Agrium Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Agrium Inc. (AGU)

Agrium (NYSE:AGU)

Q1 2013 Earnings Call

May 09, 2013 11:30 am ET

Executives

Richard Downey - Vice President of Investor/Corporate Relations

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

Charles Victor Magro - Chief Operating Officer and Executive Vice President

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

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

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

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

Analysts

Joel Jackson - BMO Capital Markets Canada

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

Jacob Bout - CIBC World Markets Inc., Research Division

Michael Picken - Cleveland Research Company

Adam Samuelson - Goldman Sachs Group Inc., Research Division

P. J. Juvekar - Citigroup Inc, Research Division

John Chu - AltaCorp Capital Inc., Research Division

Paul D'Amico - TD Securities Equity Research

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

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

Brett Wong - Piper Jaffray Companies, Research Division

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Operator

Good day, everyone, and welcome to today's Agrium First 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 of Investor and Corporate Relations. Please go ahead, sir.

Richard Downey

Thank you, operator, good morning, everyone, and welcome to Agrium's 2013 First Quarter Conference Call. On the phone today to review and discuss our results is Agrium's leadership team, including Mr. Mike Wilson, President and CEO of Agrium; and Mr. Chuck Magro, our Chief Operating Officer.

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. Mike Wilson.

Michael M. Wilson

Thank you, Richard, and welcome to everyone joining us today to review Agrium's first quarter results and our outlook for our business. We're going to change things up a little today. I'll cover the general introduction and closing. And Chuck Magro, our Chief Operating Officer, will cover operations.

As the leading provider of crop inputs to growers in 3 continents, we, like our farmer customers, are keenly aware of the extent to which variable weather patterns can impact our businesses. And also, just how important it is for us to work with them to get crop inputs in a timely, efficient manner in order to maximize yields and returns. The past few months are a good example, as conditions have been challenged due to the wet, cold spring across North America, which is resulting in one of the latest starts to the spring season in history, while at the same time, drought conditions have impacted the Australian market.

Under these conditions, Agrium still achieved a record adjusted EBITDA of $351 million in the first quarter of 2013. We delivered net earnings of $1.03 per share after accounting for nonoperational items and also generated a solid $355 million in cash flow from operations in the first quarter. This strong performance is another clear demonstration of the value associated with the successful execution of an integrated strategy, with Wholesale and Retail both achieving their second-highest first quarter EBITDA on record. Additionally, our business is well positioned to capitalize on the pent-up demand from growers across North America and as we look forward to the busy months ahead.

We also announced this morning our intention to execute a share repurchase program for up to 5% of total shares outstanding. This is another example of Agrium's continuing commitment to providing strong total shareholder returns, as well as our confidence in the outlook for the Agrium's business. We believe that we can continue to deliver value-added growth across the crop input value chain, while at the same time, delivering significant returns of capital to shareholders in the form of both dividends and share repurchases. We continue to close on smaller value-enhancing Retail acquisitions this quarter, adding 17 facilities with annual sales of approximately $100 million. You will recall that we were also very active in completing these smaller scale acquisitions in 2012 as we acquired a total of 59 Retail locations, with sales of approximately $477 million last year.

The operating cost and depreciation expense associated with these facilities acquired in 2012 were the primary driver of our increase in Retail selling expense this quarter. And given the fact that the majority of the acquisitions were made in North America, we expect these assets to make a strong contribution to the earnings profile in the second quarter and beyond.

As you saw last week, the Canadian Competition Bureau approved the sale of the minority interest in the Medicine Hat nitrogen facility. We estimate the sales value of that asset on a gross basis at approximately $1 billion, and received approximately $939 million in cash last week pertaining to this transaction.

With regard to Agrium's purchase of the rest of Viterra's Agri-products assets, we have received approval from the Australian Competition and Consumer Commission and anticipate that we will close that portion of the deal soon. We continue to work with the Canadian Competition Bureau and expect to close this larger part of the transaction in due course as we work through the regulatory process. We look forward to fully integrating this significant Retail business into CPS after the busy spring season is complete. As a reminder, an amount equal to the after-tax operating cash flow from the Viterra Retail operations from March of last year to the time of closing will be applied against the purchase price.

