Corteva, Inc. (CTVA) Earnings Call Transcript & Summary

And now let's get to today's keynote session. Yesterday, we took an in-depth look at the end of the food chain with a discussion on e-commerce, consumer packaged goods, including a discussion of leading experts from Shift, C&S Wholesale Grocers and McKinsey. This afternoon's keynote presentation, we're going to focus on the beginning of the farm to market chain: Seeds and Crop Protecting chemicals. We're very pleased and honored to have Jim Collins with us again at the conference. Jim is the CEO of Corteva Agriscience, which just under a year ago spun out of the merger of Dow and DuPont's agricultural businesses. Corteva is a top 2 global supplier of seed technologies, including the iconic Pioneer branded products and is also a top 4 global producer of crop protection. Joining us from Wilmington, Delaware, Jim oversees an R&D heavy team producing leading edge in diverse Seed, Crop Protection and digital agriculture solutions. Years and decades of effort are bearing fruit too now for Corteva and has started to launch a meaningful biotech seed trade presence that growers are very excited about. I'm really looking forward to the session. And right now, I'm pleased to introduce our moderator and senior analyst, Joel Jackson, who has covered chemicals and fertilizers as part of our Equity Research Team for over 12 years. Joel, over to you.

Thanks, Dan. So as one of the leading Ag Chem producers in the world, Corteva is obviously well positioned to speak about this data farming, ag inputs, crop economics and the R&D and technological advances that are changing the way growers farm. No doubt there remains challenges in ag with crop prices remaining restrained and farmer sentiment near bottom, uncertainty with Chinese ag produce commitments and near-term reductions to ethanol-related corn demand as well as currency volatility. There's also much to look forward to from Corteva with a continued realization of merger synergies from the Dow and DuPont's ag businesses, an attractive Crop Protection pipeline as well as the excitement around the company's seed trade portfolio. As Dan said, we're very excited to be joined here by Jim Collins of Corteva. So I'll walk through this. After his brief presentation, I'll conduct a Q&A session with Jim. Please submit your questions as usual on the app. Sorry, my camera is off. It's back on now. And Jim, we'll turn it to you. Thanks.

All right. Great. Joel, can you hear me okay?

I hear you. If you can see me. I can hear you. There you go.

