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Monsanto Company (NYSE:MON)

F1Q08 Earnings Call

January 3, 2008 9:30 am ET


Scarlett Lee Foster - Investor Relations

Terrell K. Crews - Chief Financial Officer, Executive Vice President, Chief Executive Officer - Seminis

Hugh Grant - Chairman of the Board, President, Chief Executive Officer

Robert T. Fraley - Executive Vice President, Chief Technology Officer


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


Ladies and gentlemen, thank you for standing by and welcome to the Monsanto Company first quarter 2008 results. (Operator Instructions) I would now like to turn 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 welcome you to Monsanto's first quarter earnings conference call and I am joined this morning by Hugh Grant, our Chairman and CEO; Terry Crews, our CFO; and by our Chief Technology Officer, Rob Fraley. And also joining me are Brian Hurley and Laura Myer, my colleagues in Investor Relations.

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

Before we begin, I’d like to remind you that we are webcasting this call and you can access it at our website at and the replay is also available at that address. For those of you who’d like to go to our website, the slides for this call are posted on the investor information page.

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

I need to remind you that this call will include statements concerning future events and financial results. Because these statements are based on assumptions and factors that involve risk and uncertainty, the company’s actual performance and results may vary in a material way from those expressed or implied in any forward-looking statements. A description of the factors that may cause such a variance is included in the safe harbor language contained 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 results and the full year outlook.

Terrell K. Crews

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

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

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

All this has been done with financial discipline as DSOs are at levels significantly below those in the first quarter last year in both countries. As a result, the dynamic for Roundup for the fiscal year has changed positively when compared with our original expectations of a gross profit contribution of $950 million for this fiscal year. Given the Latin America results, 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 our November 8th investor day that we expected the Roundup business to be able to sustain $1.2 billion in gross profit as we looked to 2012. The results from the Latin America season are moving us toward this new level of profitability sooner 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 results from the corn seed businesses. We’ve seen a doubling of corn seed sales in each country, driven primarily by increased volume. Additionally, in Argentina with expanded corn acreage and the first sales of our recently approved double stack, our corn trade sales have made a larger contribution than in previous years.

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

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

If you turn to slide 5, we’re now forecasting triple stack penetration in the range of 25 to 27 million acres in the U.S., an increase of some 50%. This reflects a branded portfolio that expects to be approximately 55% to 60% triple stack, up from our projection at the start of the fiscal year of 50% triple stack products in our DEKALB and ASI brands.

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

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

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

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

As we mentioned at our November investor day, our share repurchase program continues to be a priority and in this quarter we spent $49 million 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 in October 2005. To meet our commitment, share repurchases will naturally be more aggressive over the next 22 months.

On a separate note, you’ve probably heard by now that Solutia has 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 satisfy the conditions of its bankruptcy emergence, we’ve not yet recorded any potential cash or equity proceeds. We have, however, previously recorded all of the estimated historical, environmental, and litigation expenses associated with our obligations. We’ll spell out the full effect of their emergence from bankruptcy once it’s officially complete.

Although our early estimates indicate a potential gain in the range of 22% to 24% -- $0.24 per share, which is not a part of our ongoing earnings and cash flow guidance. Just to reiterate, today’s updated guidance does not contemplate any receipt, cash or equity or reimbursements from Solutia.

In closing, only four months into our fiscal year, we could not be more pleased with the results from our Latin America business and the continued strength from the nearly 35-year old brand that is Roundup. The Latin America season is fairly well in hand and we are cautiously optimistic, given the early indicators for the U.S. growing season and a nice start to our European sales. The bulk of the heavy lifting is ahead of us in the second and third quarters but we are pleased to be able to raise our guidance this early in the fiscal year on both an ongoing earnings and free cash basis.

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

Hugh Grant

Thanks, Terry and happy new year to everybody on the line this morning. Just two short months ago, more than 100 of our investors met with us here in St. Louis on an unseasonably warm November date. During our day together, we laid out for you a path to double our gross profit by the end of 2012, fueled by six drivers of growth in our seeds and traits business.

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

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

Coupled with the export demand is the continued demand for biofuels, 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% earnings growth or greater, as Terry shared with you. The first quarter has been a pleasant upside and I’m particularly pleased with the performance of our Brazilian and our Argentine businesses across the board.

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

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

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

I think all of these items lead to a singular conclusive point. As I’ve said before, farming is all about yield and Monsanto is all about delivering that yield. Whether it’s unlocking the yield inherent in our germ plasm, as evidenced by the yield advantages that we’ve demonstrated again and again in field trials around the world, or the protection of that yield with the best possible package of traits, we’re obsessed with yield and nobody raises the bar on yield better than Rob and his team.

