Nutrien Ltd. (NTR) Q3 2011 Earnings Report, Transcript and Summary

Denita C. Stann - Vice President of Investor and Public Relations William J. Doyle - Chief Executive Officer, President, Non-Independent Director, Chief Executive Officer of Potash Corporation and President of Potash Corporation G. David Delaney - Chief Operating Officer and Executive Vice President Garth William Moore - President of PCS Potash Stephen Francis Dowdle - President of PCS Sales

Elaine Yip - Crédit Suisse AG, Research Division Michael Picken - Cleveland Research Company P.J. Juvekar - Citigroup Inc, Research Division David L. Begleiter - Deutsche Bank AG, Research Division Lindsay Mann - Goldman Sachs Group Inc., Research Division Donald Carson - Susquehanna Financial Group, LLLP, Research Division Mark R. Gulley - Ticonderoga Securities LLC, Research Division John Chu - AltaCorp Capital Inc., Research Division Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division Adam Schatzker - RBC Capital Markets, LLC, Research Division Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division Joel Jackson - BMO Capital Markets Canada Vincent Andrews - Morgan Stanley, Research Division Ben Isaacson - Scotia Capital Inc., Research Division

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the PotashCorp Third Quarter Earnings Conference Call. [Operator Instructions] I would like to remind everyone this call is being recorded on Thursday, October 27 at 1:00 p.m. Eastern. I will now turn the conference over to Denita Stann, Vice President Investor and Public Relations. Please go ahead.

Thanks, Brock. Good afternoon. Thank you for joining us, everyone, and welcome to our third quarter earnings call. In the room today, we have Bill Doyle, our President and CEO; Wayne Brownlee, our Executive Vice President and Chief Financial Officer; David Delaney, Executive Vice President and Chief Operating Officer; Joe Podwika, Senior Vice President and General Counsel; Garth Moore, President of PCS Potash; Brent Heimann, President of PCS Phosphate and PCS Nitrogen; and Stephen Dowdle, President of PCS Sales. I'd like to welcome the media who are listening in and remind people that we are live on our website. This morning, we posted an investor presentation on our website. And during Bill's remarks, we will be highlighting some of the information from this presentation. I would also like to remind everyone that today's call may include forward-looking statements. Such statements are given as of the date of this call and involve risks and uncertainties. A number of factors and assumptions were applied in the formulation of such statements, and actual results could differ materially. For additional information with respect to forward-looking statements, factors and assumptions, we direct you to our news release and our most recent Form 10-K. Today's news release is also posted on our website and includes a reconciliation of certain non-IFRS measures to their most directly comparable IFRS measures. I'll now turn the call over to Bill Doyle for some comments, and then we'll go to questions.