There you go. Fantastic. Well, look, thank you both for the warm introduction. It's a pleasure to be able to participate, albeit virtually, in the Farm to Market conference this year. And as you said, I've been to this conference several times in the past. And I always enjoy the interactions and a chance to spend an earnings improvement relative to that same period last year. Our differentiated route to market, superior product performance and solid in season sales execution and supply chain resiliency drove broad-based first quarter outperformance relative to our competitors. Now coming into the year, we expected to see less turbulence than a year ago in these agriculture markets. As you recall, last year, we dealt with some unprecedented weather-related disruptions in North America. There was a trade dispute going on with China. We had African swine fever. We had raw material cost pressures, and we had a currency -- significant currency devaluation last year. So although we did not expect to be in the middle of this global health and economic crisis, our teams around the world have shown amazing, extraordinary resilience to support our customers in the face of these new challenges, keeping us on track by responding aggressively to this current situation. Our global response has included taking swift actions to ensure the health and safety of all of our employees, accelerating the use of digital technologies like we're using here today to support our customers and stay connected as an organization and driving aggressive spending actions to enhance our operating leverage and our liquidity position. Our overall resiliency is evident in the operating results that we achieved through the first quarter and the momentum that I believe we have built for the first half. In Crop Protection, we delivered organic net sales growth in every region and across all product segments. For example, we realized 11% organic net sales growth in herbicides, led by new products such as Arylex and Enlist. In Insecticides, we grew 4% as growth from our investments in our differentiated Spinosyn offering and the continued ramp of Isoclast more than overcame the impact of phasing out Chlorpyrifos in our portfolio. As I look at Seeds, the North American market rebound and early demand in Europe really drove our first quarter results. North American organic net sales were up 41%, supported by a 37% increase in volume and a 4% improvement in price due to new product introduction. We are aggressively ramping up Qrome corn products which are expected to be approximately 20% of our lineup in 2020. This is also the launch year for Lumialza seed treatment, our new proprietary bio-based nematicide, which is also supporting our price improvement. Considering the mix benefit from all of this new technology, we expect to drive low single-digit corn price gains year-over-year in our Pioneer and multichannel brands. In soybean seeds, though early in North America planting window, we are seeing solid progress on deliveries with approximately 60% complete as of yesterday. Despite high levels of competitiveness in the market, our teams are executing with strong internal pricing discipline, which is giving us confidence to improve our outlook on soybean pricing. On our recent call, we signaled our expectation for soybean prices to be down in the low single digits in the first half. Our full launch of Enlist E3 soybeans is going as planned, and we expect Enlist E3 to represent about 20% of the U.S. soybean market this year and about 10% of Corteva's soybean lineup. Now turning to our focus on best-in-class cost structure. We delivered approximately $70 million in cost synergies and productivity savings in the first quarter and expect to deliver approximately $115 million in the first half and $230 million for the full year of 2020. These results show our continued progress on bringing merger-related cost synergies to the bottom line as well as initial strides we are making from our Execute to Win program that we announced. Last year, we launched Execute to Win to inspire and to reinforce the organization-wide commitment to productivity that's really needed to deliver and sustain our results long term. Now this effort is expected to ultimately contribute to $500 million in incremental operating EBITDA over the next 5 years. We remain committed and feel confident in the execution and realization of our synergy and productivity commitments. And you can see in the first half that our savings are for the most part outpacing our cost headwinds. Now given the uncertainty related to the crisis, we have also identified targeted spending actions across the entire organization. This is both to preserve cash and to create more resiliency in our results. Through these actions, we expect to achieve approximately $100 million in targeted reductions in 2020, with approximately 1/3 of those being realized in the first half. On capital allocation, we have prioritized investments in innovation and growth, and we remain committed to our policy of delivering cash to our shareholders in the form of quarterly dividends and share repurchases. 2020, we recently declared our second quarterly dividend of the year of $0.13 per share, and we have also acted on share repurchases in the first quarter with approximately $50 million repurchased. Now due to the market uncertainty that's been created by this COVID-19 crisis, we suspended our full year guidance. And there are several key areas that we are monitoring and will ultimately impact our full year financial results, including currency volatility, commodity demands and farmers' income levels. In terms of currency impacts, we are seeing significant disruptions in global currencies, including -- or particularly the Brazilian real. For the first half, we expect currency to be approximately $150 million headwind to earnings. And our teams are focused on executing mitigation efforts, including pricing actions, spending reductions and implementing some new financial hedging tools to overcome those currency headwinds. We're also monitoring the overall commodity consumption levels, particularly corn consumed for ethanol production in U.S. and U.S. corn exports to better gauge the 2021 acreage levels and potential product delivery impacts on our fourth quarter. Traditionally, we'll deliver about 3% to 5% of our overall Pioneer seed volume for the upcoming North America season in the fourth quarter, though this can vary greatly based on conditions in December. We also have a new variable to consider related to our fourth quarter performance. Earlier this week, we announced our intention to launch Brevant seed brand in the U.S. for sale exclusively through retail, beginning in the 2021 selling season. Now this change has been in development for over a year and will expand retail access to Corteva seed genetics, technology and traits. We're committed to providing growers choice and recognize that there are growers that prefer purchasing their products through the retail channel. We look forward to providing updates on this latest development as the 2021 sales season starts to unfold. Overall, we're fully committed to providing timely updates regarding our performance outlook and expect to reinstate full year guidance when we have improved visibility, perhaps as early as our second quarter earnings release. In closing, it's important to keep in mind that we have a lot of road left ahead of us in 2020. The crop in the United States is not even completely planned yet, and there will be 2 crops that will come from Latin America before we plant that 2021 crop. After 35 years in the industry, I've learned that a lot can happen in 1 season. So let's not get ahead of ourselves. Our team is laser-focused on maintaining our momentum and executing on our strategy. We're committed as an organization to weather this crisis whatever it brings and come out of the other side stronger, poised and ready to capitalize on the recovery. So with that, Joel, I'll turn it back to you, and we can take a few questions.

Great. Thanks, Jim. And again, please feed your questions into the Webex platform on the right-hand side. We'd love to integrate your questions into the discussion. Jim, let's start with the announcement this week and what you talk about, about the move to Brevant, the direct to grower. Talk about the rationale for that, that move. Were you not happy with Mycogen performance? What led to this?