As a public Canadian company, we report financial results in accordance with IFRS, which this year requires us to start classifying our 50% investment in Profertil under the equity accounting method. This change does not have any impact on net earnings or EPS, and we provided an adjusted EBITDA as additional disclosure so it is easily comparable to previous years. We also provide additional disclosure on our financial results this quarter in terms of breakdown of SG&A, other expenses and earnings from associates and joint ventures by business unit. In regards to further disclosure, we will speak to results pertaining to our new Retail metrics in more detail at the time of the second quarter, as this will provide a full spring season results, particularly given the substantial difference in timing of the start of the season this year versus last year.

I'd like to now turn it over to Chuck to discuss operations.

Charles Victor Magro

Thanks, Mike. Our Retail business reported EBITDA of $25 million this quarter, which matched the second-highest results ever reported for a first quarter. This year reflects a return to a more normal first quarter in terms of North American application conditions given that last year was the earliest start to the spring season in history. This is evident looking at our crop nutrient business, where volumes in North America were down 23% compared to the first quarter of last year. Crop nutrient margins as a percentage of sales were 15% this quarter, in line with the same quarter last year. However, margins on a per tonne basis were slightly lower, partly due to product mix with lower ammonia applications and lower average crop nutrient prices this year.

Crop protection gross profit this quarter was slightly higher than last year despite lower revenues. This was partly due to higher margins on crop protection products sales in Australia, as well as higher proportional sales of proprietary products compared to last year. Collectively, this contributed to a slight increase in margins as a percentage of sales from 15% last year to 16% this quarter.

Gross profit from seed sales was in line with last year. Again, despite lower revenues due to the late -- the later spring season. Strong demand for higher margin variety supported an increase in gross margins as a percentage of sales from 15% in the first quarter this year. Gross profit from services and other products was $21 million lower this quarter, due to weaker market conditions impacting the wool and livestock business in Australia and a later spring season in North America, reducing the need for application services this quarter.

On a regional basis, Retail's results were lower than the first quarter of last year across the United States, Canada and Australia, and were in line with previous year's results for South America.

Wholesale delivered excellent first quarter results again this year, with adjusted EBITDA reaching $384 million this quarter, up $22 million from last year. The strong earnings were a result of record gross profits for nitrogen and stronger year-over-year potash sales volumes. Partly offsetting the increased volumes were weaker prices for potash and phosphates across all markets. Our gross profit for nitrogen reached the first quarter record of $173 million, with gross margins of $231 per tonne, our highest-ever for a first quarter. We capitalized on strong demand for urea and nitrogen solutions in both the domestic and the international markets, which was partially offset by a decline in ammonia sales resulting from a later start to the season.

Potash gross profit was $84 million this quarter, only slightly lower than the same period last year. Total first quarter sales volumes were up 35%, supported by a significant increase in volumes in both domestic and international markets. The higher volumes were largely offset by lower prices, while costs were marginally lower than the first quarter of last year.

Our phosphate operations contributed $37 million in gross profit this quarter. The year-over-year reduction was due primarily to lower global phosphate prices, as realized prices were $82 per tonne lower than the first quarter of last year. Our costs were up by $17 per tonne, due mainly to higher rock cost as we reached the end of the Kapuskasing mine life. Our resulting gross profit of $161 per tonne this quarter once again led the North American peer group, due to our competitive cost position in ammonia and sulfur, as well as our end market advantage.

Our Conda phosphate facility has a long-term supply contract for sulfuric acid with Kennecott copper facility. The Kennecott facility declared force majeure on its contracts last month, as a result of a rockslide which has impacted their mining operations. Agrium has sufficient supplies to last us through the first half of this year. But we may need to access the spot market in the second half of 2013 as the Kennecott facility is able to return to full production. Timing is uncertain at this, as they are in preliminary stages of cleanup and assessment.