Thank you, Denita, and good afternoon, everyone, and thank you for joining us for this discussion of PotashCorp's third quarter earnings and the conditions that are shaping our performance. We appreciate this opportunity to share our views on the fertilizer industry and why we believe our company is well positioned today and for the future. These are uncertain economic times as debt issues in several European countries and questions about global growth rates have caused many investors to reassess risk. The impact was evident in commodity markets as prices for a number of key global crops fluctuated during our third quarter. Despite this volatility, crop prices remained at historically high levels, and farmers continued to strive for increased production to capitalize on the economic opportunity in agriculture. As a result, demand for our potash, phosphate and nitrogen products remain strong. Tight supply-demand fundamentals supported higher prices. This is especially true of potash as our shipments were up 14% compared to last year's third quarter, September bringing the highest monthly volumes in our history. Earnings of $826 million, or $0.94 per share, were the second-highest total ever for our third quarter, approaching the record achieved in 2008. Gross margin of $1.1 billion doubled last year's third quarter, and our 9-month total of $3.4 billion far surpassed the $1.9 billion generated in the first 9 months of 2010. For the year, earnings guidance remains at $3.40 to $3.80 per share, with the midpoint of the range close to our previous record of $3.64 per share set in 2008. Importantly, cash flow per share at the midpoint would be approximately 10% higher than our 2008 record. Our growing ability to deliver, especially in potash, is becoming evident today and we believe will be even more valuable moving forward. Our optimism for the agricultural sector is based on long-term trends and population growth in global development rather than short-term economic peaks and valleys. It's like watching the ocean. The waves breaking on the surface draw all the attention, but it is the current beneath the water that determines your direction. We know that global population continues to increase, especially in Asia and Latin America. Every day, millions of people in those countries enjoy a greater ability to buy more and better foods. When the economy tightens, consumers may not buy a bigger home or a new car, but putting food on the table is always a priority. North America and more significantly for people in developing countries, this was highlighted through late 2008 and 2009, the most significant economic downturn in most of our lifetimes. Grain consumption still grew by more than 2% annually. That's not to suggest crop prices are unaffected by economic shifts. We witnessed this in September, as a broad-based investor liquidation of many commodities had an impact on prices. It is clear, however, that agricultural commodities have held their value much better in this environment than many basic materials. If you look at Slide 7 in the presentation on our webcast, you can see that commodities like copper and zinc have declined sharply in recent months while corn prices by comparison have remained relatively strong. Unlike 2008 when crop prices declined throughout the second half of the year, commercial buyers today have stepped in during dips in the market, taking advantage of buying opportunities for these essential commodities. Earlier this month, China turned to the world's markets to purchase 1.5 million tonnes of corn, one of the largest import tenders in its history. In the U.S., corn will need to be rationed for the second straight year, with projected stocks to use ratio half the levels of the 2008, 2009 crop year. Supply is tightening. Livestock and ethanol producers have used this period of market volatility to increase purchases to meet their immediate and future needs. It's not just a corn story, as inventories for other key commodities remain under pressure, which is supporting prices for a broad range of crops. At the beginning of this year, we stated it would take at least 2 years of record harvest just to rebuild grain stocks to more comfortable levels. You can see now, even with good growing conditions in many regions, that 2011 is destined to be a lost year in terms of replenishing global grain inventories. While there will undoubtedly be fluctuations in pricing, we believe that growing demand and the need to rebuild inventories will provide a supportive environment for crop pricing beyond 2012. Farmers prepare for this environment's, we believe, near-term demand for all 3 nutrients will be solid. North America, the harvest is advancing rapidly in most regions, and preliminary reports suggest application rates will be strong this fall. U.S. farmers are projected to earn record income this year. The forecast for next year suggests continued healthy returns. South America, record fertilizer applications are expected during the primary planning season that is currently in full swing. Added to that, distributors are starting to purchase for Brazil's safrinha corn crop, which will be planted in February and March as acreage for this crop is expected to jump 6% in the next planting season. Increasing importance of this second crop is supporting potash demand from Brazil during our fourth and first quarters, periods used to be relatively quiet in that market. We expect contract commitments to China and India will help underpin global potash demand during this year's fourth quarter. Significant volumes are committed to India for the next 6 months. In the first quarter 2012 shipments from Canpotex include a $60 per tonne increase over prices for the fourth quarter of 2011. Potash consumption in other Asian markets remains strong, as farmers are generating solid returns for key crops such as oil palm, rubber, sugarcane and rice. Deliveries to this region may slow in the near term as distributors work through record product shipped through the first 9 months. Canpotex is on pace for record shipments in 2011 despite prolonged contract negotiations with India earlier this year and the recent economic uncertainty. This is a testament to the diversity of Canpotex's customer base and the importance of rising demand levels from countries in Latin America and Southeast Asia. Local potash shipments for 2011 are projected at approximately 57 million tonnes. PotashCorp sales volume is now estimated at 9.5 million to 9.7 million tonnes. Our ability to reach the top end of our previous sales guidance range has been impacted by weather-related downtime requirements at our Patience Lake solution mine, as well as limited additional capability from our quarry operation as the ramping up of our new red product mill continues. As we look ahead to 2012, we anticipate strong consumption growth will lift potash demand to record levels of 58 million to 60 million tonnes. The industry's operational capability is projected to increase next year with the majority of the additions associated with PotashCorp's ongoing expansion projects. We expect global operating rates to remain at historically high levels and demand to continue to test the industry supply capability. Although we are still in the midst of our potash expansions, the conditions we see unfolding today suggest that our new operational capability will be needed now and in the years ahead. As we have always said, it takes a lot of time and money to develop new potash capacity. We are continuing our expansions with the same discipline and methodical approach that have been hallmarks of our company for more than 20 years. You recognize that our shareholders have patiently supported the long-term capital expansions in potash, a $7.5 billion commitment that is expected to propel our company to new levels as we move forward. At the same time, our expansions are creating thousands of jobs in Saskatchewan and New Brunswick within our company and in a broad range of industries that benefit from a growing economy. As we grow, it provides us with an opportunity to continue focusing on projects and organizations that are important to our communities. As our new production comes online, we intend to play an even greater role in answering the challenge of feeding the world, while at the same time delivering increased value to all of our stakeholders. I'm joined today by our senior management team, and we will be happy to answer your questions at this time.

