Agrium Q1'16 Earnings Conference Call: Full Transcript

Operator:

Greetings and welcome to the Agrium Inc. First Quarter 2016 Earnings 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 during the conference please push star, zero on your telephone keypad. As a remainder this conference is being recorded.

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

Richard Downey: Vice President, Investor & Corporate Relations:

Thank you, operator. Good morning everyone and welcome to Agrium's 2016 first quarter conference call. On the phone with us today is Mr. Chuck Magro, President and CEO of Agrium; Mr. Steve Douglas, CFO and rest of our Executive management team to review and discuss our results.

As we conduct this conference call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain material assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report, MD&A, and annual information form filed with Canadian and U.S. securities commissions to which we direct you.

I will now turn the call over to Mr. Chuck Magro.

Chuck Magro: President & Chief Executive Officer:

Thanks, Richard good morning everyone welcome and thank you for joining us this morning to discuss our first quarter 2016 results and outlook. Agrium is the world's leading supplier of crop inputs, service and solutions to growers globally and I'm pleased to report that our business continue to fire on also yet again this quarter.

Agrium's integrated strategy and the execution of our business plan delivered strong results this quarter despite a number of challenges across the agricultural and crop input sectors. Retail achieved impressive first quarter EBITDA with strong margins across all major product lines. These results were supported by significant increase in our proprietary product offerings across all categories and excellent earnings from our international businesses.

South American operations achieve record EBITDA while our Australian business realized record EBITDA in local currency.

Retail nutrient margin strengthened again this quarter with gross profit as a percentage of sales increasing by 200 basis points over last year. Margins were also up on a dollar per ton basis. This was supported by a 25% increase in sales of our proprietary nutritional products over the first quarter of 2015. This clearly shows that farmers are seeing good value in these newer yield enhancing products and we have targeted continued growth by increasing market penetration of existing products as well as the introduction of new ones.

Despite competitive pressure in the seed business this year, Agrium achieved sales and margins well above last year's level. Total seed sales were up 22% over last year supported by higher corn and cotton acreage in the US and a slightly earlier start to the spring season. Our margins were also up this quarter primarily due to the 51% increase in sales of our higher margin proprietary seed product line.

It was also a similar story for our crop protection products where sales were up 5% over last year and our gross profit as a percentage of sales increased by 100 basis points as we saw strong herbicide usage from growers to control weeds that they weren't able to manage in the fourth quarter due to weather condition. Higher sales of our proprietary products also helped boost sales and margins this quarter.

Overall, our retail margins continued to demonstrate stability and resiliency despite significant volatility in key variables such crop prices and pharma margins, shift in crop acreage and weather events. This stability has been driven by our focus on network optimization and other operational excellence initiatives as well as continuing to grow and diversify this business .

It was also a good quarter for acquisitions. We acquired 27 retail locations in Canada and United States adding over $11 million of expected EBITDA which was a record for a first quarter. Our future pipeline of opportunities remains robust and we expect to add meaningfully to our business in 2016 as we continue to pursue complementary and highly accretive acquisitions.

Among the deals that we closed, I would like to highlight a slightly larger acquisition of a co-op located in Arkansas with seven locations and over $60 million of annual revenue.

Turning to wholesale. Our nitrogen operations delivered strong financial results and we achieved high operating rates for nitrogen and phosphate once again this quarter. Our nitrogen margins came in at $129 per ton which was down compared to the first quarter of 2015 but is impressive considering the significant reduction in benchmark prices over the same time period.

Our focus on cost management and reliability was a key contributor to the strengths of our nitrogen results as we achieved record ammonia production volumes this quarter. We also continued to benefit from our distinct regional cost advantage in natural gas. With an average first quarter AECO gas price of $1.53 per mmbtu representing a $0.52 discount to NYMEX gas. Furthermore, as is traditional of the case, we expect a significant improvement and realize nitrogen prices and margins in the second quarter due to the greater portion of sales to our higher net back agricultural markets versus the heavier weighting towards industrial customers in the first quarter.

Realized selling prices and margins will also be supported by an increase in North American nitrogen benchmarks in March and April and further boosted by the realization of an in-season price sales which tends to be associated with the busier spring application period. Gross profit from our potash operations were about double last year's level, however it was down from the fourth quarter of 2015, due to lower realize prices and lower production volumes. The reduction in volumes was a result of weaker international demand resulting from lower volumes while we saw a solid demand in North America.

Our lower potash volumes relative to the fourth quarter of 2015 were a result of the fact that we ramp maximum rates during our successful Canpotex proving run in the fourth quarter. I would now like to turn the call over to Steve Douglas to discuss our financial position and capital allocation priorities.

Steve Douglas: Chief Financial Officer & Senior Vice President:

Thank you Chuck and good morning, everybody. Agrium remains in a position of excellent financial strength. We will generate significant free cash flow, have a strong balance sheet, and remain committed to our capital allocation strategy. Our debt metrics are at a very comfortable levels for this stage with the commodities cycle with the net debt EBITDA ratio at 2.3 times on a rolling four quarter basis and we are less than 30% drawn on our short-term debt capacity which is reflective of preparation for the spring season.