Advanced Technologies reported EBITDA of $6 million in the first quarter of 2013. This represents a strong increase over the same quarter last year and was driven primarily by stronger sales volumes and margins for ESN. Having completed the 136,000 tonne ESN capacity expansion project at New Madrid last year, AAT was able to take advantage of demand for this premium product this quarter. And we look forward to capturing the growing demand for ESN in the quarters to come.

The weather has clearly not been conducive to farmers preparing and seeding their fields across North America so far this spring. As of May 5, only 12% of the U.S. corn crop was seeded, which is the slowest rate since 1984. However, there is still time to get the crop and the associated crop inputs in the ground. Crop economics remain excellent and growers will strive to optimize their use of top genetics, crop protection products and crop nutrients. A late wet spring has a tendency to reduce root development of the crop and increase the risk of reduced yields later in the season. But the extent to which this may be a significant issue still depends on how the summer develops. If the wet conditions persist, we also would expect to see increased disease and pest pressure in this year's crop, which would support increased crop protection sales.

Turning to the nitrogen market. Urea buyers in the U.S. were well positioned entering the spring season. However, we expect the compressed application window will displace some ammonia in favor of in-season demand for UAN and urea. Indian demand is expected to continue to be strong in the 2013-2014 import season, while Brazil is projected to import record volumes of urea in 2013. Chinese urea exports will also be an important driver in the second half of 2013. We expect Chinese exports in the second half of 2013 to be slightly higher than last year as logistical constraints within the country should limit potential year-over-year growth. In terms of new supply, there are a few new urea export projects scheduled to come on stream this summer, namely in Algeria and Abu Dhabi.

Moving to the global phosphate market. Prices have remained under pressure over the past few months. The new Indian nutrient-based subsidy levels provides a potential for some improvement in Indian import demand later in the second quarter of 2013. Chinese DAP and MAP exports for 2013 are projected to be up only slightly from 2012 levels, despite the fact that the Chinese government loosened export restrictions on phosphates for 2013.

Potash prices have been relatively stable over the past couple of months as Brazilian imports and North American potash shipments have been strong so far in 2013. Analysts expect Chinese imports to increase on a full year basis from 2012 levels. However, new supply agreements will have to be completed for the second half of the year and remain a source of uncertainty today. Indian buyers have contracted for a large portion of their needs for the coming year, but the timing on deliveries and further purchases will depend on demand growth in India.

I will now turn it back to Mike.

Michael M. Wilson

Thanks, Chuck. Based on the outlook that Chuck just provided for the second quarter of 2013, Agrium is providing guidance of $4.60 to $5.40 diluted earnings per share, excluding share-based payments, gains or losses on hedge positions or contributions from pending acquisition of Viterra's Retail Agri-business.

As I speak to you this morning, growers are anxiously preparing to begin or restart spring crop input application and seeding activity across most of North America. The underlying strength and demand continues to be supported by strong global crop prices and farm incomes, resulting from tight global grain supplies that are a reminder to us of the world's ever-growing need for food. The challenge of meeting this need is a formidable task, but also one which has provided growers with a compelling economic incentive to do so. In order to maximize yield and productivity in the years ahead, we believe that growers will continue to seek out high-quality products, services and expertise that will best enable them to capitalize on this opportunity. And while weather will always be a fundamental component of their business and ours, Agrium has consistently demonstrated that we have the strategy and the capacity to deliver outstanding value in meeting the needs of our growers, customers and all of our stakeholders, in spite of the temporary challenges.

With that, operator, I'd like to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Joel Jackson of BMO Capital Markets.

Joel Jackson - BMO Capital Markets Canada

A couple of questions. On your Retail selling expense commentary, should we model -- are the relative percentage you had for selling expense in Retail for Q2, Q3 and Q4 in 2012, is that appropriate for 2013 going forward? Or would you guide us to higher? Or maybe you could talk about that, please.

Michael M. Wilson

Richard Gearheard, do you want to tackle that?

Richard L. Gearheard

Well, I would think it should be consistent with the prior year, if not, not even a little lower. It's -- obviously, it's a function of both the revenues and the expenses. But we have a large component of fixed expenses, so the percentage would've been up in the first quarter. But the rest of the year should be as good as, if not better than last year.