[Operator Instructions] First question today comes from Mark Connelly of the CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Why don't we just start with the -- your potash numbers, which for 2012, don't really look all that aggressive. When I talk to farmers in the U.S., it sounds like they're planning to apply more potash in 2012, so I'm wondering why your range doesn't run higher.

Okay, Mark. What I'd tell you is I think you're going to see very tight potash markets in 2012. I think your biggest problem is going to be capacity constraints. Capacity is going to be challenged to keep up with demand. So if you look at this year's number, we talked about 57 million tonnes is our best latest guess of this year, and if you look at the expansion of growth on a global basis, we used 3% as our number. We tend to be historically maybe a little bit conservative, but if you look at 3%, that takes you to 58.7 million tonnes for next year. If your growth prospects are higher, obviously, you're looking at different numbers. If you're looking at 5% growth, which IFA is in that range in terms of their forecast, that would get you closer to 60 million tonnes. We expect North American potash markets to be extraordinarily strong. We have record farm income this year, and so it's not a reflection in any way, shape or form of what we think is a lessening situation in North America. I think the big issue for everyone to understand is that we're going to have extraordinarily tight markets because of the constraints on the production side.

Next question comes from Ben Isaacson of Scotia Capital.

We've seen some interesting news flow recently, including the Chairman of China's potash association saying that the country will be potash independent by 2015 to boost domestic and offshore investments; India potentially looking to acquire a stake in Belaruskali for supply security; and Vale looking to make Brazil potash independent by 2020 or so. But when I take that and look at the Saskatchewan greenfield CapEx of about $3,000 a tonne, one of your Saskatchewan competitors had brownfield at $1,500, and if I compare that to Russian and other greenfield CapEx closer to $1,000. For example, we just saw the Uralkali announcement a couple of weeks ago. I'm just trying to get a sense as to how Saskatchewan will remain competitive outside of the North American market, not in 2 to 3 years but more in 7 to 10 years. And where do you think all of Canpotex's incremental tonnes will find a home if things play out?

