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Monsanto Company (NYSE:MON)

F1Q08 Earnings Call

January 3, 2008 9:30 am ET

Executives

Scarlett Lee Foster - Investor Relations

Terrell K. Crews - Chief Financial Officer, Executive VicePresident, Chief Executive Officer - Seminis

Hugh Grant - Chairman of the Board, President, ChiefExecutive Officer

Robert T. Fraley - Executive Vice President, ChiefTechnology Officer

Analysts

Mike Judd - Greenwich Consultants

Jeff Zekauskas - J.P. Morgan

P.J. Juvekar - Citigroup

Robert Koort - Goldman Sachs

Frank Mitsch - BB&T Capital Markets

Peter Butler - Glen Hill Investments

Kevin W. McCarthy - Bank of America

Lawrence Alexander - Jefferies & Company

Charlie Rentschler - Wall Street Access

Vincent Andrews - Morgan Stanley

Donald Carson - Merrill Lynch

Mark R. Gulley - Soleil Securities

Operator

Ladies and gentlemen, thank you for standing by and welcome to the MonsantoCompany first quarter 2008 results. (Operator Instructions) I would now like toturn the conference over to Ms. Scarlett Foster. Please go ahead, Madam.

Scarlett Lee Foster

Thank you and good morning to everyone. I’d like to welcomeyou to Monsanto's first quarter earnings conference call and I am joined thismorning by Hugh Grant, our Chairman and CEO; Terry Crews, our CFO; and by ourChief Technology Officer, Rob Fraley. And also joining me are Brian Hurley andLaura Myer, my colleagues in Investor Relations.

Consistent with our format for the last three years, we usemost of the first quarter earnings call for Rob to give a progress report onour R&D pipeline. We’ll start, however, with a brief overview by Terry ofthe quarter’s results and our guidance and then turn to Hugh for a few commentson the strategic path to 2012 that we had laid out at our November investorday.

Before we begin, I’d like to remind you that we arewebcasting this call and you can access it at our website at Monsanto.com andthe replay is also available at that address. For those of you who’d like to goto our website, the slides for this call are posted on the investor informationpage.

We’re providing you with EPS measures both on a GAAP basisand on an ongoing business basis. In those cases where we refer to non-GAAPfinancial measures, we’ve provided you with a reconciliation to the GAAPmeasures in the slides and in the earnings press release.

I need to remind you that this call will include statementsconcerning future events and financial results. Because these statements arebased on assumptions and factors that involve risk and uncertainty, thecompany’s actual performance and results may vary in a material way from thoseexpressed or implied in any forward-looking statements. A description of thefactors that may cause such a variance is included in the safe harbor languagecontained in our most recent 10-K and today’s press release.

So because our time is short today with the R&D update,I’m going to turn the call immediately to Terry to discuss the quarter’s resultsand the full year outlook.

Terrell K. Crews

Thanks, Scarlett and good morning to everyone. I’d like tostart by asking you to reference slide 4 in the first quarter deck. By allaccounts, this has been a very strong start to the first quarter with anongoing EPS of $0.46 per share for the quarter, well above our originalexpectations and more than double our ongoing results from the first quarter offiscal year 2007.

Three months into the fiscal year, this strength isprimarily a reflection of the South American business and specifically speaksto the growth in Roundup and corn seed sales in Brazil and Argentina. Thisperformance is reflected not only in sales but also in gross profit and is asignificant factor in our decision to increase guidance for the year to $2.50to $2.60 per share on an ongoing basis. This is up from earlier guidance at theupper end of the $2.20 to $2.40 band.

In short, what’s changed versus our original expectations isLatin America. What’s still largely to come, although early indicators arepositive, is the U.S. season. With volumes more than 25% higher and priceholding above our historical band of $11 to $13 per gallon in Brazil andArgentina, gross profit from Roundup in those two world areas has tripledcompared with gross profit at this time last year.

All this has been done with financial discipline as DSOs areat levels significantly below those in the first quarter last year in bothcountries. As a result, the dynamic for Roundup for the fiscal year has changedpositively when compared with our original expectations of a gross profitcontribution of $950 million for this fiscal year. Given the Latin Americaresults, we now believe our Roundup business is capable of delivering more than$1 billion of gross profit for the 2008 fiscal year.

Just to give you a benchmark, we indicated during ourNovember 8th investor day that we expected the Roundup business to be able tosustain $1.2 billion in gross profit as we looked to 2012. The results from theLatin America season are moving us toward this new level of profitabilitysooner than we would have anticipated in our five-year outlook.

As pleased as we are with the successful start of Roundup,our near and long-term growth will be a function of our seeds and traits business.We are pleased that Brazil and Argentina have also turned in impressive resultsfrom the corn seed businesses. We’ve seen a doubling of corn seed sales in eachcountry, driven primarily by increased volume. Additionally, in Argentina withexpanded corn acreage and the first sales of our recently approved doublestack, our corn trade sales have made a larger contribution than in previousyears.

The strong performance in both countries give us confidencein our ability to deliver on our commitments to continue to grow one to twoshare points in Argentina while stabilizing share in Brazil.

As I mentioned earlier, while the U.S. season is still infront of us, early indicators are positive and they are also a factor in ourdecision to raise guidance for the full year. Based on strong early orderpatterns, we now expect our DEKALB core market share to increase in the two tothree point range, up from our prior commitment of one to two points.

If you turn to slide 5, we’re now forecasting triple stackpenetration in the range of 25 to 27 million acres in the U.S., an increase ofsome 50%. This reflects a branded portfolio that expects to be approximately55% to 60% triple stack, up from our projection at the start of the fiscal yearof 50% triple stack products in our DEKALB and ASI brands.

Let me turn now briefly to cash flow. Free cash flow for thefirst quarter was $740 million compared with $533 million in the first quarterof last year, with prepayments in the U.S. higher than in last year’s firstquarter. As indicated on slide six, given the Latin America results and theresulting change in ongoing EPS guidance, we now expect free cash flow for theyear to be in the range of $900 million to $1 billion, up from the previousforecast of $800 million to $900 million.

We also anticipate that by year-end, working capital will bea modest contributor to operating cash, given our strong start in managingreceivables in Latin America.

We are increasing our free cash guidance even as we pullforward some of the capital spending already approved for corn seed productionfacilities because of the continuing strength of the DEKALB and ASI brands. Wenow anticipate capital spending greater than $800 million for the year. Thishigher level of capital spending for seed facilities will be offset by some ofthe greater operating cash from higher net income.

Given the increased demand and higher volumes for Roundupover the last several years, we are also considering potential capital projectsto de-bottleneck our Glyphosate production facilities.

As we mentioned at our November investor day, our sharerepurchase program continues to be a priority and in this quarter we spent $49million in share repurchases. We’ve now repurchased a total of $360 million in shares,or roughly 45% of our four-year, $800 million authorization that began inOctober 2005. To meet our commitment, share repurchases will naturally be moreaggressive over the next 22 months.

