Global Demand for Glyphosate is Outpacing Capacity

Because of demand acceleration, Monsanto has increased prices in 2008.

Published on: Feb 28, 2008

For a little more than a year on a global basis the demand for glyphosate has been going up faster than the supply.

"We anticipated this, so it's not a situation where we were caught off guard," says Jim Zimmer, vice president of Monsanto's U.S. branded business. "So a year ago we started making plans to increase our supply of Roundup brands by over 20% here in the U.S. for the 2008 growing season."

Zimmer says the incremental demand was coming from growth of Roundup Ready crops corn, soybeans and cotton as well as increased conservation tillage. Monsanto saw that several of their competitors were struggling with manufacturing and would not be able to ramp up production as quickly.

"This is a very competitive market, there are over 30 different manufacturers around the world of glyphosate," Zimmer says. "We've ramped up our supply, but our competitors haven't been in a position to do so."

According to Zimmer that's led to a tightening of the marketplace and to competitors taking very aggressive price increases to the point where Roundup became cheaper than generic glyphosate. Zimmer says that is a good thing for farmers, except for one thing.

"We have a commitment to farmers that we are going to be a reliable supplier when it comes to this marketplace," Zimmer says. "And what we mean by a reliable supplier is if a farmer chooses to purchase Roundup Ready technology and wants to use Roundup herbicide over the top of that technology, we want to be in position to supply that need."

Monsanto's two production facilities in Louisiana and Iowa that produce all the Roundup available in the U.S. are running at 100% of capacity. Zimmer says they are working as fast as they can to produce as much as they can, which is why they have that increase of 20%, but Monsanto can't produce any more than that and don't have access to any more than that.

"As our competitors raise their prices to the point where Roundup was actually cheaper than generics it forced us to raise our prices to slow down the demand," Zimmer says. "We didn't want to be in a position that if a farmer had a Roundup Ready crop and wanted Roundup that we couldn't supply that. So that's the fundamental reasoning that we've had to take some price increases."

The question of how much of an increase in the cost of glyphosate farmers can expect per acre is a complex question that depends on a lot of factors.

"Every crop is different, each product is different; whether the farmer is using it in conservation tillage and using a product like RT3 or whether the farmer is using Roundup WeatherMax," Zimmer says. "I can tell you in general it's going to range. You're going to have a range anywhere from maybe as low as a dollar an acre to in the neighborhood of three to four dollars an acre increase. It really depends on where the farmer is at, what system they're in and when they make their purchase."

Even with the price increase, according to Monsanto the cost is still lower than the price forecasted for this year that the company did in 2001. "When you look at what producers are going through right now on fertility costs, land cost, and fuel costs," says Kevin Eblen, vice president of Monsanto's Delta and Pineland business. "There have been a lot of prices since 2001 that have severely escalated on them. It's important to understand that our pricing is still below where it was in 2001."

In comparing the value of Roundup Ready versus other options Monsanto remains very confident in their technology. However, a concern that Eblen has is the higher rate of application in cotton. Cotton producers spray anywhere from two to three quarts equivalent of Roundup in crop compared with about a quart equivalent in corn or soybeans.

"I think in general what we're facing in cotton country," Eblen says, "Is for a whole lot of economic reasons, cotton producers are looking at growing other crops. They're looking at what crop they want to grow to be most profitable."

From the global aspect of the tightening supply of glyphosate, Zimmer says much can be explained by the situation in China, where a predominant number of the world's glyphosate producers are located. The Chinese economy, particularly the manufacturing sectior is being hit by a lot of different angles. Zimmer says the most obvious is that as the price of crude oil goes up raw materials go up, which is a big factor in cost going up. That doesn't impact the supply side of things, they should still be able to run the plants, just at a higher price.

"What we are seeing over there though is the Chinese economy is really continuing to grow at an unprecedented rate," Zimmer says. "To the point where they're having difficulty with things like power; their manufacturing facilities are not being able to run at full capacity because power is being re-routed to metropolitan areas so the capacity is sitting idle at times."

Another issue is the Chinese government stepping in and putting environmental controls on manufacturing. In some cases manufacturing plants are not meeting those environmental guidelines so the government is closing facilities for periods of time to make sure they are meeting the new requirements.

"It's a short-term issue, similar to the power situation is a short-term issue," Zimmer says. "But it's an issue that manufacturing deals with over there and our generic competitors get a lot of their product from there, and in turn is putting a lot of pressure on them to be able to supply the growing market here in the U.S."

So the reason for higher glyphosate prices boil down to a combination of ever growing and expanding demand for the technology, higher cost of raw materials, the cost of manufacturing, and Chinese competitors not being able to run at full capacity, which according to Zimmer puts more pressure on pricing to slow down demand.

Since Monsanto anticipated this situation, many people are asking why they didn't ramp up production in the U.S. There answer is one, with competitors having plenty of capacity they didn't want to have an overrun of capacity to meet the demand and second, prices had gotten so low that they weren't able to generate the kind of margins to justify building new capacity.

"I can tell you we are looking today at how we approach expanding our capacity to meet the ever growing demand," Zimmer says.