The recent quarter has seen a significant rise in global crop prices, with wheat experiencing a remarkable increase of 30 per cent year-on-year. This surge was noted in a report released by Jefferies, which highlighted that prices for key crops such as soybean and corn also rose substantially, by 22 per cent and 19 per cent, respectively.

According to the report, these price escalations in crops were primarily driven by supply chain disruptions in the Black Sea region and ongoing conflicts in the Middle East. As a result, the upward trajectory of wheat, soybean, and corn prices reflects broader market tensions that have impacted agricultural supply lines.

Despite these increases, the report indicates that the anticipated effects on demand for agrochemicals have not materialised. This divergence is seen as concerning for agrochemical manufacturers facing their earnings assessments for the September quarter.

Weak Agrochemical Demand Amid Increased Crop Prices

While global crop prices are on the rise, the corresponding demand for agrochemicals remains disappointingly low. This trend has been particularly evident in China, where crop protection export volumes reportedly fell by 15 per cent year-on-year in the second quarter of FY27. Such a sharp decrease follows approximately two and a half years of steady growth, suggesting a downturn in global demand for these products.

Jefferies underscores that this ongoing weak demand has implications for the revenue forecasts of Indian agrochemical firms. The report anticipates that companies like PI Industries will experience an 8 per cent decline in revenue compared to the previous year, with earnings before interest, tax, depreciation, and amortisation (EBITDA) projected to decrease by 30 per cent, attributed to reduced exports and lower domestic demand.

Similarly, UPL is projected to witness a revenue decline of 5 per cent, alongside a 6 per cent decrease in EBITDA as demand for crop protection products remains flat. The impending earnings for these companies are under significant pressure from weak market conditions in both domestic and international arenas.

Expectations for the September Quarter Earnings

The forecast for the September quarter suggests that the challenging demand environment will adversely affect agrochemical manufacturers in India. With reduced rainfall impacting agricultural output, Indian firms are likely to report diminishing sales volumes. Jefferies expects UPL to experience double-digit declines in sales volume primarily due to the weak monsoon season, while the company’s revised inventory strategy is anticipated to adversely impact Latin American volumes as well.

The report highlights that even with global crop prices stabilising and supply chain challenges easing, agrochemical companies are still grappling with a tough demand landscape. The lack of alignment between higher crop prices and a robust demand for agrochemicals raises questions about the future profitability of these manufacturers.

As the industry approaches the end of the September quarter, stakeholders are keeping a close watch on these developments. The interaction between crop prices and agrochemical demand will be crucial for forecasting company performance and market dynamics in the upcoming months.

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