On a separate note, you’ve probably heard by now that Solutiahas announced it is closer to coming out of bankruptcy, which is great news.Because we cannot predict with certainty when Solutia will be able to satisfythe conditions of its bankruptcy emergence, we’ve not yet recorded anypotential cash or equity proceeds. We have, however, previously recorded all ofthe estimated historical, environmental, and litigation expenses associatedwith our obligations. We’ll spell out the full effect of their emergence frombankruptcy once it’s officially complete.

Although our early estimates indicate a potential gain inthe range of 22% to 24% -- $0.24 per share, which is not a part of our ongoingearnings and cash flow guidance. Just to reiterate, today’s updated guidancedoes not contemplate any receipt, cash or equity or reimbursements fromSolutia.

In closing, only four months into our fiscal year, we couldnot be more pleased with the results from our Latin America business and thecontinued strength from the nearly 35-year old brand that is Roundup. The LatinAmerica season is fairly well in hand and we are cautiously optimistic, giventhe early indicators for the U.S. growing season and a nice start to ourEuropean sales. The bulk of the heavy lifting is ahead of us in the second andthird quarters but we are pleased to be able to raise our guidance this earlyin the fiscal year on both an ongoing earnings and free cash basis.

With that quick overview, I’d like to turn the call over toHugh.

Hugh Grant

Thanks, Terry and happy new year to everybody on the linethis morning. Just two short months ago, more than 100 of our investors metwith us here in St. Louis on an unseasonably warm November date. During our daytogether, we laid out for you a path to double our gross profit by the end of2012, fueled by six drivers of growth in our seeds and traits business.

So what’s changed nearly 60 days later on a frosty Januarymorning here in St. Louis? First, some things really haven’t changed at all.From a big picture perspective, the economic dynamics in agriculture continueto point to a demand-driven ag economy. The need for the big row crops is asgreat as it’s ever been, with corn, soybean, and wheat carryover stocks in theU.S. all within shouting distance of 30-year lows, and global carryovers incorn and wheat at similarly low levels.

Demand out of China for grain is growing and as the interimU.S. ag secretary recently shared, the U.S. now expects to expect moreagricultural goods to China than to Europe in the coming year.

Coupled with the export demand is the continued demand forbiofuels, which has been reinforced with the recent changes to the U.S.renewable fuel standards.

Second, we’re on a path towards another year of 25% earningsgrowth or greater, as Terry shared with you. The first quarter has been apleasant upside and I’m particularly pleased with the performance of ourBrazilian and our Argentine businesses across the board.

We are now thinking of Roundup as a billion dollar plusgross profit business this year and that is new since we met in November. I ampleased that we took the hard moves of restructuring the Roundup business threeyears ago so that we can harvest today’s upside and sustain this business at alevel greater than we would have ever predicted three years ago.

But that leads me to the third point, and it’s another onethat hasn’t changed. While we’re delighted with the work by the Roundup teamsglobally, our success in seeds and traits will ultimately determine how we meetour 2008 commitments and our 2012 targets.

What we know now that we didn’t know in November is that theU.S. order book is stronger in the year-to-date comparison and points to ahigher level of market share growth and greater penetration of triple stacktraits in corn. From Brazil to Argentina to Europe to the U.S., the indicatorsare that our breeding programs are producing the seed of choice for farmers.

I think all of these items lead to a singular conclusivepoint. As I’ve said before, farming is all about yield and Monsanto is allabout delivering that yield. Whether it’s unlocking the yield inherent in ourgerm plasm, as evidenced by the yield advantages that we’ve demonstrated againand again in field trials around the world, or the protection of that yieldwith the best possible package of traits, we’re obsessed with yield and nobodyraises the bar on yield better than Rob and his team.

So from platforms like SmartStax in corn, our Roundup readyto yield in soybeans, with the potential to deliver a stack change inperformance to farmers and create the platforms for future growth in an ageconomy that cries out for growing more stuff on the same acres.

So as Rob will unveil in a minute, the innovation in ourpipeline is accelerating. But as the CEO, what impresses me the most is thatthese are real products that have been tested in real fields where you can walkthrough and touch the crop, like the golden acre that we saw last summer.

We can deliver the kind of progress that Rob will talk abouttoday because our work is real and it’s tangible. No other company has thetrack record that we do in taking an idea into the laboratory, refining it inpetri dishes and then taking it out into the test fields through the regulatoryreviews and finally into farmers’ hands.

So as good as the order book for U.S. corn looks, Ipersonally believe that the results from our research this year look evenbetter and that’s a testament to Rob and his team’s ability to discover,develop, and deliver great products for our farmer customers.

So with that, I’m delighted to turn the remainder of thiscall over to Rob.

Robert T. Fraley

Good morning, everybody and thanks, Hugh. I am thrilled tobe able to share with you our fourth annual pipeline review and this year isparticularly special because with the progress we’ve seen and the momentumwe’ve built, the prospects for our pipeline are as bright as they’ve ever been.

Now over the past month, we’ve given you the final breedingresults from our 2007 testing for both corn and soybeans so I won’t spend muchtime this morning reviewing those results again. But it’s important to notethat our breeding engine is absolutely humming and whether it’s DEKALB or ASI,corn or soybeans, base seed or complete trait package, we’ve clearly extendedour yield advantages going into the 2008 season and this will continue to bethe engine that’s powering the corn and soybean opportunity in 2008 and overthe years to come.

If we move to slide 10, you can see why we are going tospend the bulk of the time this morning on our biotech pipeline. Simply put,our trait pipeline progress this year is compelling, establishing someimportant firsts in the 20-plus years that we’ve been doing biotech research.And let me highlight the ones that excite me the most.

First, 10 projects either advanced phases or were added tothe pipeline, and this is amongst the largest volume of project progress sincewe’ve been doing these updates.

Second, for the first time ever, we’ve transitioned fourprojects from phase two to phase three and this phase three jump is especiallyimportant because it’s the gateway to the commercial track. In phase three, theprobability of success moves to above 50% and we begin the large scaleregulatory work, which is the last of our major technical hurdles before commercialization.

Third, we’ve been telling you about multi-generationalfamilies and this year, we advanced two generations of our drought corn family,another first. This shows both the speed that the multiple generations trackwith one another and why we’ve shifted from discrete project concepts intofamilies for yield and stress.

Finally, five projects were added to the pipeline this year.These are projects now officially recognized in our portfolio where we’ve seenenough data to classify them with specific product concepts.

We also made the official addition of SmartStax to thepipeline. We have SmartStax targeted for a 2010 launch and intend for it tobecome the commercial backbone for the rest of the biotech corn traits comingin the pipeline.

So if you move to slide 11, you can see how this progressmaps out on our actual pipeline and a couple of key points to draw yourattention to. The yellow lines on this chart represent the 10 projects thateither advanced phases or were added. This also splits out our yield and stresspipeline from our established trait pipeline to reflect the structure of ourcollaboration with BASF.

