Crop Protection and Seed Market Outlook
2023 OUTLOOK
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ALLISTER PHILIPPS and DEREK OLIPHANT
CONTRIBUTORS
Crop Protection Market Outlook
The market in 2022 increased considerably from 2021, experiencing the sharpest rise in almost two decades. The market benefited from strong crop commodity prices, while the value of the market was boosted by continuing high agrochemical pricing. The crop protection market in 2023 is not expected to experience the same levels of growth as the prior two years: Early expectations suggest that the value change of the market to be between -2% and +2%, depending on how agrochemical pricing throughout the year develops, with prices now down from peak levels from late 2021. Expectations for higher inventories and a drop in commodity prices could limit the ability for any further price increase to be absorbed at the grower level, to the detriment of market value.
The crop protection market in 2022 faced several exceptional circumstances, which caused disruption in most regional markets, some of which transcended agriculture and led to more widespread and far-reaching economic impacts. However, in terms of the value of the crop protection market, some of these circumstances had a positive effect on development, notably the lingering effects of the pandemic and China’s power control policy on product supply and pricing — the prices of many agrochemicals spiking significantly in late 2021 and early 2022 — while more favorable weather conditions were experienced in several regions, notably in Australia and several countries in south Asia.
An event that had a seismic impact on the market situation in 2022 was the Russian invasion of Ukraine. This move led to sanctions being placed against Russia by several countries, while trade to and from Ukraine was severely curtailed. These two countries are traditionally significant suppliers of natural gas and fertilizers, particularly to other European countries, as well as being key sources of several important grain and oilseed crops, particularly wheat and sunflower. The de facto removal of these two countries as a source of crop and oil imports for several countries led to higher demand for these goods from other export sources. This, coupled with the reluctance from many countries to ramp-up their exports of such commodities due to domestic food security concerns stemming from the aftereffects of the pandemic and its impact on global supply chains, led to steep rises in crop commodity prices.
Moving into 2023, while the Russian invasion of Ukraine continues with no immediate prospect of diplomatic resolution, trade pressures have eased following the ratification of the Black Sea Grain Initiative (BSGI), agreed between Ukraine and Russia earlier this year. The initiative specifically allows for significant volumes of commercial food exports from certain key Ukrainian ports in the Black Sea. Other measures intended to alleviate concerns on trade stemming from the invasion include €1 billion (US $1.053 billion) in funding from the European Commission, the European Investment Bank (EIB), the European Bank for Reconstruction and Development, and the World Bank Group in support of the EU-Ukraine Solidarity Lanes. The Solidarity Lanes were established in May 2022 to facilitate the export of Ukraine’s agricultural goods, as well as the export and import of other goods. The mobilized funds will be used to sustain and further increase the capacity of the Solidarity Lanes, which have reached their capacity limits and suffered from bottlenecks and high logistics costs.
The build-up of stocks of the main crop commodities through generally improved weather — and subsequently crop production — in many regions in 2022 has led to crop commodity prices declining from the very high levels earlier this year, although in most cases these prices remain high by historical standards.
Agrochemical pricing is also coming down from the very high peak levels experienced in late 2021, with power supply and availability in the key producing country of China now stabilizing following the government’s decision to restructure carbon emissions targets from a stepped regression to a set target of carbon neutrality by 2030. In addition, local governments now have jurisdiction over power allocation, as long as the long-term targets are achieved within the timeframe. Raw material supply concerns are also lessening, with the easing of pandemic control measures leading to a reduction in the use of certain intermediates in public health products such as hand sanitizer, with many of the same intermediates also being used in agrochemical manufacture. However, agrochemical production is expected to be impacted in Europe by very high energy costs and rampant inflation, with a large proportion of the market — for patented products in particular — being manufactured in the region, mainly in Germany, France, Switzerland, and the UK.
Another factor expected to influence the development of the crop protection market in 2023 is the level of inventory currently in the distribution channel, which will influence ex-manufacturer sales made into restocking these channels. Typically, inventories following a good year in terms of weather, high pest pressure, and strong crop commodity pricing will be at lower levels as products are applied steadily through the season, while inventories following a weather-disrupted year will be higher as less product is applied. While the season started well in many of the key high-value European countries, and winter crops developed well, the summer season was afflicted by very dry and extremely hot conditions throughout large parts of the region. This led to an overall reduction in pest pressure than what had been anticipated and led to a general reduction in crop protection product usage. For example, France experienced its worst drought on record, impacting crop production and water availability. A ban on irrigation for farmland was introduced as a water-saving measure. This lower-than-expected requirement for weed, insect, and disease control through much of Europe led to high on-farm stocks, and this can be expected to exert some negative price pressure as companies attempt to sell into the channel in 2023.
Inventories may also be high in other regions, notably the U.S., where a significant amount of pre-purchasing was noted, as farmers looked to ensure they had adequate crop input supplies to cover their requirements for the full season, in efforts to stave off any mid- to late-season product shortages as had been experienced in the prior year, mainly due to pandemic-related factors. In addition, hot and dry weather has also been an issue and impacted product applications, particularly in California.