Our long term debt repayments schedule is also very manageable with our next the payment due in 2017 for a $100 million and only $500 million due there after over the next four years. Consistent with our capital allocation policy, we are committed to continue to grow our divided and have every capability to do so and as we announced earlier this year, we renewed our share repurchase program for 2016, that would allow us to buy back up to 5% of our outstanding shares.

Operationally, we have been very focused on cost control and we achieved a 6% reduction in consolidated SG&A cost compared to the same period last year. This is a clear example of our operational excellence culture yielding tangible results for our business and also demonstrates our ability to optimize returns despite current market condition.

We have adjusted our annual earnings guidance to $5.25 to $6.25 per share. The reduction in guidance is entirely due to a weaker wholesale fertilizer price outlook and particular weaker price outlook for potash and phosphates relative to expectations earlier this year. We have left our estimated range for retail annual earnings unchanged, which represents an increase in 2016 retail earnings of between 4% and 14% above last year. Our tax rate in the first quarter was 29% which was elevated slightly due to the tax simplification of tax treatment of currency hedging.

Excluding the ongoing impact to these hedges throughout the year.

Our annual operational tax rate is still expected to be between 27% and 28%. Our border expansion project is progressing very well and we are confident that the project will be mechanically complete before year end. As we have previously disclosed, we expect the expanded plan to commence production in the first quarter of 2017. As a reminder the completion of this expansion is the last major growth capital that we are currently have underway.

Following this we expect our total capital expenditures to drop significantly and support increase cash flow in 2017. Our free cash flow story remains firmly intact. Obviously, wholesale prices are fluctuated significantly over the past two years, however we believe the growth in retail combined with our competitive advantages in nitrogen and the anticipated significant reduction in our capital expenditures will combine to provide for continued growth in cash flow and increase returns to shareholders.

I will turn it back to Chuck to provide comments on the outlook and any closing comments.

Chuck Magro:

Thanks Steve. It's over 1200 firms and is across North America, we have excellent visibility into the spring application in seeding season that is now in full swing across most of the continent. Overall we continue to expect a very good spring season for crop inputs this year. Crop prices and grower cash margin are has improved recently and total acreage is expected to be higher as well.

Corn acreage is going to be up in the U.S. However, we believe it will be below the 93.6 million acres indicated by the USDA in their prospective planning report. We expect US corn acreage just over 92 million acres which would still represent an increase of about 5% over last year and is supporting strong demand for nutrients and other crop inputs.

Some commentators have speculated that given relative tight grower margins this year, there is a risk of a sizeable reduction in average application rates for potash and phosphate this spring. The large majority of growers have applied normal rates for all three nutrients this spring. For some select growers that are in a stressed financial condition, we have seen below average potash and phosphate application rates. However, we believe this portion of the grower population to be very small.

As a result, we expect demand for all nutrients in the US to be up noticeably this spring over last year and particularly for nitrogen.

Overall we see a relatively flat pricing outlook for all three nutrients so the balance supply demand outlook and the usual seasonal fluctuations in nutrient pricing

North American urea prices improved significantly from the January lows driven by the relative slow pace of imports and higher corn acreage. The recent Indian tender helped provide support for global urea prices as have the lower volumes of urea exports out of China so far this year. China remains the wildcard in the international markets for all three nutrients.

On the outlook for nitrogen production cost, it is important to highlight the major natural gas cost advantage Agrium has. Forward AECO gas prices are currently around a $1 per mmbtu which represents about $1 discount to the NYMEX gas price. Gas storage levels in Alberta are at near record levels for this time of the year and expectations are that the AECO discount will remain elevated for some time which would significantly support our nitrogen margins.

Potash prices saw downward pressure in the first quarter but have largely stabilized over the past few weeks. North American potash prices were pressured in the early part of 2016 due to a combination of factors including higher than average imports. Although 2016 year-to-date imports have declined from last year, they are still higher than any year since 2011. Our expectations for global potash demand has remained unchanged since the last quarter at 58 million tons to 59 million tons.

Some key risks we continue to monitor include the ongoing potash contract negotiations, Chinese urea and phosphate production rates, export volumes and costs, and any major swings in global currencies. In parts of Western Canada we are also watching soil moisture conditions as it has been unusually dry and warm in Alberta so far this spring. Furthermore Western Canadian pulse acreage such as lentils and peas are expected to increase by almost 2 million acres which would reduce nitrogen demand by about 3%.

Agrium's results this quarter should once again leave no doubt as to the resilience of our business model and our capacity to continue to grow our business. Our competitive strengths and our focus on operational performance and on cost control have all continued to demonstrate our ability to operate more efficiently and generate strong results even in challenging times. Our retail and nitrogen operations provide a base of very robust earnings and our total portfolio offers us significant leverage to the upside swings in the commodity cycle.

