Good morning, and welcome to Corteva's first quarter 2022 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit, and Robert King, Executive Vice President, Crop Protection Business Unit, will be part of the Q&A session. We prepared our presentation slides to supplement our remarks during this call, which are posted on the investor relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to those discussed on this call and in the Risk Factors section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statement. Please note in today's presentation, we will be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings release and related schedules, along with our supplemental financial summary slide deck available on our investor relations website. It is now my pleasure to turn the call over to Chuck.
Thanks, Jeff, and thank you for joining us on the call and webcast today. Corteva delivered a solid start to the year with double-digit sales and earnings growth in the quarter. Despite pressure from ongoing inflation and supply chain challenges, the team delivered impressive value creation. Every region delivered double-digit organic sales gains, led by strong demand for advantage technologies. Further, the company continued to drive penetration of our leading pipeline with new crop protection product sales of approximately $480 million, a nearly 60% increase over prior year. This was led by products like the Enlist Soybean System, which continues to gain traction in the market given superior performance and grower confidence, and we expect to be on at least 40% of the U.S. soybean acres in 2022.
We are encouraged by the current ag market backdrop and the overall financial health of the farmer. Market demand is solid, evident by the strong position of our order book, and growers are investing in their crop through top technology to maximize yield. We expect these trends to continue throughout the year, given current commodity prices and the fact that productivity on the farm from top-tier seed genetics and yield advantage Corteva products is the best way to manage inflation. Despite robust customer demand, we continue to experience increasing global macroeconomic uncertainty. Similar to 2021, supply chain challenges due to labor shortages, logistical constraints, and COVID-19 impacts are leading to further inflationary trends. This is compounded by the rise of global energy prices, which is adding to the volatility of raw material availability and prices.
Given that we are still early in the growing season in the Northern Hemisphere and the significance of the first half in the agricultural industry, we are maintaining our guidance at this point. In addition, there are significant global macroeconomic and geopolitical considerations. All of this is against the backdrop of strong ag market fundamentals, and we remain constructive on the year and will provide an update on guidance as the year progresses. Turning to the work we kicked off earlier in the year on accelerating the operational performance of the company. In the quarter, we announced that we are moving from a matrix organization to a global business unit model to drive overall simplicity and speed of business while increasing accountability. We have two great global leaders to run these businesses and extract the value potential we see in our premium technologies.
Tim Glenn, who is an ag veteran with tremendous experience to capture the value of our market-leading seed franchise. I'm excited to welcome Robert King to Corteva, given the experience he will bring to the crop protection business to maximize our operational effectiveness and growth potential. This was a critical step for the company, as it now allows these leaders to focus on optimizing the business and operational structure to maximize the customer experience and deliver on growth and earnings potential. This will include prioritizing the product portfolios, the markets we serve, and how we go to market. This will also include optimizing all support costs. This work is well underway, and we will provide updates in the near future on our progress. Now let's go to slide five, where I'd like to provide our insights on the Ag market outlook.
As I said in my opening, Ag fundamentals remain strong despite recent market volatility. We expect record demand for grains and oilseeds in 2022, which we believe will keep commodity prices at elevated levels. We expect this trend to continue for at least the next few years as ending stocks will remain under pressure. Recent volatility has increased due to several factors surrounding production, including the impact on global food supply from Russia's war on Ukraine. This region is vital to providing grain and oilseeds to the world, including countries where food security is critical, leading to further pressure on an already tight global food system. Corteva recently announced our decision to exit Russian operations while also committing to donate commercial seed to countries affected by these issues to help ease food security risk.
Weather is another factor impacting production in key markets like Brazil and the U.S. Dry conditions in Brazil have led to yield and seed production impacts, which in turn impacts supply in that market and keeps seed availability tight. Despite a slow start to the planting season in the U.S., which shifted some U.S. seed deliveries into the second quarter, farmers are very motivated to get the crop in the ground. We are also seeing, for the third time in recorded history, soybean acres outpace corn acres. Dave will provide more details on this later. Grower balance sheets and income levels remain healthy despite increased input costs for fuel and fertilizer. This is leading to customers prioritizing technology for 2022 to maximize return, and Corteva is in a good position to capitalize on this opportunity.
With that, let me turn it over to Dave to provide details on the quarter and the outlook.
Thanks, Chuck, and welcome everyone to the call. Let's start on slide six, which provides the financial results for the quarter. As Chuck said, as you can see from the numbers, we've started the year strong. 2021 organic sales increased 16% with gains in both segments and all regions. Global pricing was up 9% with notable increases in seed and crop protection. Crop protection volume growth was driven by strong early demand in North America and the strength of new products, which delivered approximately $180 million of sales growth year- over-y ear. We delivered more than $1 billion in operating EBITDA in the quarter, a 15% increase from the same period last year. This is impressive performance given the higher costs incurred in the quarter as a result of inflation.
