it hasn't happened. I think it's uncertain whether they really need to come in before March. But we do know that the inventories of urea in India are down significantly year-over-year, somewhere between 500,000 and 600,000 tonnes currently, which really supports the outlook for imports for the first half of the year. And we expect overall imports in India to be relatively flat to where they were last year, flat to slightly higher.

In terms of Chinese urea exports, we saw China export 4.6 million tonnes of urea last year. Our expectation this year would be somewhere between 3 million and 4 million tonnes of exports. Now, we know that one month can make a big difference with China. But the domestic market is extremely tight currently. They have brought in some imports and some of that has been reexported but there is a potential for imports in the first quarter in China and we'll have to watch that carefully coming out of the holiday season.

Operator

Our next question comes from the line of Mark Connelly with Stephens. Please proceed with your question.

Mark Connelly -- Stephens Inc. -- Analyst

Thank you. Chuck, we haven't talked about Echelon in a while. I was wondering if you could give us a sense of how farmers are thinking about those products now that they seem to be pinching more pennies.

Chuck Magro -- President and Chief Executive Officer

Good morning, Mark. It's a good question. And I'll have Mike Frank talk to you about Echelon and basically our whole precision agricultural offering.

Mike Frank -- Executive Vice President and President, Retail

Yeah. Good morning, Mark. As you probably know, the whole area of digital tools continues to grow and evolve in the marketplace. Our Echelon platform has also continued to grow. We've got over 50 million acres now where we've got growers' fields mapped and we're providing recommendations, including variable rate fertilizer recommendations on those acres. Look, as we are kind of stepping back and thinking about our whole digital platform, it's really about combining all of our strengths, the supply chain we have and the footprint we have, the agronomists that we have on the ground, over 3,000, that are really the trusted advisor for our customers. And having a full product portfolio and services that we can bring to our customers in combination with the digital platform.

We really think that that's the strength of what we bring and that's what farmers need. And so we're going to continue to make investments in digital, build out our Echelon plan, continue to look for ways to partner and acquire technologies ultimately to bring it together into solutions. I think a lot of the digital products are still really kind of single solution type products. We're trying to bring it all together in a way that it makes sense on a farmer's field and across their farm. And so we see a lot of opportunity to continue to invest in this space.

Operator

Our next question comes from the line of John Chu with Laurentian Bank. Please proceed with your question.

John Chu -- Laurentian Bank Securities -- Analyst

Good morning. So just on the M&A front. I know you're really focused on growing the retail side of the business, whether it's domestically or internationally. But with all the mega mergers going on and even a couple that might be happening soon or rumored to happen soon, there might be some asset divestitures in other areas, such as seed and crop protection, where you can actually add to your product portfolio. So how does that come into play if something like that becomes available? And do you change your priorities or is it still going to be focused on the retail side? Thank you.

Chuck Magro -- President and Chief Executive Officer

Yeah, John, thank you for your question. So, look, we think we have a very good plan to build out retail, consolidate the space, and create value. And it's a pretty simple plan. We're going to continue to do our tuck-in programs in North America, consolidate the space. We will look at backward integration in terms of the Loveland products portfolio. That's been a huge winner for us and really a key driver of our earnings over the last two or three years. The international expansion into Brazil now is finally in motion and we've talked about that over the last few years and we see tremendous opportunity in that space. And that's going to be probably the core pillars of growth. Mike did also communicate that we are actively investing in our digital offerings. Like all distribution companies, we're really focused on that as well and you could see us get active in that area as well.

Now, to your question on crop protection or seed, we're always looking for parts of portfolios that will fit into our overall offering and drive yields up for our growers. And so we would absolutely be interested in parts of those portfolios that would make sense. But we've passed on a lot of them over the last few years because we've been selective. But if something came along that would fit with, I think, our view of where the market is going and what our growers need, we would absolutely look at all of those opportunities.

Operator

Our next question comes from the line of John Roberts with UBS. Please proceed with your question.

John Roberts -- UBS Securities -- Analyst

Thanks and congrats on the closing. In phosphates, after you finish the integration, do you still need a more strategic solution in phosphates or is the combination enough here to get the business to where you can just leave it alone for a while?

