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Agribusiness Idea Proposal (BAYRY, DOW, DD, MON, SYT)

Agribusiness Idea Proposal (BAYRY, DOW, DD, MON, SYT)
 

How will the agribusiness consolidation wave – including Dow/DuPont and Bayer/Monsanto – affect pricing and market share of seeds and crop protection chemicals?

 

Report Available: September 27, 2017

 

Blueshift’s initial research found the seed and pesticide industries undergoing an upheaval as a result of three mega-mergers involving such giants as DD, DOW and MON. When the dust settles, three newly formed entities will control as much as 75% of the market for corn and soybean seeds. The mergers may allow for increased R&D spending that leads to more innovation, but farmers are concerned about the effect on prices from reduced competition. Seed sales are also closely connected to the sale of crop protection chemicals. There may be some opportunities for smaller companies to gain share as a result of asset sales required by regulators to approve the mergers.

 

Observations

  1. DD and DOW expect to close their merger on Aug. 31 and begin trading as DWDP. The companies, with a combined market value approaching $150 billion, would surpass BASFY as the world’s largest chemical maker. Within 18 months of closing, DWDP plans to split into three separate companies focused on agriculture, specialty products and materials. ChemChina’s acquisition of SYT closed in the spring, while the merger of BAYRY and MON is expected to be finalized by the end of 2017.
  2. The companies say the mega-mergers will allow them to pour more money into biotechnology research, leading to more innovation, higher crop yields and better environmental protection. Farmers, however, are worried about price increasesand reduced choices. MON and DD are far and away the market share leaders in both corn and soybean acreage, with more than 60% share between them. The merger would give DWDP about 41% of the market for corn seeds and 38% of the market for soybean seeds. In cotton, a combined MON and BAYRY would control about 70% of the market. When the three big mergers are complete, an estimated three-quarters of the corn and soybean seed planted in the U.S. will be in the hands of the three entities.
  3. The battle for market share in seeds has huge implications for the $55 billion crop protection industry, too. When farmers purchase seeds from chemical companies, that often locks them into buying pesticides and herbicides that have been engineered for those seeds.
  4. The upheaval in the seed and ag chemical industries will also include numerous asset sales required by regulators to approve the mergers. For example, DD has agreed to sell a portion of its crop protection business to FMC, a deal that will propel FMC to fifth place among ag chemical companies in the world with $1.5 billion in revenue. ChemChina’s U.S. subsidiary will sell three crop protection lines to AMVAC Chemical. And DOW has announced plans to sell a portion of its corn seed business in Brazil to a Chinese fund part-owned by CITIC Ltd. (HK:0267) for $1.1 billion.
  5. DOW said sales in its ag sciences segment were up 3% in Q2 to $1.6 billion. The uptick was led by a 6% increase in volume in both seeds and crop protection products, while prices declined 3%. DOW’s results were boosted by a wet spring across the Midwest, a mix shift to soybeans, and more farmers planting Enlist as an alternative trait option to combat herbicide tolerant weeds. DD said Q2 ag unit sales were up 7% to $3.4 billion, with crop protection sales growing 10% and seed sales up 6%.Strong crop protection demand and increased soybean planting in North America drove 8% volume growth, which was partially offset by a 1% decline in prices. MON reported that sales of soybean seeds and traits rose nearly 30% to $896 million in the third quarter of 2017. Record soybean sales were the result of growers planting 20 million acres of MON’s Xtend soybeans in the US and more than 50 million acres of Intacta in South America. At the same time, the company’s largest revenue generator, the sale of corn seed and traits, fell by 6% to $1.49 billion.

 

Which seed companies will gain and which will lose market share as a result of the wave of mega-mergers? Which of the seed providers are likely to lead innovation? What effect will the consolidation have on seed prices? Who will gain and who will lose in crop protection chemicals? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Seed sales people, Crop protection sales people, Farmers/co-ops, and Industry specialists.

 

Companies: BASF SE (BASFY), Bayer AG (BAYRY), Dow Chemical Co. (DOW), E.I. DuPont de Nemours & Co. (DD), FMC Corp. (FMC), Monsanto Co. (MON), Syngenta AG (SYT)

 

Research Begins: September 11, 2017