In the last month, we sat down with the team from BASF to review the results from our 2007testing in yield and stress and without exception, everyone on the joint teamwas pleased with our first year progress. As the collaboration continues, we’llhave even more to share with you on our initial progress and milestones.

It’s also important to point out a couple of differences onthis pipeline view. Notably, in the past few months, our Renessen JV withCargill reorganized to focus on extract, which continues to make greatprogress. Remember, extracts is our high oil, high lysine corn product designedfor the ethanol and animal feed industries. Several of the other projects thathad been in Renessen, including high oil soybeans, have moved into the Monsantotechnology pipeline.

This consolidated view drives home that there is momentum inthe most meaningful projects and platforms, that multiple generations ofproducts are advancing, and that our research engine is continuing to refreshand build on innovation, and it’s all done with discipline and a focus oncreating returns.

On slide 12, we’ve highlighted the projects on this chartthat I’ll cover today and given the breadth of our research and the quality ofdata we’re generating, there’s a lot to share and I’ll focus on just a few ofthe projects that either advanced or generated particularly interesting datathis year. So let’s begin with the updates.

When you talk about momentum and industry leadinginnovation, there’s no better place to start than with our Roundup RReady2Yieldsoybeans, beginning with slide 13. Roundup RReady2Yield will be the first ofour high impact technologies or hit projects to reach commercialization, andwhen it’s commercialized, it’s going to reset the landscape for soybeanproduction, becoming the platform for future traits in soybeans, much asSmartStax will be for corn.

And the reality is that that commercialization is justaround the corner. We’ve completed all the required U.S. regulatory approvalsand over the last few months, we’ve shared with you our strategy to conductcommercial scale, on-farm demonstration plots with Roundup RReady2Yield to thetune of 1 million to 2 million acres in 2009. This will demonstrate thebenefits of the products and enable a full scale commercial launch on 5 millionto 6 million acres in 2010.

The decisions we’ll finalize in the next couple of weekswill set the stage for what soybean varieties we will have available forfarmers next year at this time and to that end, our breeding, seed production,and work with licensees are all in full swing. And of course, we continue togenerate, confirm, and expand our yield data to support our commercialstrategy.

This far in development, we’ve compiled an incredibly robustdatabase for Roundup RReady2Yield. On this slide, you’ll see that we’vepresented the yield data for comparisons of Roundup RReady2Yield with likevarieties with the original Roundup Ready trait, what we call isoline testing.

Because of the germ plasm backgrounds are very, verysimilar, this type of testing gives us the truest view of the actual yieldbenefits attributed to the trait and importantly, we’ve seen a four-yearaverage yield benefit of 9% for Roundup RReady2Yield. Let me emphasize thatthis is across more than 70 separate trials and hundreds of head-to-headcomparisons demonstrating the consistency and performance that we believe translatesinto commercial yield gains, value to the grower, and rapid grower adoption.

For example, for growers who produce 50 bushel per acresoybeans, a 9% yield increase would mean an additional four-and-a-half bushelsper acre. And if you assume soybeans at the five-year average price of $6.50 abushel, this could create an additional $29 of value per acre for that farmer.

As part of the commercial preparation, we’re also in themidst of breeding selection to identify which lines of Roundup RReady2Yieldportfolio will become the first commercial varieties. The consistent 7% to 11%yield increase we’ve seen with the Roundup RReady2Yield in isoline testing alsoholds for the soybean varieties emerging as our commercial leads.

The selections we are making as a part of this process arebased on comparisons of more than 30,000 Roundup Ready lines and 10,000 RoundupRReady2Yield lines, so we feel very good about the robustness of the yielddata.

I need to emphasize that this yield advantage is a stepchange and has the potential to rewrite the landscape for the soybean farmers.But as importantly, Roundup RReady2Yield also establishes the platform for whatbecomes a very exciting soybean pipeline in the coming decade. Farmers thatmake the investment in Roundup RReady2Yield can expect more than just the yieldbenefit of this particular trait. They will also be accessing the first of whatwill become a platform of new traits that will be stacked on top of RoundupRReady2Yield.

Now the next critical product that will be launched withRoundup RReady2Yield is the insect-protected trait we’ve developed for theBrazilian market on slide 14. Our insect-protected soybeans are one of the fourprojects making the jump from phase two to phase three this year.

If you look at the chart and the slide, you’ll see why. Thistechnology is based on the same understanding of the BT traits we’ve applied incotton and corn and the efficacy of the BT trait in soybeans is outstanding.This is especially important for countries like Brazil where unlike in theU.S., there is significant yield loss due to insects.

We’ve done a lot of testing in the southern U.S. with insectinfested fields and as the graph shows, our insect-protected trait had thelowest number of surviving insect larvae per row, even when compared againstwidely used insecticide sprays. These results confirm similar results generatedpreviously, both in the U.S. and South America.

So logically, with fewer insects there’s less damage to theplants and greater yield potential and in fact, our early testing indicationsin South America would indicate there is a yield benefit of about 4% or morefor the BT soybeans over insecticide treatments and we’ll do further work toevaluate that yield benefit in phase three.

So the severity of the damage these insects cause is easy tosee and if you look at slide 15, you’ll see damage on the non-BT soybeans onthe left. Now compare that with the BT soybeans on the right where you can seethe vibrant leaf canopies that help the plant capture more nutrients and energythat can be converted into grain yield.

With superior efficacy versus insecticidal sprays, we’vedemonstrated the performance to move this phase three product into developmentfor regulatory preparation in Brazil.

Another soybean product, dicamba-tolerant soybeans on slide16, is a key of the future stacks to come on the backbone of RoundupRReady2Yield. It’s also another of the projects that makes the move from phasetwo to phase three this year.

In our phase two testing, we’ve been able to intently focuson establishing that the dicamba-tolerant trait fully protected the soybeanplants and now, with multiple years of field data, we can confidently say thatwe have rock solid tolerance. Our agronomic trials show no yield loss, even atherbicide application rates three times the label use rates for farmers.

Importantly though, this is really about third generationweed control in soybeans, so it’s an important addition to the soybean pipelineprogression. Dicamba-tolerance injects an entirely new mode of action into thesoybean herbicide tolerance options.

Now both Glyphosate and Dicamba have excellent weedresistant profiles over dozens of years of commercial use and combining them iseven more compelling. Our Roundup RReady2Yield Dicamba stack should providehighly economical and durable weed control for the future, which we believe issuperior to any competitive offering. That means that this third generationcombination of Glyphosate and Dicamba-tolerance should set a new level for weedcontrol and flexibility for soybean farmers with better yield.

If we move to slide 17, our Vistive III project, another ofthe hit projects, not only advanced phases but its progress over the last threeyears has been so compelling that it’s actually bumped Vistive II from thepipeline.

When we sat down to plan the portfolio a few years ago, weanticipated a three-step evolution in products, with the middle step focused onincreased oleic acid levels but because of the success we’ve had in meeting thetargets for Vistive III, we’ve been able to achieve the increased oleic contentand reduction in saturate content in one package that makes for a much moreattractive commercial opportunity.

