Monsanto appears to be rededicated to its glyphosate business. Amid widespread speculation that Monsanto was restructuring its chemical business in a stand-alone unit to sell, it announced in last September that it will bolster supply of Roundup and cut prices to about half of 2008’s peak prices in the US.
The initiative is an obvious reaction to the supply shortfall that occurred in 2008 when manufacturers in China cut production in the months preceding the Olympic Games in Beijing. The resulting undersupply raised glyphosate prices from Chinese manufacturers on the world market, forcing Monsanto to raise its prices above those set by the markets for generic products. Monsanto has had a practice of charging a premium for Roundup over other glyphosate products.
Although Monsanto’s price hike was reactionary and in line with what they have traditionally done, many perceived the move as the world’s largest supplier driving the higher prices instead of reacting to the market. Roundup is still used by the vast majority of American growers, but they have displayed an increasing trend toward using generic glyphosate since it became available in 2000. American farmers were outspoken about their concerns that Monsanto was manipulating the market.
In an effort to reassure American farmers that it is doing more to stabilize the market and subsequent costs for growers, Monsanto is bolstering its production capacity to offer North American growers a more stable supply. In the past two years, the company has invested US$200 million into additional production capacity in its Luling, Louisiana (US) plant, which supplies formulated agricultural Roundup. The added supply from the plant was expected to hit distributors during the past few months, according to Monsanto. With the new marketing push, the company is attacking the quality of the glyphosate made in China, calling Roundup “superior to the Chinese generics in the market” in a recent press release.“Monsanto is investing to help US farmers have a reliable supply of Roundup brand agricultural herbicides that is competitively priced and superior to generic imports,” North American Crop Protection Lead Glenn Stith said in a press release.
If the strategy works, Monsanto is poised to bolster profits on the success of its various Roundup Ready seed technologies, which have achieved widespread acceptance in the Americas. Almost all of the soybeans planted in the US and Argentina are Roundup Ready, as well as about half of the soya in Brazil. And the Roundup Ready technology is gaining acceptance in emerging markets, too, including India, says Dean Hendrickson, global lead for non-branded glyphosate for Monsanto.
FCI spoke with Hendrickson in September about Glyphosate’s global supply, demand and pricing during the past year, as well as some of the influencers driving global markets in 2010. He says the growing adoption of Roundup Ready crops and conservation tillage practices bodes well for the growth in demand for glyphosate, which should increase steadily in the years to come.
FCI: What is driving demand for glyphosate in the marketplace right now?
Hendrickson: A lot of it depends on where you are at in the use season around the world. There are two components working there: First is the quantity of demand for the product, and second is the timing of the purchasing decision. In 2009 there was some variability of demand in markets based on weather events, and there were evolutions on the timings of the purchasing as well. But I still think the demand for Roundup and glyphosate in the future will continue to grow as we see the penetration and adoption of certain market segments, such as conservation tillage, including people looking to secure glyphosate for increased plantings of Roundup Ready crops and increased use rates due to the excellent value of Roundup.
There is some oversupply built up in the distribution channel. When will that dissipate to more fluid levels?
I think the premise of your question is fair, but it really depends on the geography. Right now we are starting to ramp up for product use in the southern hemisphere. We’ve had showers in Australia as of late. Crop production looks fairly good; prices are at solid levels, so product is starting to get on the ground in the very near future, particularly in South America. As we see that materialize at the grower level, then the market participants will be replenishing their stocks.
So I think that at the end of this use season, the supply in all the major geographies is going to be rationalized back to more typical levels, and demand for glyphosate and usage of Roundup will be higher than it was in 2009. But because of the carry-on stocks, the actual replenishment levels might be lower than they have been historically because of that carried inventory.
You are bolstering supply and cutting prices in the US. How will that affect global markets?
Our expansion in Luling is a key investment from a global standpoint because volatility is not ideal for any company in any marketplace, and we think that is a key investment that helps distributors, retailers and growers around the world have confidence in a continued supply of Roundup.
We are committed to make sure that people have Roundup availability at very good value across all the regions.
Is this a move to shore up market share among US growers who have been using more generics in the past few years?
We have seen strong demand for Roundup at various levels throughout its entire history, even as there have been other choices; some years it has gone higher and lower, but there has always been strong demand. We are committed to making sure that there is Roundup availability, and with our 2010 approach, we think there is going to be increased usage of Roundup versus prior years.
What do you see influencing the market most in the near future?
In the overall global marketplace, there is going to be increased glyphosate demand across the world going forward. The growth rates will vary by markets based on the degree of conservation tillage penetration and the demand for Roundup Ready, but we will see the demand for glyphosate increasing. And we will be going through a continued period of movement on the supply and demand side.
What else can you say about pricing?
Monsanto has a very strong commitment to glyphosate and the Roundup market, and you can see that with our investment in Luling. So we plan on being a significant contributor to the global marketplace for a long time to come. We see ourselves as a global market leader for quality and supply.
On the pricing side, it has stabilized as of late. However, it is at a lower level than it is compared to earlier times and lower than what many might have anticipated when they initially entered into glyphosate. And I think with that being the case, there will be a continued rationalization on the supply side because what once was driving that demand and higher prices is no longer present. Someone who might not be as committed to glyphosate as Monsanto might wonder if it makes sense from a strategic basis.
So the speculation that Monsanto restructured its Roundup division to sell doesn’t appear to be on target?
Monsanto is committed to agriculture biotechnology, and Roundup Ready has been a significant tool for the entire industry and very valuable for Monsanto as well. Without Roundup, one could say there really isn’t a Roundup Ready system, so that gives me confidence that Roundup is strategic to Monsanto; it is a big part of the overall system of weed control, germplasm and traits. And I think that combined with a number of ongoing projects on biotechnology, such as Dicamba-tolerant crops, leads to a very bountiful future.
This transition of being a separate division is a positive boost for our chemistry group to make sure that we have some dedicated resources to keep focus. Additionally, we have a lot of folks in our technology group that are still looking at advances in glyphosate formulations.
None of us can say what can happen in 3, 5, or 10 years from today, but I do believe that with what is happening with Roundup and the way we think 2010 is playing out as well as our ongoing investments, I believe that we are committed to the business, and it’s going to be a very interesting and exciting place to work.