Agrium Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.22.13 | About: Agrium Inc. (AGU)

Agrium (NYSE:AGU)

Q4 2012 Earnings Call

February 22, 2013 9:31 am ET

Executives

Richard Downey - Vice President of Investor/Corporate Relations

Michael M. Wilson - Chief Executive Officer, President and Director

Ronald A. Wilkinson - Senior Vice President and President of Wholesale Business Unit

Richard L. Gearheard - Senior Vice President and President of Retail Business Unit

Thomas E. Warner - Vice President of Retail Distribution and President of Crop Production Services Inc

Susan Jones - Vice President of Marketing & Distribution

David J. Tretter - Executive Vice President of Procurement and Executive Vice President of wholesale sales of UAP Holding corp

Analysts

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

Adam Schatzker - RBC Capital Markets, LLC, Research Division

Daniel Jester - Citigroup Inc, Research Division

Jacob Bout - CIBC World Markets Inc., Research Division

Joel Jackson - BMO Capital Markets Canada

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Paul D'Amico - TD Securities Equity Research

Adam Samuelson - Goldman Sachs Group Inc., Research Division

Christopher Perrella

Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division

John Chu - AltaCorp Capital Inc., Research Division

Operator

Good day, everyone, and welcome to today's Agrium's Fourth Quarter Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the conference over to Mr. Richard Downey, Vice President, Investor, Corporate Relations. Please go ahead, sir.

Richard Downey

Thank you, operator. Good morning, everyone, and welcome to Agrium's 2012 Fourth Quarter Conference Call. On the phone today to review and discuss our results is Agrium's entire leadership team, including Mr. Mike Wilson, President and CEO of Agrium.

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 the most recent Annual Report, the 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. Mike Wilson.

Michael M. Wilson

Thank you, Richard, and welcome to everyone joining us today to review Agrium's fourth quarter results and our outlook for 2013.

Before discussing our results, I'd like to make a brief comment on JANA. I noticed on February 20, they put out another release. We obviously are not in agreement with their flawed arguments. We'll give our response in due course. What I'd like to do is to restrict questions today on this call to our quarterly results and outlook.

Although I can't help myself from commenting that in JANA's first paragraph of their most recent release, they highlight how much our stock has fallen as a result of appointing 2 new directors. They're right. At the end of the day on the 20th, our stock was down 5% since our new directors were announced. It just so happens that of our 4 competitors, 2 of them are down 4%, one's down 8.2% and one's down 14.3%. I'm surprised that JANA didn't comment on the negative effect that these appointments of our directors had on our competitors.

Anyhow, let me get into the business here. I'd like to briefly take a moment to highlight the appointment of our 2 new directors by Agrium's board early last week, Mayo Schmidt and David Everitt. The appointment of Mayo and David brings 2 very strong, uniquely qualified and independent directors to the board. These individuals have proven track records in the agricultural retail distribution space, as well as an excellent understanding of our markets, products, processes and, most importantly, our end customer, the grower. They also bring with them a necessary independence and expertise to complement an impressive board that has consistently garnered external recognition for the oversight and governance that they provide.

Agrium's board has been integral in overseeing and guiding the development and execution of our integrated strategy over the past decade, which has continued to deliver excellent results and returns. The industry-specific and retail distribution experience that these 2 individuals possess will contribute valuable insight and global perspective to what is already an outstanding board.

The benefits of this strategy and our leading position across the crop input value chain were clearly demonstrated this quarter as we delivered net earnings of $2.34 per diluted share, the highest for a fourth quarter in company history. You will note that there were a few recoveries this quarter related to claims and share-based payments. Even if you backed out these items, net earnings would've been $2.16 per diluted share.

These outstanding results were supported by our fourth quarter EBITDA in both Retail and AAT and were reflective of our ability to capture the strong demand from U.S. growers, driven by an extended fall application season and strong crop prices. We were again able to capitalize on our competitive strength in order to deliver very strong financial results, despite significantly lower ammonia sales in Western Canada this fall due to early snowfall pushing growers out of the field, and substantially weaker international potash demand in the fourth quarter relative to the same period last year.

