Is Monsanto a Template for Agribusiness?

By Brad Zigler

Real-time Monetary Inflation (per annum): 8.0%

Agricultural giant Monsanto Co.'s (NYSE: MON) second-quarter profits beat analysts' estimates, giving the company's shares a 3.6% boost at Friday morning's opening. The world's biggest seed maker actually reported a 3.2% slippage from year-ago earnings, despite increases in corn and soybean revenues.

Positive earnings surprises are nothing new for the St. Louis, Mo.-based firm. Over the past four quarters, analysts have underestimated Monsanto's earnings per share, on average, by 35%.

Monsanto delivered net earnings of $1.97 per share in its second quarter. Excluding extraordinary acquisition and settlement costs, the company earned $2.16 per share. The green eyeshade set was looking for profits of $2.09 per share.

Monsanto's second-quarter results are usually predictive of the company's overall performance. Orders for spring planting are reflected in the quarter's seed revenues. This time out, Monsanto's soybean sales soared 35%, while revenue from seed corn jumped 19%.

Monsanto's also closely watched as a bellwether of the broader agribusiness sector's direction. The company makes up 7.7% of the Market Vectors Agribusiness ETF's (NYSE Arca: MOO) market capitalization, making it the fund's fourth-largest component.

Monsanto has an outsized impact on the ETF's performance. Over the past year, the correlation between Monsanto's and the Market Vectors fund's performance was clocked at 79%.

Monsanto Co. (MON) Vs. Market Vectors Agribusiness ETF (MOO)

Naturally, observers are wondering if Monsanto has more surprises in store and, if so, if that signals better times ahead for holders of the ag ETF. For its part, Monsanto's still looking for full-year profits of $4.40-$4.50 per share.

Both Monsanto and the entire ag sector represented by the fund have been languishing in a trading range since last fall. The Market Vectors ETF has, in fact, bumped up against overhead resistance at the $30-$31 level three times, most recently just last week. The technical momentum for another run at an upside breakout is building now. An encouraging sign is the upside crossover in the moving averages for the MOO/GCC ratio.

The ratio gauges the relative strength of the Market Vectors ETF against the GreenHaven Continuous Commodity Index ETF (NYSE Arca: GCC), much as the GLD/GDX ratio (see "Gold Stocks' Time To Shine") plots bullion against gold mining stocks.

Since the GreenHaven portfolio is based upon futures, not stocks, the resurgent equity market is reflected in the MOO/GCC ratio's gathering strength. With the stock market wind, in part fanned by surprises from issues such as Monsanto, at the Market Vectors fund's back, the likelihood of a breakout run through $31 to the $38 level increases.

MOO/GCC Ratio

Comments

[Ganesh Sastri:]

Instead of saying "Monsanto delivered net earnings of $1.97 per share in its second quarter" why not say "Monsanto delivered ..... for quarter ended Feb 09". How many people know what is the year ending of a company?

Apr 03 09:05 AM

[bassmaster17:]

O' I remember when the analyts were upgrading MON back when it traded at $130 and when that joker from Goldman, Koort, put it on the conviction buy list. Well, now its downgrade time, which suggests any investor who understands their seed genomics portfolio should get interested if it continues to drop. Round Up is a dinosaur the future embraces higher yield. Monsanto continues to innovate and that makes it a quality business to own long term.

Apr 03 11:18 AM

[bassmaster17:]

I'm defending MON as a long term buy simply because it has the potential to have a commanding position in controlling the world food supply and populations are rising. In a way it could become a MONopoly its lobbyists have Washington tied up and they have a great legal team.

Apr 03 12:05 PM

[Stephen Yu:]

Monsanto is a great company, but at nearly 20x PE, and 12x EV/EBIDTA, it doesn't look cheap. I think futures (and ETFs or ETNs that invest in futures) are a cheaper and more profitable way to invest in agriculture now. Examples: Cotton peaked at 80 cents a bushel in 1980. It is now under 50 cents. Sugar peaked at 50 cents a pound in 1974. It is now 13 cents. Corn peaked at $3.6 per bushel in 1984. It is now at $4. Soybeans peaked at $10 a bushel in 1973. It is now at the same level. If you take these previous prices and adjust them by inflation, the current prices are definitely cheap. Add to the fact that food inventory is at 50-year low, farmers are having trouble getting loans to buy seeds and fertilizer, the likelihood of global warming/climate change, massive money-printing by governments worldwide, I think there is a perfect storm brewing in higher future agric prices.

