Dive Brief:
- Corteva is seeing demand wither for herbicides and other crop protection products as supply becomes more reliable and farmers look to cut costs, executives said on a Friday earnings call.
- The agricultural chemical company is adjusting net sales for the year down about 4% due to muted sales of crop protection products, said Chuck Magro, Corteva’s chief executive officer. The segment reported a 9% sales decline in the second quarter.
- Farmers are delaying purchases until necessary, which has led to an industry-wide destocking. Headwinds facing the crop protection product industry may last into early 2024, Magro said.
Dive Insight:
As farmers grapple with higher operational costs and declining crop prices, many have pulled back on pesticides, insecticides and other technologies meant to boost yields and preserve profit.
"With the higher cost of capital, higher interest rates specifically, there is a move clearly back to the way the industry operated pre-2022," Magro said.
Improving supply chains have also shifted purchasing behavior back to a more just-in-time approach where farmers buy products only when necessary. However, Corteva expects sales to eventually rebound as long-term demand for crop protection products remains strong.
"Crop prices have come down but farmer margins are still really healthy and we haven't seen a change in buying behavior in terms of the products that they're investing in," Magro said.
Corteva has expanded its crop protection product portfolio this year as it looks to differentiate itself and gain a leg up over competitors when the market rebounds. However, economic headwinds could depress demand.
"In a lower-price environment, farmers are more likely to cut back on the use of additional generic products and may reduce the number of times they apply a product to their fields," wrote Seth Goldstein, an equities strategist for Morningstar Research Services. "Regardless, over the long term, Corteva’s portfolio shift toward premium products should drive profit growth and margin expansion over the next several years."
Declines in the crop protection product sales were offset by strong demand for seeds. Overall, Corteva's adjusted quarterly sales were up 3% compared to the previous year.