We are committed to our capital allocation policy and believe it will support continued to strengths in our market valuations and it strikes the right balance between growth and capital returns. Part of the value of our integrated business model is that it gives us the financial strength to make investments during the market downturns while still rewarding our shareholders with consistent returns of capital.

Before I close, I would also like to invite you to Agrium's 2016 Capital Markets Day that will be held in Toronto on June 8. This will be an opportunity to hear directly from our executive leadership team on the specific initiatives going on across the company, our broader strategic objectives and some new financial and operating targets for the business. Information about the event and a registration link can be found at agrium.com and the event will also be live webcast to those who cannot attend in person.

With that we will take your questions.

Question & Answer

Operator:

Thank you. Ladies and gentlemen we will now be conducting our question-and-answer session. If you would like to ask a question please push star, one on your telephone keypad now. A confirmation tone will indicate your line in the question queue.

You may push star, two if you would like to remove your question from the queue. For any participants using speaker equipment it may be necessary to pick up your handset before pressing the star key. We do ask that you limit your questions to one question and one question only. One moment while we poll for questions.

Our first question comes from the line of Stephen Byrne from Bank of America. Please go ahead.

Stephen Byrne: Bank of America Merrill Lynch:

Yes, thank you. You indicated that your proprietary seed gain share of your overall feed sales mix. Would you say that Dyna-Gro is gaining share in the market or where you really seeing lower sales of the other leading brands that you carry and then related to that are you able to uncentralized growers to buy Dyna-Gro seeds if they also purchase levelling chemicals.

Charles (Chuck) V. Magro:

Thanks, Steve good morning. --going to have Steve Dyer, our President of Retail address both of those questions for you.

Stephen G. Dyer:

Hi, Steve. Yes, in terms of our seed proprietary as a percentage of our total seed sales it was up 3% --from 15% to 18% of our total sales. And again our overall seed sales were up overall as well.

So this is growing our market share obviously of our branded product from third party was up, but our Dyna-Gro grew at a faster rates than that as well. So we've got that growth going along in parallel on both sides. Again with the proprietary product at a factor rate. In terms of your question around centralizing really what we look at is our proprietary products on the seed side our Dyna-Gro brand we have very good genetics there and comparable performance to third party seed.

So we are really typically selling at the same price point as other seed of there overall. But obviously we have the full suite of operating to provided total solutions for the grower they were always working with our growers in terms of their fertilizer requirement, seed requirements, chemical requirements through the total year.

Operator:

Thank you. Our next question comes from the line of P.J. Juvekar with Citi Group. Please go ahead.

P.J. Juvekar: Citi Group:

Yes. Good morning. I wanted to ask about China urea outlook in terms of exports from the country and the urea of cost curve has really been driven by falling coal prices in China.

So do you have a view on where we are in the cycle there? Thank you.

Charles (Chuck) V. Magro:

Hi P J. Look it's always difficult to understand that exactly where we are. Generally speaking what I would tell you from the nitrogen perspective is, we think that what's going to happen is after the spring season we are going to could see some lower global urea pricing.

We don't think it's going to go below the Chinese cost of production for any sustained period of time, we saw that in the first quarter where it slipped below for a period of time when there is really no demand and really no market for product and it come up quite nicely. So from that perspective, we think that what could happen and it's going to depend on the capacity coming online in North America as well.

You'll see some slightly lowering prices it will probably stay at the cost for a period of time, it won't slip significantly below that and I think the real important thing to remember that if you look at the impact for Agrium's business, sitting with majority of our production up here in Western Canada as I mentioned in my prepared remarks AECO gas today is under a dollar per MMBtu so even when global prices are at the cost curve our margins are still triple digit and that's I think real important to understand from an Agrium margins perspective.

Operator:

Thank you our next question comes from the line of Ben Isaacson with Scotia Bank. Please go ahead.

Ben Isaacson:Scotia Capital:

Hi Thank you. Obviously your aware of a report out there that suggests Agrium could have significant downside based on retail margin pressure that could reflect what we saw in the 80's and so I guess my question is how is this kind of macro Ag environment different than what we saw on the 80's A and then B how is Agrium's retail business different from what we saw or from those that suffered severe margins compression back then as well? Thanks.

Steve Douglas:

Thank you Ben. Good morning so there is been lot of talk recently about the 1980's and there is just been certainly from a macro Ag perspective the environment is in our view completely different if you just take corn as an example in the mid 80's there was average 75 million acres of corn today you need 90 million acres just to meet the ongoing demand and there wasn't even ethanol industry which of course today in North America is a multi-billion dollar industry in North America. The structure from an Ag retail perspective is very, very different of course. In the 1980s, there were over 25,000 Ag retailers and no one company had more than 1% market share and for the industry has been and still needs more consolidation but with 9,000 facilities today an Agrium being the market leader in the U.S.

But others having 3%, 4%, and 5% market share, the structure is very different and then you can't forget about the 1980s would see the macroeconomic environment overlay with interest rates being so high. Farmers were paying more for interest expenses than they were for all of their seed chemistry and fertilizer needs and that was a very, very good deal. The lifted analyst but I'll probably leave it there for now and then just move over to Agrium's business.

