Hope On The Horizon
28 January 2009 | Global Agrochemical Market Value (Sales in Millions of Dollars) |
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|---|---|---|---|---|---|
| Year | Crop Protection |
Non Crop | Total Agrochemical |
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| 2001 | $25,760 | $4,130 | $29,890 | ||
| 2002 | $25,150 | $4,270 | $29,420 | ||
| 2003 | $26,710 | $4,445 | $31,155 | ||
| 2004 | $30,725 | $4,675 | $35,400 | ||
| 2005 | $31,190 | $4,905 | $36,095 | ||
| 2006 | $30,425 | $5,150 | $35,575 | ||
| 2007 | $33,390 | $5,365 | $38,755 | ||
| 2008 | $41,735 | $5,655 | $47,400 | ||
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Source: Phillips McDougall AgriService |
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Few people are wildly optimistic about 2009. But some key markets, including Thailand, Indonesia and parts of Latin America, should be bright spots for agrochemicals this year.
Crop protection saw a banner year in 2008, rising 25% in value, according to Phillips McDougall, an agrochemical tracking, research and consulting firm near Edinburgh, Scotland. But last year’s gains — which propelled the total global agrochemicals industry value to almost US $50 billion — were artificial for many reasons, including cash infusions from investors looking to reap the rewards of inflated commodity prices and undersupply from China. Without the factors that created a windfall in 2008, combined with fear of a global recession, optimism for 2009 is hard to find right now.
“While production agriculture is somewhat insulated from the general economic downturn, the current financial crisis and concerns over available capital are too pervasive to leave crop protection untouched,” says Edward Makowski, director of strategic planning for DuPont Crop Protection.
Those uncertain financial markets are weighing heavily on manufacturers and distributors in the agrochemical industry as growers wait to see how commodity prices will be affected in 2009.
| 2008 Crop Trends (Crop Planted Area 2008) |
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|---|---|---|---|---|---|
| Crop | Global Area (mill. hectares) |
Change From ’07 |
Global Production ’08 (mill. tonnes) |
Change from ’07 | |
| Wheat | 224.2 | +2.7% | 682.4 | +11.8% | |
| Corn | 157.5 | -1.8% | 781.4 | -1.3% | |
| Rice | 155.6 | +0.8% | 434.3 | +0.8% | |
| Soybean | 98.2 | +8.1% | 235.7 | +6.7% | |
| Oilseed Rape | 29.8 | +6% | 54.4 | 12.3% | |
| Cotton | 31.1 | -5.7% | 112.9 | -6.3% | |
| Sunflower | 24.4 | +11.4% | 33.2 | +22.1 | |
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Source: Phillips McDougall AgriService |
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“It is impossible to give any prognosis at the moment whether and to what extent markets will be affected next year,” says Utz Klages, corporate spokesperson for Bayer CropScience.
But although 2009 is incredibly uncertain, there is plenty of reason for optimism and reason to assume that demand will grow, albeit slower than the meteoric rise the industry experienced in 2008.
“At the present moment, there is a lot of negative sentiment because crop prices have come down, although they are still much higher than they were before,” says Matthew Phillips, partner with Phillips McDougall.
2008 saw unusually high gains because of sudden, steady streams of capital that poured into the commodities markets from New York, London, Hong Kong and other stock-market hubs as mainstream composites followed investors’ sentiments into bear-market territory. When traditional blue chips faltered, the infusion of money into commodities artificially inflated the price of gold, oil, and wheat, to name a few. With world markets beginning to correct themselves, big-money investors are turning their interest back to stocks in hopes to capitalize on undervalued share prices. Simply, institutional investors are seeking better bargains than grain right now.
| Regional Market Performance — 2008 (Sales in Millions of US Dollars) |
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|---|---|---|---|---|---|
| Region | 2007 | 2008 | Percent Growth 2008/2007 |
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| NAFTA | $7,507 | $8,383 | 11.7% | ||
| Latin America | $6,170 | $8,759 | 42% | ||
| Europe | $10,568 | $13,603 | 28.7% | ||
| Asia | $7,815 | $9,455 | 21% | ||
| Rest | $1,330 | $1,535 | 15.4% | ||
| World | $33,390 | $41,735 | 25% | ||
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Source: Phillips McDougall AgriService |
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Although grain prices have tapered a bit, last year’s higher grain prices enabled farmers to afford more inputs, especially fungicides. Those luxury purchases combined with the fact that China cut output generated a seller’s market and higher prices, primarily for glyphosate and organophosphorous insecticides.
