Still Scratching My Head over Monsanto

I have been scratching my head at the weakness in Monsanto (MON) of late; the recent earnings report [Jun 24: Monsanto Beats on Bottom Line, Misses on Top Line - Cuts 4% of Workforce] was not terrible and the long-term franchise has some nice wide moats around it. They did have a weak quarter with Roundup, but had telegraphed they were de-emphasizing that side of the business... kind of strange action. Especially in light of the type of reports we are now shooting bunny rabbits out of cannons to celebrate the past few days.

The chart is very weak, but Tuesday we had a gap up on news of approval for a new corn seed jointly developed by Monsanto and Dow (DOW) in the US and that "socialist" country up north where it snows 11 months of the year and rationed healthcare leads to a sickly and unhappy population used to waiting 6-8 years for a doctor's appointment. (source: FOX News pundits)

Frankly a gap up on a chart this poor is normally an excuse to short.

• Dow Chemical Co (DOW) and Monsanto Co (MON) said on Monday that the next generation of genetically modified corn seed received regulatory approvals in the United States and Canada, putting the largest ever launch of a corn biotech seed on track for next year.
• The product, known as SmartStax, combines traits developed by both Monsanto and Dow unit Dow AgroSciences that provide significant improvements in insect and weed control, the companies said. They originally signed a licensing and collaboration agreement in 2007.
• The next generation seed offering, slated to be introduced for the 2010 planting season, will combine eight different herbicide tolerance and insect-protection genes.
• Significantly, the new technology will allow farmers to reduce the percentage of crops with no inherent insect protection that they are required to plant, resulting in a 5 to 10 percent increase in corn yields. The multi-gene product will protect the corn crop against above- and below-ground insects. It will also guard the crop from being damaged by some weed control chemicals.
• Dow and Monsanto noted that the new corn seed technology is expected to be offered to farmers on 3 million to 4 million plus acres in its first year of availability.
• The product presents a significant challenge to rival DuPont (DD), which recently said the roll-out of its new corn seed technology will be delayed, as regulatory approvals in Japan, Taiwan and South Korea were taking longer than expected.
• "What's really significant here is the size of the launch acreage," said Morningstar analyst Ben Johnson. "Three to four million acres is a massive launch. It is really an aggressive step to go for the throat and get this product out in as many acres as possible before DuPont's Optimum AcreMax is even up on its feet," he said.
• The new seed could be used by farmers on between 50 million and 65 million acres in the United States alone within the next five to six years, Fraley said. Total U.S. corn acreage has been roughly about 87 million acres in recent years.
• Monsanto and Dow are seeking regulatory approval for SmartStax in Mexico, Japan, South Korea and Taiwan. Executives said on the conference call that they were confident of having those approvals prior to the product's launch.

I did not know this fact...

• U.S. farmers are permitted to plant biotech seeds with insect protection in about 80 percent of cultivated acreage, but regulations require about 20 percent of refuge area. Crops planted in the refuge area have no inherent insect protection, so bugs can feed in that area and not evolve around the insect protection.
• The new technology will allow farmers to reduce farm refuge to 5 percent from 20 percent for SmartStax in the U.S. Corn Belt and in Canada.

Every time I read about Monsanto, I don't know whether to be in awe or very afraid. But if the "socialists" in Canada allow their people to be exposed to it, it must be ok!

No positions

[Jun 1, 2009: SmartMoney: Monsanto's CEO on Growing in a Recession]

[May 27, 2009: Monsanto Pulls Full Year Earnings Guidance Down to Lower End on Roundup Weakness]

[Apr 2, 2009: Monsanto - Solid Earnings]

[Jan 7, 2009: Monsanto Earnings - Quite Awesome]

[Sep 16, 2008: Monsanto Raises Guidance Again]

[Jun 25, 2008: Monsanto - Good Results, Expectations Very High]

[Jun 5, 2008: Monsanto Plans to Double Grain Yields by 2030; Some Have Doubts]

[Apr 2, 2008: Monsanto Hilarious Reaction to Guidance]

[Feb 12, 2008: Monsanto Raises Guidance Yet Again]

[Jan 3, 2008: Monsanto - Very Good Earnings and Raised Guidance]

[Oct 9, 2007: Looking Ahead to Monsanto]

Comments

[Seanlbrennan]

Actually, the regulators in Canada consider the Company that they are regulating to be the 'client'; not the Canadian citizen, as the companies pay for the research now, not Canadian taxes(due to cuts in the 90's). There are many articles of Canadian Government scientists complaining about this...

2009 Jul 22 09:09 AM

[Alan Young]

The unintended side effects of all this Frankenfood are still accumulating in the background. By the time we get swamped with the bad news-- mutated insects, mutated native plants, allergic reactions, gawdonlyknows what else -- it will be an "environmental" problem. As usual, we socialize the costs and privatize the profits.
Personally, as an ethical matter, I will not invest in this company.

2009 Jul 22 01:26 PM

[TraderMark]

Its funny, I've chosen not to invest in Goldman Sachs for the same moral reasons ;)

I do agree with the comments you make in general though. I am worried about the long term effects. But this comes from someone who almost never takes any medicine (I'm still relatively young) because I dont want to build a resistance to anything when I really need it.

I cant even imagine what offshoots the "new foods" will create


On Jul 22 01:26 PM Alan Young wrote:

> The unintended side effects of all this Frankenfood are still accumulating
> in the background. By the time we get swamped with the bad news--
> mutated insects, mutated native plants, allergic reactions, gawdonlyknows
> what else -- it will be an "environmental" problem. As usual, we
> socialize the costs and privatize the profits.
> Personally, as an ethical matter, I will not invest in this company.

2009 Jul 22 03:44 PM

[the humble scribe]

It is a futile exercise to speak only of potential long term effects of Monsanto's agricultural products without weighing in the benefits they provide as far a feeding a hungrier world is concerned.

This is in all evidece a case of the good far outweighing the bad.

2009 Jul 23 02:46 PM