I'll give you at just a little bit of a history. So cog production services which Agrium by and of course in the early 1990s had revenue in the 1980's of just over $100 million had a hundred facilities which were primary located in the -- and it was primarily that business at the time was primarily a fertilizer company and even a smaller and more focused company. We went back and looked at certainly the margins after this report came out, they did not see the margin compression that has been suggested and certainly the business that we now own.

So if you look at retail today, of course pushing $13 million in revenue 1,400 facilities in 7 countries. The biggest difference not only size and scale it's the diversity. We diversified by crops we are on every crop that you can almost imagine from real crops to permanent crops, fruits and vegetables you name it and we're on it and corn today is only 20% of our revenue.

Geographically we're diversified as well. Of course we're in every major growing region in the US, Western Canada and of course our international businesses and then one of the big reasons why we had such a good quarter is the diversity in products so you can't forget we were primarily a fertilizer company back then when we bought UAP, we bought a very big chemical business and neither business had a meaningful seed business. And last year alone our seed business was $1.4 billion. So the stability of our shelves and our product lines is just much different than in the 1980s let alone the proprietary products portfolio that we have invested hundreds of millions of dollars and are really turbo-charging our earnings.

Now and you can see that in this part of the market.

So I think there are just so many differences. Maybe I'll just wrap up with the last comment which should go on this need a lot of explanation is if you look at farming today, it's so complex compared to the way it was in the 80s. Just the sheer amount of the combinations of seed varieties, crop chemistry compatibility, the weed resistance farmers are wrestling with, not to mention the newer technology when it comes to specialty fertilizers like nutritional and biological products. The bottom line is, our growers and our crop consultants which we have 3,000 of them by the way, who are educated and certified the work with farmers every day, that's a big part of our business today.

It's the service and I won't even bring up the precision Ag technology that is now coming on quite aggressively.

So basically what I would tell you is, it's interesting to go back and look at what could happen with super cycles but we just think our business is so much different that it's not really applicable for today's businesses.

Operator:

Thank you. Our next question comes from the line of Don Carson with Susquehanna Financial. Please go ahead.

Don Carson:Susquehanna Financial:

Thank you. Just to follow on that Chuck, it would seem too that there is a very different macro environment now where prior to '96 you had significant set-asides and if they were maxed out at over 25 million acres in 1983 for example. So is it really one of the key macro drivers as more acreage planted than a particular crop prices that really drives input demand and hence your retail outlook? And could you just add a comment on, we've heard a lot of talk about significant seed price discounting, leading seed retailer what are you seeing in that area.

Chuck Magro:

Yes. Don you are absolutely right. So the point I didn't mention is in fact back in the 80s, the US government were paying farmers not to plant because of whole bunch of different situations.

So a lot of acreage I think about 40 million acres that were taking out of production in that period of time is well. So you're absolutely right that is another differentiation between now and in the 1980s and Steve, want talk about what you are seeing from a seed discounting for the first quarter at least?

Steve Douglas:

Yes Don, in terms of on the seed side, we're are seeing pressure there and we see it at a similar level to last year and so we would expect seed to be comparable to last year. If you take a look at, our margins are up slightly in the first quarter. A couple of things driving that we've talked a little bit about the proprietary products being at a higher rate that's also contributing to the margin as well as the increase in corn acres as well as cotton acres where we seed there was up, higher margin seed and for example soybean so both of those are contributing on a positive side but yes we are seeing pressure but we see it similar to what we saw last year.

Operator:

Thank you. Our next question comes from the line of Jacob Bout from CIBC. Please go ahead.

Jacob Bout: CIB

Hi. Good morning. Just a question on free cash flow so historically we talked notionally about $10 in free cash flow as a target. Given the recent decline that we see in nutrient pricing, is $10 so a relevant number?

Chuck Magro:

Good morning Jacob. Yeah, we look at that $10 number, if you go back into our investor presentations we have got a slide that really outlines that very clearly. We certainly thinks that the formula to get there hasn't change that much.

So, what I mean by that is, if you look at our plan it was to finish the capacity expansions in wholesale and everything from that perspective is well on track, it was to continue to grow our retail business at a similar rate that we have for the last six or seven years. Wind down the capital spending and then with market conditions we had a range there and the upper end we saw this $10 per share of free cash flow, and so, if you look at where we are today of course we would be a little late on that number. But if you use for example the five year average for crop pricing and then fertilizer prices we would easily fit into that range.

So, we don't see as a significant disconnect. Today's prices are obviously a bit of headwind. But I think from an execution of the plan is clearly there and then if you take this fast core data a little bit towards the divided again nothing has change, we have a strong desire to have a growing and sustainable dividend and we think that can certainly happened over time and if you look at our free cash flow last year, we are just over $8.30 per share so we made very good progress in pretty difficult market conditions on our free cash flow and we still have to finish our Borger expansion which will bring earnings in 2017 and lower our CapEx.

So, overall I tell you, we are not uncomfortable with the journey and we just have to understand what happens with markets conditions to get to that exact number of 10 bucks.