Joel Jackson - BMO Capital Markets Canada

In your commentary, you guided that Retail fertilizer margin percentages will be lower than Q2 2012 in this quarter. Can you talk about what you'd see for crop protection in Q2 for margins and also in the second half of the year, for crop nutrients and crop protection, how should we be thinking about margin relatively?

Richard L. Gearheard

Well, a little bit of it -- a little bit of this is, I would say, a function of the pricing on fertilizer. Actually, the margin percent could go up if prices are moderately lower than a year ago. We are seeing some pretty good margin per tonne numbers. It should be noted that in the first quarter, Australia was a heavier percentage of our total sales than it was last year. So that we saw our margins dip a bit because margins in Australia are lower on fertilizer. So I would say going on in the future, in the last 3 quarters, we should return to slightly lower than last year. We're not going to have as much product appreciation as we did a year ago. Chemicals, we should be similar to what we were last year to up a slight -- up a bit.

Joel Jackson - BMO Capital Markets Canada

And finally, for your guidance of achieving $1.3 billion of EBITDA in Retail in the next few years, did that assume sort of an 18% or so selling expense ratio for Retail in a Q1?

Michael M. Wilson

Q1 varies all the time based on whether it's an early or late season on a percentage basis. We're assuming, actually, historic-type margins or lower, as Richard said.

Operator

The next question is from Kevin McCarthy of Bank of America Merrill Lynch.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

I wonder if you could comment on the recent trend in Chinese nitrogen exports, as well as your expectations? Chuck, I think you made a comment that for the back half, you're looking for a slight increase. And you referenced some logistics costs in China, so perhaps you could elaborate on that, please?

Charles Victor Magro

Sure, Kevin. I'll make a couple of comments, and then I'll ask Ron to make a few as well. So what we're seeing is there has been quite a bit of product. And you know how China -- it is difficult to see exactly without full transparency. But there is quite a bit of volume that are moving to and through the ports. Last year, we were expecting a certain number, and they exceeded that. So we think that this year could be in that range or a little bit higher. And that's just the current view that we have today going forward. But Ron, do you have any other specifics?

Ronald A. Wilkinson

What I'd add is that, we think that China may actually be constrained by the logistics at the ports and the ability to actually move the product through the ports. Now I think there's a lot of reports of product moving there early. But at the end of the day, their capacity for exports may be just limited by that port capacity.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Okay. And then as a follow-up, longer-term on nitrogen, there's a -- as you well know, quite a few projects slated for development in North America for the back half of the decade. I was wondering if you could comment on what your expectations would be across the industry for permitting. Environmental considerations have always been a concern. Now recently, we've had a tragic explosion in West Texas. You're obviously an experienced operator. Not all of these new projects can say that really, greenfield development. Do you think it will have any meaningful impact on greenfield permitting through the coming years?

Ronald A. Wilkinson

Kevin, it's Ron Wilkinson again. What I'd say is, yes, I agree with you. Not all these projects are going to be built. With respect to the permitting, I -- we're seeing across our business, it is taking typically longer and longer to get permits approved. Now having said that, I don't think there's an issue in them not getting approved. It's just more a timing issue.

Charles Victor Magro

Yes, Kevin, it's Chuck. Maybe I'll just add. We believe that the permitting -- even before the West Texas situation, it was taking longer than most people had thought. We don't know if there's going to be an impact because of the incident. We just -- it's too early to tell at this point. But one thing we do know for sure is that, all the projects that have been announced, we're highly doubtful that they will all get built. And they will take longer and probably cost more than most people are thinking.

Operator

Our next question is from Ben Isaacson of Scotiabank.

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

My first question is on urea versus UAN, could you just run down how the farmer is thinking about using each of those products, perhaps as a substitute for one another on a region-by-region basis? And is the Mississippi water levels impacting that?

Michael M. Wilson

Richard, Tom? Do you want to handle that?

Richard L. Gearheard

Tom, do you want to respond to that?