In the chart on slide 17, the data actually shows how wecompose a trait that has four different compositional targets in its productconcept. And what’s important to focus on is the red bar for each category.This represents the Vistive III product. The reduced saturate in increased oleicand linoleic profile come from our biotech work, which is reflect in the yellowbar, and that’s paired with the linolenic profile from our first generationVistive breeding trait shown in the green bar. And in red running across thebottom, you can see the target ranges we’ve identified for each of the fourcompositional categories.

When you put the breeding and biotech work together, VistiveIII meets all the product concept oil composition targets we were shooting for.Ultimately, we believe Vistive III can lower the linolenic and saturate fatcontent while boosting the oleic content.

And now, if all of that yellow, green, and red is tooconfusing, the bottom line is that Vistive III oil has a composition verysimilar to olive oil while maintaining the economics of soybean oil. And Ithink as you all know, olive oil is the gold standard in the food industry forits functionality and consumption as part of a healthy diet.

And I should add that we’ve achieved all of thesecompositional targets without sacrificing yield. Three years of biotech traitfield data in the U.S. and Argentina indicate that Vistive III yields are thesame as conventional soybeans.

With this project entering phase three, we’ve officiallyremoved Vistive II from the pipeline and will focus our commercializationefforts on Vistive III going forward and we’ve already initiated thepreparation of the regulatory packages.

Finally, I wanted to end our look at the soybean portfolioand kick off our look at corn with an update on a couple of the yield andstress traits, specifically our higher yield in soybeans and corn.

Now in November, we communicated our pipeline valuationlook. We designated both of these projects as having blockbuster potential withhigher yielding corn identified as our first mega-blockbuster. Higher yieldingcorn is in its first year of phase two screening this year, and while it’s tooearly in the process to have new data on the events that we will eventuallycommercialize, we’ve tested the trait in multiple environments across more thana dozen locations in the U.S. this year. And in this first pass, we’re seeingyield improvements of greater than 10 bushels per acre and continue to be veryencouraged that we can make a step change in yield potential for corn on abroad acre basis.

If we move to slide 18, we’ll focus on higher yieldingsoybeans, which entered phase two testing a year ahead of our corn project. In2007 testing, we took 68 events into the field at 18 locations. Across theboard, we saw nice yield increases over the controls, with five events thatshowed a 6% to 7% yield increase in these tests. We expect that this trait willbe additive to the step change in yield that we’ve demonstrated with RoundupRReady2Yield and we are targeting a combined yield increase percentage in themid-teens or above with these two traits, which will also be stacked with othertraits in our soybean pipeline.

And like most traits in our yield and stress pipeline,higher yielding soybeans are a multi-generational family. This year, we’veofficially rolled our research on water utilization for soybeans under thishigher yielding soybeans umbrella and this reflects our belief that a traitthat delivers water use efficiency benefits on all acres is actually a broadacre yield trait.

So concentrating now on our corn portfolio, the logicalplace to focus on our updates is in our drought tolerant corn family, whichbegins with our lead gene on slide 19. This lead drought gene moved from phasetwo to phase three this year and I believe is a game-changing event as we arethe first in the industry to take a biotech drought project into regulatory andcommercial preparation.

And the data this year is just flat out compelling. Tounderstand our excitement, it’s helpful to tell you how we test the droughtgenes. We basically undertake a regime of three types of tests for a droughtgene, and these different tests are across the spectrum from controlledmoisture to the naturally dry conditions of the western dry lands.

If you look at the data on this slide, we’re showing youfour years of data from the first category of testing -- that is, testing wherewe control the amount of moisture reaching the plants. This is the type oftesting that allows us to accurately measure the response of the genes to waterstress under different conditions or at different times during the plant’sdevelopment.

You will see that our lead drought event has consistentlydelivered a yield improvement over conventional checks at more than 40locations over the past four years. This year, the average yield increase fromthree hybrids and across multiple locations was better than 11%.

If you move to slide 20, we’ve honed in on just the dry landtesting that we do. Here we’ve taken our lead events and exposed them to thenatural environment, allowing them access only to the rainwater that would benaturally available under dry land conditions.

In 2007 testing, our lead event in three different hybridbackgrounds out-yielded the conventional checks by as much as 15%.

The enhanced yield in the especially harsh conditions of dryland farming is striking and if you move to slide 21, you can see just howstriking. This photo was taken at one of our dry land test sites in southcentral Nebraska. You can see the full, healthy ears in the drought tolerantplants on the right and the stunted ears on the controlled checks to the left.

As a phase three project, we’ll again expand the fieldtesting of this lead trait this year and from these tests, we’ll complete thecomprehensive yield comparisons that will support our regulatory submissions.

Likewise, we’ll continue to work on finding the rightcombinations of the drought gene and corn germ plasm, a factor which we callthe trait by germ plasm by environment interaction, and importantly nailingthat right combination of drought gene in the right hybrids will be the nextmajor step as we prepare our commercial launch strategy.

So advancing one drought project is impressive. Advancingtwo shows you the power of these family concepts. If you go to slide 22, byadvancing our second generation drought corn trait into phase two, droughttolerant corn becomes the most advanced family of yield and stress traits inthe industry.

On this slide, we show the consistent performance of our topthree events over the last two years. The consistency of performance clears allof our initial efficacy hurdles and gives us the confidence to move this intobroader testing in phase two.

Just as importantly, our results indicate that there’s ayield advantage, whether the baseline is dry land corn that averages 50 bushelsper acre, as you see in the 2006 data, or higher yielding, 170-bushel per acrecorn reflected in the 2007 data. This is the first indication of the potentialfor a drought trait to work consistently under both dry land and central cornbelt growing conditions.

In phase two testing, we’ll expand the number of locationsand trails, further evaluating our stable of leads while initiating the sametrait by germ plasm by environment testing that I mentioned with our firstgeneration product.

If you step back and look at the drought family again, withthese advancements, we get particular insight into the commercial opportunityfor these products and importantly, we’re no longer dealing with a hypothesis.We have real products demonstrating real results in the real geographies whereour customers live.

And while we are taking a large step to the commercialopportunity on one side, we are still making great scientific progress on theother. We’re spinning out of our discovery screening with BASF what I thinkcould become the third, the fourth, and the fifth generations of droughttolerance, further cementing the commercial value of this approach.

Staying with our corn portfolio, one project continues to beone of our most innovating and promising development projects is nitrogenutilization corn, which we show on slide 23. Now this is a phase one project,so our work is focused on establishing proof of concept. There is still a lotof work to do as we sift through dozens of genes and identify those that workon the parameters that we are testing, but because of the great interest andthe opportunity for more efficient nitrogen use and the early progress we’vemade, I want to highlight this product.