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

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

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

So as good as the order book for U.S. corn looks, I personally believe that the results from our research this year look even better 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 this call over to Rob.

Robert T. Fraley

Good morning, everybody and thanks, Hugh. I am thrilled to be able to share with you our fourth annual pipeline review and this year is particularly special because with the progress we’ve seen and the momentum we’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 breeding results from our 2007 testing for both corn and soybeans so I won’t spend much time this morning reviewing those results again. But it’s important to note that 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 extended our yield advantages going into the 2008 season and this will continue to be the engine that’s powering the corn and soybean opportunity in 2008 and over the years to come.

If we move to slide 10, you can see why we are going to spend the bulk of the time this morning on our biotech pipeline. Simply put, our trait pipeline progress this year is compelling, establishing some important 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 to the pipeline, and this is amongst the largest volume of project progress since we’ve been doing these updates.

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

Third, we’ve been telling you about multi-generational families and this year, we advanced two generations of our drought corn family, another first. This shows both the speed that the multiple generations track with one another and why we’ve shifted from discrete project concepts into families 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 seen enough data to classify them with specific product concepts.

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

So if you move to slide 11, you can see how this progress maps out on our actual pipeline and a couple of key points to draw your attention to. The yellow lines on this chart represent the 10 projects that either advanced phases or were added. This also splits out our yield and stress pipeline from our established trait pipeline to reflect the structure of our collaboration with BASF.

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

It’s also important to point out a couple of differences on this pipeline view. Notably, in the past few months, our Renessen JV with Cargill reorganized to focus on extract, which continues to make great progress. Remember, extracts is our high oil, high lysine corn product designed for the ethanol and animal feed industries. Several of the other projects that had been in Renessen, including high oil soybeans, have moved into the Monsanto technology pipeline.

This consolidated view drives home that there is momentum in the most meaningful projects and platforms, that multiple generations of products are advancing, and that our research engine is continuing to refresh and build on innovation, and it’s all done with discipline and a focus on creating returns.

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

When you talk about momentum and industry leading innovation, there’s no better place to start than with our Roundup RReady2Yield soybeans, beginning with slide 13. Roundup RReady2Yield will be the first of our high impact technologies or hit projects to reach commercialization, and when it’s commercialized, it’s going to reset the landscape for soybean production, becoming the platform for future traits in soybeans, much as SmartStax will be for corn.

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

The decisions we’ll finalize in the next couple of weeks will set the stage for what soybean varieties we will have available for farmers 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 to generate, confirm, and expand our yield data to support our commercial strategy.

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

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

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

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

The selections we are making as a part of this process are based on comparisons of more than 30,000 Roundup Ready lines and 10,000 Roundup RReady2Yield lines, so we feel very good about the robustness of the yield data.

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

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

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

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

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

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

With superior efficacy versus insecticidal sprays, we’ve demonstrated the performance to move this phase three product into development for regulatory preparation in Brazil.

Another soybean product, dicamba-tolerant soybeans on slide 16, is a key of the future stacks to come on the backbone of Roundup RReady2Yield. It’s also another of the projects that makes the move from phase two to phase three this year.

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

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

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

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

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

In the chart on slide 17, the data actually shows how we compose a trait that has four different compositional targets in its product concept. 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 oleic and linoleic profile come from our biotech work, which is reflect in the yellow bar, and that’s paired with the linolenic profile from our first generation Vistive breeding trait shown in the green bar. And in red running across the bottom, you can see the target ranges we’ve identified for each of the four compositional categories.

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

And now, if all of that yellow, green, and red is too confusing, the bottom line is that Vistive III oil has a composition very similar to olive oil while maintaining the economics of soybean oil. And I think as you all know, olive oil is the gold standard in the food industry for its functionality and consumption as part of a healthy diet.

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

With this project entering phase three, we’ve officially removed Vistive II from the pipeline and will focus our commercialization efforts on Vistive III going forward and we’ve already initiated the preparation of the regulatory packages.

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

Now in November, we communicated our pipeline valuation look. We designated both of these projects as having blockbuster potential with higher yielding corn identified as our first mega-blockbuster. Higher yielding corn is in its first year of phase two screening this year, and while it’s too early in the process to have new data on the events that we will eventually commercialize, we’ve tested the trait in multiple environments across more than a dozen locations in the U.S. this year. And in this first pass, we’re seeing yield improvements of greater than 10 bushels per acre and continue to be very encouraged that we can make a step change in yield potential for corn on a broad acre basis.