Clearly, weather plays a considerable role in agriculture, and the development of the crop protection market is closely tied to the prevailing weather conditions in all regions of the world. Conditions were mixed in 2022, with favorable weather recorded in many parts, particularly in southeast Asia and Australia, but unfavorable conditions in other regions, notably western regions of the U.S. and much of western and northern Europe, where conditions in the summer were extremely hot and dry. Any recovery from weather-related issues in these regions in 2023 is expected to be of benefit to crop protection market performance. However, the effects of climate change on global weather patterns are becoming more pronounced, in many cases leading to extreme weather events and climatic volatility in many regions. In addition, the current La Niña event is expected to continue through autumn in the Northern Hemisphere and possibly into 2023, likely leading to worsening drought in the Horn of Africa and southern South America and contributing to continued above-average rainfall in southeast Asia and Australasia.
Farmer profitability is a key determinant in overall market value, as previously discussed in terms of high commodity pricing often leading to increased levels of spending on crop inputs. Inflation and continued high input costs are expected to deflate farmer incomes in 2023, again exerting negative pressure on overall market development.
Taking all of the above factors into account, and amid continued uncertainty over the duration of the impacts caused by Russia’s invasion of Ukraine, we expect the value of the global crop protection market to be relatively static in 2023, following two years of strong growth, with expectations for a low-single-digit decline or a low single-digit increase, with initial estimates pegging the difference from the 2022 value at 2%.
Taking a longer view of market development, at AgbioInvestor we have recently published a report, The Future of Agriculture, which takes a detailed look at the main factors expected to influence global agriculture and subsequently the crop protection market over the next two decades. This includes in-depth analysis of planted area and production estimates; input cost fluctuations; land use; livestock production; organic cultivation; environment and climate change; demographic and socio-economic factors; political decisions; and increased uptake of emerging technologies to determine their direct impacts on the crop protection market. A view is provided in terms of the sales value across all active ingredient classes to provide a quantitative forecast for market development through to 2035 (using 2020 as a baseline). The high-level quantified impact can be seen in the figure below:
Seed Market Outlook
The traded seed market, which excludes farmer-saved and government-supplied seed, increased by an estimated 6.8% to reach $44,869 million in the 2022 agricultural year. Not only was the value of the seed market driven by changes in planted areas and utilization of technology, but in 2022 the market was heavily influenced by strong trading prices of harvested grains and oilseeds, which allowed seed prices to increase.
Trading prices in the first half of 2022 spiked through a number of factors; principally the impact of the Black Sea conflict. Production and export disruptions from Ukraine and Russia have led to reduced availability of grains and oilseeds, leading to higher trading prices. This was compounded by some countries placing export restrictions on key commodities to stabilize their own domestic supply and prices, for example India, placed a restriction on wheat and rice exports. In addition, weather has continued to impact production in both the northern and southern hemispheres, with the prevailing La Niña weather event causing drought in the Americas and Europe.
In 2022, there were several new genetically modified (GM) technology introductions, Bayer and Corteva launched their respective Intacta 2 Xtend and Conkesta E3 soybean products, while Bayer introduced VTPro4 and SmartStax Pro maize seed products. Bayer’s Intacta 2 Xtend possesses two genes for the control of above ground lepidopteran pests and tolerance to glyphosate and dicamba herbicides. The company expected an initial deployment on approximately 320,000 hectares in Brazil this season. Conkesta E3 also features two insect resistance genes, but has tolerance to three herbicides: glyphosate, glufosinate, and 2,4-D.
The new maize seed products from Bayer both utilize a novel mode of action for the control of below ground coleopteran insect pests, in the form of RNAi (ribonucleic acid interference). RNAi is fundamentally different to existing Bt-based traits in that RNAi utilizes post-transcriptional gene silencing rather than the expression of delta endotoxins. VTPro4 includes traits previously commercialized in the company VT3 product, as well the dvsnf7 gene to provide additional control of corn rootworm. Genuity VTPro4 was launched in Brazil on an estimated 202,300 hectares in the 2021-22 season. In the U.S., Bayer launched Genuity SmartStax Pro on an initial 40,000 hectares. In a similar fashion to VTPro4, SmartStax Pro combines the technology already commercialized in SmartStax with the dvsnf7 gene to provide additional control of corn rootworm. Both Bayer and Corteva will introduce additional products with RNAi technology. Corteva intends to launch Vorceed (Qrome + RNAi) in North America during 2023, while Bayer is planning the introduction of VT4Pro (Trecepta + RNAi) in the region in 2024. Corn rootworm reportedly impacts as much as 12 million hectares (approximately a third) of the U.S. maize area.
2022 also saw a greater proportion of the U.S. soybean area planted with varieties utilizing Xtend and Enlist traits, to represent approximately 86% of the total U.S. soybean area.