As you may remember, we’re testing genes to determine bothif there’s an opportunity for normalized yields in low nitrogen environmentsand for higher yields under normal nitrogen conditions. Obviously for cornfarmers, nitrogen is one of the most price sensitive inputs. To give you somecontext, an average farmer in Iowa might use in the range of 140 pounds ofnitrogen per acre at a cost hovering around $0.30 per pound. So whether we canreplace nitrogen applications or help farmers get more yield out of thenitrogen already applied, this should have significant value at the farm level.

We’ve seen some very interesting progress in normal nitrogenconditions captured in the graph on this slide. You can see the yield advantageof one of our lead events in different seed backgrounds over two years andunder normal nitrogen application rates. Before this trait is advanced to phasetwo, we’ll want to do some further optimization of the lead genes this yearunder nitrogen limited conditions.

So if you take all of the results that we’ve looked at todayand all of the projects in the pipeline, move to slide 24 and I’ll wrap up witha look at how this pipeline comes together from a commercial perspective.

If you look at the progress through the lens of thecommercial value these projects create, the robust field data we have in hadtoday gives us great confidence that we are talking about real commercial valuein the future. We introduced this valuation look at our November investor dayand I think it’s a powerful statement as to why we go through suchextraordinary lengths to generate and share the level of detail we do. That is,our development data gives us the first look at the commercial opportunityahead of us.

And I think that opportunity is profound. If you considerthat this is a pipeline expected to create in the range of $5 billion in farmgate value by 2020 and most of that value is incremental, representing newvalue on top of what we’ve already commercialized to date.

This pipeline includes six blockbuster products or families,including one that launches by the end of the decade and three that launchbefore 2012. It also has the potential for a new category, which we’vepreviously defined as a mega-blockbuster for corn yield because it’s such apositive outliner on the value spectrum.

And finally, I just have to point out there’s considerableupside to this valuation. We’ve only considered the first countries of launchand we’ve not included the value from the Seminis portfolio or from thetremendous breeding engine that we have that drives our global seedopportunity.

So if you step back and absorb the valuation look and themassive amount of data we generate on these pipeline projects each year, it’s alot to take in. Let me summarize, if you move to slide 25, and I’ll tell youhow I think about our R&D pipeline.

And the bottom line is that we’ve established our lead inthis industry because of our ability to reduce great science to practice andmake it meaningful to farmers’ pocketbooks. Over the next decade, we’llmaintain and I believe we’ll extend that leadership because our single focus ison the farmer and we want to be the first to bring these farmers the latest,most cutting edge technology.

The strides we’ve made in 2007 puts us squarely on thetrajectory that I expected us to be on, so first our pipeline is humming. Asusual, we’re breaking new ground in the industry with both the level and thepace of innovation. With 10 projects that advanced or were added to thepipeline, we’ve shown you we are not going to be complacent in our leadership.We’re looking to accelerate and extend our lead at every possible turn.

Second, I believe we are right on the edge of some of themost revolutionary technology this industry has ever seen. We have newplatforms in SmartStax and Roundup RReady2Yield that will completely redefinehow farmers think about buying corn and soybean seeds, and we’re layering ontop of these platforms traits like yield, like drought tolerance, and nitrogenutilization in corn and insect protection and third generation weed control andfood quality traits in soybean.

Finally, we’re not only able to reduce innovation topractice but we are directing that innovation at the most valuable, mostpromising commercial targets. With a pipeline loaded with blockbusters andcomplete with a nice balance of commercial opportunities at every stage, we’renicely set up to deliver the next round of commercial drivers from thispipeline and with the accelerating pace of R&D, we’re focused on the nextwave of innovation.

So with that, I’d like to thank you again for joining ustoday and I’ll turn the call back to Scarlett for questions.

Scarlett Lee Foster

Thanks, Rob. We’d like to open the call now to yourquestions and every quarter, I ask that you please try to hold it to onequestion per person. Because the R&D pipeline review typically takes us alittle longer than some of our other calls, I would particularly ask if youcould please help us so that we can get to as many people as possible and holdyour questions to one per person. You are always welcome to rejoin the queuefor a follow-up question.

Dennis, if we could go ahead and take our first question,please.

Question-and-AnswerSession

Operator

(Operator Instructions) Our first question comes from the line of Mr.Mike Judd with Greenwich Consultants. Please go ahead, sir.

Mike Judd - GreenwichConsultants

Congratulations on a great quarter. As you look at thecalendar first quarter and second quarters, I just wonder if you could give usa sense of what’s happening from a demand perspective, sort of a short-termlook. I know you gave us an EPS estimate for -- a revised EPS estimate for thefull fiscal year. I’m not asking for an EPS estimate. I’m just looking more tosort of understand the demand or volume dynamics in the market in the first andsecond calendar quarters, please.

Hugh Grant

I’ll maybe let Terry comment on that in a little bit moredetail, Mike, but it’s -- I don’t know what it’s like in New York, but it’sstill hard frost and a long way from spring down here so our first quarter,without getting into the EPS again, the first quarter is largely driven by oursouthern hemisphere, Argentina and Brazilian markets, and within that largelydriven by a very pleasant upside in Roundup. And in the northern hemisphere,spring is still ahead of us and we are looking towards strong demand in ourNorth American businesses, so we anticipate similar strong demand here but I amgoing to let Terry put a bit more color on that for you.

Terrell K. Crews

Most of the earnings of the company occur in the second andthird quarters of our fiscal year and largely that’s in the first calendarquarter and a little bit into the second calendar quarter, if you want to lookat it from a calendar standpoint. The encouraging thing right now is what we’veseen with the order patterns in the U.S. This really becomes a U.S. andEuropean business for the remainder of the second and third quarters, so we’reencouraged by what we see right now and most of our earnings will continue tocome in this part of the year.

Mike Judd - GreenwichConsultants

In terms of those orders, you mentioned that there was somepre-buying. Can you characterize that in terms of availability of variousproducts? Are there any limitations there or just -- you know, anything sort ofout of -- sort of unusual this year versus other years perhaps would behelpful. Thank you.

Terrell K. Crews

We saw some earlier pre-pays than what we’ve seen in thepast and that’s probably the strength of the farm economy and farmersliquidity. At this point right now, the early order pattern is encouraging butreally what’s key is when DEKALB begins to be shipped and at that point, we seethe shipping starting now -- actually started in December. It will go throughthe next three months and that’s really the key for us and we’ll feel much morecomfortable talking about our U.S. seed and trait business once we get throughthat shipping period.

Right now, we are just encouraged by the order, encouragedby the prepays but at the end of the day, it’s what gets shipped and what getsplanted.

Mike Judd - GreenwichConsultants

Thanks for the help.

Operator

The next question comes from the line of Jeff Zekauskas withJ.P. Morgan. Please go ahead.

Jeff Zekauskas - J.P.Morgan

Good morning. I was looking over Rob’s slides and he’s gotdrought tolerant corn in advanced phase three, which is just where you haveSmartStax corn -- that is, sort of the bars line up. I don’t know if they aresupposed to be precise, so is the meaning of that, the drought tolerant corn isreally a 2010 to 2011 product rather than a 2012 or longer product?