Unfortunately, few, if any, of the factors that fueled 25% gains for global agrochemical sales will continue into 2009. But even though the market won’t be nearly as robust as it was in 2008, the crop protection market is expected to remain strong in 2009.
“We are still relatively confident that we are going to see some real growth in 2009,” Phillips says. “The challenge is that it’s easy to manage a business when you are in a rapid rise like we saw in spring 2008 when commodities, fertilizers and crop protection products were all shooting up. Now you have to manage that when you are coming down off that spike, and it all comes down to timing.”
Markets To Watch
Timing will be crucial in each market, as many countries battle macroeconomic challenges, political changes, and varying market conditions abroad, including a wait-and-see approach to buying crop protection technologies this year. If grain prices stay strong, then growers will invest in more crop protection, sources say. But if grain prices continue to ebb through spring, growers likely will get by on as little as possible.
But pricing appears fairly strong, Phillips says. “If you look at the situation for the major crops, there is still a positive pricing situation for maize and wheat,” he says. “The global stocks are still significantly depleted compared to where they were in 2002 and 2003, which is the baseline level that we use when commodity prices had just started to improve.”
Many countries are expected to expand their grain reserves this year as more governments examine the possibility of a food crisis in their countries. Last year, food riots erupted in Egypt, Guinea, Haiti, Indonesia, Mauritania, Mexico, Senegal, Uzbekistan, Bangladesh and Yemen.
Replenishing food stocks could build demand in many parts of the developing world. In developed countries, demand for biofuels could propel growth.
Soybean prices are expected to hold steady. The Chicago Board of Trade forecasts improving futures prices for corn and soybeans throughout 2009, largely driven by demand for biodiesel in the US. North America’s appetite for soy is also expected to elevate demand for wheat for feed and food.
In Latin America, planted acreage is up, Phillips says. “Even though prices are weakening, confidence has been sustained in the marketplace,” he says. Corn prices are expected to hold steady as well, again driven by demand for biofuels and ethanol subsidies.
“Clearly a lot depends on where there is still government support for the production of ethanol. If that would be removed, then everything would change dramatically,” Phillips says. “The US market could be much more positive than people expect. Latin America, although not growing at the same rate, will continue to grow as well.”
Wheat prices are expected to improve in Europe in 2009 as well, but uncertainty surrounds EU countries as new pesticide rules and regulations were passed Jan. 13. Depending on the interpretation of the final rule, the agrochemical industry could see shrinking demand in the established EU15 markets for some products, and yields could potentially suffer, possibly driving prices higher. But planted acreage is expected to rise the new 12 EU markets, primarily because those countries were underplanted in the past.
“The economic crisis currently in Ukraine for the time being is holding everything back, but from an agricultural point of view, it might not be realized in 2009, but in the time beyond that, it still remains a very positive market,” Phillips says.
The Black Sea region joined the exclusive club of top-five world exporters of wheat in 2008. Analysts expect wheat production in Russia and Ukraine to climb more than 25% in 2008 compared to 2007, and 2009 looks promising. The Russian government has reported that it will subsidize grain exports in 2009 to prevent oversupply from diminishing local prices. The Black Sea region is expected to continue to erode US market share as the industry modernizes.
In Asia, developed countries largely have fueled demand in the past decade. But in light of the economic troubles around the globe, it likely will be developing countries that can fuel growth — in Thailand, Indonesia and Vietnam in particular. Just before the New Year, Vietnamese Prime Minister Ngyen TanDung asked the country’s agriculture sector to boost production and exports in 2009 even though its 2008 numbers were higher than 2007. It plans to grow 7.2 million hectares of rice this year.
China’s planted area will continue to rise despite its economic woes and uncertainties about monsoon season. The government issued a statement in late December that said it will “take all possible measures” to ensure farmers’ income growth and adequate supplies of major agricultural products in 2009. Despite weakened demand for Chinese-grown food in 2008, it projects a record grain harvest of 528.5 billion kilograms this year, the fifth consecutive increase, according to China.
Agronomy in Africa and the Middle East, predictably, continues to be hampered by infrastructure problems and lack of access to fresh water, but specialty crops for export are driving growth in some of the country markets in the southern hemisphere.
Crop prices, fertilizer demand and demand for crop protection appears to be following the same trend, sources say. That trend is optimistic for 2009 and even more optimistic for 2010. If you charted the value of the agrochemical industry from 2007 through 2010, it should be a straight line of real growth, ignoring last year’s anomaly, Phillips says.
“Our general view, based on global food demand and improving prices in generics portion of the marketplace out of China, is that the crop protection market is on slow uphill trend,” he says, “somewhere between 1% to 2% annum over the next 5-year period.”
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