10 Crop Protection Trends For 2015
The crop protection industry is expected to maintain its 5%-6% growth rate in 2015, which is positive news for the industry. High demand has helped fuel much of the growth as volumes have risen faster than global values, indicating some soft pricing amid strong supply. But as lower commodity prices linger into 2015, growers will scrutinize all input expenses as they attempt to maintain farm incomes.
During the past couple months, FCI has asked industry leaders to identify trends that will affect the crop protection industry most this year. The summary below includes some well-trod macroeconomic trends and a few insights that might pose some unforeseen challenges. It’s clear that the most nimble companies that can react and adapt to change will be the most competitive and best prepared to deal with changing regulations, market-specific opportunities and repercussions from global inter-reliance.
1 Commodity prices continue to illustrate the interconnectivity of everything. Lower prices for major row crops, notably soybeans and maize, have made innately cautious growers even more thoughtful about next year’s inputs. Fertilizers and machinery are expected to take the biggest hits, but discretionary crop protection sprays could be in jeopardy, too. The fickle investment community has been quick to turn on agriculture amid lower commodity prices, which has immediately cooled the red-hot farmland market in the United States and Brazil in anticipation of lower land rental prices.
2 China is buying everything. China imported record volumes of commodities last year, taking advantage of lower prices to maintain its position as a massive buyer of global resources despite a slowdown in its broader economy. This includes non-agricultural goods such as copper, iron ore and crude oil, and it hasn’t slowed its consumption of soybeans or maize to satisfy its growing appetite for animal feed and cooking oils. But a backlash could be on the horizon: If China’s coffers remain full when prices rebound, then the world’s biggest consumer of commodity crops might forego some purchasing in lieu of its lower-priced inventories. This very scenario played out in the cotton market just three years ago. Since then, cotton prices have gone from $2+ per pound to about 60 cents per pound. China’s vast inventories were partly responsible for the cotton crash, and it imported a record volume of soybeans in 2014, albeit a more perishable commodity.
3 Oil prices will remain low. Even though one-third of the world’s energy is generated by oil, demand increased just 1% in 2014 compared to significantly more production. Fracking in the United States alone has bolstered the country’s production 90%, and OPEC says the world might never again see $100 oil. The price of oil could lower the cost of production, shipping and application for crop protection products, which should be a good thing for the crop protection industry. But unintended consequences of the interconnected global economy loom, and fallout from cheap oil could do more harm than good. For starters, ethanol margins have been obliterated in the past three months, but blending mandates should keep production steady. Hidden downsides could manifest in banking, lending and investing industries as well as lost GDP and jobs from oil-based industries.
4 Environmental regulations and registration hurdles continue to add cost and time to making, formulating and registering new products. This challenge won’t get any easier as the EU continues to restrict or ban active ingredients that are important for crop protection and ultimately crop production. Additionally, Brazil, in its attempt to preserve its exports to the EU at all costs, is evaluating whether to regulate adjuvants as crop protection products and considering inert ingredient disclosure rules. Regulatory harmonization — once thought by the industry to be more predictable, persistent and consequently less expensive — is proving to be more likely to follow the EU’s precautionary principle instead of the U.S.’s risk-based reasoning. This challenge intensifies with the explosion of premixes and other products created from older chemistries versus new AIs and biologicals that receive preferential status in many regulatory systems. Additionally, the EU has banned hundreds of AIs during the past five years, and many countries are inclined to follow suit to protect trade ties. At the manufacturing level, the cost of production will continue to increase amid heightened environmental scrutiny in China and India.
5 The birds and the bees are increasingly less discreet. As a corollary to the previous item, neonicotinoids have become the presumptive culprit for the decline of honeybees and some bird species. Their prevalence makes them an easy target for regulators and activists. The EU banned their use until more evaluation can be done on their effect on non-target species, and there is much concern that this ban will become a defacto standard in the same way the bloc’s MRLs have proliferated. The EU’s importance as a destination market will trump scientific decision making in cases like these, and the results could have profound impacts. Canola oil prices are expected to rise this year largely on the news of significantly lower production from the EU in 2015. Data and forecasting firm Oil World pegs EU’s production to dip about 15%, largely due to greater crop losses from insect damage.
6 New GMOs are poised to gain modest market share in 2015, and they could capture significant market share in 2016. We included a GMO update (p. 20) in this outlook issue because it has the potential to transform crop protection chemistry in a matter of two years. Several new technologies have been approved, including the much-anticipated systems branded by Dow AgroSciences as Enlist, BASF as Engenia and Monsanto as Xtend. In addition to glyphosate, Enlist crops are tolerant to 2,4-D, and the Roundup Ready Plus Xtend and Engenia systems add dicamba resistance. Because of the possible large-acre adoption of these new systems and others on the horizon, the companion chemistries used to control weeds in these system will evolve and change the global market share of herbicide use around the world. Glyphosate will always be a valuable tool, but look for heightened demand of dicamba, 2,4-D, glufosinate and other resistance management tools.
7 More investment into formulation technology and development will continue to differentiate companies. As manufacturers continue to be squeezed by low-cost producers of technical-grade products, better margins are realized by fully formulated products that meet farmers’ specific agronomic needs. The largest post-patent producers have been successful investing into formulation optimization, and smaller companies have followed. India’s manufacturers have long excelled at finished products, and China’s producers have exported more formulated products than tech for the past four years. Even at the multinational level, new formulations are necessary to accompany new seed technologies. Notably, BASF is working with Monsanto to stabilize new dicamba formulations that will be used with its Xtend system. The company that can prove its dicamba formulations will stay where they are sprayed stand to make a sizable profit.
8 Increased commoditization of crop protection products will stabilize prices but hedge margins. Glyphosate has become the greatest example, but prices for other large-volume actives will continue to be driven down amid robust competition. Although total industry value has increased steadily during the past few years, it is largely driven by disproportionately greater volumes and high demand. If demand ebbs, the industry could see some significant profit erosion as over capacity for large-volume AIs continues to diminish prices.
9 Biological controls will continue to gain market share and integrate new technologies into mainstream agriculture. Already a pervasive tool in the high-end horticulture market, biological controls are at the beginning of their marketing push for major row crops. As these technologies prove to be more efficacious, farmers will have more options to integrate them into their crop protection protocols. Multinational companies have already displayed their confidence in these technologies through major acquisitions during the past couple years, proof of the growing demand for these products by consumers, retail chains and ultimately growers.
10 Microbial research will uncover new discoveries that could change protocols for plant health and human health forever. Countless companies researching soil health have emerged, and the results of their research are changing the way we understand plant health and yield enhancement. This fairly new discipline could change how we evaluate pesticide residues in the soil as they affect proteins and enzymes needed for optimal plant health. Similarly, a new focus in human health that examines microbial health in the human digestive system will uncover new insights into how all chemicals interact with natural systems. And like many studies before them, we might not like the conclusions scientists draw about how pesticide residues intersect with human life.
FCI will follow up on these trends throughout the year in addition to others as the year develops. Many other factors will influence crop protection as well, including heightened demand for products in China and India, potentially diverting supply from major manufacturers to domestic markets. Asia and Africa still holds promise for exponential growth, innovation and productivity. Heightened use and reliance on good agricultural practices, prescriptive agronomic recommendations, data-based farming and other precision farming applications could revolutionize less-developed agriculture systems. Currency fluctuations, the wobbly euro and weather events all will have some effect on businesses this year. And only the most nimble companies will thrive amid them all.
Tell us what is affecting your business most this year at [email protected].