Steve Douglas:

I would add Jacob, to that it's Steve. That number of $10 are initially day light was anchored in two things . One 2014 pricing, that would hang in the over the average of the next five years which wasn't clearly a robust year in terms of pricing and secondarily remember as Chuck eluded to it was overlaying and against future capacity expansion which we have yet to see take hold. Now nutrient pricing is clearly put that number less than what we would have expected but as Chuck eluded to I think how you get there is still emitting viable and I certainly wouldn't in anyway performs say we backed off from that average in the fullness of a cycle.

Operator:

Thank you. Our next question comes from the line of Mark Connelly from CLSA. Please go ahead.

Mark Connelly:CLS

Chuck with respect to the solid manufacturing efficiency, should we be fairly confident now there was all the investment you made and the changes you've made that problem is pretty much behind us.?

Chuck Magro:

Good morning Mark. Great question. So look at I think you know we've put a lot of effort into really refreshing our wholesale assets some of the plants had reached the point in their life cycle where we needed to put some capital into them and I think what I would tell you, is we are feeling very good that the majority of that is done. I will draw your attention to the fact that we have communicated this before, red water has one piece of equipment that needs to be changed though either in 2017, or 2018 we are just finalizing the engineering and the planning and then after that period what I would tell you is we're very confident that we have completed the portfolio, now this issue in red water is been with us for some time we know it the flex running very well, is not an eminent failure or anything like that but there is a piece of equipment that has reached to tend of life that needs to be replace in a planned outage which we're hoping to do either in 2017 or 2018 but generally when I stepped back and I just look at the first quarter I am only a record production rate out of those plans I think that is the estimate of just the amount of efforts that we have put on the reliability improvement in wholesale and we are feeling very good that certainly words should behind us and better days are to come.

Mark Connelly:

That's great. Thank you.

Operator:

Thank you. Our next question comes from the line of Joel Jackson from BMO Capital. Please go ahead.

Joel Jackson:BMO Capital Markets:

Hi good morning. A couple of questions on potash. So first on you blocked back your potash volume estimates for this year. Are you still aiming to run full out and potash next year and pushes must to retail as you can or do you feel that need to be a little more disciplined as a capital partner and the second question on potash would be you update list price I believe in the Mid-West from 232 to 245 times and I think I was just as an internal price your own retail customers you are also pushing that price to external customers and are you get interaction. Thanks.

Chuck Magro:

Good morning Joel. I'll take first question on our plan for the year and disciplined as you put it and then I'll Harry Deans, our President of wholesale just talk about what is seeing with the price increase. So look with the potash it's a pre-dynamic situation right now from the supply-demand perspective.

Obviously we don't have a China contract to it. It's really hard to get too far ahead of ourselves, but what we generally do and we are not going change this is we run our production to the demand that we have. We want make an adequate return for our shareholders of course and we are moving as much product as we possibly can through our channel that's the advantage that Agrium has over every other producer as we have attractive channel that moves upon a lot of potash to the field and we are planning to use that and we haven't been shy about using that channel.

Now however if you do look at our potash sales volume guidance it is down about 100,000 tones and that is because Canpotex in the first quarter communicated very clearly to the market that they don't think they could sell.

They pullback to supply by about 1.5 million tonnes and if you look at our allocation that's 10% of that is to be about a 100,000 tonnes to 150,000 tonnes. That's assuming we can't find another outlet for those tonnes and so we wanted to make sure that we communicated that because that's how our latest thinking today is that if the international markets they stop we would not be able to put that into our retail channel and we would not be able to put that into North America. So we don't know is the answer but just from a planning perspective we really think that there could be a chance where we would have to cut that production by about a 100,000 tonnes. Now Harry why don't you talk about price increases in North America for potash.

Harry Deans:

Good morning Joel thanks for your question. Prices in potash stabilized over the last couple of weeks which is good news for those producers and also we are seeing signs of improvement going forward that will being quite public and a price rise that we initiated in the market place and we are starting to see signs of that balance sheet bearing fruit.

Operator:

Thank you. Our next question comes from the line of Chris Parkinson from Credit Suisse. Please go ahead.

Christopher Parkinson:Credit Suisse LL

Thank you very much. Chuck, can you just comment very quickly on your longer term portfolio strategy in Australia and Argentina on the retail side and maybe if you just comment on your phosphate business as well. It doesn't seem like there is much of rush to do anything particularly given the improvements in landmark but just any general thoughts will be appreciated. Thank you.

Chuck Magro:

Good morning, Chris. Yes sure. We have done a lot with our portfolio over the last two years.

We have sold a lot of non-core businesses and then as a result we were able to streamline the corporate cost functions and I think you have seen that in our result. So very-very pleased on the progress with the portfolio. We are trying to become a leaner company and really focus on businesses where we have core competency.

To your specific question what I tell you about Argentina is that with the government change and the government change is been quite swift we have seen movement in a positive direction for our retail business. This new Argentine government is pro-business and pro agriculture and almost immediately we've seen results and had a very good fourth quarter and first quarter. So that for us from a portfolio review is really not today we're not looking at anything beyond that we think that Argentina has been a very good agricultural market for us and we think it can get back there one day.