Thomas E. Warner

Well, right now, Ben, there hasn't been a large switch from ammonia, which is the choice in the Corn Belt right now, to either urea or the solution. There will be in Southern Illinois and probably Southern Indiana and most likely it will go to UAN. As far as pricing at this point, pricing isn't a big factor. It's going to be a matter of just getting the corn in the ground soon. So I -- we haven't seen a big switch. But we have seen a switch from some ammonia to primarily the solution and some urea, based on timing primarily.

Richard L. Gearheard

And for the most part -- this is Richard. For the most part, you have the growers that want to use urea and the growers that want to use solutions. Switching back and forth between those 2 forms isn't very common.

Ronald A. Wilkinson

Yes, it's Ron Wilkinson, and I'll chip in on this one, too. I'll just refer to Western Canada, where we are looking at a very big ammonia season and likely no switching.

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

Okay, that's helpful. And my second question is just a quick update on Egypt and Argentina. Egypt, in terms of gas situation and construction on MOPCO 2 and 3, and then Argentina in terms of the gas.

Ronald A. Wilkinson

Okay. It's Ron Wilkinson, again, Ben. On Egypt, we have a little bit of good news in that the cabinet has authorized the start of construction. And at this point in time, we have a small clean-up crew on the site. And we are expecting that starting on Sunday, we'll have a technical team on the site doing an evaluation of any damage during the 18 months that it's been shut down. And we'll remobilize through a stage process. So we're hopeful on the restart of construction. All going well, we should have both of those plants back or completed by the end of the first quarter of next year. In terms of the gas situation, MOPCO 3 continues to run at full capacity. The country is short of gas in the summer. And we'll expect that for periods, we may have to constrain production. The good news is that this week, there was an announcement of a fairly substantial discovery in the Western Desert, and we're hopeful that, that can be brought on quite rapidly. In terms of Argentina, so far so good in terms of operating that plant at full capacity. Again, like Egypt, but just a switch in the seasons. During the winter, we do expect some gas constraints there.

Operator

Our next question is from Jacob Bout of CIBC.

Jacob Bout - CIBC World Markets Inc., Research Division

Just a question here as far as -- so we talked a little bit about the compressed spring and business mix, that type of thing. But what does it mean for the fall seeing this compressed spring or short start to the year as far as mix?

Michael M. Wilson

You obviously look at, that you've got a compressed spring and you're going to have a late harvest. But Richard, do you have anything to add to that?

Richard L. Gearheard

Well, you will have a later harvest. And then the later the harvest, the smaller your window is in the fall. And the smaller the window, you have a greater chance that you could get shut out in the fall. But that doesn't mean that would happen. But like last fall, such an early planning, such a large a window, we got everything done we could possibly do in the fall. So it's -- the odds would be that you have a greater chance of getting shut -- have reduced sales volume in the fall.

Michael M. Wilson

And if you get shut out in fall, you'll get it in spring.

Richard L. Gearheard

That's correct.

Michael M. Wilson

It all comes around.

Jacob Bout - CIBC World Markets Inc., Research Division

And maybe just a question on inventory. So build from what we saw last year, which I guess is understandable. But how are you thinking inventories are going to be exiting in the second quarter?

Michael M. Wilson

Richard?

Richard L. Gearheard

Well, we can't hold all what we sell in the spring. So even if the spring volume would be down somewhat, I would not expect our inventories would be up. So we're projecting minimum inventories at the end of the spring season, which could be in the third quarter, the tail end of the -- so that at actually June 30, it may -- they could still be up slightly.

Ronald A. Wilkinson

It's Ron Wilkinson. From a Wholesale perspective, we'd expect to be at minimal inventories at the end of the spring, perhaps with the exception of ammonia. However, we do have in the third quarter, 2 pretty big turnaround scheduled, 1 at Carseland for 45 days and 1 at Redwater for 30 days. So we certainly won't have any inventory issues going into the second half here.

Operator

Our next question is from Michael Picken of Cleveland Research.

Michael Picken - Cleveland Research Company

I was wondering if you could just talk a little bit in terms of your thoughts on the international potash market. Right now, it seems like China and India have sort of locked in contracts and maybe more product getting shipped. But what's sort of your expectations for kind of global shipments this year, and where do you see the second half going?