Yes. Great. Joel, thanks for the question. So you'll remember, 2 years ago, when we started talking about this merger and creating Corteva, there were a number of things that I had been really excited about. Clearly, our pipeline has been part of it. Clearly, our opportunity to continue to drive our penetration with Pioneer brand and the very -- the exclusive kind of direct channel that we occupy out there. So those things have been great. But a third area that I'd been talking about for 2 years was this retail opportunity. As a company, prior, DuPont and our Pioneer brand, we never really sold much seed through retail. But 1/3 of growers, pretty much around the world, prefer to buy their seed through this retail channel. So every other company primarily sells their seed through that route. And Syngenta and obviously, Bayer and Dow, and they had their Mycogen brand. And so I was very excited that once we merge, we'd be able to take advantage of using that Mycogen brand to drive some additional revenue in that channel. Now outside of the U.S., we launched Brevant at that same time. So 2 years ago, we launched it. I think we're now close to 12 million units of Brevant globally. It's been a very successful seed brand outside the U.S., and our teams have shown us what they can do when we give them a brand new platform, and we load it with some of the best technology in the industry. Unfortunately, we underestimated some of the brand baggage that was associated with Mycogen over the years. And as the North America team took a hard look at what it would take to rebuild the Mycogen brand, we decided it would be faster and probably more exciting in the marketplace to pull that brand and launch a new brand in its place. So we've decided to bring Brevant into the U.S. and do here what we've done everywhere else in the world is established a new higher value brand. We will bring this product in at a higher price point. We're going to load it up with the best technology that we have at Corteva. And we're going to answer what growers have been asking us for over many, many years, and they want a choice. And so for the first time, through that retail channel, they will have a choice in genetics that they've never been able to get a hold of before. So anyway, that was the announcement. No change in strategy. It says we're actually on strategy. This is a way to accelerate our penetration and we're about 5% market share today in that retail channel. And I think Brevant could put us north of 20% over the next few years. So I had a real excited sales and marketing team that's ready to get going, and we'll start taking orders here in the fall. And we'll be out delivering seed in the spring of '21. So that's the answer and the logic behind it.

And staying on the retail side, is -- do you think the future would be for yourself, for Corteva and maybe other large consolidated chems and seed names to look to do more direct to grower strategy, be able to do things outside of current retail distribution channels? Is that something you would be looking into?

Actually, Joel, I think if we look at the channel today, we have really 3 different routes to market. You have that Pioneer direct channel, which is a very high-touch, it is already a sort of version of that where we've got field cells agronomists that are out working with growers at their plant operations. We deliver seed directly to them, sometimes directly to the planter out in the field. And so we already have a very direct to grower model through that Pioneer offering. However, there are customers that want to buy their seed through a full-service retailer where all of our chemistry is also housed. And so this gives now a retail operation the ability to offer customers who want a Corteva Acre. They want a Corteva Crop Protection product. They want to use our digital tools. And they want a Corteva brand of seed. Now a retailer has the ability to offer them that kind of a full service. And these retailers do a fantastic job of servicing those growers that want to do business that way. And then we have that third channel out there that is kind of the smaller regional brands. And we had a number of those that merged. We've consolidated those into 5 very strong, now regionally focused brands, and we continue to -- we continue to support growers through that channel as well. So I feel like we've got all of those different routes pretty well covered now, and it's up to us to just execute.

Do you think the Pioneer dealer, bricks-and-mortar platform would evolve over time? I mean is there obvious -- obviously, everyone's doing social distancing. How do you think that's an issue for those locations in rural areas, but is that something that would evolve over time as maybe sales go to more e-commerce options?

We're already -- we already have a very strong digital component to that Pioneer model today. We went to a digital transaction of delivering seed and growers signing off on it this year as we -- as we helped to try to manage this whole social distancing aspect. Our Pioneer reps have some of the most advanced digital tools around drone capability to help farmers monitor their crops. And all of our folks out there are very, very connected. And through this crisis, I think we've actually increased our connectivity with our customers using digital tools like this to communicate almost on a one-on-one basis. So I think that model is evolving already. And it's a model that we've used for over 90 years, and it certainly has proven that especially in a market like what we had last year, where things were changing every day, weather created tremendous adjustments in the kinds of products that growers were trying to get in the ground and what markets were ready to go. And we pivoted instantly. And I think that's something that others will struggle to emulate if you don't have that. And the same thing happened this year. This market broke early. It broke very favorably. And with the crisis going on, our team responded, and we didn't miss a single shipment all the way through this crisis. So I think it takes the kind of investment that we've made and the kind of presence that we have to be able to serve your customers the right way.

Where are we right now? What do you think grower sentiment is? It seems poor to me, for obvious reasons. It's been a challenging bunch of years. This year has been unique now. In a world of $3 -- and you obviously pulled your guidance for a certain reason the other week. But if we go to a world of $3 corn for the next little while, what does that mean for Corteva? What does that mean for your strategy? How do you adapt?