Pricing and productivity more than offset this expected impact, as well as an approximate $160 million currency headwind driven by the Turkish lira and the euro. This improvement translated into almost 100 basis points of margin expansion year-over-year. Going to slide seven, you can see the broad-based growth with double-digit organic sales in every region. In North America, organic sales were up 15%, driven by crop protection on early demand for herbicides, including Enlist. Seed volumes were down versus prior year, primarily due to seasonal timing of U.S. Pioneer brand corn deliveries. Both segments delivered notable pricing gains, a testament to the demand for our technology and our ability to price for higher input costs. In Europe, Middle East, and Africa, organic sales increased 12% compared to prior year, driven by strong price execution.
Local pricing helped to mitigate currency impacts, which was a 13% headwind in the region due again to the Turkish lira and the euro. Demand remains high for new and differentiated products, including Arylex herbicide and Inatreq fungicide, driving 6% crop protection volume growth year-over-year. The region overall performed well in the quarter despite the war in Ukraine that started in late February. Speaking of Ukraine, demand was strong in military-free areas for both crop protection and seeds. We did experience some supply constraints in the country due to logistical challenges of importing product. Our local teams were resilient. They were committed to deliver products and support our customers when able to do so. Farmers continue to plant crops and, per local estimates, many expect more than 70% of Ukraine's spring crops will be planted.
In Latin America, we delivered 26% organic growth with double-digit volume and price gains. Pricing increased 12% compared to prior year, driven by our price for value strategy, coupled with increases to offset rising input costs. Seed volumes increased 11% despite tight supply driven by Brazil safrinha, while crop protection volumes increased 16% on demand for new products, including Isoclast insecticide. Asia Pacific organic sales were up 22% over prior year on both volume and price gains. Seed volumes increased 49% on the recovery of corn planted area from last year's COVID-related impacts. Crop protection organic growth of 13% was led by continued demand for new and differentiated products, including Rinskor herbicide and Zorvec fungicide. Let's now move to slide 8 for a detailed review of Operating EBITDA performance.
First quarter Operating EBITDA increased by $130 million to over $1 billion. As I previously covered, strong customer demand drove broad-based organic growth with price and volume gains in all regions. On costs, we incurred approximately $200 million of market-driven cost headwinds in the quarter, driven by higher seed commodity costs, crop protection raw material costs, as well as freight and logistics. The company realized $80 million in productivity savings in the quarter, which helped to partially offset this impact. Currency was a $160 million headwind, again, primarily driven by the Turkish lira and the euro. Stepping back, focused execution by the organization to meet increased customer demand and effectively managing cost headwinds through pricing and productivity resulted in almost 100 basis points of margin improvement for the quarter. Let's go now to slide nine.
I'd like to expand a little bit more on what we're observing in the current marketplace. Starting with our current planted area assumptions, we are aligned with USDA estimates for a 4 million acre reduction in corn or approximately a 4% decline and a corresponding increase in soybean acreage. Additionally, on planted area assumptions, an important reminder, a 1 million acre shift in the market from corn to soybeans in the U.S. represents an approximate 10 million earnings headwind to Corteva. As Chuck mentioned, we're closely monitoring the pace of planting given the slow start in the U.S. Inflation remains a challenge as we face pressure from rising costs in commodities, energy and raw materials. Operational levers such as pricing and productivity actions are key for us to keep pace with these higher costs. As you saw, the company recently announced plans to stop production and operations in Russia.
Russia represents approximately 2% of total Corteva annual revenue, with approximately 75% of that in the seed segment. For 2022, we expect an immaterial impact from lost revenue. In addition, we expect charges in the range of $25 million-$75 million in connection with this decision, with the majority to be treated as a significant item, therefore will not be included in our operating results. Currency markets have been volatile to start the year as we saw a relatively broad appreciation of the U.S. dollar. An exception to that is the recent strengthening of the Brazilian real. Looking at the second half of the year, the Brazilian real is our largest foreign currency exposure.
While we've largely hedged the BRL with a rate around 5.50, we do have some sensitivity to currency movements and would see a partial benefit from a strengthened BRL. Now, given this backdrop, let's turn to the discussion regarding our outlook. As Chuck covered earlier, we're affirming our full-year revenue and earnings guidance for 2022. As shared last quarter, we expect net sales for the year in the range of $16.7 billion-$17 billion, and we're likely trending towards the higher end of the range. For the first half, we expect high single-digit reported revenue growth. Turning to EBITDA, we remain on track to deliver between $2.8 billion-$3 billion, a 13% increase over prior year at the midpoint. For the first half, we expect mid-single-digit Operating EBITDA growth given the disproportionate weighting of cost headwinds recognized in the first half.
