April 4, 2008
When Monsanto announced it had raised prices for Roundup herbicide to unprecedented levels early this year, many producers grumbled that the company was taking profits at their expense as commodity markets surged higher.
Monsanto says the price hike was necessary to ration supply for Roundup, which contains the active ingredient glyphosate, which was in short supply among Monsanto's generic glyphosate competitors.
In a press briefing with news media in late February, Jim Zimmer, vice president, U.S. branded business for Monsanto, said that global demand for glyphosate “has been accelerating faster than the ability to supply it. We wanted to take care of our Roundup Ready crop growers. They've made a commitment by spending money for technology fees, and we want to make sure they have the product they need.”
Monsanto said the shortage of glyphosate among generic suppliers of the product started to surface about a year ago when China, one of the world's largest suppliers of glyphosate, decreased production due to higher fuel costs, competition with metropolitan areas for energy and stricter environmental guidelines imposed by the Chinese government.
In addition, Monsanto said glyphosate supplies that might have been available from China have instead been sold to foreign markets that have bid up the price, such as Brazil and the European Union, which also figured into the U.S. shortage.
These factors pushed the cost of the active ingredient in glyphosate prior to shipping from China from $7 to $24 per gallon on an equivalent gallon basis.
Zimmer said that that due to the problems in China, generic competitors receiving product from China came under pressure to supply the growing U.S. market, “which has put a lot of pressure on our supply.”
Zimmer said Monsanto was forced to raise prices to slow down offtake because it didn't want to be in a position where it couldn't supply Roundup to a farmer with a Roundup Ready crop. Monsanto says it also hopes to slow down incidental uses, such as applications on rights of way and fallow ground in western wheat areas.
“The most recent (price hike) caught farmers off guard mostly because of the amount we've had to increase it,” Zimmer said. “Clearly, farmers are concerned about increased input costs. Anytime a farmer sees a hit to his costs, we don't like it. If farmers aren't successful, Monsanto is not going to be successful long-term because our business is working with farmers.”
Some farmers, as well as some generic glyphosate suppliers, believe Monsanto has “cornered” the market by purchasing large amounts of Chinese glyphosate or buying Chinese manufacturing facilities outright and shutting them down to reduce supplies.
Zimmer said Monsanto does not purchase glyphosate from China, nor does it produce glyphosate in China. “All our the Roundup that we supply to farmers in the United States comes from our two manufacturing facilities in Luling, La., and Muscatine, Iowa. Those two plants run at 100 percent of capacity. So all of the Roundup we have available for U.S. farmers comes from those two facilities, and they are running as fast and furious as they can to produce all they can.”
During the press briefing, Monsanto said that it plans to increase supplies of the Roundup brand by more than 20 percent in the United States for the 2008 growing season.
Zimmer said the company did not ramp up production earlier in the United States in anticipation of the shortage because “our competitors had plenty of capacity, so we didn't want to have an overrun of capacity. And prices of glyphosate had gotten so low that it wasn't a profitable business venture for us to increase capacity.”
Monsanto has supply agreements with a number of generic companies “for a portion of their total glyphosate needs for technical material (the unformulated active ingredient). According to Zimmer, “A lot of those are long-term contracts, so we're not in a position to shift product from one of those agreements over into our brands. A lot of their product comes from other suppliers.”
According to the John Jordan, owner of the Hide Group, a generic products supplier in Sardis, Miss., the limited volume of glyphosate he receives annually from his supplier has not been reduced, although the price of it has more than doubled. Jordan did not disclose the source of his product.
Jordan says his customers “are pretty upset with Monsanto. They've heard all kinds of reasons for the price hike, from the Olympics in China to Monsanto buying up all the technical material in China. But I don't think Monsanto buys any technical material in China.”
One Midwest generic distributor, who requested that his name not be used, started purchasing glyphosate in August 2007, when he found out that a shortage was imminent. “I wasn't trying to make a killing on it. I was just trying to get the product out into the country. But in September, it became difficult to even get product.”
However, he continued to receive glyphosate and as of mid-March was selling it for $29.45 a gallon, compared to “$10-something” last year. At the same time, in one location in west Tennessee, glyphosate was selling for $41.50 to $59 a gallon, compared to around $24 a gallon last year.
According to Dan Hinderliter, non-selective brand manager for Syngenta, the company planned for significant growth for its proprietary glyphosate product, Touchdown, which is labeled for use on Roundup Ready crops. “But there's not enough to compensate for any potential shortage.”
While Hinderliter agrees that the supply and demand for glyphosate is likely to shift again in the future, “we're never going back to the days when glyphosate is as cheap as it was. The world has changed, and there are no places in the world where you can produce glyphosate that cheaply anymore.
“The question on everyone's mind is how the higher prices will affect glyphosate use. I believe the use of glyphosate will continue to rise, but we will have to use other products with it. It could change the dynamic quite a bit.”
Hinderliter believes there is more glyphosate “in the channel today than there was a year ago at this time. That doesn't mean there's more overall. This year, people have bought early.”
Monsanto says it is looking into how it can expand capacity in the future to meet the ever-growing demand for glyphosate. But it continues to fight a perception problem among growers.
“I'm not peeved at them (for raising prices), because I'm a businessman,” said Alamo, Tenn., cotton producer Jimmy Hargett. “But doing it wham-bam one morning bought them the wrong kind of attention. We get up in one morning, and they've gone up $18 on the price of glyphosate.
“I can understand fuel costs in China's manufacturing plants and the state departments using glyphosate on rights-of-way. What I told Monsanto was they should have started talking about it three months ago. Communication has been the biggest problem with Monsanto. They should have told us that glyphosate has a chance of going up because of these reasons. Then, if it went up, farmers wouldn't be so disturbed.
“Business always works better with a clear understanding on the front end. Nobody today understands why they went up, except they think it's because the price of commodities have gone up.”
Kevin Eblen, Delta and Pine Land lead for Monsanto, said the company communicated with dealers and distributors about the possibility of a price hike over the past year, but acknowledged that it should have been more proactive in communicating directly with growers. “It has been an emotionally-charged issue.”
For at least one Mid-South producer, the rate hike might have a long-term benefit. “I hate it that the price went up, but it may be better in the long run because it could make growers look at other mixes and other chemistries,” said Mississippi cotton producer Justin Cariker. “They won't be just throwing three to four shots of glyphosate out there, now they may be using something else.”
Eblen noted that rising glyphosate prices will likely have more of an impact on cotton producers than grain producers since farmers use up to twice as much glyphosate in cotton than in corn and soybeans. “But I still think it's important to know that our pricing for Roundup is still below what it was 2001.”
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