So in this season, 2020, we're clearly watching where we think we're going to come out on planted acres. Many of our customers made their decisions last fall with what they were going to plant and those plans have pretty much carried out just like we thought. So our deliveries in corn are on track were essentially done and our deliveries in soybean, we're about 60% delivered as today, and we really see no change in any of their intentions. We could see a couple of million acres maybe of corn come down from what USDA has been predicting. But it's still a little too early to call that. A lot of our customers are pretty sophisticated producers. So they use a lot of leverage. They use a lot of insurance and protection tools out there. So many of them had locked in crop insurance and probably hit forward and marketed many of their crops. So they actually locked in commodity rates that were more positive than where they sit today. So we think growers are going to do fine in 2020. And clearly, there's government stimulus and other incentives that are out there to help protect them through this season. So your question is really of now thinking, okay, what happens in '21? What we've always seen in our business is that seed purchasing decision really occupies 1 of the first things that a grower does. They sit down in that September, October time frame. They work with either a retail partner or a key Pioneer rep and they set their marketing plan for the year. And a lot of times, they actually purchase the seed. We collect their money. So we will collect a lot of cash in the fourth quarter of the year because they want to make sure that that seed purchase is locked in. They know what hybrid they're going to get. They know what they can expect. And they want to preserve and protect their ability to get a high yield. And so seed occupies one of those first decisions like land, rent and seat. And then everything else kind of flows from that. So whether it's fertilizer, we sometimes feel it in Crop Protection, they'll cut back a little bit on their Crop Protection expense, whether they delay an equipment purchase for a year or so, but it always has felt like to us that, that seed purchase, that decision is kind of locked in early, and it's not as sensitive to commodity pricing that we see out there. Now as I said before, we got a long way to go before this crop actually finishes and gets in the ground and gets harvested. We can see yield effects. We got 2 crops down in Latin America that could have trouble. And so I think it's way too early to be too concerned about commodity prices and what '21 looks like. We still got to get 2020 in the ground and then harvest still.

So Corteva spends, I think, $1.2 billion in R&D, something like that, give or take a year. I mean it's fair to say, looking at seed price/mix lift realization the last several years, are you comfortable with what the -- what the returns are on R&D right now, especially on the germplasm side? So the question would be, if you have to consider -- if farmers aren't going to pay the proportional share of the yield increases that you're giving them, do you have to rationalize better your R&D spend if you're not getting the returns that you feel are justified?

So back to my previous point, growers know that if they don't invest in seed, they lose the potential of yield. It's why that premium, high-performing brand of Pioneer gets the highest prices in the market already today. It's also why that we drove a 4% price increase in corn globally in the first quarter after a year of 2019 that everybody worried about farmers and liquidity. It's because they know that they need to invest in that seed just to make sure that they preserve their right to go get that kind of productivity that's out there. So -- and you characterized it both ways. There are trade investments that they make and technology like seed treatment that helps to protect and generate yield. But then there's that background germplasm. And when you've been at it 90 years like we have, that germplasm is everything, and our customers know that every year, we're investing a tremendous amount of that dollar to preserve and protect that genetic gain that goes on year in and year out. So I think the answer is yes. They've proven in the past they're willing to make those investments. And we look at those returns all the time, and we're comfortable that we're getting a fair return based on the investment we're making, and we're certainly delivering for our shareholders. And you could see that in our results in the fourth quarter last year, and you're certainly seeing it in the underlying results here in the first quarter this year.

So let's switch to trade. I mean it's probably one of the most interesting topics. Investors care about it a lot as Corteva tries to push out now and get a good trade platform. How keyed is the battle right now to extend and let 20% of soybean acres? That can be Enlist. What does Corteva need to do to win share?

Yes. So we did launch Enlist. We've had that kind of ready to go. We've been waiting on some important Chinese import tolerance approvals, which we got back in January. We needed a little bit of time. We were unable in the Pioneer germplasm to do any work with Enlist until the merger closed. So it set us back a year or 2. But boy, the organization has embraced it now. We've got all the approvals that we need, and we have a full commercial launch now going on here in 2020. And you're right, it's 10% of our lineup, but it will be 20% of the soybean market. And that's because there are other licensees out there that also have licensed the trade. So it's another source of value for us in that first, we're not spending money on a trait that we co-develop but we're also generating new income from the sales of those trades to others who will bring it to market. So in a first year of commercial launch, to get 20% shares was a pretty strong penetration. So -- and the main reason for that is it provides a very viable choice for our customers who are really looking for another system, something that's proven, something that's easy, something that is dependable and gives them the peace of mind that when they use the seed and the chemistry together that they don't have to worry about unintended side effects. So we're excited about where that goes. We will continue to ramp, and you could essentially think about it as we will be kind of doubling our penetration in the Corteva lineup. We have some germplasm today that we had previously developed through the Dow breeding system that is being launched and that's ours. And then we also have some germplasm that we've licensed in from others to just help make sure that we've got a full breadth of our portfolio, so our customers can really experience the technology. And you know how farmers typically do, they'll experiment in the first year, they'll put 10%, 15% of their operation in a new system. They'll get some experience with it, get some confidence with it, and then they'll really convert. So we could double this every year on our side of that equation through the next few years. Certainly, the value in this market has been a big question around pricing and our ability. And as I said to you here in the opening comments, we guided to that it would be a really competitive market, and our main competitor has been very aggressive there as well. We feel good about our position. We're probably coming in a little bit better than we thought. And by the time we look at full year, we may be flattish or so on pricing in soybeans. So I think that's 1 more example of what you were talking about before. Can we get paid for the technology that we deliver even in a really competitive market like we had? The answer certainly is yes. So we welcome the competition. We look forward to doing exactly what we committed when we announced our merger, is that's to provide our customers a competitive choice out there in the marketplace that solved some of their biggest issues and gives them the confidence in the performance of the product.