Apr 03 09:20 PM

[anopenmind:]

..."the entire ag sector represented by the fund (MOO) have been languishing in a trading range since last fall."...Hello. Has not most other segment funds languished since last fall? Still, when we look at major individual stocks in the fund, any that have not performed well in past, have pretty good balanced sheets today, and very likely will perform well during next several years? This segment is not the U.S. autos, airlines, nor many other segments that may need years before getting out of ruts. Perhaps Y2009 less product will be consumed, as population continues to grow, but Y2010 and beyond?

Apr 04 08:35 AM

[blog.kerdos...:]

If there was 1 single ETF we could own it would be MOO

Apr 04 08:57 AM

[Sober Realist:]

Monsanto = Corporate control of our food source. I didn't realize how evil this company was until I saw this documentary last night (first time aired on TV in America:

March 23, 2009
Link TV to air The Future of Food this week
By Rady Ananda

Joining the growing conversation about genetically modified foods and the tactics of transnational corporations, Link TV will air The Future of Food this week. Click here for air times:
www.linktv.org/program...

Deborah Koons Garcia's groundbreaking film from 2004 can also be found at Google video:
video.google.com/video...

This is Link TV's intro:


Is there anything more important than knowing where our food comes from, and who controls what we eat? The documentary The Future of Food has the disturbing answers. Today's food chain is far more complicated than the traditional farmer to table model - it has become a vertically integrated industrial complex. And with government looking the other way, genetically modified seeds have found their way into our food supply. The time has come to take back our food.


This Link TV special, hosted by celebrated environmental journalist
Mark Hertsgaard, investigates the corporate dominance of our world's food systems. We are joined in the studio by the filmmaker of The Future of Food, Deborah Koons Garcia, as well as University of California biologist Ignacio Chapela, founder of The Mycological Facility in Oaxaca, Mexico, a facility dealing with questions of natural resources and indigenous rights. Koons Garcia's documentary The Future of Food offers an in-depth investigation into the disturbing truth behind the unlabeled, patented, genetically engineered foods that have quietly filled U.S. grocery store shelves for the past decade.


From the prairies of Saskatchewan, Canada to the fields of Oaxaca, Mexico, this film gives a voice to farmers whose lives and livelihoods have been negatively impacted by this new technology. The health implications, government policies and push towards globalization are all part of the reason why many people are alarmed by the introduction of genetically altered crops into our food supply. The film also explores alternatives to large-scale industrial agriculture, placing organic and sustainable agriculture as real solutions to the farm crisis today.


LEARN MORE:
Link TV's Food issue webpage
www.linktv.org/food
The Future of Food official site
www.thefutureoffood.com/
Ignacio Chapela at UC Berkeley
ecnr.berkeley.edu/facP...

www.seedsofdeception.c...

Apr 04 11:35 AM

[Brad Zigler:]

Hello?

Commodity sectors that didn't languish whilst agricultrals stagnated include precious metals, reflected in the November-to-February gains earned by the PowerShares DB Precious Metals ETF (DBP) and base metals proxied by exchange-traded products such as the PowerShares DB Base Metals ETN (BOS), which rallied in the fall and winter.


On Apr 04 08:35 AM anopenmind wrote:

> ..."the entire ag sector represented by the fund (seekingalpha.com/symbo...)
> have been languishing in a trading range since last fall."...Hello.
> Has not most other segment funds languished since last fall? Still,
> when we look at major individual stocks in the fund, any that have
> not performed well in past, have pretty good balanced sheets today,
> and very likely will perform well during next several years? This
> segment is not the U.S. autos, airlines, nor many other segments
> that may need years before getting out of ruts. Perhaps Y2009 less
> product will be consumed, as population continues to grow, but Y2010
> and beyond?