Lastly, we're adjusting our operating EPS guidance to a range of $2.35-$2.55 per share. It represents approximately 14% growth over prior year at the midpoint. This increase is largely driven by anticipated lower share count due to the good start we've had in the first quarter on share repurchases. Let's go now to slide 10. I wanna leave you with some of the important takeaways from today's call. First, of course, market demand is strong, and combined with solid execution, it's led to a great start for Corteva, including impressive margin expansion in the quarter. We remain confident in our ability to deliver 2022. We plan to maintain our track record on capital deployment. We expect to return more than $1.2 billion to shareholders in 2022 in the form of dividends and share repurchases.
Additionally, our balance sheet provides capacity for attractive innovation and targeted growth opportunities. Finally, the company has taken very important steps in its strategic roadmap to accelerate operational performance and drive continued Operating EBITDA margin expansion. More to come on this, and we believe these strategies will further differentiate Corteva and position us to deliver increased value in years to come. Finally, on slide 11, I'd like to provide an update about a significant upcoming event. We're excited to announce that our 2022 Investor Day will be held on September 13th at our global business and R&D center in Johnston, Iowa. The management team will provide updates on the company's strategy, our financial framework, along with a special showcase on innovation in our pipeline. Chuck, Tim, Robert, Sam, and I all look forward to seeing as many of you as possible at this event in September.
With that, let me turn the call back to Jeff.
Thank you, Dave. Now let's move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks in the following Q&A. Operator, please provide the Q&A instructions.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll go first to Vincent Andrews with Morgan Stanley.
Thank you and good morning, everyone. Just wondering if you can talk a bit more about the seed business and help us bridge 1Q with 2Q to kinda get to an understanding of how the first half or the overall season is gonna play out. Maybe to start with the volume push out from 1Q to 2Q because of the late season, you know, how did that impact margins in the first quarter? You know, how will it impact margins in the second quarter? Where do you envision the first half settling out? Then secondly, I'm assuming you're looking for less corn and maybe more soy at this point, depending on what happens over the next couple of weeks. You know, is that the case and is that what's baked into guidance now?
How should we think about the corn and seed pricing in the U.S. for 1H? You know, is what we saw in the first quarter, corn up 6% and soy looked like it was probably negative. Is that what the first half is gonna look like, or it'll be a little bit better or a little bit worse? Thanks.
Good morning, Vincent. Thanks for the question. Look, let me give you a couple opening comments, and then I'll turn it over to Tim to talk about your specifics around the split between Q1, Q2, first half, second half. You know, we're sitting here today in our headquarters in Indianapolis. We've been here all week. It's cool and it's wet. Probably no surprise to many that's been watching the weather, but certainly it's been a slower start to this season than last year. That is impacting our results when it comes to the seed business for certainly for the quarter because of some weather delays here in North America, but also in Europe.
We've got significant market volatility in terms of pricing and the planting decisions that farmers need to make are being impacted by the weather. Tim will walk you through the dynamics. We did mention in the prepared remarks, we've got a very strong order book, and Tim can walk you through that. I just wanna remind, though, the group here, though, that if you look at the longer-term value catalyst that we have, you know, the Enlist seed platform is really performing very well beyond our expectations. We did say we expect 40% of the U.S. acres to be on that platform, and that will set us up nicely next year for meaningful royalty reductions in 2023. Just to call out Brevant, our new multi-channel technology, it continues to perform very well.
We've got very good demand across the channel in that. We are now selling it in North America, Latin America, and Europe, and that is exceeding our expectations as well. Now I'll just turn it over to Tim to talk a little bit about the dynamics we're seeing here in the first quarter and what we expect in the second quarter and the remainder of the year. Go ahead, Tim.
All right. Thanks, Chuck. Good morning, Vincent. Maybe I'll address three points you made there. First is around just the pace of the season in the U.S. Second is pricing, and then I'll touch on the seed margins and what we're seeing there. You know, obviously, as you mentioned and Chuck said, you know, we're off to a slower start than we'd like in terms of the pace of planting in across North America, really. It's wet, cool conditions that have driven that. That was reflected in our first quarter seed sales, where we saw some Pioneer business that did not make it into the marketplace. Remember, how we recognize revenue is we distribute all that seed to our local sales representatives.
They deliver that last mile to the farm gate when the farmer needs it, and that's when we recognize the revenue. It was that last mile to the farm gate that was the issue as we had challenging weather conditions at the end of March. You know, what I would emphasize here is that there still is more than adequate time to get this crop planted, and the economics that farmers are seeing are still very strong. Whether they're gonna plant corn, whether they're gonna plant soybeans, whether they're gonna plant cotton, there's a strong incentive for them to get that crop in the ground.
At this point in time, you know, we're not seeing a switch between corn and soy in terms of farmers switching the crop that they intend to plant. You know, the other thing I'd emphasize is that farmers have a tremendous capacity to plant. It's not unusual when we get into planting season for farmers to be able to plant 40% of a specific state in the matter of seven days. I think as the weather starts to open up here, we're gonna see, you know, a huge push forward in terms of planting activity.