And I think if you could deliver flat soybean seed price/mix lift this year, I mean there were a lot of dire projections by some people in the fall of down 5%, down 10%; h***, 0, 100%, whatever. I use some crazy projections out there that I always thought were a bit over the top. I mean part of that was because of your technology partner out there saying, "We're going to triple and quadruple and get all this market share. Is that a real risk to Corteva? I mean maybe talk about that.

Yes, so first of all, yes, we're -- I agree with you that some of those projections were just -- they were certainly out there. We had good visibility of our pricing book, and how things were evolving and felt really good about our position. I'll also mention our sales team showed some fantastic discipline of not chasing every rabbit that was out there, not chasing any of that lower value market that kind of emerged. So it was strong internal discipline and great technology that allowed us to deliver something that is so contradictory to what, as you said, others had predicted. At the same time, you're right, we do have others that are out there selling the Enlist system. And I think this is just generally overall good, right? It gives more farmers access to the technology. It gives them more experience with it. We're going to gen up our breeding team, and we're going to be in a position to have better genetics long-term to win those acres and farmers will be comfortable with the system. And then finally, don't forget the third element of Enlist for us is we make revenue off of the herbicide applications on all of those acres. We have the exclusive product to sell chemistry on Enlist acres. So at the end of the day, I think it's good for farmers. They get good experience with the technology. And I think it will be good for us in the long term. As that penetration grows, we'll have an opportunity to win those acres because of superior genetics. And then I think it's good for us, for the herbicide, an opportunity to participate on all of those acres with a Crop Protection spray. I mean think about it: this year, 20% of the soybean acres are going to be sprayed with Enlist chemistry, but those are acres we didn't have before. So it's a good upside for us there.

Right now, Corteva's spending about $750 million -- $750 million on trait licensing to outflows. And you talked about hoping to take that down to as low as possible the next decade. I mean can you talk about how that might ramp down as you get to 2023 and you're selling, hopefully, mostly Enlist, not a lot of Xtend and the payments to Bayer go away. What is the kind of trajectory how that $750 million, $800 million steps down over time?

So good question. About half of that amount is tied to royalties that are associated with Roundup Ready 2 Xtend that we'll be able to replace with Enlist. Products that are replaced by Qrome and PowerCore Ultra and corn, and products that benefit there from Conkesta versus Intacta. So by the time those 4 products are out there and kind of, like you said, at a good maturity level at 2023, we believe we could substantially reduce that number, maybe as close to -- getting it as close to 1/2 of that by the time we really get role in there. So whether it's 23%, 24%, mid-20s is kind of how I think about it. So I think half goes away here mid-decade. The other side of this equation are all the licenses that will be out there driving from a royalty perspective. So we'll have Enlist. We'll have Conkesta, we'll have the ability to license some of our germplasm and some of those other traits like Qrome. And so that revenue coming in as others ramp up their units over this decade, that -- I view that as a way to offset the other half of that $750 million that you mentioned. So the goal that I've given the team and what I shared with my Board is that by the end of the decade, we will have basically offset 100% of that number. Half of it because we're just not paying those royalties anymore. The other half because we're collecting royalties to offset. We'll always have some royalty payments based on technologies that we're licensing in from others. So that's the way I think about it end of the decade that, that $750 million goes away.

And let's talk about Crop Protection now. Maybe you could walk through what Crop Protection markets look like around the world. What inventory levels are like. Maybe you can also touch on how channel inventory practices have changed in the different regions since a lot of issues in the industry a few years ago.