Apr 04 12:45 PM

[socphd71:]

I agree with Sober Realist that MON is one of the most evil companies in the world. Unfortunately, the way the world works, that is a powerful reason to buy it. (Disclosure: [a] No position on Monsanto. [b] I live in Missouri. More and more corporations are taking their corporate headquarters elsewhere. The legislature will do almost anything for those that remain.)

Apr 04 07:11 PM

[Sober Realist:]

Yes it is evident that Monsanto is tied at the hip with the federal and state governments:
Tax credit aimed at keeping Monsanto expansion in Missouri
April 2, 2009 4:17 PM
"Lawmakers are pushing for a new tax credit to entice Monsanto Co. to expand in Missouri instead of Iowa."

They have to be stopped:

South African GMO Crop Failure Highlights Dangers of Food Supply Domination
by Barbara Minton

Worry is building over the effects of the Food Safety and Modernization Act of 2009, otherwise known as HR 875. This is the bill currently working its way through Congress that would effectively hand over control of America's food supply to such a nefarious giant as Monsanto and its lesser counterparts such as Tyson and Cargill. We have a right to worry, because broad interpretation of this bill reveals its potential to put an end to healthy food in America. Family farms, local growers, organic producers, and even backyard gardeners can all be put out of business by its heavy hand. Yet an even greater threat may be looming at the front end of the controversy over the food supply as harvests of genetically modified foods begin to fail.

GMO corn plants fail to produce kernels

Farmers in South Africa have suffered millions of dollars in lost income due to the failure of their genetically modified (GMO) corn to produce kernels. The three varieties of plants look lush and healthy from the outside, but when the husks were pulled back there are no kernels. Monsanto's GMO corn was planted on 82,000 hectares of farmland, an amount that equals over 202,000 acres. The loss is spread over three South African provinces, and 280 of the 1,000 farmers who planted the corn have reported the lack of kernel development.

Monsanto has blamed the failure on under fertilization processes in the laboratory and attempted to make light of the situation by claiming that only 25% of the Monsanto seeded farms are involved in the loss. But Marian Mayet, environmental activist and director of the Africa Centre for Biosecurity in Johannesburg is not buying it. According to her information, some farms have suffered up to an 80% crop failure. She has demanded an urgent government investigation and an immediate ban on all GMO food. She points out that it is biotechnology that is the failure, and a careless mistake would not affect three different varieties of corn at the same time. The varieties failing to produce kernels were designed with a built-in resistance to Monsanto's weed killers, and were manipulated to increase yields.

Mayet is justifiably upset. Corn is the primary staple food for South Africa's 48 million people.

Apparently Monsanto is upset too. It has offered immediate compensation to all the farmers experiencing crop loss. Damage estimates are being collected buy local farmer cooperatives, and Monsanto is standing by with its checkbook. Locals are saying they are satisfied that Monsanto is doing a good job to protect them. This kind of largesse is uncharacteristic of Monsanto, a company more widely known for its use of strong arm and bullying tactics, and total disregard for people's rights. It implies that Mayet's concerns over the failure of bioengineering may be justified.

Monsanto uses insidious plan to gain control of world food supply

Monsanto has pushed around farmers to the point where they cannot simply refuse to buy Monsanto's GMO seeds. In its insidious efforts to feed its bottom line at the expense of feeding people, Monsanto has established itself in countries often with the help of their governments who approve the planting of their GMO Roundup Ready seeds. Initially farmers save, multiply and sell seeds to other farmers as they always have, and the area planted with GM seed multiplies exponentially. Monsanto sits by and watches this happen without a complaint. Then when the spreading of seeds is nearly complete, Monsanto begins to threaten these farmers and call their use of the GMO seed illegal. It gets the government behind them to enforce patent laws.

Soon farmers who are paying patent royalties complain about those who are not. Monsanto answers by enforcing their patents on everyone. By this time the spread of GMO seed is so pervasive that any farmer who has refused is bound to have a few stray GMO plants in his fields. Monsanto seeks them out and then sues the farmers for patent infringement. Farmers who buy Monsanto's GMO seeds are then required to sign an agreement promising not to save seeds or sell them to other farmers. The result is that farmers must buy new seeds every year, and they must buy them from Monsanto.

