Five Key Quotes From Monsanto's FQ109 Conference Call

For agricultural chemical-maker Monsanto (MON), Brazil is doing exceptionally well, though the outlook is somewhat cloudy going in to 2009. Pre-payments from farmers are up, giving the company ample cash now.

Despite stiff competition, Monsanto cited the long term nature of its business, saying it is pursuing technological advances and value as opposed to discounting for market share gains. Monsanto increased its guidance as earnings grew 117% in FQ109.

The Congressional Budget Office projects that corn will stay under $4 for a decade, half of what corn was going for just a few months ago. Corn and soybean prices are expected to stay down even as prices slump. Seeking Alpha’s Hard Assets Investor says that cheap corn will help whichever ethanol producers survive the current downturn. Livestock growers and even restaurants will benefit as animal feed becomes more economical.

It appears the legal issues surrounding modified crops have subsided.

From Monsanto’s FQ109 conference call:

Corn/Ethanol:

In terms of volume, after a late start because of the delayed [harvest], our order patterns for corn accelerated in December and have continued to be stronger than normal in the first week of January. Soybean orders continue to outpace the prior year... Our order patterns would suggest a stronger year for soybeans versus our original expectations of 70 million acres of beans and 90 million acres of corn, but it's far too early to declare acreage projections.

Modified crops [triple stack refers to crops that are modified to protect against weeds and insects]:

Our corn states customers look to have lifted their triple mix to 50% versus 40% last year. We continue to anticipate that there will be 34 to 35 million acres of Monsanto triple-stack planted this coming season, a 17% to 21% increase in triple penetration.

Monsanto has now submitted a regulatory package to the EPA for SmartStax, which will become the new standard in the marketplace as the most durable and highest yielding product for total weed and bug control in corn. We're the first company to request a refuge reduction for insect control both above and below the ground.

We've seen another year of higher yields under drought conditions, and through five years of testing, we've met or exceeded the 6% to 10% yield improvement target.

Farmers may not be so keen to jump back in to corn after having been burned in the runup. Barron’s noted over a year ago that investors were getting out of corn growing as the ethanol glut was forming.

Bean acreage is probably going to be up and corn acreage is probably going to be a bit softer, so we've seen the bean book selling a bit faster than the corn book.

I believe for corn what we're going to look at is mid to high 20s in terms of a price movement. Overall broadly we were up about 20% in the first quarter due to price, but that's a blend of the U.S. business and the Brazilian business.

While we expect to see solid growth in our U.S. Seeds and Traits business, we would anticipate a lower Roundup profitability in Brazil and Asia in our second quarter.

Farmer credit:

As of December 31st, pre-payments were running 50% ahead of last year's. This signals strength in pricing as well as some volume increases.

Q: One of your competitors has indicated that they're extending about $1.3 to $1.5 billion of vendor financing and that that's part of their competitive strategy. Can you discuss your strategy with respect to that and whether your credit standards with respect to customers is tightening significantly year-over-year?

A: Probably the biggest change that we made from a credit standpoint is… extending the time of the prepay program… into December and January when previously it'd been November and December.

The amount of prepaids as a percent of our total sales is about consistent with where it was last year at this point. Now, in early January it's about consistent with where it was last year, so that gives us confidence that the credit programs are adequate for what's in the marketplace today and for our business for this year.

Competition:

We have a competitor whose strategy appears to be market share at any price. A fresh survey from late December shows that half of the growers who would typically purchase a competitor's brand have been offered free corn seed, and a quarter of those growers were offered free or discounted soybeans as the loss leader if they bought the competitor's corn.

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Comments

[ss5ss:]

Mansanto is an evil company! It's modifying our foods using chemicals and soon will be trying to create diseases that our beloved pharma companies will surprisingly have the cure for. Its sad that natural staple foods will be eliminated to allow for genetically mutated 'stuff', which the government will use as a weapon against countries!

Jan 13 08:46 AM

[AndyMan:]

Well if thats the case....all medicine could be deemed bad. As people with genetic deficincies live long enough to breed those bad genes back into the gene pool.

eventually everyone will be on drugs for their cystic fibrosis or whatever else is wrong.

I am simply using this as an example.

Jan 13 05:21 PM

[funfun:]

The reference to "a competitor whose strategy is share at any price" and the desperate distribution of "free seeds" is obviously to Monsanto's lagging rival and second largest seed company, the lumbering Pioneer Hi-Bred subsidiary of troubled DuPont.

Once the most prestigious seed enterprise on the planet, the plodding Pioneer has fallen embarrassingly behind under the crushing weight of chronic research underfunding and misdirection by its uber bosses in Fortress Wilmington. Pioneer has consistently lost substantial seed market share to superior-performing Monsanto year after year.

...funfun..

Jan 19 12:34 PM

[legmaker:]

With respect to Monsanto's earnings they are clearly ahead of the pack. I believe one can buy this stock on any dip. I know there are many that dislike this company because of concerns of genetic changes and how it will affect consumers. The same things are said about some biotech companies and their efforts to find a cure for diseases and other problems with society, but if you look at MON from an earnings standpoint, they are well positioned to do well in this environment. Their Roundup Ready seeds are what everyone buys now because the farmer only has to use Roundup when he/she sprays the acreage. Until Syt or DD comes up with something that will directly compete, or there is an antitrust suit to breakup the monopoly, this is the space to be in.

Jan 20 01:09 PM