Our performance this quarter capped off what was another excellent year for Agrium. We delivered record EBITDA of $2.7 billion this year, while net earnings from continuing operations reached $1.5 billion, which was in line with our record results achieved in 2011. We generated operating cash flow of $2.1 billion in 2012, the highest in company history.

In addition to delivering strong financial results, we also demonstrated our commitment to providing superior total shareholder returns. We made significant increases to Agrium's dividend payment, which now equates to $2 per share on an annualized basis. The increase was in line with our long-stated goal of significantly increasing our dividend payment as we grew our Retail business.

Moving forward, we are committed to reviewing our dividend on an ongoing basis, with the goal of ensuring that it continues to reflect the growth and earnings potential of our business. Furthermore, we completed a $900 million substantial issuer bid that was announced in tandem with the sale of Viterra's minority interest in the Medicine Hat nitrogen facility. Collectively, these actions are a clear indication of our confidence that Agrium's integrated strategy will continue to deliver outstanding results as we successfully drive improvements to our base business and execute on our value-added growth objectives.

I'll discuss our outlook for 2013 in more detail shortly, but we'll first briefly review our fourth quarter financial results. Our Retail earnings speak for themselves this quarter as we achieved EBITDA of $124 million, a 55% increase over last year's previous record of $80 million. These outstanding results were supported by robust demand for crop inputs and services, and a strong winter wheat planting in the U.S., as growers took advantage of the favorable weather and an extended fall application window.

On a full year basis, Retail achieved its third consecutive year of substantial earnings growth, delivering record EBITDA of $951 million in 2012, an increase of 24% over 2011. This was supported by a 64% improvement in EBITDA from our Australian Retail operations this year. In 2012, our Retail EBITDA as a percentage of sales improved to 8.3% compared to 7.5% last year, while we also reduced our operating coverage ratio to 69% compared to 74% in 2011. These significant increases in earnings, profitability and cost leverage speak directly to the success of our continuous improvement initiatives and our ability to grow our Retail business, both profitably and efficiently.

The strength in the global ag fundamentals led to higher sales and gross profit from crop nutrients, crop protection and seed during the fourth quarter of 2012. In terms of crop nutrients, we saw a strong fall demand across our Retail operations as a whole, with domestic North American sales volumes increasing by 11% and international sales volumes by 7%. This resulted in an 8% or $13 million increase in gross profit this quarter.

Crop protection delivered impressive results, with gross profit this quarter up by 40% over the fourth quarter of last year, due to a combination of growers utilizing additional products to manage weeds that have become increasingly resistant to glyphosate-based products, growing demand for our Loveland proprietary products and solid supplier rebates this quarter.

Gross profit from seed also increased by 30% to reach $43 million this quarter, primarily as a result of the strong winter wheat planting in the U.S. Looking ahead, we expect strong seed demand for the first half of 2013.

Our Wholesale business delivered EBITDA of $516 million this quarter, which is slightly lower than the same period last year. The differential was almost entirely due to weaker potash and phosphate prices, as well as reduced international demand for potash. This was largely offset by the strengths in our nitrogen business, as we delivered record fourth quarter gross profit from this product.

Our -- on a full year basis, we achieved Wholesale EBITDA of $1.9 billion, marching lower than the record $2 billion achieved in 2011. Once again, the diversity of our production assets supported our strong performance this year, as higher full year sales volumes and margins in our nitrogen business largely offset weaker potash and phosphate prices and the impact from the planned extended turnaround at Vanscoy related to our brownfield expansion project. Gross profit from nitrogen reached a record $326 million in the fourth quarter of 2012 with gross margins of $290 per tonne.

We capitalized on strong demand for urea in both the domestic and international markets in the fourth quarter. This helped offset the early snowfall in Western Canada, which has had a significant impact on ammonia sales in this important end market. Looking forward to the spring, we're optimistic that we'll be able to capture much of the deferred demand resulting from the lower ammonia application in Western Canada, with strong demand expected for all nitrogen products this spring. Additionally, the weakness in benchmark gas prices seen over the past 3 months due to the mild U.S. weather bodes well for our competitive gas cost position, as we look ahead to what is shaping up to be another strong year for our nitrogen business.

