Yesterday I asked if anyone had any specific questions about commodities or publicly traded companies that deal in commodities.
And a reader wrote in with an excellent question about one of my favorite, large-cap agriculture companies: Monsanto (MON).
For the record, I actually am not a big fan of Monsanto on a personal level. As much as any other publicly traded company, Monsanto personifies the kind of big, bad corporation that’s in bed with big government to the detriment of individuals and small business people.
This type of firm works hand-in-glove with the many and sundry regulatory bodies in this country to make it near-impossible for the little guy to get ahead. In effect, companies like Monsanto are a state-sponsored monopoly. If you’re familiar with Nobel prize winning economist George Stigler and his work, you’ve heard of “regulatory capture.”
Monsanto, and other huge companies in this country all benefit from regulatory capture – which in essence just means that regulatory bodies become dominated and controlled by the very sectors and firms that they’re intended to regulate.
And it makes sense that companies like Monsanto would eventually come to control the regulators. If you’re a regulator, keeping a company like Monsanto in business means job security. You’re directly incentivized not to keep a close eye on the business operations, but rather, to make sure those business operations are protected, thriving and unthreatened.
For one big example of Monsanto’s regulatory capture: in 1991, the FDA hired Michael Taylor to be their deputy commissioner. Previous to getting hired by the FDA, Mr. Taylor was an attorney for Monsanto. While at the FDA, Taylor helped approve a variety of genetically modified crops – which aided Monsanto as much as any company.
After leaving the FDA, Taylor went back to work for Monsanto.
I don’t know Mr. Taylor. I’m sure he’s a fine person. I’m sure he loves his wife (or husband – I don’t judge ...)
But you can’t tell me that he was not acting in the best interests of both the FDA as a regulator and as an employee of Monsanto. Being that his actions helped Monsanto while he was at the FDA – there’s little question about whether Monsanto captured the regulators.
That’s just one example.
But I wanted to point out that while I don’t personally like Monsanto – in fact, I actually loathe the company and all that it stands for – I do think it’s a very compelling investment right now.
If you’re going to be a successful investor, you have to divorce personal preference and emotion from the equation.
And if you believe that agriculture commodities like corn, wheat, soybeans and rice will continue to rise in price because of growing demand, inflation and diminished farmland capacity, then you should probably own some shares of Monsanto.
It’s a global agriculture company. It provides seeds and products around the world. It's on the cutting edge of agriculture technology.
They’ve been growing revenues and dividends consistently for the past decade.
And they will be around and profitable even if the U.S. government destroys the dollar or oil prices skyrocket. They’ll be around and selling seeds probably even if every other seed company goes under.
They have negligible debt levels – and the best part: You can now pick up shares for nearly as cheap as they’ve been all year.
I’d nibble on shares under $70, and back up the truck if they dip below $55.
As always, do your own research, but I think Monsanto could be an excellent long term holding for any commodity investor.
Disclosure: No position.