Michael M. Wilson

Well, as far as Canpotex goes, we're going to have an excellent, excellent second quarter. We are shipping to India. We're shipping to China. And then when you go into the third quarter, we'll continue to ship to India. We think Brazil will pull hard. Southeast Asia should do fine. And it's just a question of whether China settles earlier or later on their contract for second half. And ideally, we're going to be talking to them in May, they'll be settling early.

Michael Picken - Cleveland Research Company

Okay, great. And I guess as a follow-up, you had talked about running your facilities, I guess, on the Wholesale side at 90%-plus. Is that true across, like, all 3 nutrients for this quarter? And kind of what are your potash production plans for the full year?

Michael M. Wilson

Ron?

Ronald A. Wilkinson

It's Ron Wilkinson, we ran potash about 88% in the first quarter. We'd expect that similar type number in the second quarter. In the third quarter, we do have a turnaround scheduled for 2 weeks for potash. So the rate will be slightly lower, and then back up to that number in the fourth quarter.

Operator

The next question is from Adam Samuelson of Goldman Sachs.

Adam Samuelson - Goldman Sachs Group Inc., Research Division

I was hoping your thoughts on -- in global urea markets and your thoughts on cost support. You've clearly seen your global urea prices and -- including at NOLA, down pretty markedly in the last couple of weeks and months. Where do you think cost support really is for Eastern European and Chinese production?

Ronald A. Wilkinson

It's Ron Wilkinson. I guess, we're getting close to the cost of production because there's reports of some production shutting down in Romania. I believe there's some reports of some productions shutting down in the Ukraine and China is getting fairly close, from my understanding. What I'd say is, this is not abnormal. We usually see, as we get into the May timeframe, that urea prices tend to start coming down. That's normally what happens. Not every year, but most years that happens. So this movement hasn't surprised us. They are bottoming as we can see with production starting to come out.

Adam Samuelson - Goldman Sachs Group Inc., Research Division

Okay. And I guess, second on nitrogen. Maybe any updated thoughts on your own brown and greenfield expansion opportunities in the Midwest and expected timing of any potential announcements there?

Ronald A. Wilkinson

Sure. We're progressing both brownfield at our Borger location and a greenfield in the Midwest. Both projects are in the evaluation stage. We're doing the engineering. We're trying to get a good grip on the actual cost. And we should be making decisions on both projects in the second half.

Operator

The next question is from P.J. Juvekar of Citi.

P. J. Juvekar - Citigroup Inc, Research Division

I have a quick question on crop protection. I remember inventories were high coming out of the last season, particularly in fungicide. But can you tell us where your crop protection inventories are? Or chemical inventories are? And do you see pricing improvement this year in crop protection chemicals?

Michael M. Wilson

Dave Tretter, do you want to take that?

David J. Tretter

Sure, P.J. This is Dave Tretter. Our inventory going in at this point in time certainly is larger than it was a year ago, but that's reflective of the delayed season. We don't expect that we'll have a larger inventory as we end the season. When you look at pricing year-over-year, looks as though there was between 2% and 3% increase in most products as we look at the crop protection chemicals.

P. J. Juvekar - Citigroup Inc, Research Division

Okay. And secondly on Landmark, there was a drought in Australia. So can you tell us how Landmark is doing? And just give us an update on your synergy target?

Michael M. Wilson

Richard?

Richard L. Gearheard

Yes. Well, Landmark is down from the prior year. They do have a drought in the South, in the Southeast. This is probably our most profitable markets. The other thing that is happening is unrelated to the drought. Livestock prices are down, and so our commissions on the sale of the livestock are also down. So that's the 2 things happening. They had told me that there's rain in the forecast for this week or next week. Maybe that's positive thinking. I don't know. It hasn't gotten here yet. But it is extremely dry in the South, Southeast.

Operator

Our next question is from John Chu of AltaCorp Capital.

John Chu - AltaCorp Capital Inc., Research Division

Just trying to get a better handle on the delayed planting we're seeing in the U.S. and is there any chatter about farmers looking to switch from corn to soy? And if that's the case, what kind of a swing factor could we see in acreage?

