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Global pesticide use rises
Sep. 24, 2008
Record high crop prices are fuelling demand and prices for pesticides, lifting forecasts for crop science companies, research analysts Citi said on Wednesday.
“Prices for most agricultural products are close to record levels on the back of increased growth…, biofuels and wealth effects in emerging regions,” the analysts said in a note to clients.
The accelerated modernisation of eastern European farming, more intensive agricultural activity in Brazil and a shift to preventative applications of crop chemicals are key factors leading to a sustainable step change in demand for crop chemicals.
“We believe these trends will drive above-trend growth for the next two years as well,” said Citi analysts.
“The strength of this demand, together with a cost push, in 1Q08 has also sparked off some price inflation for the first time in many years,” they added.
Average prices for Bayer rose by 2% in the first quarter this year and by 3% for both Syngenta and Makhteshim Agan Industries.
“With cost pressures remaining strong, not least due to high oil prices, the direction of price development is likely to remain upwards,” said Citi.
Bayer has said raw material costs were likely to increase by about €40m ($63m) this year, while Syngenta said they could rise by around $60m.
Citi added that both these assumptions were based on much lower volume growth and that spot purchases could add to this cost.
“Syngenta’s CEO [Michael Mack] noted in a recent Bloomberg interview that he could envisage price increases of up to 10% in 2009 if cost pressures remain intense,” said the analysts.
Citi said that on the back of this forecast, it had upgraded Swiss Syngenta’s 2008 earnings per share (EPS) forecast by another 4% and was also taking a more optimistic view of the outlook by raising its price target to Swiss Francs (Swfr) 300 from Swfr275. The companies shares were at Swfr294.5 on Wednesday.
However, Citi said that for MA Industries volumes were likely to be stronger than expected and EPS growth was likely to be around 40% in 2008, but that cost pressures would affect the bottom line.
“While the weak dollar is a benefit to reported sales and EBIT [earnings before interest and tax], it also causes higher financial charges as shekel-denominated liabilities need to be marked to market in dollars. Consequently, as with 1Q08, there will likely be about $15m of these charges,” Citi said.
Source: ICIS
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