Potash gross profit was $79 million in the fourth quarter, largely as a result of lower prices and weaker international demand, compared to the same period last year. Despite these factors, our potash operating rate was above 80% this quarter as we leveraged our Retail's distribution capability to capitalize on strong North American potash demand, increasing our domestic sales volumes by 44% compared to the fourth quarter last year.

Our phosphate operations contributed $47 million in gross profit this quarter, which was down year-over-year, due primarily to lower global phosphate prices. Our per-tonne costs were higher, primarily due to higher noncash depreciation expense at our Conda facility, as well as an increase in rock costs. Our gross margin of $166 per tonne this quarter remains the strongest among the North American peer group, due to our competitive cost position in terms of ammonia and sulfur, as well as our end-market price advantage.

Advanced Technologies reported record EBITDA of $17 million in the fourth quarter of 2012. These strong results were driven primarily by stronger sales volumes and margins for ESN. Following the completion of our 136,000 tonne ESN capacity expansion project at New Madrid in the third quarter of 2012, we've ramped up to reach full operating rates and better equipped ourselves to meet the growing demand for this product. As we look ahead to 2013, we believe the historically tight grain and oilseed supplies will continue to provide strong economic incentive for growers to maximize crop production.

In North America, new crop prices for corn, soybean, wheat and canola continue to trade at historic highs for this time of year. As a result, acreage of major field crops in North America and the rest of the world are expected to increase once again in 2013, with combined U.S. corn and soybean area projected to reach a seventh consecutive record in 2013/'14. Collectively, these factors are expected to contribute to robust demand for seed, a wide array of crop protection products, as well as associated services, as we progress into 2013.

Seed pre-bookings have been very strong. Additionally, we expected a number of crop protection products will gain the unallocation [ph] this spring, which should support prices. At the same time, weed resistance to glyphosate is a reality and provides an opportunity for the use and professional application of other herbicides.

However, it is important to bear in mind the impact weather could have on the timing and length of seasonal demand. And as a result, we think of our business on the basis of halves rather than quarters. One example has been the third and fourth quarter of 2012.

Perhaps most importantly for the 2013, it's critical to remember that last year, we saw one of the earliest North American spring seasons in history. This resulted in first quarter demand that was extraordinarily strong by historical standards. If weather continues to return to a more typical pattern this year, we'll likely see demand more heavily weighted to the second quarter of 2013, particularly for our Retail business.

Turning to the nitrogen market. It continues to be supported by supply uncertainty as an increased number of countries have struggled with gas restrictions and new export supply has been hampered by new project delays. The Chinese government moderately reduced export restrictions on urea for 2013, but export volumes will depend on the global supply-demand balance and Chinese raw material costs in the second half of 2013. India urea demand is expected to be strong again in 2013, but the first quarter of the year is essential -- is a seasonally low point for Indian imports. While U.S. demand for nitrogen is expected to be very strong as a result of high crop acreage, the strong pace of imports in the 2012/'13 fertilizer year has positioned the market well to deal with this demand.

Global phosphate prices have weakened over the past couple of months, driven primarily by slow demand from India, the key phosphate import market. The first quarter of the year is the seasonal low point for phosphate consumption in India, and domestic inventories are reportedly high. Consequently, it is not expected that significant new demand from India will arise in the first quarter of 2013, and imports will be dependent upon domestic Retail pricing and subsidy levels.

The outlook for global potash demand has become more positive for the first half of 2013, supported by the announcement of new Chinese and Indian supply contracts with major suppliers over the past 2 months. These announcements have provided more certainty to the potash market globally. However, Indian potash demand continues to be significantly impacted by changes to their domestic pricing and subsidy programs.

Brazil was the largest offshore importer of potash again in 2012, and export -- expectations are that there will be further growth in Brazilian potash imports in 2013 as domestic inventories were reportedly tighter to start the year. Additionally, U.S. spring demand is expected to improve from 2012 levels, driven by high crop acreage and prices. As a result, global potash shipments are projected to increase from approximately 52 million tonnes in 2012 to between 55 million and 57 million tonnes in 2013.

As I speak to you today, I'm pleased to express that we are once again very optimistic about what the coming year will hold for our business. The world's unrelenting demand for reliable food supply has made the need to maximize grain production in 2013 even more critical, as grain inventories have struggled to keep pace with the needs of a growing global population. This has continued to support crop prices well above historic levels, and as a result, we remain confident that growers will do everything within their means to fully benefit from the economic incentive in front of them.