From that standpoint, you know, what we're doing is we're staying close to our customers, helping them navigate the decisions that they're facing in the marketplace, so that they can make the best choice for their operations, and we're there to help meet their needs. In terms of pricing, we did have a strong start to the year, both globally and within North America. In the first quarter, we saw global seed prices up around 8%, corn around 8%, and actually global soy was around 6%. We had good solid start for the year on pricing, and we anticipate that to continue through the first half.
We're looking at solid mid-single-digit growth in the first half that we'll see go forward. Again, you know, farmers have been motivated to plant the best products they possibly can, high-performing hybrids in the case of seed. We've got an excellent lineup of products and clearly, I would also emphasize, you know, we've got a strong, disciplined approach for managing price with our customers and I think have a proven ability to execute in the field to capture value. That's where we're at on pricing. Very optimistic and I think consistent with what our expectations were as we started the year.
In terms of seed margins, you know, what we've seen is clearly some margin compression on the seed side. I'd say most of those headwinds we had expected as we came into the year. You know, in terms of those headwinds, first, you know, we had a higher than expected currency, primarily out of Europe, about $90 million at the EBITDA level, on seed. That was primarily from the Turkish lira as well as the euro. We also did have that impact on margins, that I discussed a little bit earlier, due to the weather impacts, a little bit less corn sold in the first quarter and again, especially on the Pioneer side, in North America.
Finally, the other factor is really unrelated to the operations. We had about 100 basis point impact from an equity adjustment on an investment that we hold, so completely non-related to the operations of the business. I guess I'd pass it over to Dave and anything you wanna add in terms of that equity holding.
Yeah, those are all really good points, Tim. By the way, just back on that currency, you know, you stated dollar terms, but Vincent, for your benefit and everybody, you know, it's over 200 basis points when you do the walk. Now, some of that obviously we expected, you know, in the course of our guide for the year, but incrementally, that turned out to be significant. Regarding the equity investment, we had a loss in the quarter of mark-to-market on a V. This compares to first quarter of 2021 that represented an impact of almost $30 million, or as Tim said, about 100 basis points.
It's a company that we've held an investment, technology based, and have had it for over six to seven years. It IPO'd in the third quarter of 2021, so we're on a mark-to-market accounting now. That's really the background on that. Appreciate the question.
We'll go next to Dave Begleiter with Deutsche Bank.
Thank you. Chuck and Dave, I think you got into Q2 being a little bit below consensus, reaffirming the full year. What's the offset in the back half of the year that's coming in maybe a little bit better than we expected for you guys?
Yeah. David, let me give you the backdrop on sort of our position on guidance, and Dave can talk to the specifics. Look, the ag fundamentals, as we said, are very strong. I think Corteva's had a real solid start to the year. Demand, we are expecting to continue to be strong through the remainder of this year and well into 2023. The other thing we like is the execution of the overall businesses now. You know, our execution has been steady despite the supply chain challenges, the cost pressures we've outlined. I think we're making excellent progress in cost management, pricing and productivity actions that we're taking. It is early. You know, we're sitting here in the early days of May.
The season's a little later than last year. In ag, you have to obviously think about the first half. What we're doing right now is we're reaffirming the guidance. You know, we're very comfortable. We like how the season's unfolding. Now to get to your specific question on sort of how we think about that range and what we think may or may not happen, I'll let Dave kind of give the specifics.
Yeah, I think probably the starting point is what we shared on the call, which is consistent with what we originally provided by way of the 2022 guide, which is given the, call it, the slope of the cost curve over the course of 2021, you know, what we're seeing is that those costs ramp and particularly by the way into the second quarter of this year, we see that ramping, you know, accelerating a bit, and that's built into our guide. On a year-over-year basis, we see the first half, you know, revenue, like we said, high single digits growth, but EBITDA more in the range of mid-single digits growth. Again, that's consistent with the guide that we provided to you previously.
That's just, that relationship is again, just related to the comps in terms of the period-over-period or year-over-year change, particularly on the cost curve that we've seen. Now, the second half, you know, appears to be setting up pretty nicely. That's included in our full year guide in the range. I would say that our expectation is we're likely to be at the high end of the revenue range, and that's again, reflective of what we see and anticipate in terms of ongoing inflation and pricing to offset those cost impacts. Despite those inflation headwinds, you know, we anticipate to be in that range again that we've guided to in terms of the full year EBITDA. The other thing, of course, is we're seeing Brazil planted area improvement.
Tim referenced that a little bit when we were talking about seed. Tim, you may want to comment a little bit more about Brazil. That Brazil planted area is clearly also something that's positive for us when we look at the second half of the year. Tim, any comments you would want to add on that?
No, I think, Dave, you're right. The, you know, clearly there's strong incentive for, you know, continued growth in the soy area in Brazil, and we expect that possibly at the expense of first crop corn. We expect that second crop corn, which is the largest market and most important market in Brazil right now to grow nicely as we go into the 2023 cycle. Very positive about what the outlook is there.
We'll go next to Christopher Parkinson with Mizuho.
