September 3, 2010

 

Monsanto cuts seed price premiums, promotes generics

In a bid to win back US farmers who balked at the initial charging regime, Monsanto Co. (MON) is cutting the premium charged for its new high-end corn and soy seeds by two-thirds.

 

The agribusiness group was forced to reassess pricing after sales of the new genetically modified seeds, hailed as key to its future, fell short of expectations.

 

Brett Begemann, Monsanto's executive vice president of seeds and traits, said that its SmartStax corn seed will be priced at a US$20 premium to the existing triple-stack, or threefold protection, product in 2011, down from US$60 in the current growing season.

The premium for its Roundup Ready 2 Yield soy seeds will drop to US$5-$6 from US$20 in 2010, although US$10 of that reflects Monsanto's decision to drop a requirement that farmers also buy a seed treatment for the crop.

 

"We are going back to an approach that we used before, which is to price it where the farmer has less risk on the front end of using these new technologies," Begemann said.

 

He adds that Monsanto will readjust prices, increasing them to reflect the seeds' value to farmers after they've demonstrated it on their own farms.

 

Sales for both SmartStax and Roundup Ready 2 Yield were below expectations this year. The seeds include a greater number of traits that protect against pests and bolster yields.

 

Earlier this month, internal surveys indicated 63% of farmers said they would likely purchase Roundup Ready 2 Yield seeds at lower prices, while 53% said they would likely purchase SmartStax if prices dropped.

 

Rival seed companies are hoping to capitalise on farmer resentment about Monsanto's pricing. A salesman for a smaller competitor at the show said that while Monsanto would likely have some success winning back customers at lower prices, "they've burned some bridges."

 

Begemann also said the company has embarked on a new strategy for weed management in light of weak glyphosate sales and emerging resistance to the herbicide, which Monsanto sells under the Roundup brand.

 

The company has lowered prices in the wake of fierce global price competition and market oversupply, notably from Chinese producers. Also, with agronomists at the trade show preaching that farmers need to diversify their weed-fighting strategies to prevent herbicide resistance, Monsanto is steering customers toward low-priced generic options.

 

"Everybody wants to sell them their most expensive, high-end product to give them that assurance. That's not a reasonable expense for the farmer in a preventative situation. Let's give them a reasonable alternative," Begemann said.

 

Resistance to Roundup has decimated some crops in the US South, particularly cotton, as resistant pigweed has taken over some fields. While farmers and agronomists say resistance is increasing further north into the heart of the corn belt, Begemann said the issue remains manageable.