If we move to slide 18, we’ll focus on higher yielding soybeans, which entered phase two testing a year ahead of our corn project. In 2007 testing, we took 68 events into the field at 18 locations. Across the board, we saw nice yield increases over the controls, with five events that showed a 6% to 7% yield increase in these tests. We expect that this trait will be additive to the step change in yield that we’ve demonstrated with Roundup RReady2Yield and we are targeting a combined yield increase percentage in the mid-teens or above with these two traits, which will also be stacked with other traits 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’ve officially rolled our research on water utilization for soybeans under this higher yielding soybeans umbrella and this reflects our belief that a trait that delivers water use efficiency benefits on all acres is actually a broad acre yield trait.

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

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

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

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

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

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

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

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

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

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

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

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

In phase two testing, we’ll expand the number of locations and trails, further evaluating our stable of leads while initiating the same trait by germ plasm by environment testing that I mentioned with our first generation product.

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

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

Staying with our corn portfolio, one project continues to be one of our most innovating and promising development projects is nitrogen utilization 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 lot of work to do as we sift through dozens of genes and identify those that work on the parameters that we are testing, but because of the great interest and the opportunity for more efficient nitrogen use and the early progress we’ve made, I want to highlight this product.

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

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

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

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

And I think that opportunity is profound. If you consider that this is a pipeline expected to create in the range of $5 billion in farm gate value by 2020 and most of that value is incremental, representing new value 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 launch before 2012. It also has the potential for a new category, which we’ve previously defined as a mega-blockbuster for corn yield because it’s such a positive outliner on the value spectrum.

And finally, I just have to point out there’s considerable upside to this valuation. We’ve only considered the first countries of launch and we’ve not included the value from the Seminis portfolio or from the tremendous breeding engine that we have that drives our global seed opportunity.

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

And the bottom line is that we’ve established our lead in this industry because of our ability to reduce great science to practice and make it meaningful to farmers’ pocketbooks. Over the next decade, we’ll maintain and I believe we’ll extend that leadership because our single focus is on 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 the trajectory that I expected us to be on, so first our pipeline is humming. As usual, we’re breaking new ground in the industry with both the level and the pace of innovation. With 10 projects that advanced or were added to the pipeline, 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 the most revolutionary technology this industry has ever seen. We have new platforms in SmartStax and Roundup RReady2Yield that will completely redefine how farmers think about buying corn and soybean seeds, and we’re layering on top of these platforms traits like yield, like drought tolerance, and nitrogen utilization in corn and insect protection and third generation weed control and food quality traits in soybean.

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

So with that, I’d like to thank you again for joining us today 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 your questions and every quarter, I ask that you please try to hold it to one question per person. Because the R&D pipeline review typically takes us a little longer than some of our other calls, I would particularly ask if you could please help us so that we can get to as many people as possible and hold your questions to one per person. You are always welcome to rejoin the queue for a follow-up question.

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

Question-and-Answer Session


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

Mike Judd - Greenwich Consultants

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

Hugh Grant

I’ll maybe let Terry comment on that in a little bit more detail, Mike, but it’s -- I don’t know what it’s like in New York, but it’s still 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 our southern hemisphere, Argentina and Brazilian markets, and within that largely driven 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 our North American businesses, so we anticipate similar strong demand here but I am going 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 and third quarters of our fiscal year and largely that’s in the first calendar quarter and a little bit into the second calendar quarter, if you want to look at it from a calendar standpoint. The encouraging thing right now is what we’ve seen with the order patterns in the U.S. This really becomes a U.S. and European business for the remainder of the second and third quarters, so we’re encouraged by what we see right now and most of our earnings will continue to come in this part of the year.

Mike Judd - Greenwich Consultants

In terms of those orders, you mentioned that there was some pre-buying. Can you characterize that in terms of availability of various products? Are there any limitations there or just -- you know, anything sort of out of -- sort of unusual this year versus other years perhaps would be helpful. Thank you.

Terrell K. Crews

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

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

Mike Judd - Greenwich Consultants

Thanks for the help.


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

Jeff Zekauskas - J.P. Morgan

Good morning. I was looking over Rob’s slides and he’s got drought tolerant corn in advanced phase three, which is just where you have SmartStax corn -- that is, sort of the bars line up. I don’t know if they are supposed to be precise, so is the meaning of that, the drought tolerant corn is really 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 about two years and I would categorize our drought tolerance as just transitioning from phase two into phase three, whereas SmartStax, as you know, is comprised of many traits that are either approved or very far advanced in their regulatory process so it’s really a late stage phase three project. So there’s a several year difference between the two, even though they are technically in the same phase.