Right. Great. Yes. So let's think it maybe a region at a time or a hemisphere at a time. In the Northern Hemisphere, last year, things were just in really bad shape from an inventory perspective because the season was just so crazy, especially here in North America, it was late, and it was wet, cold. And then when it finally broken, it went -- crops had to get in the ground. So there were a number of Crop Protection products that normally go out pre-plant or as part of a fertilizer program that just didn't happen. So all of that chemistry was still sitting out there in the channel as we came around to 2020. We felt a little of that in our fourth quarter that we didn't normally get the fourth quarter fills that you would like to see. And so yes, last year, what a difference a year makes. This year has broken just perfectly. It broke early in Europe. So we got those early serial herbicide sprays that are so important to get out. And we have a hot new product in Europe for wheat. It's called Arylex. And that product has done really well this year. And then in North America, we get the Optinyte applications that kind of go out with fertilizer to help with -- help hold that fertilizer. But then we get those pre-plant, those burn-down products that go out, a lot of those bulk products, and that all looked great this year. So as I sit here today, I think we're in good shape with channel inventories, about where we would like to be, and I think about where our retail partners feel like we should be. In Latin America, in the Southern Hemisphere -- Asia is never a problem. We don't really ever see much elevation. It's much smaller channels, very fragmented. And just the way the system works there, you just don't feel it too much. But Latin America has been a market that has been very problematic in the past with kind of typically very high inventory levels. We don't see that this year. We -- with our products are sitting in a really good spot. I think there's been some urgency to want to make sure that they have all the supplies that they're going to need to deliver a strong crop year. And so there's probably even some advanced buying going on just so they're securing the products and growers down there have a lot of cash. So they're willing to get in and make purchases early. So I'd say overall, Joel, I feel good about where we are -- where we are and most likely where the industry is around inventories this year.

Okay. That's really helpful. Let's talk about a couple of other issues now that people bring up are challenge and opportunity. So different technology, biological, gene editing, talk about the risks and opportunities for Corteva from those different product types and what you're looking at.

We do see a few opportunities around if I think about -- if I think about biologicals and microbials, that this is an area that we would be interested in. I think through this crisis, there could likely be some assets out there that might be attractive. And so we're going to take a hard look at those. But we view having more natural products in our lineup to already go with some of the great products that we have already will be an advantage long term, especially in geographies like Europe, where there is a real desire for some of those more naturally derived products. So that would be area one. And so we have invested. We're starting out with some products of our own, and we're also out looking to see if there are any attractive assets in the market that might be available. Another area that I'm interested in is in the vegetable seed business. If you think about the breeding machine that we have and our ability to do that, we believe it's highly leverageable. And I think down the road, this is an area where CRISPR could play. And so we're taking a hard look at maybe some small bolt-on or tuck-in acquisitions that would give us a chance to get started in that market. And then clearly, digital is another area that we continue to look at. Specifically around CRISPR, we're taking a look at how can that tool be deployed to help with things that really matter on the output side. So healthier oils, working on products that can have a better climate footprint, working on things like more highly cross-linked starches that can go into industrial channels, how would we utilize some of those tools with vegetable proteins to help support some of these new and emerging market opportunities around protein -- or plant-based lead derivatives. All of those are exciting areas where we believe CRISPR will have an opportunity. The regulatory structure for that is still a little bit unknown, and we're still testing that. We have some products in the U.S. that are tied to starches, and they've done quite well. So it's early days, exciting technology, and we have a really foundational kind of position there with the IP that we have to really be able to practice unconstrained.

You talk about digital ag. There are so many digital ag schools out there over the last decade. Farmers, I don't think are really paying for it. Retailers have their crop input suppliers like you have and John Deere has different tools. The tougher farm economics late in the last bunch of years, but is having a good data science platform, is that just table stakes to be able to play in a broader game selling products? Or is that something over time you think you can generate additional revenue from growers?

Yes. I view the digital opportunity in a couple of different segments. So the first is what you mentioned right there at the last is there is an opportunity to develop software as a service and use it to help our grower customers make better decisions, have better insights into their operation. Our granular offering kind of starts with an entry-level offering, where as part of the Pioneer service and the price of a Pioneer bag of seed, you get access to kind of an entry level. And what we're finding is, as growers get online and they start to use these tools, they do gain some insights that weren't intuitive to them before. And that whets their appetite to want to work then in a higher level and a more expanded version of that software. So we move them then into our granular agronomy and our granular business platforms. And this is where you see that amazing interaction of -- we'll go out there and help a farmer make some really good agronomic decisions around fertilizer and Crop Protection and Seed selection, planning density. By the end of the day, does he know you made more money doing that? And this package works together flawlessly to help a grower understand, "Yes, I made more money on these acres. I'm going to expand that." And the flip side is true. So they understand where their most profitable acre is or hectare and then how do they leverage that to the rest of their farms. That's Part 1. Part 2 is Corteva as a sales and service organization, each of our sales professionals has 40 or 50 possible product selections that they can make to a customer. If I can use a digital tool to help make that salesperson even smarter and more effective and narrow those choices down, now I've got a better opportunity to actually sell to the grower, but using it for ourselves. And then third, remember, we produce a lot of seed globally. And so we run a lot of our own farms. And so how do we use these tools and these technologies to really drive productivity on our own farming operations. And so you can understand that developing the foundation underneath all 3 of those platforms, incredibly leverageable across all of those 3. And at the software industry, you get a tremendous leverage on the dollar that you invest if you can leverage it more broadly. So I think it's partly table stakes for survival for us internally. I think growers expect that we should be offering some base level of service. They come to expect that on a product like Pioneer. And I also think it's going to be a really dynamic way to continue to drive productivity, help a grower save money and to drive new revenue for us going forward.

