Dow's and Monsanto's SmartStax Looks Like a Blockbuster

Folks have wondered why I am so high on Dow Chemical Co.'s (DOW) Dow Ag division. I came across this while on vacation:

From Bloomberg:

Monsanto Co. (MON), the world’s largest seed maker, plans to charge as much as 42 percent more for new genetically modified seeds next year than older offerings because they increase farmers’ output.

Roundup Ready 2 Yield soybeans will cost farmers an average of $74 an acre in 2010, and original Roundup Ready soybeans will cost $52 an acre, St. Louis-based Monsanto said today in presentations on its Web site. SmartStax corn seeds, developed with Dow Chemical Co., will cost $130 an acre, 17 percent more than the YieldGard triple-stack seeds they will replace...

Acreage Forecasts

SmartStax corn seed will be planted on as many as 4 million acres in 2010, its first year on the market, with a potential for as many as 65 million acres in the U.S. eventually, the company said. The new seed boosts yields 5 percent to 10 percent compared with other products, partly by reducing the amount of land that must be planted with conventional corn to 5 percent from 20 percent, Monsanto said.

Pricing for SmartStax is at the high end of expectations, Laurence Alexander, a New York-based analyst at Jefferies & Co., said by telephone.

You see, Dow Ag is already growing earnings 15%+ a year without this product. This is a product, it needs to be noted, that has every making in no uncertain terms of a blockbuster. It is a JV with Monsanto so it has the selling/marketing and research arms of two multi-billion dollar companies behind it.

It also has the EPA's blessing and has been shown to improve yields for farmers 5%-10%, which is huge. Here is a .pdf of the Monsanto/Dow announcement from 2007.

Look for more color on sales in Q4 2009 and Q1 2010. It is gonna be big... unless we somehow find more farmland or need to feed less people.

Disclosure: Long DOW

Comments

[werpknarly:]

monsanto talkes a big talk to wallstreet, but hides the truth... check page 79. www.aphis.usda.gov/brs.... RR2 is not better than RR1. PLUS with the falling price of corn and beans, all the discounts and give aways in the seed industry. those increased prices are a pipe dream. - midwest farm guy

Aug 23 09:26 PM

[RSAAKKS:]

There are competitive seeds from DuPont and Syngenta as well. So it is not as much of slam dunk as you may think. Weather playing a huge role in productivity, and recession hitting the pocket books all over, it remains to be seen if higher prices will stick.

Aug 24 08:02 AM

[Kelev:]

DOW will unload its Ag division to pay down debt, no doubt. On paper, the company is insolvent and they don't have nearly the cash flow to be safe beyond debt service requirements.

Aug 24 12:48 PM

[wsd:]

"DOW will unload its Ag division to pay down debt,"

Not going to happen... Read recent remarks by Dow. Its reason stock has started to go up again..

Aug 24 02:55 PM

[J-Lo:]

If you are expecting Dow to unload the Ag division in order to pay down debt... well you are going to be waiting a mightly long time, because it is not happening anytime soon. Besides they are already paying down the debt much quicker than the goals called for without selling it. Unless some freakishly high offer came to the table it will not happen soon.


On Aug 24 12:48 PM Kelev wrote:

> DOW will unload its Ag division to pay down debt, no doubt. On paper,
> the company is insolvent and they don't have nearly the cash flow
> to be safe beyond debt service requirements.

Aug 25 01:23 PM