I firmly believe that no company is better equipped than Agrium to help provide these growers with high-quality products, services and expertise that are needed to achieve this objective year-after-year. We've proven time and again that our integrated strategy provides us with broad and unparalleled exposure to the strong fundamentals supporting the agricultural sector, and we'll continue to leverage our leading global position across the crop input value chain to maximize the value we deliver to our shareholders.

With that, operator, I'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Ben Isaacson with Scotiabank.

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

Just wanted to talk a little bit about your international nitrogen operations. First, can you talk about the gas situation in Egypt, who exactly is it affecting? How should we think about MOPCO running right now, and your expansions? And then second, can you talk about Argentina? This $2 surcharge, I assume that's going to permanent go forward. Are you talking to the government about that at all?

Michael M. Wilson

Well, we're certainly talking to the government about it. The question is how successful are we going to be. I'll turn it over to Ron to talk about MOPCO, how it's running and what the gas situation is.

Ronald A. Wilkinson

Ben, it's Ron Wilkinson. The gas situation in Egypt is a little bit day-to-day right now. MOPCO is running at capacity and has been for several weeks. A number of the other plants are curtailed, and I believe OCI is actually down. We expect over the coming months that there'll probably be intermittent, I'll say, reductions, but for the most part, we expect to run at capacity. We are seeing, I'll say, some positive moves by the government in the gas sector in terms of paying some past due bills to some of the majors, which should help spur additional gas production. As far as Argentina goes, we are accruing the $2 surcharge. We're not paying it. It's not a cash outlay at this point, and we are in the court system, I'd say, challenging that decree from the government.

Operator

Our next question comes from the line of Adam Schatzker with RBS.

Adam Schatzker - RBC Capital Markets, LLC, Research Division

It's Adam here. It's RBC, actually. Just 2 quick questions for you, Mike, if I could. The $136 million spent in Q4, can you just provide a little clarity on what was purchased? And then I have another question after that, please.

Michael M. Wilson

Are you talking the $134 million -- $136 million, what is this?

Adam Schatzker - RBC Capital Markets, LLC, Research Division

It was -- I believe it was in Retail.

Michael M. Wilson

What was purchased?

Adam Schatzker - RBC Capital Markets, LLC, Research Division

Yes.

Michael M. Wilson

Richard, do you want to take a stab at that?

Richard L. Gearheard

Well, I guess, you're talking capital expenditures, right?

Adam Schatzker - RBC Capital Markets, LLC, Research Division

That's right. It was under the business acquisition section.

Richard L. Gearheard

Okay. Well, we've had a very aggressive acquisition on our tuck-ins. Because of the change in tax laws, a lot of the sellers were trying to squeeze in the sale of their businesses in 2012. So we had the Midwest Agro, the Texas Agriplex, the Superior Dressler [ph], several tuck-ins of that nature. I'm not exactly sure of what the number of facilities by acquisition. But that's what they were, and it was encouraged by the change in tax laws.

Michael M. Wilson

Yes, if you look at Tarsi and his team were working right up to New Year's Eve closing deals. And so we showed at our Analyst Day the number of tuck-ins we brought in last year. The majority of them or the larger percentage was done in that last quarter.

Adam Schatzker - RBC Capital Markets, LLC, Research Division

Okay, yes. I hadn't put 2 and 2 together with the tax. That makes a lot of sense. The second question, you mentioned strong seed demand. I'm wondering after the drought last year, what the availability of seed is like, and whether you think farmers are going to get the different ones that they want?

Michael M. Wilson

I'll get Tom Warner to comment on that. Tom?

Thomas E. Warner

Yes, Adam, it's a -- the more popular hybrids are shorter this year. There's a lot of crop being raised in South America. There's a larger-than-normal winter crop being grown offshore that's going to be rushed up here. Some folks are talking about flying it up. But overall, there is plenty of seed. The big question is whether or not they'll get exactly what they want. But there is a rush from the main suppliers to bring the winter stock up here as quickly as possible, probably mid to late March, early April. So we should be okay with seed.

Operator

Our next question comes from the line of P.J. Juvekar with Citigroup.