Great. Thank you so much. When you take a step back on your CP business, and you look at the growth of, you know, some of the higher margin, newer products, you know, Arylex, Rinskor, Zorvec, so on and so forth, and then also, the pricing you're getting in the vast majority of your geographies, you know, can you just give us a little bit more perspective on how you're obviously, you're still facing some inflationary pressures now, but can you give us a little bit more perspective on how you're thinking about the intermediate to long-term, margin profile of that business? Thank you.
Good morning, Chris. I'll have Robert comment on the specifics, and we're very pleased with the trajectory that we're on. Maybe just a few high-level comments. The CP business this quarter, we saw strength basically across the board. And it's really from customer demand. They're really asking for the latest technology, the new products to drive productivity on the farm. One of the best ways that farmers can help offset the inflationary pressure they're seeing on the farm is to drive productivity. With that, they're gonna need technology.
Our pipeline, as we've talked about, is growing quite rapidly with our new products. When we look at it, we think what's happening in our business is you're starting to see, and it's early days, but you're starting to see the impact of our new product portfolio on our bottom line. Robert will talk to the specifics. The other thing that I'll just call out is, later this year, we will bring up our new spinosyns capacity, late this year. You'll start to see the impact of that incremental capacity and of course, margin that will follow with it late this year and into 2023. We like the set up in the portfolio for the CP business, and that's what I think you're starting to see in the results.
Now, when you think about the inflationary response and how we manage price, but I'd also say productivity in that business. I'll turn it over to Robert.
Yeah, thanks, Chuck. You know, just getting started overall. We do see a high demand and strength across the board for our technology. Supply chain held up this quarter. Held up very well, actually. Moving more than 18% of volume on a year-over-year basis. That's an unprecedented headwind. We're able to keep up and do a good job across the board. The new products that you mentioned there were up 60% on a year-over-year basis, and we really see that's the value creation from our new technologies that the growers want to see.
As we continue to look forward and for the first quarter, you know, pricing and grain gains across the regions really reflect our ability to use price and productivity to offset higher costs. We're confident we'll continue to see these things as we move forward into the rest of the year and with a good start of the year.
We'll go next to Kevin McCarthy with Vertical Research Partners.
Yes, good morning, everyone. Last quarter, you provided a helpful bridge to your 2022 annual EBITDA versus 2021. I imagine you may not be in a position to update every item every single quarter. Nevertheless, can you provide some thoughts on three bridge items? Your productivity goal, your net foreign exchange as it's tracking today, and then the cost headwinds that you foresee in both seed and crop protection for the year?
Yeah. Kevin, I can give you a little bit there. I may ask you, given the list that you just went through, for a little bit of a reminder of each item that you had on that. Let me talk a little bit about the bridge and the update on the bridge. I mentioned that just a little bit earlier. It's sort of embedded in what we've assumed in our guide. I think the most important thing is the fact that we see inflation continuing, and that impact is gonna be particularly felt in terms of our costs. It's gonna be particularly felt on the Crop Protection side. The assumption is, in the guide that we've given you, that we expect to be at the higher end of our revenue range.
That's $16.7 billion, closer to $17 billion in terms of the full year outlook. It's really based on inflation and then pricing. You know, that's really sort of fundamental. If you looked at that EBITDA bridge, it's really those two items that are increased on a prior guide to now update here at the end of the first quarter. Second, with regard to foreign currency, as we mentioned, we have fairly significant impact to foreign currency. If you look at total Corteva, as you know, it was about 220-225 basis points of impact in the first quarter. Currency is going to abate to some degree as a percent, as an impact as we go through the year. There's two things there.
One is just, again, the comparables compared to the prior period, which get a little bit easier on the currency side. The second thing is that we have some potential for some improvement on the BRL, the Brazilian real, compared to our assumption. We're hedged currently at 5.5 0 in the second half. As you know, the real is closer to 5.0. I think it's a little bit below 5.0 today in terms of where it is trading. We have some potential upside there against what we've assumed. Then on the cost piece, I think was the third component of what you asked about. Let me say two things that I think are very important.
Number one, again, Robert emphasized this in his response to the earlier question, is that we are because of our advantaged technologies, we are able to price against the costs that we're seeing in the marketplace. That's very, very important. We expect, again, those cost headwinds to continue over the course of the year. Second thing I would mention on the cost side is the productivity that we're seeing on the SG&A. I mean, wage inflation is in the headlines everywhere today. We're experiencing the same kinds of pressures. The reality is, you'll see this in the financial backup to our earnings release. The SG&A, we've been able to hold flat on a period-over-period basis, which is, I think, quite impressive.
Despite, by the way, underlying bad debt accrual increases, we normalize that over a very favorable set of conditions in 2021.
That's the other thing that you should be aware of, is it's not just the, l et's call it cost of goods sold management that we're doing, both productivity, as well as pricing to offset inflation impacts. We're also managing, if you will, the below-the-line, the support costs as we look over the course of 2022. By the way, something that we think is also gonna serve us well as we set up for 2023. Thanks for the questions.