Australia last year with record in our EBITDA performance the first quarter was in record for the first quarter and local currency, we're delighted with the performance of that business we're starting to see some synergies being part of a larger more integrated company being retail and so that business we're just pleased with the performance it seems to be going very-very well and there are some opportunities in Australia from a market structure perspective that we are interested in pursuing. But it's too early to talk about that right now.

Phosphate just answer your question on phosphate. The business had performed exceptionally well over the last year a very solid margins. That business is somewhat integrated into our retail business but it is our smaller business and we would as I mentioned before we would be looking for just what is the long-term strategy has less to do with the two assets that we run today and more for me in anyways on what is Agrium's phosphate strategy, we haven't made any key decisions I would say everything it still on the table from further investment to a divestment and we have communicated that when once we know we are certainly communicate that to the market and we are hoping to comes to that decision in 2016 early 2017.

Operator:

Thank you our next question comes from the line Vincent Andrews with Morgan Stanley. Please go ahead.

Vincent Andrews: Morgan Stanley:

Thanks. Just curious if you can bridge for me your expectations on the corn acres the 92 to 93 which you mentioned is below where USDA was, but there is a lot of chatter out there about the higher corn prices which resulted from the production issues in South America. So can just help us understand how you get to that number I assume it's from internal data but in what could make it higher or lower from here?

Chuck Magro:

I'll ask Steve Dyer our Retail President to answer your question Vincent.

Steve Dyer:

Hi Vincent. In terms of the corn acres USDA roughly 94 we are looking somewhere as we said 92 to 93 really the driver the delta there would be is really taking a look at the Southern U.S. And we have had a lot of moisture there probably running on part of last year in terms of planting and in the Southern U.S. So if you look at USDA they had lot of their increase or some pretty big increases in some of the Southern states.

So are we right now is than we'll probably a better lower there it can taking as down to at 92 to 93. We will see -- we are obviously seeing pretty significant increases in the right through the --

Operator:

Thank you our next question comes from the line of Andrew Wong from RBC Capital Markets. Please go ahead.

Andrew Wong: RBC Capital Markets:

Hi. Good morning. So nitrogen pricing how should we think about the premium in your end markets going forward does the premium wide in as the global market maybe stayed in surplus or does the increase domestic production close to GAAP and then just secondly on to acre in that gas prices its quite lower right now, are there opportunities for you to hedge your gas costs might interested in that? Thanks.

Chuck Magro:

Good morning, Andrew. Harry Deans, Wholesale President can answer those question for you.

Harry Deans:

Good morning, Andrew. Andrew on nitrogen, what we expect, as we expect the usual season of practice to --. So, we expect that nitrogen prices go soften a little as we come out of this season and then the strengthen again as we going to the next season in the fall. Obviously nitrogen utilization rates are going to be pressured somewhat by the additional capacity that's coming on stream globally and that's should cause depression in the utilization rates.

Given our echo advantage, we are confident that our margins will remain brilliant and that we able to supply the customers and supply them possibly.

On echo yes, the echo advantage is fantastic at the moment. We constantly whether we should hedge the price of whether we shouldn't. Currently where we are is 25% of our gas requirements hedged until the end of 2018. We grow 15% natural gas hedge and that's from industrial customers that we have.

We have a partial pricing on gas. Our call on echo is given the high levels of storage at the moment. So, the storage is the 89% of total capacity, which is about 30% above where normally is, and if you thinking about that as I see where it should be in October, so our call on the gas is gas prices will fall of the as we go through the next few months.

Operator:

Thank you. Our next question comes from the line of Matthew Korn from Barclays. Please go ahead.

Matthew J. Korn:Barclays Capital, Inc.:

Good morning everybody. So, there is being some commentary recently that some of the largest -- producers and to shift away from sales to distributors in towards more directive grower sales at least in particular regions. I am wondering if that's a potential headwind that you're anticipating at always, when Agrium retail might lose access to certain products or to certain brands.

Thanks.

Steve Douglas:

Yes, Matthew. Yes in terms of the suppliers look at you busy seeing going around us, we're not seeing, we obviously have a very good relationship with all of the major suppliers and we're either the largest or near the largest customer from -- product due to grower and ultimately again a Chuck alluded to as well the decision making process for the grower is becoming more and more complicated with things like resistance in that type of things as well. So that relationship that we have with to grower and then looking beyond just chemistry relationship we have with the seed side and the fertilizer side making all those recommendation. So, today we really don't see that and we really don't see hard push from suppliers to do that.

Again we'll see how things play out with some of the changes that are occurring in the market place.

Chuck Magro:

Yes, Matthew, I would add two things. A lot of the times we're actually applying the chemistry, so if this was to happened you could imagine that there needs to be a massive investment in the chemical distribution and application business. This is not an easy thing to do from a capital prospective as you know Agrium has spent billions of dollars building up our network we considered to be the best in network in the world and for this to be replicated would take billions of dollars.