Daniel Jester - Citigroup Inc, Research Division

This is actually Dan Jester sitting in for P.J. So I just wanted to get your thoughts on the USDA sort of initial forecast for the major crops this spring. It looks like they actually are projecting a small decline in acreage, which seems to contrast a little bit with maybe what you and some others in the marketplace are talking about. So maybe you can give us a little bit color there.

Michael M. Wilson

One thing I've learned is you don't really know how many acres are going to be until well into May. But, Richard, Tom, do you want to add any color to that?

Richard L. Gearheard

Well, in terms of the corn crop, we may be at a fairly max. It's tough to keep following corn. With corn, you do get -- suffer yield drag. So I think the 96 million, 97 million is probably fairly accurate.

Operator

Our next question comes from the line of Jacob Bout with CIBC.

Jacob Bout - CIBC World Markets Inc., Research Division

A question on Australian Retail. So obviously, you're up 50% for the overall Retail EBITDA. But when I take a look at the services and other portion of Retail, it's down 20%. You're blaming the Australian livestock and wool sectors. Maybe you can comment a bit on how core you view the livestock in both sectors. And just, overall, how much of a drag was Australia on your overall Retail margins?

Michael M. Wilson

Richard?

Richard L. Gearheard

Well, they are a drag on, say, fertilizer and chemicals, and always has been. They don't store fertilizers, so their costs are a lot lower related to fertilizers. But back to the livestock and wool sectors, they're important to the business down there, in that those are the commissions that get earned on the sale of livestock or wool. The prices were down on livestock last quarter, and the livestock producers held off putting their livestock for sale in -- at auction. Now what we're seeing in the first quarter, prices are still down, but they're hitting where they need to have some cash flow, and there's record numbers of livestock coming to auction. So we'll see that lift a bit, albeit at lower prices.

Michael M. Wilson

And you were right. We've significantly improved our earnings down there year-over-year. Richard and the team are aggressively looking at capturing all those synergies, and we're still confident we'll get them.

Jacob Bout - CIBC World Markets Inc., Research Division

Maybe just a quick question on your greenfield nitrogen. I know you've talked about looking at building one in the U.S. corn belt. We saw Methanex signing a gas contract down there. It was a commodity-linked type contract. How do you view that? Does that give you any hope that you could do a similar-type thing, or do you view that as more of a one-off?

Michael M. Wilson

Ron?

Ronald A. Wilkinson

Jacob, it's Ron. Yes, we're looking at that possibility for either all or perhaps a portion of our gas for the greenfield, and it's just part of our overall development of the project, along with the engineering cost, estimating, site selection, permitting, et cetera, et cetera. So we're working that. We hope to have some decisions on not only a greenfield but also our brownfield projects around mid-year.

Jacob Bout - CIBC World Markets Inc., Research Division

Would the greenfield be contingent on a gas contract?

Ronald A. Wilkinson

Not necessarily, but it is one consideration in the total package.

Operator

Our next question comes from the line of Joel Jackson with BMO.

Joel Jackson - BMO Capital Markets Canada

So I wanted to thank you for adding some same-store sales growth disclosure to your Retail results. Wanted to ask a little more about that. You talk about 8% same-store sales growth in Retail in 2012. Are you able to give us a little more granularity on what you achieved in seeds, chemicals, fertilizers, or can you at least rank them? And also maybe talk about in Australia, at Landmark, what same-store sales growth was like in '12, sorry.

Michael M. Wilson

We don't have -- I'd be amazed if we do have that data here. Richard, do you have that kind of information?

Richard L. Gearheard

Not by shelf. I do have like, say, what North -- no, I don't have that in front of me either. So I don't have that. We'll have to get back to you on it.

Joel Jackson - BMO Capital Markets Canada

Okay. Maybe I'll move on to something else. On the potash business, you had a bit of cost improvement from -- in Q4 in the potash business, obviously, from a Q3 that was affected by a lot of onetime things. Should we expect more improvement into 2013, maybe back to Q1 and Q2 cost levels? And then also on the potash business, we're hearing anecdotally about -- that a lot of the crop came out, especially in the northern parts -- states, sort of potassium deficient. Are -- do you have some sense that with the moisture issues, actually, you'd have some better potash application rates, or would you expect similar to 2012?