Robert T. Fraley

I wish that were the case, Jeff, but the phases are abouttwo years and I would categorize our drought tolerance as just transitioningfrom phase two into phase three, whereas SmartStax, as you know, is comprisedof many traits that are either approved or very far advanced in theirregulatory process so it’s really a late stage phase three project. So there’sa several year difference between the two, even though they are technically inthe same phase.

Jeff Zekauskas - J.P.Morgan

And then finally, the gross profit in Roundup for thequarter was $487 million and you said that you’d do at least $1 billion, so Idon’t think you are going off on a -- you are going out on a limb there. Is theright number somewhere between $1.5 billion and $2 billion in gross profitsthis year for Roundup?

Hugh Grant

That’s a big number, Jeff. That sounds about as ambitious asour drought tolerant corn lineup.

Jeff Zekauskas - J.P.Morgan

I wasn’t wondering about ambition. I was wondering aboutaccuracy.

Hugh Grant

Well, they are both in that -- I think just a couple ofwords on Roundup, because it’s been a strong Roundup quarter and when we met inNovember, we revised our expectations for Roundup.

I can tell you the danger in these conversations is thatRoundup is portrayed as a surprise on an upside, but I think what we are seeingin Roundup today is a result of a lot of the tough calls that we made three andfour years ago on trimming the SKUs, on taking cost out of the product, andwe’re seeing strong demand and good pricing but I think a lot of it emanatesfrom the work that we did there.

So specifically your question on $1 billion going out on alimb, I’ll maybe ask Terry to say a few words on our gross profit projectionsfor this year and where we are on early stage in the agricultural cycle.

Terrell K. Crews

I think first of all, $1.5 billion to $2 billion would betoo aggressive for the portfolio. We are pleased with what we’ve seen withRoundup. I think it will be above $1 billion.

What we’ve done at this point is recognize the gains thatwe’ve seen in Brazil and Argentina and the reason we’ve done that is becausewe’ve had that season pretty much behind us and we had good collections to goalong with that, so good credibility on those sales as well. So what we’vebuilt into the gross profit for Roundup right now is basically the successwe’ve seen in Brazil and Argentina and we have several months before we seewhere the U.S. and European businesses go on Roundup and we’ll revisit it atthat point.

Jeff Zekauskas - J.P.Morgan

Thank you.

Operator

The next question comes from the line of P.J. Juvekar withCitigroup. Please go ahead.

P.J. Juvekar -Citigroup

Good morning. Great results in Roundup, but you lost moneyon the operating income line in Seeds and Genomics. Is that because of higherproduction costs in triple stacks? Can you just give us some details on thebreakdown of these costs?

Hugh Grant

Thanks for the question. I don’t know if you remember, butwe came through a similar phenomenon in the second quarter last year but I’lllet Terry give you a breakdown on how this phenomenon occurs and why we’reseeing it for the second year.

Terrell K. Crews

Let me -- when you think about the EBIT level of the seedsand traits business, two things happened. We’ve seen a little bit of a declinein the margin side on seeds and traits and the reason we’ve seen that declinehas largely been associated with corn and what happens at this time of theyear. We’re selling more corn seed than we are selling corn traits, so actuallyif you separate the two, the margin is up on both the seed side and the traitside but there is a higher concentration of seeds, very similar to what we sawat this time last year. It gives us no reason for concern.

The other side of it is just it’s just a small quarter forthe seeds and traits business and we carry a full load of SG&A and inaddition this year, we’ve got the acquisition effect on cotton in the firstquarter, so once we work through the U.S. season and we get the traits a highercomponent of our seeds, we’ll continue to see the seeds and traits marginsgrow. So really no apprehension for what we’ve seen in the first quarter.

P.J. Juvekar -Citigroup

And just a clarification question for Rob; Rob, on one ofthe slides, I think it was slide number 20, you talked about 13% to 14% yieldadvantage for drought tolerance. Now, drought tolerance will be stacked withSmartStax, so is that advantage over SmartStax or is that an advantage overregular triple or no traits? Can you just talk about what the control gene is?

Robert T. Fraley

Sure. So in this particular case, the comparisons are totypically to conventional corn hybrids, so this doesn’t include the yieldbenefit of any of the traits, which would be additive to what we’ve seen withpast product performance. So it’s a good point but that’s the yield gain fromthe drought gene per se is the simple answer to your question, and as we bringthat drought gene as we would expect to into the market place with triple orSmartStax combinations, there would be further yield gains expected from theother traits.

P.J. Juvekar -Citigroup

Thank you.

Operator

The next question comes from the line of Robert Koort withGoldman Sachs. Please go ahead.

Robert Koort -Goldman Sachs

Thanks very much. Good morning. I was wondering on theRoundup RReady2Yield product, firstly you mentioned you are determining whichvarieties you are going to put that in. Will those all be outcomes frommolecular breeding technology or will those be some of the traditionaltechnology?

And then secondly, I think you talked about a value ofalmost $30 an acre but I guess that’s in the old reality of soybean prices. Youmight have two-and-a-half to three times the value in the new world order. Howdo you view strategically getting your fair share of that value versus tryingto build market share the way you have in corn by using more of a penetrationpricing approach.

Hugh Grant

Bob, it’s still early days on our pricing. We haven’tdeclared but I think our pricing philosophy and the value share with the growerwill continue to apply regardless of commodity pricing, so we’ve saidhistorically somewhere between one-third to two-thirds and 50-50, and I thinkthat, rather than speculate on where that commodity price is, we’ll engage asimilar philosophy for Roundup RReady2Yield.

The good news this year is we’ve, on massive field tests andwe’ve confirmed that yield advantage and I’ll maybe let Rob talk about how muchthis is regular [breeding] and how much it’s our market technologies and thesenew varieties.

Robert T. Fraley

So we are starting -- you know, we’ve greatly increased ourinvestment in soybean breeding and soybean molecular breeding and we arestarting to use those tools in soybean quite extensively. So certain of thesesoybean varieties will be based on some of the molecular breeding advances andthat will further contribute to the rate of breeding gain that we’ll see insoybeans in the future as we launch these new technologies.

So we’re very excited about Roundup RReady2Yield, both becauseof the yield benefit that is represented in the Roundup RReady2Yield trait butalso it is a really a key to our future soybean platform that will bring in thenew emphasis on breeding and molecular breeding and serve as the base trait aswe stack Roundup RReady2Yield with Dicamba, with the DT soy traits and with theother yield and oil composition traits in soybeans. So we see it as a key andcore to that soybean platform of the future.

Robert Koort -Goldman Sachs

Thank you.

Operator

The next question comes from the line of Frank Mitsch withBB&T Capital Markets. Please go ahead.

Frank Mitsch -BB&T Capital Markets

Happy new year, everyone. In the release, you talked aboutthe expectation in corn seed in the U.S. to get 2% to 3% market share gain, orincrease in DEKALB, in the DEKALB brand. A couple of questions regarding that;is that -- is any of that cannibalization of other, of your other channels tomarket or is it strictly against competitive materials?