We'll go next to P.J. Juvekar with Citi.
Hi, this is Patrick Cunningham on for P.J. Good morning, everyone. With the current run-up in corn prices, what does that mean for your seed costs next year and pricing next year, given that this season's pricing was fixed back in the fall? Also, how much of your corn production is hedged for next year? Thanks.
Tim, do you wanna take that?
Yeah, I will. Obviously, we're, you know, worried about getting the last 85% of this season's crop in the ground, but we are working hard on 2023. In terms of COGS, you know, obviously, commodity price is one of the most important factors that impacts seed COGS. We're looking closely at that right now. You know, there is clearly gonna be a headwind on a year-over-year basis. There's no question about it. It's not as simple as saying the commodity prices were X and now they're Y and extrapolating that because there are a number of factors, including the hedging approach that we have that have an impact on that. We're in the process of sizing that up.
I would say we're probably not prepared to share what that increase would be, but we're working on that as well. In terms of how we manage that, you know, we're in the early stages of putting together our total plan for 2023. The commercial organization has finalized what the mix of products are that we're gonna be bringing to the market in 2023. We're in the process of planting our seed crop for this year that will be in the market in 2023. Obviously, we're in the same situation as farmers in terms of wanting to get that in the ground. Finally, we're developing our market offer in terms of price and programs.
Way too preliminary to get into the specifics around that. Underlying, we continue to expect there to be favorable economics for our farmer customers, so demand for premium products is gonna continue to be high. We also do have a strong record of capturing value for our technology. We have products that growers want, and we have strong execution in the field. We know that our key levers that we have to deal with those escalating commodity prices, you know, clearly productivity is a big part of that, and we're constantly working to get the most efficient operations we can, but also pricing. Again, we're working on sizing that up.
We're confident that as we go into 2023, we will be able to cover our cost headwinds in terms of commodity, either through productivity or pricing, and that it will be accretive to our underlying margins for seed.
We'll go next to Joel Jackson with BMO Capital Markets.
Hi, this is Alex Chen on for Joel Jackson. Thanks for taking my question. With respect to higher crop prices and inflation, how are you seeing farmers' demand change, with respect to crop chemicals? Are there any particular buckets of products that demand is seeing stronger or weaker trends, and maybe why? If you can maybe elaborate on when you expect costs to flatten out for crop production? Thanks.
Hi, Alex. Good morning. We'll ask Robert to answer that question for you.
Yeah, Alex, thanks for the question. You know, when you look at our portfolio and what we're doing, you're beginning to see the new products starting to show up in the marketplace. That technology again is being something that's adding value to the farm gate, so it helps the farmers be much more productive. In terms of what would we see moving forward, you know, we're working heavily on a robust pipeline to continue to move this forward. As Chuck mentioned earlier, our spinosyn manufacturing is under expansion, and we'll finish about 50% capacity increase there as well. Overall, we're gonna continue to balance this thing moving forward with price and productivity for the rest of the year in the crop production area.
Tim, you may wanna add a few things for seed.
No, I think just to build off that, Robert, I mean, clearly we got a very strong preference for customers for, again, the products that are gonna make them money and you know, we always have a strong mix that's on the premium side, and I think that's reinforced here. You know, the other element that we're looking at as we go into 2023 is what's the mix of crops that are gonna be planted as well. We would anticipate that'll continue to shift as we go into 2023 and will be somewhat dependent upon what ultimately gets planted in 2022, but also what's produced in other parts of the world. We're gonna look heavily at that.
You know, as you sit here today, you would say that the mix for 2023 is maybe favoring corn a little bit more than what we saw as we came into 2022.
Just Alex, on this backdrop, look, we said that the fundamentals are going to be quite strong. Really, if you look at crop commodity prices, what it's telling us is that the world needs to produce more food.
Yeah.
We not only need you know, we're talking about a mix here, which is important, but we need more acreage to be put into production. Of course.
We need technology to drive productivity yield on every acre we have. There seems to be a shift underway to take the top technology in terms of genetics and traits for seed. Of course, the top technologies in CP to drive every last bushel per acre. We think that this will continue. If you look at farmer economics around the world, things are quite robust. Farmers are in a good financial position. In fact, if you look at the U.S. farmer, the predictions are that this year would be a record revenue year for U.S. farmers, and I believe the second most profitable in the last decade. There's high motivation, as Tim mentioned, to get that crop in the ground, and then to protect and grow that crop.
I think what you're gonna see that we're very well-positioned as an integrated company to catalyze it on that trend, but also to help farmers drive productivity sustainably.
Chuck, maybe just one other thing. Robert, maybe just one other thing, and it's sort of embedded in our responses. Part of the question, obviously, had to do with the cost and over time inflation outlook. Our expectation, when you look at the leading indicators, all of those are pointing to continued inflation. We're not counting on some kind of meaningful abatement anytime soon. One of the things that Robert is obviously, and his team is very focused on, is the resiliency of our supply chain. I have to say, in any metrics that we've looked at, any comparative data that we've looked at, ours ranks very strong.