Michael M. Wilson

I'll get Ron to comment on our cost position, and then Richard and Tom to comment on their expectation for potash demand.

Ronald A. Wilkinson

Joel, it's Ron. In terms of our potash costs, we expect them down slightly over first quarter versus fourth quarter of last year, and that'll be based on a little higher production. We did curtail a little bit on the standard because of the weak international demand in Q4. We also had some moist issues for a short time. So we do expect, overall, our costs to go down. But it's kind of in that $5 to $10 range.

Michael M. Wilson

And, Tom, Richard, given the moisture conditions and what's going on, past moisture, what's -- what are your views on potash?

Thomas E. Warner

Joel, Tom Warner. We're getting moisture now in the Midwest, even the western Corn Belt in the last couple of days have received some significant snowfalls, which is very positive. We've had a pretty good run in the last 6 weeks on frozen ground phosphate and potash. But right now, what we've seen from the fall and into early -- this early part of this year, is rates per acre have been as good as, if not better than a year ago. So we expect a pretty good demand for phosphate and potash to the spring season.

Operator

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

I think India has recently contracted to buy about 3 million tonnes of potash. Is your sense that they will contract to buy more near term, or do you think that further purchases would be or further agreements would be postponed to much later in the year?

Michael M. Wilson

Our view is that they've contracted with most of the major suppliers at this point. We expect India to be in that 4 million tonne range. If we're lucky, 4.5 million. It's all going to come down to that subsidy and how it's moved around. And it looks like the Indian government has been saying they're going to put it in their pockets. So I think they'd be more towards the latter part. But who knows at the end of the day. But right now, they're fairly heavily contracted, and I don't see them taking on major additional contracts.

Operator

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

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Can you just add a little more color on your efforts to reduce operating costs as a percent of Retail sales going forward, based on your continuous improvement initiatives? And then, also, if you could just parse out and touch on the maintenance and personnel aspects of that in particular.

Michael M. Wilson

When you say maintenance, are you talking, again, Retail, or what are you talking about?

Christopher S. Parkinson - Crédit Suisse AG, Research Division

All Retail.

Michael M. Wilson

All Retail. Richard, do you want to try and take a stab at that?

Richard L. Gearheard

Well, from various fronts, start out with our G&A expense down in Australia being down roughly $5 million last year. And that's a major effort and it's going to be ongoing, and it will be completed in late 2014. But within the United States, primarily the cost reductions related to the gross profit number would be resulting from closure of facilities or reducing a full-fledged branch operation to a satellite operation, which have -- would have a lower expense base. But that's -- that is our -- we did describe this in our Investor Day in late January, and we are -- that's an ongoing initiative in Retail.

Michael M. Wilson

As Richard said, we're constantly looking at that. An example is of the tuck-in acquisitions we made last year, a little over 50 of them, we will shut in 11 facilities. They may not be the ones we acquired. They may be a combination of acquired ones and Agrium legacy ones. But that's the kind of thing, as you acquire 54-some-odd facilities and shut in 11, obviously, your leverage is getting better.

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Perfect. And just a quick follow-up. And based on your current outlooks in urea and ammonia, can you just give a little color on what you've seen in your core regional markets? And then if pricing does, in fact, come under pressure due to imports, what's your sense for spreads in this markets relative to the Gulf region pricing?

Michael M. Wilson

We've got Susan Jones here who is running our marketing. She can comment on what sort of current pricing looks like and what kind of spreads. I'm not sure you're going to see any sort of fall-off in pricing till you get through the spring. But Susan?

Susan Jones

Yes. I'd say in terms of our nitrogen market, I mean, we've seen fairly good demand starting out the year. In terms of our first half, we're already 75% committed. And certainly, we are seeing demand to make up for some loss of the ammonia volumes in Western Canada for the fall, and we are expecting a fairly robust first half, even though we've had significant imports into the U.S., we do believe that there will be significant demand.