Chuck Magro -- President and Chief Executive Officer

Yeah, it's a good question, John. So, look, the way we're focused right now is we need to deliver the synergy number that we put out there and the market is not working entirely with us right now. So we're focused on optimizing what we have and really extracting as much value out of that as we can. Susan mentioned it, I'll just restate it though, it's prudent after a merger like the one we just went through to look at all of our businesses and determine the long-term strategic fit, what kind of capital or investment would be required to take it to the next level, and where the best returns are for our shareholders. And phosphate will be part of that, among many other parts of our portfolio, and we'll make those decisions sort of as we get through 2018 and into 2019. But I would tell you right now, John, our primary focus is improving the business and getting after the synergies.

Operator

Our next question comes from the line of Alex Falco with HSBC. Please proceed with your question.

Alex Falco -- HSBC -- Analyst

Yes, thanks for the question. I just wanted to understand the difference between your realized prices on phosphates and the apparent strength that you're seeing in the benchmark prices. Is that anything particular for this quarter or that's how your portfolio is shaping up?

Chuck Magro -- President and Chief Executive Officer

Okay. We'll have Susan Jones, our President of Phosphates, take your question.

Susan Jones -- Executive Vice President and President, Phosphate

Yeah, I think, Alex, probably the best way to look at this is you need to really look at it on a margin basis versus a realized price basis. So just to give you a sense of -- we obviously are seeing good, firm prices right now due to sulfur and ammonia prices increasing but really, from our perspective, it really comes down to the overall margin. And that's where we did have good volumes out of our legacy PCS for last quarter. We did see prices rise and we had the seed and industrial businesses a bit more squeezed. But at the end of the day, it comes down to a margin discussion as opposed to just looking at the realized prices.

Operator

Our final question comes from the line of Duffy Fischer with Barclays. Please proceed with your question.

Duffy Fischer -- Barclays -- Analyst

Yes. Good morning. Question back on retail. Obviously you guys have improved that business much faster than trend line to your 2020 goal would have indicated. One, what's allowed that to happen? And then, two, does that mean that where we're at today is a good baseline for continued growth or was there some stuff pulled forward or maybe some stuff that doesn't make the LTM kind of a solid baseline for growth for the next three years?

Chuck Magro -- President and Chief Executive Officer

Good morning, Duffy. I'll have Mike Frank take your question.

Mike Frank -- Executive Vice President and President, Retail

Yes, thank you, Duffy. So I believe clearly the momentum that we have and the strength of our business through the tuck-in acquisitions, our proprietary products business is a big part of what's driving our EBITDA margin growth, we can continue on that path. And so as we think about the next 3 to 5 years, we believe that we can continue to extend the trend lines that we're seeing. And so we're very optimistic on the future of the retail business.

Richard Downey -- Vice President of Investor and Corporate Relations 

Okay. We're on the hour and I want to thank everyone for joining us today. IR is available for any other follow-up questions. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Duration: 61 minutes

Call participants:

Richard Downey -- Vice President of Investor and Corporate Relations 

Chuck Magro -- President and Chief Executive Officer

Wayne Brownlee -- Executive Vice President and Chief Financial Officer

Raef Sully -- Executive Vice President and President, Potash

Susan Jones -- Executive Vice President and President, Phosphate

Jason Newton -- Director, Market Research

Harry Deans -- Executive Vice President, Nitrogen

Mike Frank -- Executive Vice President and President, Retail

Jacob Bout -- CIBC World Markets -- Analyst

Andrew Wong -- RBC Capital Markets -- Analyst

Donald Carson -- Susquehanna Financial Group -- Analyst

Oliver Rowe -- Scotia Capital -- Analyst

Graham Welds -- Credit Suisse Securities -- Analyst

Steve Byrne -- Bank of America Merrill Lynch-- Analyst

Daniel Jester -- Citigroup Global Markets -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Neil Kumar -- Morgan Stanley -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Nicola Cook -- JP Morgan -- Analyst

Jonas Oxgaard -- Sanford C. Bernstein & Co. -- Analyst

Vincent Anderson -- Stifel -- Analyst

Michael Piken -- Cleveland Research Co. -- Analyst

Mark Connelly -- Stephens Inc. -- Analyst

John Chu -- Laurentian Bank Securities -- Analyst

John Roberts -- UBS Securities -- Analyst

Alex Falco -- HSBC -- Analyst

Duffy Fischer -- Barclays -- Analyst

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