How COVID-19, Lawsuits Are Impacting Bayer’s Glyphosate Pricing Strategy
24 November 2020 In early October, we got a chance to catch up with Matt Muckerman, Bayer Crop Science North American Glyphosate Portfolio Lead, to chat about how factors such as the global pandemic and political tensions between the U.S. and China are affecting glyphosate prices in 2020 and looking ahead to 2021.
Q. Given the accelerating regulatory pressure along with lawsuits and legal costs, combined with weed resistance, how do you view the future of glyphosate and what is your approach?
From an agricultural standpoint, ever since glyphosate went off patent there’s been a huge amount of generic pressure coming out of China, with the products that come over to the U.S. We feel that despite any type of regulatory pressure or any of the legal pressure that’s out there that we still need to be priced competitively with our Roundup brands in order to continue to be the number-one branded glyphosate product on the market.
We think we’ve got a great structure set up as being the only glyphosate product fully formulated from start to finish in the U.S. with the Roundup brand, and that does help us tremendously with all that’s going on in the world with coronavirus and everything else. With that, we know we’ve got a higher quality product than the generics that are out there. We feel like we can get a little bit of a brand premium because of the reputation and quality that we’ve built, but we also know that we need to price ourselves against the pricing dynamics and everything that’s going on out of China, which obviously produces a lot of glyphosate for the world.
Bottom line is we think that despite everything going on in the world, we still need to be competitive in the marketplace and not necessarily price to any lawsuits or anything that else is going on outside of farmers that are using the product.
Q. David Li, one of our contributors at AgriBusiness Global™, wrote about the overcapacity in China and lower demand causing prices to drop this year. How does that affect the Roundup brand?
It’s interesting. Late calendar 2019, early 2020, China did drop their prices quite a bit. There was overcapacity of products especially here in the U.S. A lot of that was driven by the 2019 growing season, which really got started late. It picked up a little bit toward the July time frame, but what we saw at that point was a lot of carryover inventory going into the winter when farmers obviously aren’t using it. That excess supply compounded with coronavirus hitting China, and they started to get quite a bit of stockpile of inventory in China.
Since then, we’ve seen their supply go down; I believe a lot of it went to Australia and places like that. They’ve been able to work through their excess inventories. I track a lot of the imports of glyphosate coming from China into the U.S., and we saw roughly a 21% to 22% decline year-over-year in imports of glyphosate technical from China hitting U.S. ports. That also helped to right-size a lot of the inventory levels here in the U.S.
So, we had low prices coming in from China and we had a lot of inventory already sitting here, then you’ve got slower demand of product coming here, and prices were still low. Then we also saw in the middle of August some major flooding in China, which affected a couple of manufacturers that represent roughly 25% of the manufacturing capacity of glyphosate coming out of China. It’s mostly speculation when they’ll be back up to 100% capacity. When that flooding started to happen, we started seeing prices out of China go up to higher levels.
Q. There is a delay in news out of China on national transactional data — what did someone here, who’s buying from China to formulate glyphosate in the U.S., pay for it?
We’re seeing delays out of the Chinese government in getting that type of information. My expectation is that prices will start to go up for generic glyphosate. The question is, is it going to last very long. It could last a few months, which right now, distributor retailers are starting to fill their tanks for the upcoming spray and summer growing season of 2021. So you’re going to start seeing higher prices out of China because of that — we’re seeing a little bit so far, and I think it will get greater. The question is, how long will it last, and if it’s topped out at this point will it come down a little bit and level out at some point once they reestablish themselves in manufacturing capacity over in China.
Q. How big of a deal is the delay on the data from the Chinese government and how trustworthy is that data?
In terms of the delay, it doesn’t make anything easier, for certain. We’re trying to do our best to get an understanding of what the actual transactional data is. We can make estimations, for sure.
It does cause us to question how to handle our pricing strategy. Do we stay where we’re at until we know for certain what manufacturers or distributors here in the U.S. that may be selling generic glyphosate start to do with their list prices? There’s a delay in that.
