Crop Protection Market Development in Latin America
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LATIN AMERICA UPDATE |
By Derek Oliphant
Contributor
This article will outline the development of the crop protection market in Central and South America, examining the current situation as well as the key future trends expected to influence market development over the coming years. Discussion of current market dynamics is important when considering the potential for key drivers in future growth.
The Global Crop Protection Market 2022 |
To provide context for the Central & South American crop protection market, it is important to look at global market development by region. The most significant factors that affected the crop protection market in 2022 were:
- Higher areas globally for several key crops:
- Soybean areas up sharply
- Wheat area in European Union in line with prior year, but up in Canada and Australia
- Oilseed rape areas recovering from poor conditions in previous year
- Strong increase in United States cotton area
- Improved weather conditions in several regions:
- Strong recovery in Canada from last year’s severe drought and wildfires
- Improved weather conditions across much of Europe, particularly for winter crops; however, drought during summer impacted crop production, notably for maize
- Prices for several key agrochemical active ingredients, notably glyphosate and glufosinate, remained high throughout the year.
- Cost of product remains very high, particularly in Europe, following the impacts of the Russian invasion of Ukraine on energy costs and crop inputs.
- Strong demand was recorded early in the season, particularly in the Americas, as growers looked to ensure agrochemical requirements for the entire season following supply issues toward the end of the prior season.
- Currency exchange: the U.S. dollar strengthened considerably against many currencies, notably the euro, Japanese yen, Indian rupee, United Kingdom pound and Chinese yuan, resulting in markets appearing less positive on currency translation than in local terms.
Latin America Crop Protection Market Overview |
In Central and South America in 2021/22, La Niña conditions led to severe dryness and high temperatures in Argentina, Paraguay, and southern Brazil, primarily impacting soybean production. Wildfires also affected large areas of Argentina. The drought conditions in the region also impacted logistics, with the water level in the Paraná River in Rosario, Argentina, reaching its lowest level since 1945.
Wetter conditions in less southern regions of Brazil, while benefiting yields, led to increased pest pressure, particularly of whiteflies, and white mold. The wet weather restricted field access for farmers, limiting the opportunity to apply pest control products in a timely manner. In addition, large areas of soybeans in key growing regions were affected by seed rot, while corn leafhopper pressure was significant in the safrinha maize crop in Brazil.
The value of the crop protection market in Central and South America benefited from a continued strong agriculture economy in Brazil, despite the impacts of dry conditions on soybean output and cold conditions for safrinha maize. These factors were largely offset by the higher planted areas for most key crops and high pest pressure in more northern regions, where wetter weather was more conducive to disease pressure. Argentina was slightly more negative, where the weather had more of an impact across all key crops. However, the significantly high levels of agrochemical pricing led to robust gains in value terms.
2023 Market Expectations |
The market in 2022 increased considerably from 2021, experiencing the sharpest rise for 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 market growth to be in the low single digits, depending on agrochemical pricing throughout the year, with prices now down from the peak levels of 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 key global factors behind these growth assumptions are:
- Expectations for lower fertilizer prices could boost spending on crop protection.
- Energy prices remain high but expected to decline from peak levels of 2022.
- Commodity prices expected to remain strong in 2023 but below 2022 levels.
- Fluctuation of major currencies (Chinese RMB, Japanese yen, euro, GBP) compared to U.S. dollar.
- Agrochemical pricing stabilizing from peaks of late 2021, but concerns over high energy costs, particularly in Europe.
- Possibility of recovery from drought in central and south Europe, south and west U.S. and parts of Africa.
Central and South America
- Brazil maize (+2.1%) and soybean (+4.9%) areas up.
- Argentina wheat, maize and soybean areas down.
- Expectations of high pest pressure:
- Soybean rust detected early in Brazil.
- Wet weather in Argentina wheat leading to high Fusarium pressure.
- Root leafhopper impacting sugarcane crop in Brazil.
- First maize crop in Brazil held back by wet weather.
- China to boost maize imports from Brazil.
- Robust demand for crop protection usage in Brazil eroded fears of inventory build-up following sharp increase in imports in 2022.
- Wet weather during soybean planting in Paraguay could lead to increased disease pressure.
- Pesticide shortages in Argentina, with distributors and growers struggling to source cereal fungicides and maize and soybean herbicides.
