Commodity prices expected to remain favorable and drive more crop inputs.


The crop protection industry is poised for moderate gains in 2010. As many producers anticipate better sales this year, it appears that most markets have liquidated some of the oversupply of products in the distribution chain. This return to more normal supply levels, in conjunction with steady demand generated by stable crop prices, should correlate into better sales volumes for manufacturers throughout the year.


The return to normal levels of inventory and adequate crop prices should bring a 2% to 5% rise in global crop protection value, says Matthew Phillips, founding partner of Phillips McDougall, a research and tracking consultancy. “We always said that 2009 was going to be a year of re-equilibration, which is really what happened,” says Phillips, an editorial advisor to FCI. “Overall, I don’t think 2010 is going to be significantly different from 2009, apart from the fact that a lot of these inventory situations for agrochemicals is hopefully cleared through.”


Those inventory situations have been a difficult challenge for the industry during the past 12 months. Still coping with oversupply from late 2008, the distribution channel was flooded with pesticides in 2009, and manufacturers had few markets to sell products. But the fundamentals remained good, or at least good enough. Commodity prices and crop prices in 2009 remained stable in most markets. They were down from their 2008 highs, but robust enough to maintain farm incomes. There were no food riots in 2009, unlike in 2008, when inflated crop prices and low global food stocks created a hyper-reactionary demand around the world.


Few markets were spared the oversupply conundrum in 2009, including the United States. Fortunately, the agriculture industry has had a full planting season to work some of the inventory into the fields. This year, product sales should more closely replicate what farmers are applying to their fields, Phillips says. But some other major markets might be a different story. Brazil, for example, still has a large supply of inventory in the distribution channel. Additionally, credit in Brazil, and much of Latin America, is difficult to obtain. In Argentina, the worst drought in 100 years turned to floods as rains finally came to the region, replenishing inland reservoirs and creating optimism for the country’s 2009/10 growing season.


Asia, while suffering from the same macroeconomic pressures as the rest of the world, appears to be rebounding more quickly than many developed countries. China and India are projecting robust economic growth in 2010, and prices for crops and products should deliver a favorable year for the region, Phillips says. “Asia is remarkably resilient,” he says. “Although we are in a situation of relative maturity in 2010, there is an upside ­— probably in maize and soybeans — most notably in Brazil, Russia, India and China, where economic growth is occurring and where demand is growing. In terms of percentages, growth in those countries probably will exceed the growth in the developed markets significantly.”


Of course, whether or not crop protection companies will have opportunities depends on the confidence of farmers, who use more inputs as prices of crops climb. That's why commodity prices, and the subsequent opportunities and challenges that stem from their fluctuations, will be followed as closely as the weather in 2010.

“One thing that could unsettle all this (forecasting) is if we got a huge explosion in oil prices again,” Phillips says. “If that happens, it will pull through crop commodities and then farmers will spray, and the outlook changes completely.”