All right, Ben, I would just say there's been a lot of pronouncements here lately in the potash world. Some of them are questionable I think and maybe just to go through a few of those. You talked about China becoming potash independent by 2015. I would just say that announcement might have something to do with the upcoming negotiations here for 2012. So when you see that, of course, they throw everything and the kitchen sink in the potash. I mean, they don't talk about a myriad of potash. They just say potash, so that includes SOP, and it includes lower grades of KCl. If you look at the numbers and you know what's being produced, China has no opportunity to be independent of potash imports in 2015. And quite frankly, the commercial people in China say that China will be 75% dependent on imported potash for the foreseeable future, because there's tremendous amount of growth coming in potash. The Indian negotiations with Belaruskali, I really don't have much of a comment on that. I understand Belaruskali has kind of opened it up to a minority position to the highest bidder, but I haven't seen any activity there. India, of course, is 100% dependent on imported potash. Brazil being independent, potash independent, also I think is a stretch. You have limited resources in Brazil in that Cergi Bay [ph] area. There's an Amazon deposit that's been talked about, but I mean you're talking very expensive, difficult project in a high humidity climate. You know potash is hygroscopic. It doesn't do well in that type of environment. So there's been a number of pronouncements. Uralkali's announcements here about a lot of brownfield capacity coming for, I guess, between $5 billion and $6 billion between now and 2021, I don't know how you pinpoint costs over a 10-year period. They would have to compete for the same structural steel, the same copper. The same concrete engineering work is a global need, and of course, you have to pay global prices for that as well, and I know their labor costs are increasing about 8% to 10% a year. So it's difficult to put a number. I think the point though with Uralkali's announcement is that there is clearly an advantage for brownfield production, brownfield capability versus greenfield. I don't know how you compete with a greenfield mine at today's prices. We know they can't be economically justified. That's why you have no one going ahead with greenfield today. We've had a lot of delays in the people who've been looking at greenfields. And the reason is you just can't make the numbers work. There's no mystery to it, and the point, I think, that I would take from the Uralkali announcement is that, yes, they have brownfield capability. Regardless of what the eventual cost might be, they're going to be more than competitive with any potential greenfield project, and it's just a huge advantage to already be in the business versus someone that's come in from the outside that's got to start from scratch.

Next question comes from Joel Jackson of BMO Capital Markets.

I know you gave some guidance for your costs for Q4 versus Q3 for the potash segment. I was wondering if you could also give some relative per tonne cost guidance for 2012, in fact, after opened allowance seems to be complete and also, if you can give some guidance on where you think your royalty payments will be for 2012.

I'm trying to make out your question, Joel. Maybe if you could just state that again. It didn't come across clear to us. So could you give it to us one more time?

For 2012 per tonne cost guidance in the potash segment and also for royalty guidance in the potash segment as well for 2012.

We don't give guidance here in October for 2012, so you're just going to have to be patient with us and wait until we get a little closer to that time.

Next question comes from Vincent Andrews of Morgan Stanley.

There's been a tremendous amount of price momentum year-to-date, and from reading the trade publications, they're suggestion would be that the most recent price increase taken in Brazil has yet to go through. Obviously, that pricing was taken during that sort of a major period of economic turmoil globally. So, Bill, you spoke in your prepared comments about strong demand from Brazil in 4Q and then going into 1Q. So I'm wondering if you can tell us whether that price increase has gone through or not.

All right, Vince, I'm going have Stephen Dowdle respond to that question.

Yes, Vincent. As you pointed out, there was $30 price increase announced in Brazil, and as is normal, there's a period from the time that a price announcement is made to the full implementation of that price increase. Our expectations is that, that price increase will be realized during the fourth quarter, and by the end of this year, we will see that $30 price increase implemented, and we'll begin the first quarter at that new price.

Next question comes from Mark Gulley of Ticonderoga Securities.

Yes, Bill, my question had to do with potash pricing as well. Since the potash price sort of bottomed out in the first part of 2010, sequential price increases have averaged something in the area of $35 per tonne per quarter sequentially. How should we think about the pace of potash price increases going forward?

Mark, if you look at just where we've come from over the last year. If you look at 9 months ending September 30 from the same period, 9-month period in 2010, we had a $95 increase. What I'd say is -- as I said earlier, is we're going into extraordinarily tight supply-demand situation. Just we're going to be production challenged to keep up with demand for 2012. So I think at this point, what I'd be prepared to say to you is we're going to have a substantial price increase.

Next question comes from P.J. Juvekar of Citigroup.

Bill, a question in nitrogen. Your natural gas cost was almost $2 higher than the market price due to the Trinidad gas contract. Is there a way you can mitigate that? And then secondly, what are your thoughts on nitrogen capacity in the U.S.? And would you participate in building any new plants?

All right, P.J., I'm going to have David Delaney respond to that.