The development of maize and soybean crops in Argentina has been hindered by dry weather patterns associated with the continuation of La Niña, which have affected much of the country. Planting operations for both crops suffered delays due to the dry weather, with crop development behind the normal pace. Groundwater stocks were depleted following a very dry end to 2022, which was reportedly the driest for the period in 35 years. However, grain production has recently benefited from wetter conditions in the central agricultural area.
In Brazil, harvesting of the first maize crop is currently progressing under favorable conditions, although hot and dry conditions in some regions have been an issue. The planting of the safrinha crop is almost complete across most of the country, although in Parana, the second largest safrinha-producing state, less than 80% is in the ground due to delays in the soybean harvest caused by wet weather.
With the optimum planting window for safrinha maize rapidly approaching, there are expectations that some growers may switch to winter wheat, particularly as late-planted safrinha maize is typically not covered by crop insurance. The soybean harvest in other regions is progressing well and is almost complete in Mato Grosso. In addition, currently of concern to the maize crop in Brazil is increased pressure of corn leafhopper, which was first detected in the country in 2017. These pests also act as a vector for certain bacteria and viruses and can significantly impact yield if left untreated.
While production of most key crops is expected to increase in 2022/23, including expectations for record output of wheat, maize, and soybean, there are several issues related to logistics that continue to hamper the movement of harvested produce. Investment and advancement in transportation logistics and grain storage capacity have not kept pace with continuing increases in crop production, with this leading to rising freight costs. According to reports, freight costs in some of the worst affected areas, such as Sorriso in central Mato Grosso, located more than 1,300 miles from Port of Paranagua in southeastern Brazil, more than doubled as the soybean harvest peaked. This has been exacerbated by the delayed soybean harvest, which has led to many silos still being full. With the maize safrinha harvest expected to commence in June, there are concerns over storage capacities and subsequent higher costs.
Recent estimates from the Brazilian Ministry of Agriculture, Livestock and Supply suggest that the gross value of agricultural production (GVP) in Brazil will increase by 5% in 2023 to R$1.249 trillion (approximately $238 billion), which, if realized, would represent the highest value achieved since records began 34 years ago. The value of crop production is expected to increase by 8.9% to reach R$887.7 billion (approximately $168 billion), with soybean and maize crops expected to contribute most significantly to growth, representing 43.6% and 18.3% of total crop GVP respectively. Growth is also projected for rice, banana, potato, cocoa, beans, oranges, and cassava. However, decreases are projected for cotton, coffee and wheat. Favorable weather conditions are expected to support crop production in several states in the north and northeast, midwest, and south.
In Argentina, recent rainfall has benefited later maturing soybeans. However, dry conditions have severely affected overall production, with the drought being the worst to affect the country for 60 years. Yields are expected to be at their lowest level since 2008/09, with hot and dry conditions earlier in the season followed by frosts throughout February. Soybeans in key northern and southern regions have been the most impacted by the adverse weather, with reports of increased abandonment. In certain areas, it is estimated that as much as 80% of soybeans may not be harvested.
As a result, soybean crushing in the county has been badly affected, with almost 70% of the country’s capacity currently sitting idle. In addition, many growers are holding onto harvested produce as a hedge against the rapid inflation afflicting the country, which is approaching 100%.
Dry conditions have also impacted other countries in the region, notably Paraguay and Bolivia. In Bolivia, many areas declared a state of emergency due to drought conditions, partly driven by the third consecutive La Niña event.
The La Niña event is expected to recede during the year, with forecasts suggesting a reversion to a neutral ENSO state, while longer-range forecasts suggest this neutral period will be followed by an El Niño event later in the year. This could provide relief from the dryness in southern South America, although not in time for the remainder of the 2022/23 season.
The value of the crop protection market in Central and South America is expected to have increased by 23.3% in nominal terms in 2022 to reach $23,103 million. Looking ahead to 2023, the dry conditions which have impacted large areas of the region are expected to be a significant negative, particularly as crop abandonment in the worst affected areas has been high. However, conditions in Brazil are more positive, and reports of high pest pressure of several key pests, such as Asian soybean rust and corn leafhopper, are expected to boost crop protection product usage. Inflation and difficult economic situations are also hindrances in certain countries, notably Argentina, whilst production and freight costs in Brazil are also high. In addition, the falling prices of key agrochemicals, notably glyphosate and glufosinate, are also expected to depress the value of the market. However, prices during the early part of the 2022/23 season were still high by historical standards. •
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Photo of Derek Oliphant courtesy of AgbioInvestor