Operator

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

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Mike, I have 2 questions, one on the business, one on JANA. First, on the potash market, it appears that offshore prices are stabilizing but we're still seeing some softness in the domestic market. And I know U.S. competitors talked of aggressive actions by Canadian producers, both in terms of fixing prices for the rest of spring and doing consignment sales. So just wondering, what do you attribute this increased competitiveness in potash to? How much of an impact do you think you're backing out suppliers from retail is having on the market versus how much of it might be the Esterhazy reversion or increased capacity? And then as you bring on Vanscoy and put more product through your Retail system, what do you think that does to competition in the domestic potash market?

Michael M. Wilson

The Vanscoy one, when we bring it in and start moving product into our Retail, our market share will go up. What it'll do to pricing, I guess, is a function of what the market looks like in that late '14, '15 time period. As far as the current situation, Ron, I don't know, do you want to comment?

Ronald A. Wilkinson

What I'd say, Don, is that if you look at domestic prices, North American domestic prices versus international potash prices, there is a bit of a premium there. And there's been, I'll say, more and more importers getting active, and I think the response for the North American producers is to retain that market share. I don't think it's having a huge impact on the market, and quite frankly, I think we'd conclude that potash has pretty much bottomed out. And with the increased international demand, now that China and India have settled, should start to strengthen the market as we move into the second half of the year.

Michael M. Wilson

And, Don, I'd prefer not to get into JANA, unless you have something very simple on this call. We're going to be on the road fairly extensively over the next 4 or 5 weeks, and we'll make sure we spend time with you and our shareholders.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

I guess, yes, just a very simple question. It's just the logic behind moving up the annual meeting. Is that just to kind of get this behind you earlier and focus more in the business, or what was the rationale?

Michael M. Wilson

The rationale is very simple. We've been talking with them for 10 months, and let's get this thing over with.

Operator

Our next question comes from the line of Paul D'Amico with TD Securities.

Paul D'Amico - TD Securities Equity Research

Just 2 questions for Ron, quick ones. So, Ron, you mentioned in terms of the $5 to $10 cost improvement on the potash side in Q1, sequentially, versus Q4. I'm just curious, would that hold with respect to where you expect to exit 2013, or do you think you can actually have better improvement by the year end?

Ronald A. Wilkinson

Paul, it's Ron. Yes, we'd expect better improvement year-over-year, because, of course, in 2012, we had the major shutdown associated with our expansion project, which pushed our annual costs up. So I don't have a year-over-year number with me, but it should be down a good chunk. At the same time, we are ramping up for our Vault project, so there will be an offset there.

Paul D'Amico - TD Securities Equity Research

Got it. Okay. And the second question, I don't know if you can do this or not, but do you have any update available regarding the planning for that final Vanscoy expansion tie-in in terms of the duration of the outage? I mean, there was prep work being done as to whether or not that could be shorter than the 12 to 14 weeks or so. Do you have like increased confidence that, that would be the case?

Ronald A. Wilkinson

We're working very hard on that, Paul. Right now, we're banking on the 12 to 14 weeks. We've got our own start-up team working with the contractor on how that duration looks and getting the critical path together. We've got a lot of focus on that right now, but our planning basis for 2014 is the 12 to 14 weeks right now.

Paul D'Amico - TD Securities Equity Research

Could I nail down a time we can expect an update? Would it be like in a Q1 report, the Q2, that kind of thing, or would it be not really...

Ronald A. Wilkinson

We would expect it to be in late Q2.

Operator

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

Adam Samuelson - Goldman Sachs Group Inc., Research Division

I was hoping if you could comment on the strength in the crop protection products within Retail and any sense on the strength between branded product and private label, and Loveland specifically. And looking ahead, where -- how you think about capacity on the Loveland side and the ability to ramp that further?

Michael M. Wilson

Yes. We have Dave Tretter online, and hopefully, he's not on mute. So, Dave, can you handle that?

David J. Tretter

Sure, Adam. This is Dave Tretter. As we look at the crop protection market for 2013, with crop -- with the crop prices the way they are, we think farmers will look at their crops similar to last year, where they want to get the most yields. So they'll put whatever they need to on the crop to make it grow better and protect it from weeds, disease and insects. As far as the Loveland proprietary line, this past year we increased the percentage of that line about 120 basis points increase.

of our total chemical business, and we expect to continue to grow that as we go into next year and the following years.