In terms of trustworthiness of Chinese data, you’ve got to take what you can get, and approach everything with a little bit of skepticism. Overall, use the information that you have in hand as a tool off which to start to make some decisions.
Q. How much have tariffs and the political climate with respect to China affected Bayer?
From a glyphosate standpoint it hasn’t affected us too much. We always pay attention to chatter that’s out there, such as on whether there will be tariff increases. We put strategies and options in place, in case we need to execute on them if there is any type of tariff increase. At this point, there really hasn’t been, so we haven’t had to use any of those options.
Q. When you step away from China, can you discuss other factors impacting glyphosate prices right now?
(With respect to) overall glyphosate use in the U.S., you look at all the options that farmers have. The soybean market and acres are getting extremely dynamic these days with new trait launches over the last couple years — whether that’s Enlist E3, LibertyLink GT27, and our very own XtendFlex soybeans for which we just got approval (in late September) — you take all those factors in and it creates more options from an herbicide perspective.
What before may have been one or two broadacre herbicide applications growers could use, now they’re looking at three applications. Those are some factors that farmers are going to have to take into consideration such as how do they start to make their herbicide purchasing decisions later this winter for the coming season; what kind of prices are out there; what the deals are; what the weather situation looks like; and what trait are they going to buy when it comes to their soybean decision. All that will factor in to determine glyphosate usage: how many acres are glyphosate-enabled, versus other herbicide option-enabled.
Q. What is the usage trend for glyphosate considering the additional options they’ll have in 2021?
Our research would say that glyphosate was used slightly more this year compared to 2019, but 2019 was not a great year — if you think about 2019 there weren’t a lot of alternative trait platforms, like an E3 or GT27 — there weren’t a lot of acres out there in 2019. But weather and carryover inventory were big factors in 2019. We have seen a decline in glyphosate’s use due to some of that. We’ve seen our Roundup business grow since the 2020 season we’re coming out of. We’ve seen our business grow, where overall glyphosate is about flat from the prior year.
Q. Can you discuss the new Roundup formulation Bayer is launching?
We’re in the middle of launching Roundup PowerMAX 3. When all is said and done, we think it’s going to be the largest herbicide launch ever. What I mean by that is thinking through how we transform our Roundup portfolio. Right now, in the Southeast U.S. we’re filling tanks for use in 2020 season, and then next year we’ll start filling tanks for much of the rest of the U.S. except for the Pacific Northwest area, and there it will be the year after that.
PowerMAX 3 is our newest formulation; it will replace PowerMAX and PowerMAX 2 as well as WeatherMAX once it’s all said and done. It’s a higher concentrated Roundup product than what’s on the market today. It ends up being the highest concentrated glyphosate product. If a farmer is spraying 32 oz. per acre today with PowerMAX, they’ll be spraying 30 oz. with PowerMAX 3. You might say that 2 oz. doesn’t make that much of a difference. Well, one of our package sizes is a 265-gallon cube, and that package size will cover 70 more acres than it can today with PowerMAX.
Q. Are there other advantages, and will it be launched in markets beyond the U.S.?
Yes. It’s got a different proprietary surfactant package than what you’re going to find in our current products, which helps with absorption of the glyphosate into the weed and down into the root system to kill the weed. It’s got really good efficacy on weeds. From an overall picture, (it benefits) the farmer, and from a broader perspective a retailer, to have to buy and spray fewer gallons to cover the same amount of acres than he does today, and to have fewer trucks and less packaging involved to cover millions of acres every year.
At this point, the launch is only in the U.S. We’re still evaluating Brazil and Canada. Part of the reason for Brazil is that their government process — their version of the EPA — takes a lot longer to approve products.
Q. In closing do you have any thoughts you’d like to share on the future of glyphosate?
I’m excited where our Roundup brand is going. We’re transforming a 45-plus-year-old brand, and we’re excited about our Roundup PowerMAX 3 launch. To keep a brand going for this long is a real asset to our company and (is a testament to) the power of what glyphosate can do on a farmer’s acre. It kills a broader spectrum of weeds than any herbicide on the market, and to be in the process of launching a new product like PowerMAX 3 just makes me excited for our brand.
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