Michael M. Wilson

It's still pretty early. Richard, do you want to?

Richard L. Gearheard

Well, I'll let Tom address this one. Tom Warner.

Thomas E. Warner

John, we have seen a switch in the south, the delta area. We have lost an acres of corn down there that will likely go to corn first and then -- or I'm sorry, cotton first. And if we don't cotton in 2 weeks, they'll go to soybeans. But that was our -- that's a peripheral area. The Corn Belt, there has been really no switch at this point. And I don't think we'll see any switch for probably the 3 weeks to any degree. We probably have lost a few acres of corn, but they're minimal at this point.

John Chu - AltaCorp Capital Inc., Research Division

And in terms of just how with the late planting, you might see more disease and pests and whatnot. When could you see the improvement in crop protection sales? Would that be more of a Q3 type of impact? Or how would you see that?

David J. Tretter

John, this is Dave Tretter. Certainly, the second quarter will be our largest crop protection sales quarter. With the delayed season, there's a pretty good chance that, that will be stretched into the third quarter. But we really won't know about the fungicide and disease pressure and insect pressure until we -- beginning of that period, but the conditions are such that we're expecting that they could be up.

Operator

Our next question is from Paul D'Amico of TD Securities.

Paul D'Amico - TD Securities Equity Research

Just 2 housekeeping questions. First for Ron, on the natural gas hedge update, how far out are you now?

Ronald A. Wilkinson

Paul, it's Ron. We're just into the second quarter. We're roughly 70% hedged. And thus far, we've had negligible third quarter sales. So we really don't have any, any hedging in place. And we continue to buy gas as we have forward sales.

Paul D'Amico - TD Securities Equity Research

Excellent. And next for Mike or Stephen, on the Q2 guidance. I was just looking at the gap, you got $0.80. Using the past 2 years, you guys were $0.50 to $0.60. So I understand -- I would guess that most of that now, for that spread widening is for the delayed spring. I'm just wondering, is there any particular standouts with potential variability in that guidance, whether it be nitrogen, crop protection, crop nutrients. Anything that stands out in terms of the variability in that guidance?

Michael M. Wilson

No, it's as you say. It just reflects the delayed spring. We're still watching ammonia sales to make sure, see how that comes in and then it's still early on Saskatchewan and Manitoba as to whether we're going to get any flooding. And that's sort of caused us to widen it a little bit.

Operator

Our next question is from Don Carson of Susquehanna Financial Group.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Mike, a couple of questions. One, your seed sales were a little light. Yet Monsanto, who you're a big distributor for, they actually talked about how they had a pull-forward of seed sales because farmers and dealers wanted to get their hands on the best seed early. So I'm just wondering why your sales were a little light. Was this a market share issue? Do you expect to make it up in the second quarter? And then also I wanted just to get your comments on potash pricing. It seems we've had a strong volume recovery this year, both domestic and offshore markets. But pricing is obviously lower than last year and hasn't been much of an ability to raise pricing despite the strong volumes. I'm just wondering what you attribute that to. Is that just the 2 large producers being very aggressive in the domestic market?

Michael M. Wilson

No. On the potash side, and I'll get Tom to comment on the seed. On the potash side, pricing has been under pressure because of a late spring and people haven't been pulling. And on the international market, as you understand, we settled early in the year in China and India at lower level. It simply reflects the fact that we're well below the high 50 million tonne type range in demand and the market's a little long. So it's just until we get that demand up into the high-50s. It's going to stay -- the market will stay long, and there'll be some pressure on price. We're hoping to be starting to push out there starting late this year and into next year. Tom, do want to comment on seed?

Thomas E. Warner

Sure, Don, this is Tom Warner. On the seed, it's just a matter of, again, timing. We're actually -- if you look at our bookings, Don, and we are -- on corn, we're booked up about 10% over a year ago. On soybeans, we're just short of 20% over a year ago in bookings. Keeping in mind that we don't invoice until the product goes out. And again, this year, we're behind on planting, so we're behind on seed sales. But we did take early decisions with the seed companies just due to limited supply of certain varieties. So it will be a second quarter catch up.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

And you had a nice margin improvement. So what do you think your overall seed pricing will be up this year as you sort of focus on drought-tolerant and other new hybrids?