Yes, P.J., our gas costs in Trinidad are indexed to Tampa ammonia, and with, obviously, with Tampa ammonia increasing up to $705 here for November, our gas prices reflect that higher price. Our '03 gas contract expired in May. We're in negotiations with the NGC in Trinidad. We're hoping to come up with some resolution here in the first quarter of 2012, and obviously, we are discussing the shale gas situation in the U.S. Now Trinidad's competitive situation has to improve based as to what's going on in the United States. In terms of expansion in the U.S., obviously, we have our Geismar restart scheduled for July of 2012, and we're looking at potential expansion at Lima and Augusta if the numbers work. We are not considering a greenfield at this time because it's difficult to gauge what gas prices, in my opinion, will be beyond 5 years.

Next question comes from Jeff Zekauskas of JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: I know Potash plans long in advance, and your strategic priority since 2008 has really been to expand your potash capacity, and so your capital expenditures have gone up well over $1 billion. But come 2014, that expansion phase for potash will end, and your capital outlays for potash capacity expansion will really come down. What will be the new strategic priority beginning in 2014? That is, will Potash be a company that simply generates a lot of free cash flow that goes to its shareholders or are there new directions that the company will go in?

All right, Jeff, well, as I say to most people, I'd like to get there first. 2014 is almost 3 years from now, and we have major expansions under way. We have considerable amount of capital being spent this year. We have considerable amount of capital being spent next year and in 2013. I would tell you that, as we've said, we are going to get every bit of blood out of this turnip of potash that we have, and we have some capability we believe to further expand. We haven't done any engineering work on that, so we're not prepared to make any announcements. But we've talked in the 3 million tonne-plus range, additional potash expansions. We have some other ideas in potash to grow our business worldwide. So we're going to keep growing, and I can assure you that we'll put any capital to the best possible return that we can give our shareholders. But we've got a lot of growth ahead of us, and we don't see that period of growth coming to an end anytime soon.

The next question comes from Michael Picken of Cleveland Research.

Just wanted to get a sense in your opinion in terms of where we are in sort of downstream potash inventories in the U.S. and in Brazil. You talked about Southeast Asia being particularly high and India being particularly low, but in the U.S. and Brazil, just kind of your sense and your expectations for where it will be at the end of the fall.

All right, Michael. I'll have Stephen comment on that one.

In the U.S. inventory situation, we saw here in the third quarter a lot of purchasing being done to position dealers for the fall application season. And from what we see where the harvest has been completed and application has begun, we're seeing very healthy demand and very good fall applications. But we're right at the beginning of that fall application season. But our expectations and the market expectations are that the application season's going to be very healthy and that these inventories that are in place are going to be completed, and the next step would be for people to begin to restock and prepare for spring. So the inventory outlook in North America, I would say, is quite healthy. In Brazil, we've seen the soybean application go and proceed very normally. Inventories in Brazil are at very normal levels, I would say. The fourth quarter, the first 9 months of the year, we've seen potash imports just under 5.9 million tonnes, and the expectation is that the fourth quarter -- the 5-year average for imports in the fourth quarter is 1.2 million tonnes, and of course, this is not really an average year. It's a record year. So the expectation is, is that this demand for the safrinha corn crop and also for sugarcane fertilization, we're going to see strong demand, and that means strong disappearance. And right now in Brazil, there's really, I would say, no concern about any abnormal inventory levels exiting this calendar year.

Michael, I just might add onto that these 2 interesting things. One is the soybean farmers in Brazil are looking at shorter variety beans, shorter maturity beans because they want to plant that corn crop right behind it, and that is really going to be very positive for potash because, as you know, corn, just like it does in the U.S., requires a tremendous amount of potash. So we see growth there. The other interesting thing in Brazil is that the sugarcane crop really has to be -- is in need of a great deal of investment because you've got old cane in many parts that is not as productive as the younger cane, and so they're actually going to be planting a lot of new cane, which is going to, again, be very potash intensive. So we're seeing some really good signs in Brazil for 2012. What we said in our press release is that people were caught in this push, pull between the fear that they had and the volatility in the August-September time frame and yet the push from extraordinarily crop profitability. What that's done is it's -- as we said, we had an all-time record September. So we kept moving. I think quite extraordinary quarter really when you think about all of that volatility in August and September where it was the end of the world each day, and yet, we came out of this quarter with, I think, quite a reasonable performance. And so that push-pull between this fear of the Armageddon and the draw of extraordinary profitability on crop prices has kept people from building inventories in a normal fashion. So we're going to go out of 2011 with relatively low inventories worldwide, which is going to put a lot of pressure on the first quarter of 2012 as we get about preparing for the 2012 crop, which we know is going to be greatly needed to replenish very low grain supplies. So inventories in general are low, and I think you're going to even see coming out of the month of October on the production side in Saskatchewan -- we update that -- there's a government report that comes out. I think you're going to see a further reduction in potash inventories at the producer levels. So you look throughout the supply chain, we're going into 2012 in a very healthy situation.

