Over the last week I consumed 15 earnings call transcripts and 8 quarterly crop protection and seed earnings results, synthesizing the themes, trends and key takeaways across the crop protection manufacturers segment of the agriculture industry.
In this article, I share:
one financial comparison chart of major crop protection and seed companies
three themes from Q2 2024
seven notable insights, quotes and images
highlights and key takeaways from eight crop protection and seed manufacturers.
Bayer Crop Science
BASF
Corteva
Syngenta Group
FMC
UPL
Nufarm
Sharda
Note: Syngenta results were not available at the time of publication. They will be added in once they become available.
Note: In the future I am going to expand these images beyond revenue, EBITDA and margin— likely to include metrics like inventory, SG&A and percent of revenue in North America. If there are any metrics you are interested in, please do not hesitate to send me a message: shane@upstream.ag
Notably, revenue growth of all companies except BASF was flat to slightly up. BASF had a particularly challenging quarter, in large part due to its glufosinate business (more on it below).
Themes
1. Crop Protection Pricing
Volumes are trending more positive in crop protection segments, but pricing in Q2 was not.
Last year the industry experienced much higher COGS and pricing which makes the pricing dynamics look poorer, when what is happening now is a reversion to the mean. However, there is some more nuance to it, being driven by multiple aspects and varying parameters, depending on the company, but some central considerations:
Competitive pressure, which is a normal market dynamic when demand starts to return, driving a reduction in price.
Strategic intent to take back market positions in certain product segments.
Incentives to address high-cost inventory in the channel.
High COGS for manufacturing product from last year/high priced inventory
Some quotes from agribusiness executives around pricing dynamics:
UPL CEO Mike Frank:
Price was a clear headwind for us in our first quarter. Again, it's comparing to a quarter last year where prices were quite a bit higher than they were right now. So what I would expect as the year plays out, I don't think there's going to be very material price increase opportunities but our margins will improve and the pricing difference on a quarter-by-quarter basis will start to normalize as we go from Q2 to Q4 this year. So that's what I would expect from a pricing standpoint.
He went on to state the following around the bottoming out of prices:
Prices largely have even now, in last 3 months, largely stabilized…barring one insecticide and one herbicide. But I mean if you see the prices currently, that looks like that it's like at cost or with a very thin margin these guys are selling. So they're just trying to recover the fixed cost. So I do believe that these prices have really bottomed out and don't see much room there for further erosion. We know that China prices are lower than they were a few years ago. Largely, they've stabilized from what we're seeing over the last 3 or 4 quarters. We're not expecting to see prices increase this year. They could. But we also don't expect them to go down really much from this point either. And so -- that's our base assumption that we're baking into how we're forecasting the rest of the year.
Nufarm CEO Greg Hunt stated something similar:
The drawdown of distributor and grower inventory is expected to normalise and create a better demand and supply balance. This should in turn lead to manufacturing inventories and utilisation rates to return to normal. We believe this creates the environment for prices to return to historical averages in the short to medium term. Whilst we're unable to pinpoint the timing of price recovery, in general we expect price to be a tailwind for revenue and profitability beyond financial year '24.
We ought to see a favourable movement, because the market reflects contemporary price. As prices increase you tend to get margin expansion because you've got a whole lot lower inventory, that's what we've seen in the past. It's what happened in FY22 when we called out - that's why we got expanded margins, you're pricing as the curve goes up and your lower cost inventory. Similar here as that price rises again you should get expanded margins.
From Corteva CEO Chuck Magro:
I think many of us are now moving the high-priced inventory through the P&L and into the marketplace, which is another important step. And our inventories they’re still a little higher than we’d like, but they are a lot better than they have been over the last couple of years. So, when you put all this together, I think we’re on a path of recovery or what we call stabilization
Bayer Crop Science:
In terms of profitability, EBITDA before special items came in at €524 million and a margin of 10.5%. This significant decline versus the prior year was equally driven by an unfavorable product mix and higher short-term incentive provisions. The latter was driven by a significant reversal of provisions in Q2 of last year that I already mentioned. Main drivers of the mix effect were much higher volumes of glyphosate coupled with lower corn and fungicide volumes. To the positive, we are starting to see some cost recovery in the quarter, led by lower crop protection raw material costs.
And from FMC CEO Pierre Brondeau:
We do not plan to continue one-time incentives now that much of the high-cost inventory in the channel has been reduced.
