Changes in Argentina's Seeds Market

New music playing in Argentina's seeds markets

Something has changed. 2016 has played a different tune. Distributors received countless requests for quotations from farmers, and marketing departments have been very busy since the beginning of the year. Maize crop area grew more than 25% between campaigns, and sunflower returned to the main scene.

On December 15th 2015, it became clear that the maize area in Argentina would see significant growth. The new government announced the elimination of the export tax that heavily cut the margins of this crop while sending a strong signal to the market: Export interventions were scrapped and farmers now knew what to expect.
Something was changing.

The Noise

For years the uncertainty surrounding maize crops had been growing. Farmers could not know in advance if they would be able to sell their product as maize and wheat markets were intervened.  More and more farmers were decreasing their maize crop area. Pre-season sales had been declining year after year and slowly farmers began to purchase their seeds just at the time of planting, while seeds companies in a competitive market could not keep full season prices high enough to encourage early purchases.

Annual Maize bags cumulative sales in columns and cumulative maize planting in lines

Chart 1: Annual Maize bags cumulative sales in columns and cumulative maize planting in lines

The bars in Chart 1 represent the cumulative sales for each month from CY2012 to CY2015. The line represents the cumulative maize planting. The chart shows how in CY2015 purchases and planting progressed simultaneously.

Sales teams needed to be more aggressive, having to sell 70% of their annual sales in just two and a half months. In this context the balance between supply and demand was challenging. The usual pre-season selling period was lost as distributor stores remained full for longer time, until the last minute purchase decisions occurred.  All of this contributed to an increase in transactional costs that are difficult to estimate. 

Annual Maize bags cumulative sales

Chart 2: Annual Maize bags cumulative sales

The bars in chart 1 represent the cumulative sales for each month from CY2012 to CY2016. The chart shows how the 50% point moved from July in CY2012 to September in CY2015, and almost back to June in CY2016.

What changed?

Clearly change in the political environment has had a very significant impact in creating this effect, but if this were the only factor the same effect should be observed in the rest of the agricultural markets of Argentina. This was not the case for agrochemicals.

The seeds industry has been able to interpret the new rules of the game. Determined to recover higher sales volumes in pre-season, they launched aggressive commercial activities early in the year, delivering a clear message of when and how prices would rise. They changed the music and again established the pace in which supply and demand could comfortably dance. Farmers like certainty. They like to purchase early in the year and fix their costs. They like to understand the rhythm to which they are dancing, and they expect to listen to this music again next year. 

What needs to be done?

Crop protection companies have different challenges ahead of them. Argentinian farmers have become very price sensitive regarding CP product but companies who understand that farmers are listening again, will have an early start in the dance that´s coming. After years of noise it is normal to feel a little deaf. It is normal to hold your hands to your ears and cover your eardrums. For agribusiness in Argentina, the noise is over and it is a challenge for the whole Ag sector to make music again. 

Author:

Santiago Zuberbuhler

Kleffmann Group Argentina