I think I want to get into a couple questions that investors always asked about. I'll call it the Yabba of Corteva. Okay. The first question I want to ask is on synergies coming out of Dow-Dupont merger. So people would say, "Well, synergies that you've shown, it's been net against other higher costs." We don't see those synergies. You've got a couple of hundred million or 3 hundred million left that synergies to pick up over the next couple of years. Talk about the confidence that you're able to see the incremental synergies left to come as opposed to just being netted against other cost increases?

Yes. So you're right, we had announced about $1.2 billion worth of synergies. Through the end of last year, we delivered about $800 million of that. So we have $400 million left to go. In the early days, you really saw that synergies flow through. You saw a reduction in R&D expense. You saw reductions in sales, SG&A. Those were the easy synergies to get out because they were quick. We made those decisions and they showed up pretty quickly after that. What's happening now is we've made decisions back at the announcement of the merger that are driving synergies, but it takes a little longer for them to flow through. And they flow through in different places. And 1 of those areas is in cost of goods. So you can really start to see that flowing through in our product margins in the first quarter. So we told you there'd be another $200 million of those synergies hitting the books in 2020. You can see it -- and thank goodness for those synergies flowing through, they're helping us offset the $150 million of currency headwinds that we have here in the first half. So our headwinds have mostly been currency. We had a few raw material headwinds coming out of China a year ago. I think we've had about $500 million worth of currency headwinds since the announcement of the -- since the closure of the merger, and we've been reporting our results in this new way. And so thank goodness, we've had those synergies because they helped offset a lot of those of headwinds. So the remaining $200 million this year will mostly flow through product, cost of goods, some in seed, a lot in Crop Protection. And then the last tranche of that $200 million, we can see it and it will flow through mostly cost of goods in '21 as well. And at that point, we will kind of declare the merger-related synergy program complete. And then we will pivot to this new initiative that we announced last year called Execute to Win, which is about just continuing to think about the business from a productivity perspective. And now merger-related synergies were kind of top-down driven, right? We got in a room. We had some ideas about where those savings would come from. We closed the plant. We announced a reduction in combined in organization and off we win. Execute to Win is very different in that it's a bottoms-up productivity approach. It's about all the Corteva colleagues around the world kind of acting and thinking like owners every single day and questioning the money that we spend in different areas and then putting a very disciplined project management approach in place so we can keep track of all of those. And this is where we believe another $500 million worth of productivity will come from over the next 5 years or so, and you'll be able to see about $30 million of that showing up in our earnings in 2020. So that's underway. And I couldn't be happier with it, because it's so much more efficient to get 20,000 employees thinking about how to do better every day than a few of us. So it -- the projects are flowing, and it's going to be a lot of fun over the next few years.

You talked about the currency. So I mean that's probably the #1 question we get on yourselves and competitors on currency, such as South America, Brazilian real. Talk about what you're doing now to try to mitigate some of the FX headwinds that may affect your revenue in the fourth quarter?