Operator:

Thank you. Our next question comes from the line of Peter Prattas from AltaCorp Capital. Please go ahead.

Peter Prattas:AltaCorp Capital:

Good morning. Thank you. May be slightly related to Matthew's question your proprietary crop protection product exceeded and growing to 24% of your crop protection sales. So I am wondering is that possible maybe you're doing too well is there a feeling that your of course might not want to go beyond withstanding with your third-party compliers? Thanks.

Chuck Magro:

Steve Dyer.

Steve Dyer:

In terms of our proprietary crop protection we continue looking at growing that business as part of our portfolio and that's in constant with growing our overall chemistry sales all together through our retail organization. So we continue to look at where the opportunities to grow with that, we work very closely with our suppliers. For example things like -- which help lot of chemistry spread better we work closely with our suppliers to incorporate those products into their products as well. So we always working with the suppliers to find right balance there as well.

But we definitely tend to continue growing that part of our business.

Operator:

Thank you. Our next question comes from the line of Steve Hansen from Raymond James. Please go ahead.

Steve Hansen: Raymond James:

Yes good morning guys. So let me give us some additional commentary around the pipeline of retail acquisitions and perhaps more specifically the potential -- some of the -- given your indication here the recent purchase in our Arkansas. Thanks.

Chuck Magro:

Good morning Steve. Steve Dyer wanted to answer that. How is your pipeline.

Steve Dyer:

Yes Steve in terms of pipeline as Chuck mentioned in his commentary we did have a record first quarter in terms of 27 locations that we acquired. We are seeing a very good pipeline going into second quarter as well. So we are pleased my acquisition team is been very busy and I expect them to be continue to be very busy going through the second quarter and third quarter as well. From that standpoint in terms of the -- the one that we did down in Arkansas, obviously there is a good part of the market a share that is held by cooperative system so we're always looking at all of the opportunities for us to grow our business and obviously looking at the crop network and see more if there is opportunities there our key priority of moving forward for us well.

So again we are very pleased with what we did that in Arkansas and we'll continue to look at other opportunities as well within the crop system.

Operator:

Thank you. Our next question comes from the line of Michael Piken from Cleveland Research. Please go ahead.

Michael Piken:Cleveland Research Company:

Yes, good morning following up on last question maybe if you can give us little bit more color in terms of how much you think these tuck-in acquisitions mostly the ones made last year will contribute to your retail EBITDA this year and what the potential growth from the once you made this year might be in 2017?

Chuck Magro:

Steve Dyer.

Steve Dyer:

Yes. If you look at our tuck-in's and what we have done historically we have average around $30 million of EBITDA contribution. Last year in terms when we actually closed -- our portfolio there was about $20 million of EBITDA contribution but we had a bunch that we closed in the first quarter here that we'll get full value for. Again my expectations is that we're doing we continue to do at least $30 million of EBITDA contributions from tuck-in's I actually like to see it a little higher quarter and not moving forward as well and is what something that we've talked about a little bit that we'll get to more in June.

Is we're also looking at targeted builds is where we can build new locations and in markets that we haven't been able to acquire that are very good market. So we are kind of looking at how do we broad our growth and market share expansion as well.

Operator:

Our next question comes from the line of John Roberts from UBS please go ahead.

John Roberts: UBS:

Thank you. When you talk about share gain and seeds and crop protection chemicals you're talking about share of your own your proprietary sales as a percentage of your own sales you are not taking about overall market share gains there, are you?

Chuck Magro:

That's right.

John Roberts:

And do you think your gaining some share in the market as well I would suspect with farmers under more pressure you've got at least to broader offering in more economical solution that share might be coming your way form a bigger prospective as well.

Stephen Dyer:

Yes, it's Steve Dyer here. Just in terms of overall market share, that's a big focus for us. We actually look at it historically is been a little bit of broader terms of our call organic growth or comparable sales which we show those stat. Moving forward that's the big focus for us with the network we have is how do we get a greater share of wallet span to additional customers we haven't had before.

We gave the compliment the acquisition that we're looking at doing as well. My expectation is that we will have some market share growth this year, on top of the acquisition.

Operator:

Thank you. Our next question comes from the line of Sandy Klugman from Vertical Research Partners. Please go ahead.

Sandy H. Klugman:Vertical Research Partners:

Thank you. Good morning. So your potash product costs were relatively flat sequentially.

What are your expectations for where they trend as you continue to ramp up --. What's the impact from the stronger Canadian dollar, how should we think about that both for your potash operations and broadly speaking for the company and guidance in general.

Chuck Magro:

Okay we will have Harry Deans talk about the potash production cost and our outlook and then I'll have Steve Douglas talk about the Canadian dollar impact. Go ahead Harry.

Harry Deans:

Yes. Thanks for the question Sandy. If you look at our Q4 cost of product made or cash cost. You can see what's sort of level we can reach when we run high rates.

