We believe Nutrien shares are currently undervalued. After reaching an all-time high in 2022, the stock has experienced a sell-off and now trades at a significant discount to our fair value estimate. For income investors, Nutrien offers a 4% dividend yield as of this writing. We attribute the market's reaction to tariff-related uncertainties that may impact profits. However, we anticipate that U.S. farmers will continue to invest in essential crop inputs such as seeds, crop chemicals, and fertilizers.
We expect potash prices to increase, and we foresee that reduced overhead expenses in the retail segment will drive profit growth in 2025. Nutrien's competitive advantage stems from its cost-effective potash and nitrogen production. As the largest potash producer globally by capacity, potash constitutes Nutrien's most significant business in terms of profit percentage. Its mines, located in Canada, benefit from favorable geological conditions that result in lower mining and processing costs compared to competitors.
We project that potash prices will rise in 2025. Following the onset of the Russia-Ukraine conflict in 2022, potash prices surged to record highs due to restricted exports from Russia and Belarus, which together account for 40% of global potash exports. In response to these high prices, potash demand declined by double digits. However, the supply shock was temporary, as Russia and Belarus quickly restored exports through a global trade shift. Supply rebounded faster than demand, causing prices to drop to cyclically low levels. We expect demand to fully recover in 2024, with further growth anticipated in 2025. Additionally, both Belarus and Russia plan to reduce potash production this year to support higher prices.
Even if the U.S., EU, and Russia reach an agreement allowing Russia to sell potash to these regions, we believe it will have minimal impact on potash supply and demand dynamics. Higher prices are likely to benefit Nutrien. Lastly, we foresee a recovery in retail profits. As the largest U.S. farm retailer, Nutrien plans to reduce its store count in response to more farmers adopting online farm management tools, which will lower overhead expenses and enhance profits in 2025.
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