Mike, I'm just going to add a web question in here at this point, as well. So the question is what do you think are the chances of the U.S. ethanol mandate being modified in the next 12 months?

I don't think the chances are very good for that to happen. I think you're going to continue to see your renewable fuel standards act the law of the land continue in the United States, and I do think the discretionary blenders credit will be eliminated. We expected that last year. It's been held for 2011. That affects about 250 million, 300 million bushels out of 12.4 billion bushels. So you start thinking about the 400,000 jobs that are included in the ethanol industry, and of course, they don't want to lose any more jobs in the U.S. and then you think about the fact that the latest year, 2010, ethanol resulted in lower gasoline price of $0.89 a gallon. And are they going to stick with a renewable fuels component to their energy policy in the U.S. or not? And I think the answer is yes, they are. So we don't see a big impact there.

Next question comes from Lindsay Drucker Mann of Goldman Sachs.

I just have 2 quick ones. First of all, I was just hoping you could go into a bit more detail on the drivers of your downward revision to potash gross profit forecasts for the full year. You mentioned some cost issues, but if you could just dive a little deeper there. And then second, as it relates to inventory specific to China, we hear that they'll be exiting the year with a pretty reasonable size of inventory. So just curious your opinion on how that may impact the contract negotiations, as that's one of the next big benchmarks people are looking to as it relates to pricing.

All right. I'm going to ask Stephen Dowdle, Lindsay, to respond to your questions.

Yes, Lindsay, I'll take the China question first. On the inventories, we expect that inventories will be at a quite normal level in China, somewhere between 2 million and 2.5 million tonnes, which is really not an unusual situation by any stretch. As far as price negotiations, they have not yet commenced, and we would expect that perhaps this month that we would begin to -- the Canpotex would begin to have some initial discussions with China. The expectation is that there will be a price increase in China in the first half, but as they say, those discussions haven't really begun in earnest. As far as what our outlook for potash is and particularly on our volume, I think that we're looking at somewhere between total sales of 9.5, 9.7. And as Bill had mentioned, we're -- having had the Patience Lake situation, which is really a climate-influenced production issue, as well as some of the Cory expansion projects. They've come on a little bit slower than we had originally forecast.

Lindsay, I think maybe what we'll do is just have Garth comment on Patience Lake. The impact of warmer weather, Garth, on Patience Lake and explain the solution mining process a little bit.

Lindsay, one of the problems we're having at Patience Lake is that we've had extraordinarily warm fall season here in Saskatchewan with record high temperatures, and the solution mining process at Patience Lake is all part and partial of having cool weather. And our crystallization process is handled in the wintertime, and there are ponds in the fall and what's happened this year -- and we also had a above average year last year when the temperatures weren't quite as cold as normal as well. So it's carried over a little bit into this year, and with this fall undertaking, it's caused us to have a shutdown in the -- well, here to about 6 or 7 weeks in order to get the pond inventories back up, as the temperatures get colder and allow us to get into production. We also see that -- so it'll also carry on a little bit into next year as well because we'll have some carryovers that will also reduce our production bid to a certain amount that Patience Lake operation in 2012.

Lindsay, it's not unique to Patience Lake. It's unique to solution mining. So any solution mining in Saskatchewan is going to have the same issues. Whether it's a new project or not, you have that issue here. It's a little bit different than what we have in the Dead Sea in Israel, which is a considerably stronger solar capability than we have in Saskatchewan. People really like the warmer weather, so from a creature comfort point of view, it's great. But from a potash production point of view at Patience Lake, which is our smallest operation, that has had a little impact on us.