Yes. So clearly, currencies, as a basket of currencies have moved in just in an insane way as a result of the crisis. It's probably the only main impact that we have seen as a result of the crisis. So as I mentioned, in the first half of the year, that's about $150 million impact. It hit euro, the Canadian dollar, some of the Eastern European currencies. So by and large, we're going to offset most of that through the spending reductions from the crisis. We're not traveling. We're not entertaining, so we'll do that. And we drive price. So there are some markets where we had not priced yet and so we use that pricing structure to kind of fix that. So set the first half aside. In the second half, about 30% of our overall revenue is tied to Brazil. And so right now, literally over the next 90 days, our sales team is out calling on customers in Brazil, and they are negotiating the sales contract for the remainder of this year. So we are literally setting price almost on a daily and a weekly basis. The problem happens when I have an agreement with you. We decide on how many units of seed, and I've converted that from -- at an existing exchange rate to a price that you agree with. We sign that deal. Now I don't get to recognize that dollar of revenue until November when I actually deliver that bag of seed. So we take the currency exposure from now until November. So I really don't care what currency does in between. It can go up and down every single month. But what it is in November matters versus what it was in June, for example. So in the past, our 2 parents really never worried about the income statement much, because they were -- it was more of a commodity, chemicals, companies, and they had offsets that just kind of happened every single month. But now as a pure ag company, we realize we have to do something different with this risk. So we've initiated some new programs here in 2020 that are already benefiting us a little bit, but nobody expected a 45% decline in the real to happen as a result of the crisis. So we missed it a little bit. In the interim now, we've come up with a way that because we're literally pricing every week and locking these sales contracts in, we're going to hedge those on a rolling basis. So at least I can guarantee it won't get worse once I lock it in. And then we're going to evaluate a more aggressive hedging strategy going into 2021, no matter where all of this goes. So I'm excited about the mindset shift that we've made to be more aggressive here and to help be more predictable for our shareholders in terms of Latin America earnings. On top of that, our business is doing really well. So we're growing our corn business. It's been strong in the past with Leptra and now PowerCore Ultra. And we're about to get Conkesta approved and the Conkesta E3 into soybeans will really rejuvenate our soybean business. So while 30% of our revenue today is tied to it, it could be much larger in the future. So we got to get this figured out. We got to get it right as more and more of our second half earnings is going to depend on our success in Brazil. Joel, I can't hear you.

Sorry, mute. Yes. What makes the headlines from time to time is the PFOA and PFAS cases that are going on. Talk about what the likely scenarios for Corteva as this plays out.

Yes. So thanks for that question. You're right. It does come up from time to time. The cases that -- first of all, you're aware, we're fully indemnified by Chemours. And Chemours has challenged that -- most recently has challenged some key elements of that in Delaware Chancery Court. We prevailed in the first round of that discussion. So I think it's great evidence that the indemnity with Chemours is durable, and it's in force and it's operating today. As we go forward, we're clearly aligned with DuPont in how we deal with the cases with Chemours. But we're really talking about 4 sites that we know really well. They're very well-characterized and they're being managed today. So there are lots of other aspects of PFAS that have been hyped up a little bit. But what we're really focused on and what our exposure really is essentially these 4 sites that we understand as well. The other areas that are out there are related to Ohio MDLs that we settled a very large chunk of those a few years ago in concert with Chemours. And we're always open to other settlement discussions for the remaining cases and we're certainly optimistic that, along with DuPont, that Chemours, we can work our way through whether there are additional settlement opportunities -- additional settlement opportunities there. And so that's really how I look at it. I think, again, the cases are well managed, the sites are well known, and we definitely understand what that exposure is.

So my final question is this. So Jim, as you know, and I would talk to you over the years as you were going through this DowDuPont merge, there's 3 spin, there's a complicated situation. You closed it about 11.5 months ago, got into your own company, Corteva. And here you've been. What has been -- what do you think is the biggest misconception about Corteva right now that you think investors -- many investors just get wrong and you think you'll be able to prove them wrong in the months, quarters, years to come?

Great question. So you're right, it was a complicated process to get to where we are today. One thing I can say is the team that I have with me has navigated those waters incredibly well. We think about 2019 and all the things I mentioned in my opening comments that we navigated through and we came through it stronger and more focused. What I think people underestimate are the sources of value that we have going forward. We have an amazing top line opportunity here with the expansion in retail that we talked about, with our return to Latin America soybeans, with the Enlist construct and the Enlist license and that Crop Protection pipeline. We're going to drive a heck of a lot of top line growth. And I think folks look at us sometimes as a GDP-type of business from a potential. I think a lot of that then drops to the margin opportunity. When you think about that trade independence discussion that we had, our ability to continue to drive price in seed through the technology that we're delivering, the productivity work. We talked about synergies, but also the Execute to Win. And then our product margins in Crop Protection as we launch that new pipeline continuing to improve there. And then finally, I think people look at us as a North America corn company when in reality, we're a large global company. We're in 140 countries. I think we sell products in over 13 or 14 different crops. So there's a diversity to who we are as well. So yes, corn in North America is always going to be really important. But we are expanding the diversity of our ability to deliver results as a result of our global footprint and these other crops. So I think those are the 3 areas, and I talk a lot about those.

Great Jim. Thanks a lot for joining us today. Thank you for being at the conference. Have a good rest of the conference. Thank you everyone for listening.