Monsanto’s New Corn, Soy Seeds Planting May be Disappointed

Date:03-02-2010


Monsanto Co., the world’s largest seed company, said new genetically modified corn and soybeans it is counting on to drive earnings this decade may be planted on fewer U.S. acres in 2010 than previously forecast. Monsanto shares fell the most since October.

Roundup Ready 2 Yield soybeans may fall 20 percent short of the bottom of the company’s forecast of 8 million to 10 million planted acres, Chief Financial Officer Carl Casale said. SmartStax corn seed may miss the St. Louis-based company’s 4 million-acre target by a similar percentage, he said.

Chief Executive Officer Hugh Grant is counting on the two new varieties to help boost seed earnings to as much as $7.5 billion in 2012 from $4.5 billion in 2009. The shortfall will reduce earnings less than 5 cents a share this year and won’t hurt long-term goals, Casale said. Farmers are trying the new products in the numbers expected, only on fewer acres, he said.

"They’re buying what they believe is meaningful for a trial, but they’re not doubling down and trying more because we’ve got it available,” Casale said during a presentation at the Morgan Stanley Global Basic Materials Conference in New York that was broadcast on the Internet. “We have more than adequate trajectory on both of those to achieve our 2012 milestones.”

Monsanto fell $2.86, or 3.9 percent, to $71.18 at 4:01 p.m. in New York Stock Exchange composite trading. The decline was the largest since Oct. 26.

"The grower resistance is because of the risk profile,” Mark Gulley, a New York-based analyst at Soleil Securities, said by telephone. “Any new product has a higher risk profile than a proven product. Growers are looking around and saying, ‘You go first.’” He rates the share “hold.”

Profit Forecast

About half of the company’s 2010 per-share profit of $3.10 to $3.30 will be in the quarter ending this month, down from a forecast that as much as 60 percent of profit would come in the period, Casale said, repeating a statement from yesterday. That implies second-quarter profit of $1.55 to $1.65 a share, trailing the $1.83 average estimate of 13 analysts surveyed by Bloomberg.

The late 2009 U.S. harvest delayed Monsanto’s soybean shipments, and corn-trait royalty payments from third parties are later than expected, Casale said.

Monsanto may have a small profit in the fourth quarter, rather than a forecasted loss, because a decision to bypass distributors in Mexico and sell directly to customers may add about $40 million to gross profit, he said. Sales in Latin America may be better in the fourth quarter than forecast, he said.

New Seeds

Monsanto has said new soybean seeds, led by Roundup Ready 2, will add $425 million to gross profit by 2012, and new corn seeds, led by SmartStax, will add $2 billion to profit.

"I have confidence that this stuff is going to play out the way we envision it,” Casale said.

Roundup Ready 2 soy increases yields 7 percent to 11 percent from the original herbicide-resistant soybean introduced in 1996, Casale said. SmartStax corn was engineered with Dow Chemical Co. to have eight genetic changes that resist bugs and tolerate herbicides.

Casale disputed the notion that Monsanto’s Roundup Ready 2 soybean seeds will be competing against “free seed” after 2014, when the original Roundup Ready soybeans lose patent protection and growers can save seed from their harvest and replant it the following year. The cost of cleaning, treating and overplanting, as is typical for lower-quality saved seed, makes farmers’ actual cost about $30 an acre, he said.

Farmers will buy the new Roundup Ready 2 seeds, which cost $74 an acre, because they boost yields by about 6.4 bushels an acre, a benefit of about $64, he said.