Meanwhile in the U.S., Monsanto is taking steps to block access to non GMO seeds. They have bought up seed companies across the Midwest, and have gotten legislators to put through laws that make cleaning, collecting and storing seeds so onerous in terms of fees and paperwork that using normal seeds becomes almost impossible. Laws are proposed that ensure farmers cannot block the planting of GMO seeds even if they contaminate other crops. Ownership of seed cleaning equipment is made illegal by considering it a source of seed contamination. More than 1,500 farmers whose fields have been contaminated by GM seeds have been sued for royalty payments.

Monsanto controls over 90% of the patented seed market

Today there is intense concentration and lack of competition in the patented seed crop industry. Monsanto clearly dominates the playing field, controlling over 90% of the market. There is strong evidence that Monsanto uses various devices to squelch emerging technology that might compete with its patented products. As a result of Monsanto's power grab, small and medium sized farmers have been denied the ability to be competitive and profitable, having to over pay for their patented seeds. Monsanto's near monopoly of the GMO market has given it the power to overcharge farmers and keep new and better technologies from entering the field.

Monsanto is positioned to control legislation in the U.S.

To ensure the perpetuation of its near monopoly, Monsanto is helping to install the right people in the right places. To that end, Michael Taylor, the ex FDA head who approved the use of bovine growth hormone (rBGH), has just become ensconced in the Obama transition team where he may soon be overseeing food safety. He will join already well placed Tom Vilsack, the pro GMO Secretary of Agriculture. As a pair, Taylor and Vilsack, will be in a position to continue the phasing out of small and medium sized farms to make fertile farmland available for the intensive capital accumulation of factory farms, and the phasing in of Monsanto's take over of the entire U.S. food supply.

Passage of the food safety bill will allow Monsanto to continue taking control of farms without any obstacles. Similar laws in the EU have already wiped out 60% of Polish farmers so far. The Hazard Analysis and Critical Control Points (HACCP), a production control system for the food industry, is helping to smooth the way for Monsanto by creating international harmonization of laws. According to an article by Linn Cohen-Cole, "in Kansas alone HACCP wiped out 72 small local meat processors who hadn't had any problems, and vastly lowered the number of inspections to the point where we have over 70 million food borne illnesses a year now."

Cohen-Cole is shocked at the lack of awareness of what is going on by people who support local and sustainable farming. She sees them as excited about an organic White House garden while a food safety bill is being put into law that would literally destroy everything they have been working for. She is hoping groups that support the going green agenda will wake up and join farmers in an effort to block the legislation. She suggests contacting Rosa DeLauro, the woman who sponsored HR 875. DeLauro can be reached at:

Washington Office: Phone [phone] Fax [phone]
Connecticut Office: Phone [phone] Fax [phone]

HR 875 is long and tedious reading, and in the style being set by the Obama administration, has probably not been read by the people slated to vote on it. In the face of public outrage, these legislators may not follow through with support for a bill making them targets for their constituents. But legislators are not the only ones who have been conned by the food safety bill.

Just like the Clean Water Act that ensured more contamination of waterways, and the Clean Air Act that ensured rising levels of air pollution, the Food Safety Act bears a name that makes it difficult to resist if you don't know the finer points. After all, who could be against food safety? Anyone standing up for family and healthy living is an easy mark for such deception. This well planned attack on the food supply counts on the ability of liberal and progressive communities to cut their own throats.

It may be that the South African crop failure is the first clue that nature will triumph over the scientists and GMO products will end up self destructing. It is certainly a wake up call to the dangers involved in the domination of the food supply by one company and its varieties of patented GMO seeds. It is something to hope for until one thinks about the widespread starvation that would follow in the wake of such an event. The threat of facing that makes contacting DeLauro a much more appealing way to at least temporarily derail Monsanto's plans.

Apr 04 08:13 PM

[mediapro:]

I was wondering when someone would point out the risks of introducing GMO seeds into the environment.

What "Sober Realist" left out for those that praise Monsanto and other GMO'ers is the very real risk of massive lawsuits for releasing these Frankenseeds into the environment. Active multi-billion dollar efforts are already underway in Canada and India.

