[Australian Finacial Review 06 Oct. 2010, p. 26] -- The company was on to a good thing by creating ever more expensive genetically engineered crops. That s all changing now, writes Andrew Pollack. As recently as late December, Monsanto was named "company of the year" by Forbes magazine. Last week, the company earned a different accolade from stockmarket commentator Jim Cramer: "This may be the worst stock of 2010". Monsanto, the giant of agricultural biotechnology, has been buffeted by setbacks this year that have prompted analysts to question whether its winning streak from creating ever more expensive genetically engineered crops is coming to an end.
The company's stock, which rose steadily over several years to peak at around $US145 a share in mid-2008, closed on Monday at $US47.77, having fallen about 42 per cent since the beginning of the year. Its earnings for the fiscal year that ended in August are expected to be well below projections made at the beginning of the year, and the company has abandoned its profit goal for 2012.
The latest blow came last week, when early returns from this year's harvest showed that Monsanto's newest product, SmartStax corn, which contains an unprecedented eight inserted genes, was providing yields no higher than the company's less expensive corn that contains only three foreign genes.
Monsanto has already been forced to sharply cut prices on SmartStax and on its newest soybean seeds, called Roundup Ready 2 Yield, as sales fell below projections.
Sales of Monsanto's Roundup, the widely used herbicide, have collapsed this year because of low-priced generics made in China. Weeds are also growing resistant to Roundup, dampening the future of the entire Roundup Ready crop franchise.
And the Justice Department is investigating Monsanto for possible antitrust violations.
Until now, Monsanto's main challenge has come from opponents of genetically modified crops, who have slowed their adoption in Europe and some other regions. Now, however, the outspoken critics also include farmers and investors who were once in Monsanto's camp.
"My personal view is that they overplayed their hand," William Young, managing director of ChemSpeak and a consultant to investors in the chemical industry, said of Monsanto. "They are going to have to demonstrate to the farmer the advantage of their products." Brett Begemann, Monsanto's executive vice-president for seeds and traits, said the setbacks were not reflective of systemic management problems and that the company was already moving to deal with them. "Farmers clearly gave us some feedback that we have made adjustments from," he said.
Mr Begemann said that Monsanto used to introduce new seeds at a price that gave farmers two-thirds and Monsanto one-third of the extra profits that would come from higher yields or lower pest-control costs. But with SmartStax corn and Roundup Ready 2 soybeans, the company's pricing aimed for a 50-50 split.
That backfired as American farmers grew only 6 million acres of Roundup Ready 2 soybeans this year, below the company's goal of 8 million to 10 million acres, and only 3 million acres of SmartStax corn, below the goal of 4 million.
So now Monsanto is moving back to the older arrangement. SmartStax seed for planting next year will be priced at about only $US8 an acre more than other seeds, down from about a $US24 premium for this year's seeds, Mr Begemann said.
The company would also offer credits for free seed to farmers who planted SmartStax this year and were disappointed.
Monsanto has also moved to offer farmers more varieties with fewer inserted genes. Some farmers have said they often have to buy traits they do not need such as protection from the corn rootworm in regions where that pest is not a problem in order to get the best varieties.
This issue has surfaced in the antitrust investigation.
Monsanto's arch rival, DuPont's Pioneer Hi-Bred, has also capitalised on the limited variety under a campaign called "right product, right acre".
"If they don't have a need for rootworm then we won't have that trait in that product," Paul Schickler, president of Pioneer, said.
After years of rapidly losing market share in corn seeds to Monsanto, Pioneer says it has gained back 4 percentage points in the last two years, to 34 per cent. Monsanto puts its market share at 36 per cent in 2009 and says it has remained flat this year.
In soybeans, Pioneer puts its share at 31 per cent, up 7 per cent over the last two years; Monsanto puts its share at 28 per cent last year and said it has dropped some this year.
Monsanto had a similar problem with lower-than-expected yields on Roundup Ready 2 soybeans last year, when the crop was first planted commercially, forcing it to slash the premium it charges.
But this year, the yield appears to be meeting expectations, according to OTR Global, a market research firm that surveys farmers and seed dealers. That could bode well for SmartStax next year.
One reason is that the Roundup Ready 2 gene is now offered in more varieties, making it better suited to more growing conditions. The yield of a crop is mainly determined by the seed's intrinsic properties, not the inserted genes. An insect-protection gene will not make a poor variety a high yielder any more than good shoes will turn a slow runner into Usain Bolt. In the first year of a new product, few varieties contain the new gene.
Still, Monsanto is bound at some point to face diminishing returns from its strategy of putting more and more insect-resistance and herbicideresistance genes into the same crop, at ever increasing prices. Growth might have to eventually come from new traits, such as a drought-tolerant corn the company hopes to introduce in 2012.
"Technologically, they are still the market leader," said Laurence Alexander, an analyst at Jefferies & Co. "The main issue going forward is do they get paid for the technology they deliver. The jury is still out on that one. It's going to take a year or two of data to reassure people."
Article: WeedsNews1104 (permalink) Categories: :WeedsNews:economics, :WeedsNews:herbicide resistance, :WeedsNews:agricultural weed Date: 6 October 2010; 11:20:56 AM AEDT