Jan 5th 2022 Update- Prediction of future Glyphosate price by China Agrochemical Insights
If I can anticipate the Glyphosate price 2022, there will be no need for me to work anymore since what I need to do is just calculate my interest from the Bank of China. To be realistic, no one can predict the future in advance. What we can do is just try to use our historical experience to simulate. So, when I talk about the future price, it would be just for your reference. You can take your own sourcing strategy, but on your own head be it! Like gambling, 50% win, 50% lose. Please understand the point in advance.
Following is the “prediction”!
In 2008, the natural gas price reached 13 USD/MMBtu, and the crude oil price was 140 USD/Bbl. When the 2008 financial crisis happened, the commodity price fall down sharply. Then US FED started QE monetary policy to help the economic resilience. In 2022, we are facing a similar global QE as well which was pushing up inflation globally. However, when FED wants to use the same “nuclear weapon” to support the economy, the disruption of global international transportation blocked the stream of cash flow by limitation of the global transaction. The USD from FED cannot be transferred to the intensive deal between countries smoothly. So the QE continuously brought the inflation risk which was also accelerated by the shortage of supply. So the situation of 2022 could be more serious than in 2008. The COVID is the biggest obstacle to global resilience. The possible result is that the 2020-2021 economic growth was short-lived.
High raw material price is the new normal which was mainly pushed up by inflation and shortage of supply. We just mentioned the inflation reason. The reason for the supply shortage is complicated. The shutdown of operation by COVID is an important reason especially for Chian raw material production and intermediate production. The national event also causes strict control of environment protection. Double Control also brought a suspension of operation in 2021. International transportation blocks resulted in the shortage of fundamental energy and materials. When global demand poured into China in 2021, China request more raw materials to produce the final product. That’s the reason why we saw strong demand for raw materials from China last year. So the high raw material price would be a consistent factor in 2022 which can not be easily improved by new capacity or print money.
So, high raw material prices support the high pricing of Glyphosate from China. There was a shortage of supply in 2021 due to the limitation of intermediate available and shortage of energy supply. The inventory in the supply market is also at a low level. The logic of sudden falling down of Glyphosate would be not so tenable. As I just analyzed for Agribusiness Global (you will see it soon on the ABG website), the future Glyphosate will be lean to the real consumption, not only for increasing safety inventory in 2022. From my personal point of view, weak demand YOY 2021 will offshore the high pricing of Glyphosate in this year. But the tight intermediate supply will keep Glyphosate stable high for a major time.
On the other hand, BCS's global marketing strategy in 2022 will be very critical for the future Glyphosate price trends. China Glyphosate price is not decided only by Chinese suppliers. Bayer’s capacity is also important for global purchasers. Even though China is producing around 60-70% Glyphosate globally. Bayer CropScience’s capacity is huge enough to influence the market price. BCS also has a program of seed + herbicide for farmers. The only problem will be which distributor can have BCS support on cargo supply. The market gap in 2021 was mainly caused by Bayer’s shut down the glyphosate-manufacturing plant in Luling, La., for five weeks after Hurricane Ida. After re-operation, BCS will be capable to manage the future Glyphosate portfolio supply in 2022.
For the burndown herbicide market, the GM seed market is always red ocean. Bayer is competing with Enlist seriously. Two giants dominate the GM market by innovative programs with sustainable formulations. The new portfolio from Corteva, 2,4-D+Glyphosate +Glufosinate will bring very big pressure of competition for the BCS program. Besides digital service, BCS needs to provide more attractive value to farmers. Within Corteva and BCS programs, Glyphosate is the key resource to attract farmers’ payment. The big companies’ competition can always hit the sales of 2nd or 3rd level competitors, like ADAMA, Nufarm, etc. Without seed, the differentiation of generic companies’ Glyphosate will be more significant. Facing the big volume of Glyphosate in the pipeline which was set within 2021, the players need to find a good way to enhance the consumption of 2022.
2020-2021 high purchasing of agrochemical AIs was for the higher safety inventory to meet the lead time to farmers. The inventory in the pipeline shall occupy the major finance resources of distributors and farmers. With the strong growth of sales revenue, multinational companies will be surely pushing the portfolios into the pipeline again in 2022. In general, insecticide manufacturers recommend disposing of their products after two years and usually won't guarantee effectiveness for any longer than two years. If the 2021 inventory can not be consumed continuously, the portfolio return would happen in the 2023 season. Before the deadline, multinational companies would promote the discount of the portfolio for more consumption. The purchasing of agrochemical AIs will be consistent, but the total volume of purchasing from Chinese suppliers will slow down with the affection by “return treatment”.
If we need to predict one possibility of the future, I could say:
What if? Possibility One!
As for future price issues, Bayer Crop Science and Chinese Glyphosate price could be at a stable high level at Q1 2022. Since China is facing the environment protection audit, Beijing Winter Olympic Games, and domestic demand from local formulation companies. In Q1, the China Glyphosate price range would be 13 - 15 USD/Kg EXW. But the transaction for high price Glyphosate would be limited due to the uncertainty of 2022. Meanwhile, some manufacturers would prepare some inventory for future buyers in such period.
After March, China manufacturers could release their full capacity to capture contracts as much as they can to achieve the sales goals of Q2. And the global crude oil price and natural gas price would have the possibility to decrease due to the lower demand and supply recovery. If the FED has the intention to quit QE, the price of raw materials could decrease quicker than my anticipation. The lower cost of raw material would transfer to the final product from Q2 to Q3 2022. So, a soft landing of Glyphosate would be in high possibility within the range of 11 - 13 USD/Kg EXW.
If we were right about the first half of 2022, in the summertime of 2022, there would be the bottom price timing for Glyphosate AI to 8 - 10 USD/Kg EXW. But, the cargo available will be very limited due to China’s low operation rate in summer maintenance. During the 2nd half of 2022, the increasing demand from US and LATAM will drive price head up. And the national event in autumn, like the 19th Asia Games Hangzhou and The 20th National Congress of the Communist Party of China, will cause a high environmental protection audit. So by the end of 2022, the Glyphosate AI price would be growing up back to 9 - 11 USD/Kg. For the long-term pricing, the proper price of Glyphosate would be stable at around 8 USD/Kg EXW. If the economy gets worse in 2022 quickly, the falling down of Glyphosate price would be also possible.
That’s my personal consideration on Glyphosate sourcing strategy for 2022. If you have any comments or insight which can be share with me, please feel free to contact me via
lixiaoyu1930@gmail.com
.BTW, my team is aiming to saving cost and support to conduct the right strategy on China sourcing. We will release a global promotion soon during next publishment for our Global Strategy 2022. Please have my appology in advance if you feel unconfortbal to recieve a sort of “advertisement”. But, from my consideration, knowing what SPM can do could bring some beneficary for your team in future. We are friends, and we are open for any conversation, am I right?