Adam Samuelson - Goldman Sachs Group Inc., Research Division

Okay. And maybe just following up on that. In the quarter and the year, what was the impact year-on-year of greater supplier rebates? And just trying to think of how much of a bump that gave the fourth quarter that may not necessarily repeat next year.

David J. Tretter

So there was definitely an increase in the true-up of our rebates. There were some programs that we qualified for later in this year. I don't have right offhand what that increase was, but we can go through that offline if you like.

Operator

Our next question comes from the line of Kevin McCarthy with Bank of America Merrill Lynch.

Christopher Perrella

It's Chris Perrella on for Kevin. I wanted to follow up on the seed availability issue. With the impact of the drought, how has that limited, or not, Dynagro seed supply?

Michael M. Wilson

Tom?

Thomas E. Warner

Sure. As far as Dynagro right now, we're in pretty good shape with our best hybrids. Actually, our bookings year-to-date on seed corn is up over 10%, and seed bean's up over 20%. So we feel pretty confident in our Dynagro, specifically, and looking forward to a good seed year.

Christopher Perrella

All right. And a follow-up question, how is the Wholesale order book looking in P and K? And around what time frame was most of that sold for?

Michael M. Wilson

I'll get Susan to comment on that.

Susan Jones

Yes. On phosphate, we're fully committed for the first quarter, and 65% on our first half. And on potash, we are, again, fully committed on our first quarter and about 85% on our first half.

Christopher Perrella

All right. Would most of that have been sold in January?

Susan Jones

Our nitrogen book had sold -- some of it sold in Q4, particularly Western Canada, where we saw very strong demand. But in terms of P and K, most of that's gone in Jan, Feb.

Operator

Our next question comes from the line of Tim Tiberio with Miller Tabak.

Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division

My question is back on the crop chemical portion of the Retail business. From what I've seen, we saw a rise in glyphosate Retail prices, substantially quicker than when Monsanto actually lifted prices on the Wholesale side. Now that they've announced a price move this fall, was that fully reflected in the Retail crop chemical margins in the fourth quarter? Or is that either a positive or a negative, at least, within herbicides going forward?

Michael M. Wilson

Dave, can I get your comment on that?

David J. Tretter

Sure can. This is Dave Tretter. So Monsanto did increase their selling price late in the fourth quarter. Most of the industry has a good share of their product already purchased for the first quarter, so we don't expect to see a lot of change in the selling price the first quarter. But as we get through our current inventories and get into the new price product, it should affect our ongoing selling price.

Operator

Our final question comes from the line of John Chu with AltaCorp Capital.

John Chu - AltaCorp Capital Inc., Research Division

So just following up on Susan's statement that 75% of the volumes has been sold forwarded for the first half of 2013. Just curious, how does that compare to prior years? Is that typical, or are we actually well ahead of what we've seen historically? And then maybe the second question, just being on the phosphate side. The margins were hit this quarter. You got OCP coming into play mid this year 2013. And so does this push the need for seeking new sources of rock for Agrium to be more vertically integrated?

Michael M. Wilson

We have a fairly long contract, term contract with OCP, so we're not worried about our current position. And Ron and his team are looking at our options going out into 2020-plus time period. Susan, on the supply?

Susan Jones

Yes. John, on nitrogen, we would see this as fairly consistent year-over-year in terms of how far sold we are into first half.

Ronald A. Wilkinson

Yes, John, it's Ron Wilkinson. Just on the phosphate side, we have been running trial cargoes of OCP rock in the second half of last year. So we're not going to see a massive increase in our phosphate costs year-over-year. Some of that's already been built in as our -- also as our cap costs have been rising towards the end of the year. But you're bang on, we're looking at strategic options around phosphate to get back on our own rock supply.

Michael M. Wilson

So on that note, I'd like to thank everyone for joining us. And just remind you that we are very well positioned with our integrated strategy to capitalize on these strong ag fundamentals. We have a lot of growth in front of us, and we've got a great base business. And when you look at growth, we have a private label chemical and seed, and we have our tuck-ins in Retail. We have our potash expansion that's well under way, on time, on spec and on budget. And we have brownfield nitrogen and the potential for greenfield.

We're going to be on the road quite extensively over the next 4 or 5 weeks, talking about the company, the outlook and addressing JANA statements. So I thank you for your support.

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