We're seeing that in terms of delivery, in terms of the results that, you know, we're achieving as well, particularly when you think about all the geopolitical pressures and other things that are going on in the world. That's also underlying in terms of what we're focused on.
We'll go next to Steve Byrne with Bank of America.
Yes, we'd like to drill into seeds a little bit more here. You reported your corn seed price up 6%-8% and soybean up 6%. Given your Pioneer business, you would know exactly what your customers are ordering. My question for you would be, how much of that 8 and 6, or maybe zero just in North America, but how much of that would you say is like for like price increase versus a mix shift up the price card? Are you seeing your customers you know change the genetics what they're planting a little more than they have in the past? Would you expect them to perhaps do even more of that in 2023? One quick one.
Your EMEA corn seed pricing gains were pretty significant. Can you just comment on how much of that seed business is transgenic?
Yeah, Steve, thanks for the question. In terms of mix of products, you know, what I would say is, you know, the price level we're capturing is very similar to what we would have taken to the marketplace in terms of our price card movement as we came into the year. You know, I guess two parts to the question in terms of North America, you know, is there a major shift in terms of the trait mix? I would say generally not. You have these modest shifts on a year-to-year basis in terms of our trait mix. Question on genetics, absolutely. Farmers are always looking to plant new and better genetics.
Typically, you know, think about our turnover every year in our lineup, we have 20%-25% of our seed lineup would be new and improved genetics. As Chuck said, as Dave said, that productivity that farmers are striving for in their operations, largely that's gonna come from those new and improved genetics. I would say that is clearly something we're seeing this year, but we see that every year just because it's that pursuit of that next level of productivity. You know, it's a great start to the year. I think very consistent with what we expected, and I wouldn't say that it was mix-driven.
It was really driven by the fact that we came out with a, you know, strong lineup of high-performing products, and we were able to capture the value and feel very good about where we sit there. In terms of Europe, specifically on the price side, very, very limited seed in EMEA would be transgenic. Very small amount in Spain would be transgenic. So that is nearly all non-transgenic seed. Again, the same dynamic around new and improved genetics is at work there.
I would tell you to some extent, Europe is a little bit impacted because of the Turkish lira, and so you're getting a little bit more pricing there because, you know, we're aggressively pricing that severe devaluation that we faced in Turkey, and so that's skewing the numbers in Europe a little bit there. But the same approach to capturing value for our high-performing genetics is very good. We feel good as we roll out of North America and move into the rest of the world for the rest of 2022, that we're gonna continue to see that call it mid-single digit, good, strong mid-single digit growth on seed throughout the year.
We'll go next to Michael Piken with Cleveland Research.
Good morning. Just wanted to dig a little bit deeper on the soybean side. You mentioned that Enlist might be about 40% of the acres. I'm curious what percentage of those acres are actually gonna be sprayed with Enlist herbicides?
Secondarily, if you could talk about, you know, how the transition toward Pioneer-bred Enlist genetics is going for this year and what your target is for next year. Thanks.
Yeah, great question. Let me take. We're still, you know, really excited about the adoption of the system. I would say as we sit here today, again, with a relatively small amount of the crop planted, we're holding to that original guide around at least 40% of the U.S. soy acres will be planted with an Enlist E3 variety. That holds steady. Why we can't update that right now is we only have so much visibility to what the 100 licensees are in the marketplace, what they're ultimately selling, and we'll have a much better understanding of what ultimately went in the ground as we get past the midyear and after the planting season. Feel good about that.
In terms of the adoption of the Enlist herbicide and really getting the full value of the system, we're over 80% treated with the Enlist herbicide, so really high utilization. Again, I think that goes to the value that customers are seeing. You know, it's three seasons really into Enlist E3 soybeans and you know, we can confidently say when you look at the seed adoption as well as utilization of the chemistry, you know, it's become a very trusted option for growers, and growers see it as a go-to option and we don't see that slowing down.
You know, your question around genetics and where we're headed here. I mean, this is gonna be a really important season for us, and we're gonna be doing extensive demonstration trials of a new class of Corteva-developed E3 varieties that we anticipate ramping up for 2023. The question is, your point is, when are you gonna see it? I think you're gonna start to see that in terms of demonstration in 2023 or 2022 in the field in anticipation of a significant move in 2023.
you know, and again, once we get through the planting season, you know, we'll be in a better position to update that 40% number for planting of E3 seed, but feel very comfortable that we'll be at least at that level and again at that high utilization on the chemistry system.
We'll go next to Joshua Spector with UBS.