Hugh Grant

Frank, we believe this will be strictly against competitivematerials and it kind of ties nicely under the previous question on molecularmarkers and soybeans because I think what we are seeing in this farmer demandis recognition of the strength of genetics and we never spent any time on ittoday but we did in our November update and I think that’s really been borneout on order patterns. So this isn’t cannibalization within the other channels,we think. You know, we still have to get this to the spring, but we think it’san indication of genetic strength.

Frank Mitsch -BB&T Capital Markets

All right, terrific. And I presume that you have someexpectation of what corn acres would be in 2008 and while you’re at it, if youcould share what your outlook is for domestic soybean acres as well.

Hugh Grant

They are still both unknowns as we are sitting here todaybut I think in soybeans, we are shooting 67-ish. We’ve got different noddingheads around the table here and I guarantee you whatever number we give youwill be wrong, but we are shooting around 67 in soybeans and I think we’relooking at still about 78 -- sorry, 80, I beg your pardon. It’s the first daysof the new year -- 88 in corn.

I always say this; these are numbers that are going tobounce around and if we were a fertilizer business, they would be incrediblyimportant but the real key for us, whether it’s 88 or 89 or 90, the real keyfor us is incremental share growth and our ability to drive genetics andcapture competitive share much more than that last million acres of marketsize.

Frank Mitsch -BB&T Capital Markets

Terrific, and then lastly, you talk about the global priceof Roundup being in a band of $11 to $13 per gallon. Are we above that bandnow?

Hugh Grant

Yeah, we are. We are.

Frank Mitsch - BB&TCapital Markets

By a lot?

Hugh Grant

It’s still early days because we’ve got the U.S. ahead ofus, but the indications coming out of our Brazilian/Argentina businesses are weare trading above that band, [a slight] [inaudible] at the moment.

Frank Mitsch -BB&T Capital Markets

All right. Thank you very much.

Operator

The next question comes from the line of Peter Butler withGlen Hill Investments. Please go ahead.

Peter Butler - GlenHill Investments

Good morning. Happy new year, everybody. You folks doexhaustive analysis of data and your comments on your genetics and yieldadvantage are well placed. I’m wondering if you have some thoughts on some ofthe other factors that may be operative. For instance, how is your insuranceprogram doing? And are there limitations on what your competitors might be ableto produce? And could you talk about this subject a little bit, please?

Hugh Grant

Thanks for the questions, Peter. It’s a big field. Let mebegin with, and I’ll maybe ask Rob to say a few words on it, but let me beginwith the insurance programs. We’ve observed what farmers have told us for anumber of years, that when they use the biotech traits, they see consistentlyhigher yields and in conditions that are adverse, whether it’s dry or windy,the crop weathers through those conditions better. So having built thoseactuarial tables up, we are test piloting in four states a program that willallow the farmer to secure crop insurance at a lower level.

Maybe I’ll ask Rob to add a few words to that, and thenmaybe just briefly comment on the general competitive landscape.

Robert T. Fraley

Peter, happy new year. Just to reiterate what you said, theinsurance program is in its trial year. We’re in the four states and the nicestthing I think it really does is it provides an independent validation of theyield advantage we see with the triple and that gives farmers anywhere betweena $2 to $4 benefit in terms of their insurance premiums, which is a niceincentive when they are making their hybrid selections.

I think still this year, the most important differentiatorin the marketplace is the performance of our triples and we’ve [bulked] ourtriply hybrids to a large percentage of our DEKALB, ASI, and license base and Ithink we’re seeing incredible farmer demand for those triples and we’re awarethat some of the competitors can’t meet that market demand and have hadproduction issues with their products. We’re I think pleased to be in a very,very strong position with the availability of triples to meet that marketdemand.

Peter Butler - GlenHill Investments

As an ex-PHD chemist, I take my hat off to your researchproductivity. The dominance of your company is just amazing, amazing and it’s atribute to your people.

Robert T. Fraley

Thanks, Peter. I’m as excited today as I think I’ve everbeen in seeing the pipeline and probably the part that I have the hardest timecommunicating is that what we are seeing here is still very much the beginningof this innovation wave. I mean, I absolutely believe we are still back in the1960s equivalents of the advances in computers and IT. I mean, we’re going tosee waves and waves of new types of products coming out of this pipeline in theyears to come.

Scarlett Lee Foster

Dennis, this is Scarlett Foster. We’re against our time andI recognize that we also have a number of people who are still in queue. If Icould ask people’s help with asking one question, I’ll do the best I can tostay on for another five or six minutes or so and see if we can satisfyeveryone’s questions, if I could ask for that help. If we could go to the nextquestion please, Dennis.

Operator

The next question comes from the line of Kevin W. McCarthywith Bank of America Securities. Please go ahead.

Kevin W. McCarthy -Bank of America

Good morning. On the subject of Glyphosate, you mentioned a25% volume increase. I was curious to hear your thoughts -- to what extent doyou attribute that increase to rising penetration of Roundup Ready soy inBrazil versus generally higher crop prices? In other words, are you seeing morestrength in Brazil relative to Argentina or Europe? If you could elaborate onthat a little bit.

And then the second part of my one question is one pricingand can you talk about Chinese competition in Glyphosate or lack thereof andwhere generic prices stand versus branded these days? Thank you.

Terrell K. Crews

The volume growth is largely driven in Latin America now andit is a combination of new applications as well as applications on top ofRoundup Ready, particularly in Brazil, the growth there. In Argentina, we’reseeing growth across the portfolio for Roundup.

Generic pricing is up in Roundup and that has given us someflexibility due to a challenging supply/demand situation and we’ve been able tocapitalize on some of that as a result of some of the actions we’ve taken inthe past, so pleased with what we’ve seen in Latin America in both volume andpricing capabilities, and all indicative of the work we’ve done in the pastjust to strengthen this brand.

Hugh Grant

And still high demand for Chinese generics, but thecontinued squeeze on energy and waste treatment I think there, Kevin.

Operator

The next question comes from the line of Lawrence Alexanderwith Jefferies. Please go ahead.

Lawrence Alexander -Jefferies & Company

Rob, a question on the leapfrogging of traits; as the paceof R&D accelerates, what is your criteria for having one trait leapfroganother? Is it having products first to market? Is it financial returns? How doyou balance out the criteria on that?

Robert T. Fraley

Thanks for the question and I’ve talked in other sessions,we use a very regimented portfolio evaluation approach and what we saw in theparticular case here with the three Vistive projects is that the rate of accelerationof Vistive III would make it such that Vistive II would not generate thefinancial opportunity that we would have expected and that’s great news. So weget incrementally more value with less R&D expenditure with the benefits ofa better performing product.

Operator

The next question comes from the line of Charlie Rentschlerwith Wall Street Access. Please go ahead.