Canadian organic farmers are targeting Monsanto for promoting GMO soybean and other seed stock to non-organic farmers with a dusty roadway as the only barrier preventing contamination. Same for promoting these to lower tier countries, such as India.

The programs tagged in the post from "Sober Realist" are really only the tip of the iceberg, and I wouldn't be dismissive of the potential that this company could go the way of "Bhopal".


On Apr 04 11:35 AM Sober Realist wrote:

> Monsanto = Corporate control of our food source. I didn't realize
> how evil this company was until I saw this documentary last night
> (first time aired on TV in America:
>
> March 23, 2009
> Link TV to air The Future of Food this week
> By Rady Ananda
>
> Joining the growing conversation about genetically modified foods
> and the tactics of transnational corporations, Link TV will air The
> Future of Food this week. Click here for air times:
> www.linktv.org/program...
>
> Deborah Koons Garcia's groundbreaking film from 2004 can also be
> found at Google video:
> video.google.com/video...
>
> This is Link TV's intro:
>
>
> Is there anything more important than knowing where our food comes
> from, and who controls what we eat? The documentary The Future of
> Food has the disturbing answers. Today's food chain is far more complicated
> than the traditional farmer to table model - it has become a vertically
> integrated industrial complex. And with government looking the other
> way, genetically modified seeds have found their way into our food
> supply. The time has come to take back our food.
>
>
> This Link TV special, hosted by celebrated environmental journalist
>
> Mark Hertsgaard, investigates the corporate dominance of our world's
> food systems. We are joined in the studio by the filmmaker of The
> Future of Food, Deborah Koons Garcia, as well as University of California
> biologist Ignacio Chapela, founder of The Mycological Facility in
> Oaxaca, Mexico, a facility dealing with questions of natural resources
> and indigenous rights. Koons Garcia's documentary The Future of Food
> offers an in-depth investigation into the disturbing truth behind
> the unlabeled, patented, genetically engineered foods that have quietly
> filled U.S. grocery store shelves for the past decade.
>
>
> From the prairies of Saskatchewan, Canada to the fields of Oaxaca,
> Mexico, this film gives a voice to farmers whose lives and livelihoods
> have been negatively impacted by this new technology. The health
> implications, government policies and push towards globalization
> are all part of the reason why many people are alarmed by the introduction
> of genetically altered crops into our food supply. The film also
> explores alternatives to large-scale industrial agriculture, placing
> organic and sustainable agriculture as real solutions to the farm
> crisis today.
>
>
> LEARN MORE:
> Link TV's Food issue webpage
> www.linktv.org/food
> The Future of Food official site
> www.thefutureoffood.com/
> Ignacio Chapela at UC Berkeley
> ecnr.berkeley.edu/facP...
>
> www.seedsofdeception.c...
>
>

Apr 04 11:30 PM

[Jade Queen:]

Piling on here, there's another horrifying film making the rounds, by a French journalist, The World According to Monsanto. There are children in the south who know their toxin levels. One was quoted as giving his number and asking how long he might expect to live.

Also, I believe a farmer in California has prevailed in a lawsuit concerning contamination from drift.

If you decide to slog through HR 875, skip to the bottom where it talks about enforcement. $1,000,000 per day, and the definitions are so loose, the kitchen sink could be a farm. Unless they amended it out, they plan to use interns (paid ones, no doubt) to help out with enforcing things. People eat dandelions you know. If one gets in your yard, you must be a farm.

Adding onto that Vandana Shiva, the quantum physicist turned seed crusader from India, has reported farmer suicide rates in India when the promised bumper crops did not work out the way promised. Small farmers are now organizing to save seed and to grow in traditional ways. India didn't grow to the human population it has because they couldn't grow food.

She has also reported that Bill Gates gave $47 million to Monsanto to engineer seeds to be climate-adaptive. Vandana Shiva's opinion of that is that seeds designed in a laboratory are adapted to a laboratory.

My question is how the $47 million gets accounted for, both coming and going.

They are also accused of bio-piracy, that is, trying to patent plants that are traditional and have been used for eons in particular countries.

You can go to Vandana Shiva's website to find out about these things. One of the scariest things to me is that they tried to patent the castor bean plant.

Quiz of the day: why is that so scary?

Apr 14 01:15 AM