Next question comes from David Begleiter of Deutsche Bank.

Bill, just on the Patience Lake situation. Given that situation, what is your operational capability this year? I know you've mentioned in the past that 13 million tonnes was your target for next year, but is that going to be a little bit too high given the issues at Patience Lake?

Yes, I would say that and Cory, the number for next year that we'll hang our hat on is 12 million, and, as you know, it's just a function of these problems. We've got a little bit more downtime at Allan. We have 14 weeks. We're just coming off of that now, but we'll have another 12 weeks next year at Allan. So as I've said many times, these things take longer than people think, and everybody says that they're going to be -- build a greenfield project in 3 years and be fully ramped up and have a lot of potash coming at you, but it's just not -- it's not factual. It doesn't work that way, and maybe core sample, you could show some potash from the core sample, but you're not going to see much coming out of production.

The next question comes from Adam Schatzker of RBC Capital Markets.

Just a very quick question. In your press release, you note that there's a shift in the allocation of sales more toward standard than the higher netback granular for the fourth quarter. I was wondering if you could just dig down a little bit into why the shift there and if there's anything you can quantify and what the impact might be.

Basically, it's India, which is all standard. That would be the biggest part of that, Adam, and of course, standard is lower-priced material than granular. So India -- Stephen, do you have anything else to add to that?

I think India and China.

India and China also. It's just a product mix issue. Those are standard markets versus the granular markets, which would be a little bit higher priced.

The next question comes from Don Carson of Susquehanna.

Yes, Bill, question on potash pricing again. You've commented in the past that historically, offshore prices are often higher than domestic, but you've got this roughly over $100 gap right now in your realizations, and you just mentioned why that's going to persist in Q4. So with these very tight potash supply-demand conditions next year, would you see the offshore pricing having more upward potential than domestic? Or is this still the case that you're cognizant of what happened in 2008 when prices were raised too aggressively and seemed to choke off demand at some point?

Yes, Don, I would say that we see stronger potash pricing internationally. We're very cognizant of the difference, but I also think there's going to be more pressure on the offshore pricing. You'll see increases in the contract markets, which will drive the spot markets. As I said, we're going to have an extraordinarily tight supply-demand situation, and you know what happens when that occurs. You're going to have pretty substantial jumps in the spot markets, which the contract markets trail, and they won't go up to the spot market level. But you're going to see substantial increases, as I said earlier, in the offshore markets. So you'll see faster movement in 2012 offshore prices than you will domestic.

The next question comes from Elaine Yip of Crédit Suisse. Elaine Yip - Crédit Suisse AG, Research Division: I have a question on your phosphate and nitrogen gross profit guidance. Is it just that you think or at least the low end suggests that you think the earnings could potentially fall off pretty materially in 4Q? Can you provide a little bit more color about what you're thinking in terms of what you seen in that business?

All right, Elaine, I'm going to have Stephen speak to that one as well. Stephen?

Well, Elaine, our phosphate gross margins are, of course, impacted by the raw material costs, and we've seen ammonia make quite a strong move, and that will have some impact as well will our rock cost. But I would say that when we look at our phosphate sector as a whole, we have a great deal of diversity in our product mix, and we are able to mitigate against some of these increased raw material costs with our product mix and particularly in our liquid phosphate products that are not as impacted by the raw material costs. And for some of the liquid products that do contain ammonia, for example, we tend to be able to recover those costs through pricing that sometimes is more difficult to do in our dry phosphate products.