Charlie Rentschler -Wall Street Access

In view of the stunningly strong performance with yourproduct pipeline, are you going to raise your budget in the R&D area? Areyou going to hire more people than you originally figured? Can you give us somegranularity in that regard, please?

Hugh Grant

Just very briefly, we’ve been increasing our investment inR&D consistently in the last few years and Rob’s been aggressivelyrecruiting against the opportunity, the portfolio of opportunities that hereferenced linked to the last question.

I think the encouraging situation that we are in is we’vekept our percent of R&D as a percent of sales fairly flat over the lastcouple of years but it’s risen as our revenues have risen and I think that’s areally great position to be in, so we are -- if it’s the indirect question, weare not starving our lead projects. We are resourcing aggressively against thesuccesses that we have.

Scarlett Lee Foster

If we could go ahead to the next question, Dennis.

Operator

The next question comes from the line of Vincent Andrews ofMorgan Stanley. Please go ahead.

Vincent Andrews -Morgan Stanley

Good morning, everyone. Just a quick question; you’ve thrownout some numbers on your expectations for U.S. corn triple stacks. You’rethinking about 25 million to 27 million acres and you’ve also said that thatwould be about 55% to 60% I believe of DEKALB. Previously you’d said that you’dhave availability in 50% plus. Does that 60%, is that the upper bound? Doesthat represent what the plus is or is there potentially more there, especiallyif you were able to capitalize -- you just mentioned that there’s somecompetitors having difficulties with triple stacks.

Terrell K. Crews

We can supply up to 60% obviously, we said that today. Wehave some opportunity with winter nursery to see if they can be expanded on.Getting much beyond that gets challenging but we would have, as right now webelieve we’ve got the [broadest] supply of the market, including our winterproduction.

Scarlett Lee Foster

Dennis, if I could ask for the last two questions, please,and then we’ll have a quick close. Thank you.

Operator

The next question comes from the line of Donald Carson withMerrill Lynch. Please go ahead.

Donald Carson -Merrill Lynch

Thank you. Rob, a question on pipeline valuation, slide 24;I know in your backgrounder when you put these numbers out, your assumption hasbeen that 2007 market shares are used as the base for assumptions, yet I knowyou’ve also talked about an objective of DEKALB increasing its U.S. corn seedshare by 10 percentage points by 2012. So within that, what would be theincrease in value if you were to use that higher market share? And given thefact you can gain three points this year, is a 10-point gain by 2012 lookingincreasingly conservative?

Robert T. Fraley

Well, first of all, Don, happy new year and thanks for thequestion. When I’ve talked about that pipeline value, the $5 billion by 2020,maybe I should just make it clear -- that includes no contribution frombreeding and genetics or from Seminis. That is just the farm gate value of thebiotech traits and it’s obviously very conservative, since it’s only in thefirst country of launch and it excludes the Seminis and the breeding portfolio.So it’s just a -- it’s a very conservative view of just the biotech pipeline.

And to your question in terms of the breeding performance,we’ve committed at investor day in November that we would continue to expectone to two market share point gains in corn in North America over the course ofthe next five years and that in all the major corn production countries, a onemarket share gain. So we feel very confident about the quality, scope and scaleof the breeding engine.

Scarlett Lee Foster

I would just add you are correct. We made a conservativeassumption about market share when we projected out to 2020 and we used the2007 numbers rather than try to be overly aggressive and try to project marketshare in 2020. So that would be an upside, obviously any gains that we see inmarket share between now and that time period, just as we were veryconservative in doing the valuation and only gave a valuation associated withthe first country of launch. So those things are both upsides but just beingthat conservative still gets you to $5 billion worth of farm gate value.

Dennis, if we could please take the last question.

Operator

The last question comes from the line of Mark Gulley withSoleil Securities. Please go ahead.

Mark R. Gulley -Soleil Securities

Good morning, guys. I’m sure you saw the article in Barronsthis weekend about Farmania and it focused on land values. Certainly there’s agiddiness about [agflation] out in the ag economy. Hugh, does that bother you?And what if anything do you see that could put a hole in that inflationarybubble?

Hugh Grant

Well, it’s a unique time in agriculture and I think as wecame through the back end of last year, we took a swing through China for aweek and I came back with just a whole new respect for this demand curvebecause I think there’s been so many acres of press coverage on biofuels. Butwhen you step past biofuels and you look at what’s happening with the demandcurve, it’s not just in agriculture but in all the commodities running [in]China, I’m not naïve enough to say this will continue forever but there is afundamental discontinuity with what’s happening in China and the effect thatthat’s having on agricultural demand. And as I made the comments, we’re goingto see more exports into China this year than into Europe. That is notinsignificant.

So where commodity prices go, there go land prices. I thinkfor us, the unique thing about Monsanto, the unique thing about seeds in thatenvironment is in really strong ag economies, farmers are always going to lookfor the best performing seeds and the best performing genetics to optimizeyield. And frankly, in really tough ag cycles, we’re the last thing that getstraded out because they are optimizing and mitigating risk. They are optimizingyield even when commodity prices are running against them.

So I don’t think that we are immune to these cycles but Ithink we fare better than many other segments in a fluctuating ag economy. Butjust to summarize this, the Chinese effect and the demand curve that that’sexerting I think is still largely understated as people look at what’shappening in agriculture in the northern hemisphere right now.

So let me just segue from that and close, because I amrespecting your time and this is always -- this call is always a gallop andit’s a gallop because we have so much data to share on our pipeline. So let meclose this call by closing the way I started, by wishing you all a happy newyear and thanking you for joining us and bearing with us today.

As I started the call, I mentioned that some things havechanged since we met for our investor day in November and some things haven’tchanged, and in closing I’d add that some things are fundamental and I think inmany ways unique to who we are at Monsanto. And let me just take you throughthose.

First, I think we are really delighted to start off thefirst quarter with such strong results of our South American business and forRoundup, but even with good early orders for U.S. corn and an upward change inguidance, I can assure you that we are not counting our seed before it’s sold.We’ll continue delivering on our commitments and we’ll be the first to tell youwhen conditions change.

Secondly, we’re the only ag company that year after year andexactly the same time every year reports on our R&D results with suchcandor and with real touch in the field results and I am very proud both of ouropenness and the results.

And third, the shift to a demand-driven ag economy I thinkis real and it’s here to stay and it kind of references Mark’s comments at theend there. We’re the only ag company that’s made a big bang in this mostnon-cyclical portion of the farmers’ expenditures and we’ve been rewarded forour ability to uniquely give the farmer greater yield and thus greaterprofitability on his farm.

And I think if you take all this together, it means that weare well on track to deliver earnings growth of 25% or greater in 2008 and onour commitment to double gross profit by 2012.

I want to thank you for your patience and your support thismorning and we look forward to speaking with you in the new year. All the verybest. Thank you.

Operator

Ladies and gentlemen, that does conclude the conference callfor today. We thank you for your participation and ask you please disconnectyour lines.

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