Jeff Zekauskas - J.P. Morgan

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

Hugh Grant

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

Jeff Zekauskas - J.P. Morgan

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

Hugh Grant

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

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

So specifically your question on $1 billion going out on a limb, I’ll maybe ask Terry to say a few words on our gross profit projections for 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 be too aggressive for the portfolio. We are pleased with what we’ve seen with Roundup. I think it will be above $1 billion.

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

Jeff Zekauskas - J.P. Morgan

Thank you.


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

P.J. Juvekar - Citigroup

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

Hugh Grant

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

Terrell K. Crews

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

The other side of it is just it’s just a small quarter for the seeds and traits business and we carry a full load of SG&A and in addition this year, we’ve got the acquisition effect on cotton in the first quarter, so once we work through the U.S. season and we get the traits a higher component of our seeds, we’ll continue to see the seeds and traits margins grow. 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 of the slides, I think it was slide number 20, you talked about 13% to 14% yield advantage for drought tolerance. Now, drought tolerance will be stacked with SmartStax, so is that advantage over SmartStax or is that an advantage over regular 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 to typically to conventional corn hybrids, so this doesn’t include the yield benefit of any of the traits, which would be additive to what we’ve seen with past product performance. So it’s a good point but that’s the yield gain from the drought gene per se is the simple answer to your question, and as we bring that drought gene as we would expect to into the market place with triple or SmartStax combinations, there would be further yield gains expected from the other traits.

P.J. Juvekar - Citigroup

Thank you.


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

Robert Koort - Goldman Sachs

Thanks very much. Good morning. I was wondering on the Roundup RReady2Yield product, firstly you mentioned you are determining which varieties you are going to put that in. Will those all be outcomes from molecular breeding technology or will those be some of the traditional technology?

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

Hugh Grant

Bob, it’s still early days on our pricing. We haven’t declared but I think our pricing philosophy and the value share with the grower will continue to apply regardless of commodity pricing, so we’ve said historically somewhere between one-third to two-thirds and 50-50, and I think that, rather than speculate on where that commodity price is, we’ll engage a similar philosophy for Roundup RReady2Yield.

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

Robert T. Fraley

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

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

Robert Koort - Goldman Sachs

Thank you.


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

Frank Mitsch - BB&T Capital Markets

Happy new year, everyone. In the release, you talked about the expectation in corn seed in the U.S. to get 2% to 3% market share gain, or increase 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 to market or is it strictly against competitive materials?

Hugh Grant

Frank, we believe this will be strictly against competitive materials and it kind of ties nicely under the previous question on molecular markers and soybeans because I think what we are seeing in this farmer demand is recognition of the strength of genetics and we never spent any time on it today but we did in our November update and I think that’s really been borne out 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’s an indication of genetic strength.

Frank Mitsch - BB&T Capital Markets

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

Hugh Grant

They are still both unknowns as we are sitting here today but I think in soybeans, we are shooting 67-ish. We’ve got different nodding heads around the table here and I guarantee you whatever number we give you will be wrong, but we are shooting around 67 in soybeans and I think we’re looking at still about 78 -- sorry, 80, I beg your pardon. It’s the first days of the new year -- 88 in corn.

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

Frank Mitsch - BB&T Capital Markets

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

Hugh Grant

Yeah, we are. We are.

Frank Mitsch - BB&T Capital Markets

By a lot?

Hugh Grant

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

Frank Mitsch - BB&T Capital Markets

All right. Thank you very much.


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

Peter Butler - Glen Hill Investments

Good morning. Happy new year, everybody. You folks do exhaustive analysis of data and your comments on your genetics and yield advantage are well placed. I’m wondering if you have some thoughts on some of the other factors that may be operative. For instance, how is your insurance program doing? And are there limitations on what your competitors might be able to 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 me begin with, and I’ll maybe ask Rob to say a few words on it, but let me begin with the insurance programs. We’ve observed what farmers have told us for a number of years, that when they use the biotech traits, they see consistently higher yields and in conditions that are adverse, whether it’s dry or windy, the crop weathers through those conditions better. So having built those actuarial tables up, we are test piloting in four states a program that will allow the farmer to secure crop insurance at a lower level.

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

Robert T. Fraley

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

I think still this year, the most important differentiator in the marketplace is the performance of our triples and we’ve [bulked] our triply hybrids to a large percentage of our DEKALB, ASI, and license base and I think we’re seeing incredible farmer demand for those triples and we’re aware that some of the competitors can’t meet that market demand and have had production 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 market demand.