Because the fixed cost -- a larger tonnage. So you remember there we would demonstrating our Canpotex run when our annualized production rate was 3 million tonnes. What we expect as we expect that our cost of product needs over the next year will actually come down by about 12.5% year-on-year compared to last year. Obviously there is headwinds and tailwinds the Canadian dollar depreciation doesn't particularly help us or they help in other --.

Sandy H. Klugman:

And for you Douglas you just talk about earnings and Canadian dollar.

Steve Douglas:

In general clearly the dollar strengthening puts pressure on our operating costs and we summarize this in our supplemental, but roughly $0.01 change in C dollar impact just about $0.03 on an EPS level.

Sandy H. Klugman:

Okay. Thank you that's very helpful.

Operator:

Our next question comes from the line of Yonah Weisz from HSBC. Please go ahead.

Yonah Weisz: HSB

Hi there Chuck. If could ask questions on retail. First of all on the nutrient side you did have high margins it seems I would little bit -- could you give a bit more color on how you reached the results from nutrient within the retail and what was the effect of if any of the in turn you sold potash from the wholesale division and on your selling expenses it's been -- to see five sequential quarters of cuts in selling expenses year-on-year. I am wondering how much of further in to these cut has to go how much further can you cut within 2016 and how do you achieve this and does your plans for more tuck-ins this year or even more tuck-ins this year put any upward effort pressure on selling the costs within the retail units.

Thank you.

Chuck Magro:

Okay. Yonah, I will take the selling cost question and then I will ask Dyer to talk to you about his nutrient margins. So generally yes, you are right so we have had a big focus on reducing our selling costs we are very pleased with that of course the following the falling Canadian dollar has helped. But really it's what I described before we've optimized our portfolio we sold some non-core assets and as a result we have been able then to right to size the corporate functions across the company and we think that there is a little less to do.

So, I would expect continue decrease in their selling and G&A cost generally over this year. But, you have seen the vast majority of it, but there is a little bit less that we absolutely believe. Now specifically with the tuck-in's as we buy facilities we do ad SG&A more efforts in the G&A and so that's even more impressive when you look at retailers numbers is being down year-over-year considering the acquisitions in the tuck-ins that we rolled into it. So, on an apple-to-apple basis we would be down even lower.

But that will impact how much more we can take out from the selling cost in retail. But you should obviously see leverage from the selling cost in EBITDA margin perspective because the acquisition should be highly accretive. Steve you want to talk about you nutrients margins.

Steve Dyer:

In terms of our fertilizer margins we are very pleased our performance in the first quarter. It's a combination of things obviously a key focus on maintaining our margins coming out of Q4 into Q2 and then the other piece part of that is, as Chuck mentioned in his commentary we had a big growth in our nutritional and our nutritional's add a significant amount of value to our overall fertilizer so we're adding some more around $16 to $17 a ton through our nutritional -- sales of our nutritional proprietary products. So, that definitely helps provide support to our margins going forward and differentiate the margins just from the underlying commodities as well moving forward.

Operator:

Thank you. Ladies and gentlemen our final question comes from the line of Jeff Zekauskas from JP Morgan. Please go ahead.

Jeff Zekauskas:JP Morgan:

Thanks very much. Normally the China Potash contract is find early in the year and now it's going to be almost mid-year and the structure of the contract tends to be six months and then there is another six months of optional --. So is your base case that the potash contract is signed in mid-year 2016 and then it's another year before the contract comes up. And secondly after the legacy project comes on what you think is the next large increment of potash capacity that will come on globally.

Do you think it's the -- plant and Chuck -- and when do you think it will come on or do you think it's a different plan.

Chuck Magro:

Good morning Hi Jeff. I will answer your first question and then I have Jason Newton our Head of Market Research, to answer the capacity question and when. So the China question, that's typically the way you describe it that's typically what happens there is a six month and then if both parties agree it can roll over for another six months and so that's typically what does happen you have articulated that very well.

What could happen this year I guess is, is not a great answer I am going to give you but I don't know. Look the discussions are active and ongoing right now and obviously since we are in May the bid spread is wider than normal I mean that's what's the discussion so I would not want to get beyond my -- here in terms of talking about what could happen and what the structure could look like because the Canpotex team right now is talking with the Chinese. I am hopeful that there is a settlement that makes sense for both sides and it will happen as soon as possible but right now I thinks that's probably all I can and should say. Jason why don't you talk about what your view is on capacity coming up --

Jason Newton:

Hi Jeff. After legacy comes on stream I think there is still question marks on the timing and when that comes on online and how that relates to other projects but corresponding or maybe an advances at either quite a large amount and not a supply coming from potash corporate -- as well -- and then in terms of greenfield projects the next ones that we see coming on stream line in Russia from Euro Camp so they have two projects that they are pursuing and one of them is ahead of the other and I think it will likely be into 2018 before we see material supply coming from those project.

Chuck Magro:

I think that's it Operator. Thank you very much and thanks everyone for listening

Operator:

Thank you ladies and gentlemen this does conclude our teleconference for today. You may now disconnect you lines at this time. Thank you for you participation and have a wonderful day.