Agchems expect slight gains in 2021

16:20 PM | January 4, 2021 | Rebecca Coons

Low crop prices are the new normal, and regulatory pressures continue to mount

Suppliers of crop inputs expect modest gains in 2021, as crop prices tick higher but remain well below some of the peaks seen in the last decade. Although perhaps the market least touched by the COVID-19 pandemic, falling meat and biofuels demand, combined with good weather, have nonetheless left inventories high heading into 2021.

Barring major disruptions, Phillips McDougall is forecasting the crop protection and seeds market will post low-to-medium single-digit growth in 2021. For 2020, the global crop protection market is expected to increase 4.3%, to $62.4 billion, after a 0.8% decline in 2019.“All things being equal, growth [in 2021] could be similar” to 2020, Jonathan Shoham, senior consultant analyst at IHS Markit Agribusiness, formerly Phillips McDougal, said at the recent Agribusiness Forum & Awards 2021. “Overall, conditions have been very good for crop production, which has been a factor in depressing crop prices,” he added. “In terms of the long-term outlook [for crop prices] I think low prices are the new normal.”

Tom Scott, global director, agribusiness consulting at IHS Markit, notes that commodity stocks are high, but mostly held in China. “We’re seeing a resumption of buying by China of US crops, but also heavy buyers in South America,” he says. “This leads to a much more robust price environment. Certainly not a return to the high years of the last 10 years but better than this year.” This should help farm incomes in 2021 increase about 10% year-on-year, he adds.

Notably, 2020 saw a break in increasing meat consumption, which Scott notes drives most crop acres. Meat consumption was hit by the “devastating” swine flu outbreak in 2019, economic recession, and COVID-19. “We saw devastating losses in the pork sector [in China],” the largest pork consumer globally, and meat was one of the most COVID-19–impacted supply chains in Europe and North America, he adds. Rebounding pork production in China should help volumes but “we will probably be into 2022 before global meat consumption reaches where it was before [swine flu].”

The COVID-19 pandemic also impacted biofuels feedstock markets in 2020, namely maize and oilseed crops. Although demand is recovering, there will likely be more cautious purchasing patterns in 2021, IHS Markit Agribusiness adds.

Crop protection pricing is likely to rise moderately in 2021 due to “continued environmental pressure on manufacturing in China and India as well as increased demand following a potential economic recovery following the pandemic.” Disruptive forces in the distribution chain could, however, exert downward press on input prices, especially in the US. Farmers Business Network (FBN) is working to provide growers with lower-price inputs by arbitraging between different sources. “FBN see themselves as the Amazon of agriculture and their membership has been growing significantly,” Shoham says. “This is something major incumbents need to look out for in the market.” There is the potential for pushback from major distributors and agchem companies. “We may see some initial signs of this in 2021/2022,” IHS Markit Agribusiness adds.

Meanwhile, further product bans leading to continued loss of older chemistries will drive uptake of newer chemistries, and to a lesser extent, biologicals. “At the product level, the level of industry innovation looks like it could be significantly higher than in 2020 with 16 new [active ingredients] earmarked for possible introduction in the 2021 year,” IHS Agribusiness notes. It also expects increasing adoption of biological products, particularly hybrid conventional/biologicals products. “FMC is perhaps the leader in this area and has a number of products targeted at the row crop markets in development as well as a hybrid product,” it says.

Fertilizer producers also expect a better 2021. “[A]griculture and fertilizer markets around the globe are strong and improving. Phosphate prices are up substantially, while potash prices are stable. We expect global supply and demand to remain tight in all of 2021,” Mosaic Company president and CEO Joc O’Rourke said during the company’s third-quarter earnings conference call.

Longer-term, the future of food demand growth will continue to be centered in Asia. “What has changed is some of the thinking around where supply to meet that demand will come from,” Scott says. “We spent the last 20 years thinking about a global supply chain facilitated by trade agreements to a great extent and free flow of goods and people and technologies.” In the post-COVID world, supply chains are likely to get shorter as countries think about food security and vulnerabilities. Trade disputes, political changes, and unrest were already “fermenting” this idea, but COVID-19 accentuated it, he adds.

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