Peter Butler - Glen Hill Investments

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

Robert T. Fraley

Thanks, Peter. I’m as excited today as I think I’ve ever been in seeing the pipeline and probably the part that I have the hardest time communicating is that what we are seeing here is still very much the beginning of this innovation wave. I mean, I absolutely believe we are still back in the 1960s equivalents of the advances in computers and IT. I mean, we’re going to see waves and waves of new types of products coming out of this pipeline in the years to come.

Scarlett Lee Foster

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


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

Kevin W. McCarthy - Bank of America

Good morning. On the subject of Glyphosate, you mentioned a 25% volume increase. I was curious to hear your thoughts -- to what extent do you attribute that increase to rising penetration of Roundup Ready soy in Brazil versus generally higher crop prices? In other words, are you seeing more strength in Brazil relative to Argentina or Europe? If you could elaborate on that a little bit.

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

Terrell K. Crews

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

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

Hugh Grant

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


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

Lawrence Alexander - Jefferies & Company

Rob, a question on the leapfrogging of traits; as the pace of R&D accelerates, what is your criteria for having one trait leapfrog another? Is it having products first to market? Is it financial returns? How do you 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 the particular case here with the three Vistive projects is that the rate of acceleration of Vistive III would make it such that Vistive II would not generate the financial opportunity that we would have expected and that’s great news. So we get incrementally more value with less R&D expenditure with the benefits of a better performing product.


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

Charlie Rentschler - Wall Street Access

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

Hugh Grant

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

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

Scarlett Lee Foster

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


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

Vincent Andrews - Morgan Stanley

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

Terrell K. Crews

We can supply up to 60% obviously, we said that today. We have 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 we believe we’ve got the [broadest] supply of the market, including our winter production.

Scarlett Lee Foster

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


The next question comes from the line of Donald Carson with Merrill 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 has been that 2007 market shares are used as the base for assumptions, yet I know you’ve also talked about an objective of DEKALB increasing its U.S. corn seed share by 10 percentage points by 2012. So within that, what would be the increase in value if you were to use that higher market share? And given the fact you can gain three points this year, is a 10-point gain by 2012 looking increasingly conservative?

Robert T. Fraley

Well, first of all, Don, happy new year and thanks for the question. When I’ve talked about that pipeline value, the $5 billion by 2020, maybe I should just make it clear -- that includes no contribution from breeding and genetics or from Seminis. That is just the farm gate value of the biotech traits and it’s obviously very conservative, since it’s only in the first 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 expect one to two market share point gains in corn in North America over the course of the next five years and that in all the major corn production countries, a one market share gain. So we feel very confident about the quality, scope and scale of the breeding engine.

Scarlett Lee Foster

I would just add you are correct. We made a conservative assumption about market share when we projected out to 2020 and we used the 2007 numbers rather than try to be overly aggressive and try to project market share in 2020. So that would be an upside, obviously any gains that we see in market share between now and that time period, just as we were very conservative in doing the valuation and only gave a valuation associated with the first country of launch. So those things are both upsides but just being that conservative still gets you to $5 billion worth of farm gate value.

Dennis, if we could please take the last question.


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

Mark R. Gulley - Soleil Securities

Good morning, guys. I’m sure you saw the article in Barrons this weekend about Farmania and it focused on land values. Certainly there’s a giddiness 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 inflationary bubble?

Hugh Grant

Well, it’s a unique time in agriculture and I think as we came through the back end of last year, we took a swing through China for a week and I came back with just a whole new respect for this demand curve because I think there’s been so many acres of press coverage on biofuels. But when you step past biofuels and you look at what’s happening with the demand curve, 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 a fundamental discontinuity with what’s happening in China and the effect that that’s having on agricultural demand. And as I made the comments, we’re going to see more exports into China this year than into Europe. That is not insignificant.

So where commodity prices go, there go land prices. I think for us, the unique thing about Monsanto, the unique thing about seeds in that environment is in really strong ag economies, farmers are always going to look for the best performing seeds and the best performing genetics to optimize yield. And frankly, in really tough ag cycles, we’re the last thing that gets traded out because they are optimizing and mitigating risk. They are optimizing yield even when commodity prices are running against them.

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

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

As I started the call, I mentioned that some things have changed since we met for our investor day in November and some things haven’t changed, and in closing I’d add that some things are fundamental and I think in many ways unique to who we are at Monsanto. And let me just take you through those.

First, I think we are really delighted to start off the first quarter with such strong results of our South American business and for Roundup, but even with good early orders for U.S. corn and an upward change in guidance, 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 you when conditions change.

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

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

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

I want to thank you for your patience and your support this morning and we look forward to speaking with you in the new year. All the very best. Thank you.


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

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