Coming years will see tighter margins for agri-input market, Rabobank says

Date:11-27-2024

Rabobank estimates that falling commodity prices will result in a contraction in operating margins for agri-inputs, especially grains, in the coming years. The information was confirmed to Agropages by the global bank's market analyst team specializing in agribusiness.

"Tighter grain margins should lead producers to cut costs. In this scenario, agrochemical companies are trying to recover from the high inventory crisis," a report signed by Rabobank analyst Bruno Fonseca pointed out.

Regarding chemical pesticides, 2024 is the year when most companies in this sector face the problem caused by high product inventories built since the beginning of the COVID-19 pandemic. This became notorious after the release of financial results for 2023 in early 2024. Tighter margins for producers are an additional challenge for companies, as evidenced by quarterly results. However, in Rabobank's opinion, despite this difficulty, companies are expected to resolve much of their physical inventory during the second half of 2024.

The financial solution should occur in 2025 when producers begin payments for products in April. "Only then should we begin to see a better situation for companies that were more efficient in equalizing inventories," the bank's analysts projected.

According to the National Union of Plant Protection Products Industry (Sindiveg), the Brazilian chemical pesticides market was worth US$20.7 billion in 2023. According to Rabobank analyses, this market should reach $20.9 billion in 2024, an increase of 1.00% compared to the previous year. For 2025, the expectation is that the market will grow by 1.20%, reaching $21.1 billion. According to our analyses, the seed and bioinput markets should face some difficulties throughout 2024 but should continue to show reasonable growth rates, maintaining this trend in 2025.

"The coming years should be a bit tighter for agri-input companies and also for producers. However, we should see the recovery of these sectors over the next few years. Positive cycles end, but most importantly, bad cycles also end," Rabobank's market analysts said in conclusion.

Fertilizers

The bank's report also pointed out that monoammonium phosphate (MAP) and other phosphate fertilizers should remain above the historical average, given the tightness in the global supply-demand balance. The absence of Chinese products combined with changes in this market's dynamics has made the balance tighter.

Among the primary nutrients, Potassium Chloride (KCl) is experiencing the most stable situation. "Despite good global demand for the product, international prices remain between the historical average and historical minimum. In Rabobank's opinion, we should not see a continued retreat in international KCl prices, as the current market value is already close to the fertilizer's production cost," the analysts said.

"With this entire scenario, Rabobank's estimate for fertilizer deliveries in 2024 continues to be 45.5 million tons of fertilizers, a slight decrease compared to the 45.85 million tons delivered in 2023. For 2025, we estimate that 46.6 million tons of fertilizer will be delivered to the end consumer, an increase of 2.5% compared to the 2024 volume," the report said in conclusion.

(Editing by Leonardo Gottems, reporter for AgroPages)