In 2023, the pesticide market as a whole operated within a destocking and downward‑trending cycle; by the fourth quarter of 2023, this destocking phase was nearing its end. We are optimistic about an upturn in the pesticide sector in 2024. Furthermore, in terms of cyclical resilience, we believe that factors such as deglobalization, geopolitical tensions, and climate change will boost both sovereign nations’ and farmers’ willingness to stockpile and plant grain, resulting in relatively strong demand rigidity for pesticides over the next two to three years.

Demand remains relatively inelastic, and market concentration will continue to rise.

In the long term, demand for agricultural pesticides is positively correlated with population growth. According to World Bank data, the global population reached 7.832 billion in 2020 and is projected to hit 10 billion by 2050. As populations expand and economies develop, global food demand continues to rise. However, constrained arable land and environmental changes pose significant challenges to food production. To enhance productivity, pesticides are an indispensable input. Consequently, as rising population drives greater food demand, pesticide consumption is expected to increase, thereby supporting steady expansion of the pesticide market.

In the medium term, amid de-globalization and geopolitical tensions, demand for agricultural chemicals remains relatively inelastic, while supply-side structural reforms continue to gain momentum, boding well for the sector.

First, global food security concerns will drive increased demand for agricultural pesticides. Both Russia and Ukraine are major grain producers and exporters, with abundant supplies of wheat, corn, barley, and oats, making them pivotal players in the world’s grain trade. The Russia-Ukraine conflict has significantly impacted both countries’ grain production and trade, delivering a substantial shock to the global food supply chain. Moreover, since 2020, the ongoing global health crisis has adversely affected food production and supply, while the rising trend of global warming, accompanied by more frequent extreme weather events, further threatens food security.

Affected by frequent extreme weather events and the Russia-Ukraine conflict, global crop production declined in 2022. According to data from the Food and Agriculture Organization of the United Nations, global cereal production totaled 2.789 billion tonnes in 2022, down 1% year on year; global coarse grain production reached 1.469 billion tonnes, a decrease of 2.7% compared with the previous year.

Accordingly, in the medium term, amid deglobalization, geopolitical tensions, and climate change, major global economies are placing increasing emphasis on food security, leading to a rise in farmers’ enthusiasm for grain production and a relatively rigid underlying demand for agricultural chemicals.

Secondly, supply-side structural reform is expected to further boost the concentration of China’s domestic agrochemical industry. China is a major global producer of agrochemical intermediates and generic active ingredients and formulations, yet overall industry concentration remains relatively low, characterized by a “large industry with small enterprises” structure. Since 2017, the deepening of supply-side structural reform has created significant opportunities for the agrochemical sector. According to data from the National Bureau of Statistics, China’s production of chemical pesticide active ingredients peaked at 3.78 million tons in 2016 but declined to 2.50 million tons in 2022. Going forward, as China’s environmental and safety standards increasingly align with those of developed countries, outdated production capacity is likely to be phased out, and leading, advanced companies such as Yangnong Chemical are poised to benefit from the continued rise in industry concentration.

(Data source: Compiled from publicly available information)

As the chill of 2024 gradually dissipates, economic conditions are set to improve.

At present, we believe that the destocking of pesticides is nearing its end, and the chill in the pesticide market is gradually dissipating.

Under the impact of global health security events, logistical disruptions led downstream pesticide buyers to proactively replenish and build up inventories. By the fourth quarter of 2022, as pandemic-related shocks and logistics risks subsided, coupled with elevated inventory pressures, market demand for pesticides declined sharply, triggering a destocking cycle.

As of late November 2023, the agrochemical sector has been mired in a downturn for more than a year. By March 2024, opinions remain divided on how far inventory destocking has progressed. Meanwhile, we have detected relatively optimistic market signals: the chill in the agrochemical market is easing, with conditions steadily recovering and resilience expected to improve.

It is worth noting that formulation‑stage companies are closer to downstream markets than active‑ingredient producers; formulation firms are typically the first to sense shifts in market conditions, whereas API manufacturers tend to react with a lag. China’s leading agrochemical brand and formulation exporter, Runfeng Co., Ltd., saw its first‑half 2023 results decline year over year amid the broader downturn in the agrochemical sector, but its third‑quarter report for 2023 already showed a clear recovery.

Latin America and the United States are the largest overseas demand markets, and their performance reflects the overall health of the global market. Turning first to Latin America, Chinese customs data show that in the first two quarters of 2023, China’s pesticide exports to Brazil and Argentina declined year-on-year by 68% and 49%, respectively. However, in the third quarter of 2023, growth turned positive, with a year-on-year increase of 12%—even though this was driven largely by volume rather than value. We nonetheless interpret this as signaling that inventory levels in the Latin American market have largely returned to normal and that demand has shown a fairly pronounced recovery.

Inventory destocking in the U.S. market has been relatively slower. According to publicly available data, as of September 2023, factory inventories in the U.S. agrochemical sector remain elevated but are lower than the level recorded during the same period in 2022 and are trending downward. Typically, the first quarter marks the peak of inventory reduction in the U.S. agrochemical market; accordingly, we expect the U.S. market to return to more normal levels by the end of the first quarter of 2024.

In addition, we have observed a rapid decline in the inventory of glufosinate‑ammonium technical grade and a corresponding rise in prices, which to some extent reflects the current pesticide market’s high sensitivity to supply and demand. Overall, we believe that the pesticide market is now nearing the end of its destocking phase, with conditions expected to continue improving. Moreover, stripping out the noise from the inventory cycle, demand for pesticides remains relatively resilient amid de‑globalization, geopolitical tensions, and climate change, while supply‑side structural reforms on the production side are steadily advancing, gradually outlining the contours of the next upturn in the pesticide cycle.