Good morning. This is Lucas Beaumont in for Joshua Spector. I just wanted to go back to crop protection pricing a bit if we could. I mean, yours has accelerated kind of double digits. I mean, in the market more generally, we're seeing fragmentation sort of where certain products are up, like, very significantly and others more modestly in the normal kind of mid-single digit range. Can you discuss sort of the mix in pricing you're seeing across your portfolio and then just how you think the overall CP pricing will evolve through the rest of 2022? I guess just lastly, like, when are you kind of expecting pricing to peak now this year, given it's already quite elevated? I mean, do you think it will accelerate or decelerate kind of into the fourth quarter?
Sort of roughly what you think your exit rate will be. Thank you.
Yeah, Lucas Beaumont, this is Robert. Thanks for the question. Yeah, we did have a good start in Q1, and thanks for recognizing the margins. You know, as you look at where we are and as we're moving forward here, you know, we're in an improvement process. Our new products are starting to show up, as we've talked about quite a bit. This mix is helping us not only with the farm productivity, but with the value that you're seeing and it's getting pulled forward. When you begin to look at the rest of the year, we do expect to have some headwinds.
As you know, in the Crop Protection, our business, will shift to the south into Latin America, so their mix will be a little bit different. We got new products coming on, like the spinosyns we talked about earlier, and we think that some of these things are gonna help improve our offerings around the world and specifically into Latin America. We're gonna continue to balance inflation with cost increases with price and productivity to help offset those. Overall, we expect margin to hold across the year.
We'll go next to Frank Mitsch with Fermium Research.
Hey, good morning. Looking forward to Iowa in September for sure. Since last conference call, you guys have made the move to one single headquarters in Indianapolis. You've spoken about, you know, the new organizational structure and also mentioned, you know, that you're, you know, optimizing the costs, support costs and so forth. I was wondering if you could kind of size how we should be thinking about the productivity improvements for the company and, you know, sort of how the pace of that layers in over this year and next year?
Yeah. Hi, Frank. Look, let me give you where we are. I'm probably not gonna answer your question directly today. You need to come to Johnston, Iowa, and you'll get that answer in September. Let me just kind of frame the journey that we've been on. Look, I said this before when I started with the organization, but overall, I'm very pleased with the strategic direction of Corteva. I do believe that the company is quite uniquely positioned when you look at our products and our brand portfolio, the innovation pipeline, but more than the innovation pipeline, the science and innovation competencies and capabilities that we have in Johnston and here in Indianapolis. Of course, Tim mentioned it today, our customer and channel reach is truly unprecedented.
The work that we're focused on right now is really we're gonna provide a little bit more clarity in September on the strategic direction, but I'd say it's tweaking. It's really clarity around what we will focus on and what we won't focus on.
We're gonna try to really, with the organizational changes we've made to move to two global business units, we're really trying to drive accountability into our culture. Streamlining and simplifying the product portfolio will be the next effort. That effort is well underway right now, where we're looking at the global portfolio, we're looking at where we operate around the world, and we're trying to make the decisions on how do we enhance performance and drive speed of business. That work is progressing very nicely. By the time we get to the September investor and innovation session that we're planning, we'll be able to give you at least a view on the operational and financial journey that we believe the company will be on.
By that point, we will have made some other decisions. Of course, the important part of September will be, and the reason we're having it at Johnston is we'd like to demonstrate some of our technology. We're very proud of what we've been able to build over the last several years. I think it's time that we sort of start sharing more of that with our stakeholders. Stay tuned.
Our last question comes from Arun Viswanathan with RBC Capital Markets.
Arun, maybe, operator, you can go to the next. Is there another question? We can't hear Arun.
Okay, we'll go to our next caller from Adam Samuelson with Goldman Sachs.
Yes, thanks. Good morning, everyone. So maybe coming back to just the earlier discussion on Enlist and the move of that into the higher-end Pioneer germplasm. Can you just help us think about the sort of market share for the higher-end Pioneer germplasm, where it sits today? Has that been something where maybe there's been a little bit of loss of market share because it has the Xtend trait in it that you're no longer prioritizing and that is gonna see a pretty meaningful shift next year? Just how we think about rebuilding that market share for your own germplasm in soy that includes the Enlist trait moving forward?
Yeah, Adam, good question. You know, I would say that you know, the products that we're selling today are high value, and Pioneer has been very supportive of Enlist E3. This isn't about all of a sudden Pioneer is gonna be in the game with Enlist E3. You know, our overall reach in the soy market with our brands is somewhere in the call it in the mid-30s would be what our brand share is, and the majority of that would be in the Pioneer side. Clearly, you know, we've got a strong reach in the marketplace with our own seed brands, and we've got over 100 licensees that are in the marketplace selling Enlist E3.
It's a material move and as you know as we ramp up our proprietary genetics it's gonna have a strong impact not just in terms of I think the performance of our products and the experience that our customers receive but it's also gonna have very positive impact on our financial performance as well and the underlying financial health of our soybean seed business specifically and also our overall seed business. A strong move forward as we move into 2023.
Okay. That concludes today's call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day. Thank you.
This concludes today's conference. We thank you for your participation.