Elaine, what I would say is on the raw materials, of course, it's not rock. It's sulfur and ammonia for us. We're a net beneficiary of ammonia. We are exposed to sulfur. Our rock -- of course, having being vertically integrated into rock is a big plus. You just saw increases in the -- OCP raised prices here for the fourth quarter in rock, and you know what levels those are, and you know the permitting issues that some people suffer from that are causing some issues and driving higher-priced rock. Overall, we see the phosphate business continuing to be a good business. Moddin [ph] has had some issues. They're not going to produce as much this year as they originally thought they would. They're not going to export as much this year. We see them somewhere in the 1.5 million- to 2 million-tonne DAP production level next year. So overall, there's going to be continued pressure on the non-vertically integrated phosphate producers. They're going to have some difficulties. So we see phosphates quite good for 2012. Nitrogen, we just had a big increase in Tampa ammonia, so that looks quite strong. Urea, overall worldwide is obviously being impacted by India having bought 1.7 million tonnes here during this last few weeks, and Pakistan coming in on top of that, you're going to have 2.5 million tonnes there. That's going to challenge the industry. So urea, we see continuing also to be a fairly good market, and of course, we're much bigger ammonia players than we are urea players, so the impact on us, I'd focus your attention on ammonia when it comes to nitrogen. But if you look at the performance of both of those products this year, just through this third quarter, very, very big part of our overall performance. People don't focus on the quality of our world-class nitrogen and phosphate assets, but we do here in the company.

Next question comes from John Chu of AltaCorp Capital.

Question regarding India. A few weeks ago, Uralkali came out and indicated that they expect India to become the benchmark price setter for potash prices going forward instead of China, and they even talked about possibly going -- reverting back to a 1-year contract. What are your thoughts on that? And does that undermine what Canpotex has been trying to do in terms of getting the contract reduced to shorter terms?

Okay. John, I saw that as well. We don't believe that any market is the benchmark for potash. There's just so many different markets out there with different fundamentals, different crops. India is unique market with its 2 seasons and its dependence on various fertilizer, raw material imports around the world. We don't see India as becoming the benchmark for potash. We sort of look at Brazil's a market, China's a market, Indian's a market, Southeast Asia's a market, North America. These are all unique characteristics, so I think -- I don't know what was behind that statement, but I don't think that's true, and I don't think you'll see that becoming the case in the future.

The final question today comes from Edlain Rodriguez of Lazard Capital Markets.

Bill, just one quick question. Corn prices, they're very supportive at $6.50, but they are down from the high $700 -- I mean, $7 and change. I mean, do you think that impacts farmers, not their ability but their willingness to pay higher fertilizer prices? And at the same time, can you talk about the traction of the price increase that was announced for North America for Q4?

Okay. I'll have Stephen comment on the last part of it in just a second. But Edlain, heck, I used to dream about $4 corn. I'm used to $2 corn. So $4 corn, $5 corn, $6 corn is nirvana for me, and if you look at farmers, they just lick their chops at $6 corn. So I don't see any farmer backing off from fertilizer. If you look at the percentage of fertilizer to corn revenue, it's at a much lower than normal level. It's normally 18%. It's now 13%. So fertilizer affordability by the corn farmer is very, very positive, and we're looking at what, 93.5 million acres of corn next year. That's the latest forecast in a corn where you've got a stocks-to-use ratio of corn that is half of what it was in 2008. We just have such a positive environment for corn. The safrinha comment I made on Brazil, the fact that these guys are going to shorter maturity soybeans so they can plant corn, the profitability of that and what it means. China, importing 1.5 million tonnes of corn. A lot of people are saying China's going to be 5 million tonnes of corn. Actually, estimates as high as 10 million tonnes of corn imports this year, and that's after China's had a very good corn crop this year. But the pressure on meat supply and feeding those animals is so great, so no, I don't see any back off of farmers on fertilizer. Steve, you want to answer the second part of the question?

Yes, Edlain, as far as the price in the fourth quarter in the domestic market, what we see is -- right now, we see the wholesale price moving up. A lot of the inventory that's in position was purchased during the summer fill at the summer fill prices, and so there is a mixture of pricing out in the market. But as we see these inventories being worked down, we are following our new purchases at the new price, and we expect that the wholesale price will soon reflect the full $5.90 benchmark warehouse price that is in place for the fourth quarter.

Thank you, everyone. We appreciate your time today. If you have any further questions, please don't hesitate to give us a call at the office.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.