Thomas E. Warner

Don, there's been a big push towards more traded varieties, which equates to a little better margin. So we feel that our margins on seed will be up over a year ago slightly.

Operator

The next question is from Tim Tiberio of Miller Tabak.

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

My question is around your buyback announcement and then your 2013 CapEx requirement. Is it fair to say that 2013 will still be more of a CapEx driven type of year? And that maybe the buyback would be more skewed to 2014? I know you might not be able to talk about timing, but just wanted to put that into context.

Michael M. Wilson

Well, 2 comments. One, 2013 will be a fairly heavy capital year because of the potash expansion and our sustaining capital. But no, we look at implementing our normal course issuer bid as we go through the year over the next 12 months.

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

Okay. And then just lastly on Retail P and K demand. Domestically, there has been some anecdotal chatter about farmers potentially pushing P and K applications because of the condensed spring into the fall season. I may have missed this earlier, but is that reflected in your guidance range for the second quarter?

Michael M. Wilson

Richard, do you want to comment on that or Tom?

Richard L. Gearheard

Well, anytime that the spring season gets delayed, there is that pressure. We don't anticipate a major reduction at this point in time in phosphate and potash.

Thomas E. Warner

We did -- Tim, we had a very good fall, last fall. But like Richard said, there could be a slight backup in P and K, but it's going to be very slight.

Operator

Our next question is from Brett Wong of Piper Jaffray.

Brett Wong - Piper Jaffray Companies, Research Division

A couple of follow-up questions here. For your crop protection chemicals, you said you saw a 2% to 3% increase in pricing. Is that for the first quarter? And if so, are you seeing the same escalation in pricing now through the second quarter so far?

David J. Tretter

Brett, this is Dave Tretter. Normally on the crop protection pricing, prices change once a year, so once they change, they stay pretty consistent throughout the year. So yes, we'd expect that to continue through the year.

Brett Wong - Piper Jaffray Companies, Research Division

Okay. And just on the construction and permitting, you mentioned the delay, is there any way you can quantify kind of the delay you're seeing?

Ronald A. Wilkinson

Brett, it's Ron Wilkinson. It really varies by jurisdiction and what you're trying to permit. So it -- mine was very much a directional comment. And so it'll have to be project-by-project that you look at it.

Operator

And our final question comes from Christopher Parkinson of Crédit Suisse.

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Perfect. Can you just remind us based on your current natural gas contracts and hedging strategies, can you just elaborate a little on the benefits of your AECO gas procurement as we head into the summer in back half of the year given that the spread is widening versus the Henry Hub?

Richard L. Gearheard

Christopher, it's Ron Wilkinson. With the NYMEX kind of current month being $3.95 or so, we've got about a $0.50 basis on our Alberta gas, so that's $3.45. And it looks like that's what it will be, roughly, for the summer. So we're paying slightly below $3.50 for Alberta gas, which gives us an awfully good position on our nitrogen business.

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Perfect. And just a real quick follow-up, regarding your CapEx estimate, of the $137 million increase, due primarily -- due to Vanscoy, do you expect that the growth CapEx contingent to be evenly distributed for the balance of the year?

Ronald A. Wilkinson

Christopher, it's Ron again. Actually you'll probably see our CapEx on the Vanscoy expansion actually accelerate as we ramp up construction through the summer. And then you'll probably see it drop off a little bit in the fourth quarter as you ramp down a bit from the summer. But it'll be ramping up through the balance of the year here.

Michael M. Wilson

Well, I'd like to just thank everyone for joining us today. It's Mike here again. And just a couple of points. One, even though it's been a late spring, the farmer can plant a lot in a very short period of time. So we remain very optimistic on the out term, both short term and long term. Our integrated strategy is paying off as you can see in our results. And our announced share buyback reflects the confidence that we have, not only the long-term fundamentals of the market, but in our growth objectives, in our growth opportunities, be it Viterra or potash or nitrogen expansion. So thank you for your support.

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