*AgbioInvestor Estimates
The trend of increasing the number of herbicide tolerance traits in North American soybean is set to continue with Bayer, Corteva, BASF, and Syngenta scheduled to introduce soybean seed products with multiple mode of action herbicide tolerances. These products include combinations of glyphosate, glufosinate, dicamba, 2,4-D, isoxaflutole, mesotrione, and PPO herbicide tolerances.
In 2023, several new technologies are scheduled for introduction. Bayer plans to launch commercial trials of its non-GM short stature corn, a biotechnology derived version of this product is currently in phase III of development. Corteva intends to commercialize its own non-GM short stature corn varieties in 2025.
Corteva is to launch Vorceed maize and PowerCore Ultra Enlist maize in 2023. PowerCore Ultra Enlist is the combination of the existing products, PowerCore Ultra (lepidopteran insect resistance with glyphosate and glufosinate tolerance) and Enlist (2,4-D tolerance). Corteva is also to launch the cotton trait stack W3E1 (Widestrike 3 Enlist 1) in the U.S. Typically, it is a formality that glyphosate tolerance in present in GM cotton seed products, however W3E1 does not possess tolerance to glyphosate, with the company intending that glyphosate be used for crop burndown and to control volunteer cotton. Syngenta has scheduled the introduction of its non-GM AIR sunflower varieties in Ukraine and Spain. AIR sunflowers possess tolerance to imidazolinone and sulfonylurea herbicides.
The 2023 agricultural year started positively in South America, with areas of key crops generally increasing across the region. In Brazil the soybean area is forecast to rise by 4.2% to a record 43.2 million hectares, driven by high trading prices, good profitability of production, and an early start to the planting period.
A fast start to the soybean crop is beneficial to the country’s safrinha (second season) maize crop, as safrinha maize requires the soybean crop to be harvested before planting can begin. Soybean on soybean crops do not occur in Brazil as there is a mandatory sanitary period called the vazio sanitario, a period of several months typically between June and September where soybean cultivation cannot take place to create a disease break, limiting disease transmission between crops. In addition, domestic demand from the country’s biodiesel producers is to remain high following the extension of the B10 mandate, which when expires will require the country to move to a maximum B15 mixture.
The maize area is forecasted to grow by 2.3% to 22.3 million hectares, a record area. It is expected that the recent trend of a greater proportion of the total Brazilian maize area being cultivated in the safrinha season is to continue.
In 2022-23, 77% of the total maize area is forecast to occur in the safrinha season. High crop prices and strong demand from domestic and international markets has fueled maize area growth in 2023, although growth has been held back by high input costs resulting in some Brazilian growers moving to other crops, particularly soybean. Domestic demand is being driven by the country’s feed and bioethanol sectors.
In Argentina, the soybean area is expected to rise by 2.5% to 16.5 million hectares, driven by greater forecasted profitability, principally due to soybeans’ lower input costs. The country’s maize area is expected to fall by 3.8% to 10.2 million hectares (including forage). The area is expected to decline through growers being disincentivized to cultivate due to high input costs and declining growing conditions. The Argentinian sunflower area is expected to rise by 10% to two million hectares, driven by strong profit from the previous season’s crops and current high sunflower and sunflower oil prices. Sunflower in the current season reportedly offers the greatest profit margin of any row crop in Argentina.
Advanced estimates for 2023 crop areas in the U.S. indicate that growers are likely to plant a larger maize area as a result of low U.S. ending stocks (the second-lowest level since 2013), a fall in global ending stocks, and strong global demand. However, there is the potential that international demand for U.S. maize may decline following China increasing its approved Brazilian maize exporters.
The U.S. soybean area has the potential to fall in 2023, as a result of rising U.S. and global stocks following record domestic and global production in 2022, and pressure from competing export origins.
While it is still early to be forming an opinion on the development of the value of the traded seed market for the 2022 agricultural year, there is the potential that crop areas generally increase, although crop futures prices are currently trending downwards. 2023 average year futures prices are 14.1% lower than the 2022 average year trading price. Soybean futures are 19.5% lower, wheat -11.7%, rice -9%, rapeseed -6.2% and cotton -72.3%. Even considering grain trader margins, it is likely that crop average prices will be below that achieved in 2022, likely resulting in a decline of average seed price. A further factor that has strong potential to impact the growth of the traded seed market in value terms is the strengthening U.S. dollar. In the first three months of the agricultural year, many currencies have weakened against the U.S. dollar, including the Japanese Yen (-21.7%), Pound Sterling (-16.1%), Euro (-15%), Indian Rupee (-8%) and the Chinese Yuan (-7.9%). Despite this, the Brazilian Real has strengthened 2.8% against the U.S. dollar.
Looking further out to 2030, the traded seed market will be driven by the GM seed market, which is expected to rise at an average annual rate of 3.4% in real terms. The driver of value growth will be the adoption of maize and soybean GM technology in China, greater GM technology adoption in Philippine and Vietnamese maize, and larger maize and soybean areas in Brazil. •