October 6, 2010
 

Monsanto's growth weakens as SmartStax yields

Since January 1, Monsanto's stock is down 40%, erasing almost US$18 billion of market value.

 

Monsanto's sales and profit multiplied since Hugh Grant took over as CEO in 2003. Monsanto's stock price, even after falling from its prerecession peak, had soared from US$12 to more than US$80 a share during Grant's tenure.

 

Federal antitrust regulators are probing Monsanto's soy business. Sales of Roundup weed killer have eroded, prompting executives to abandon earlier financial goals and to slash 2,500 jobs.

 

The company's shares have fallen 15% just over the past two and a half weeks since Monsanto acknowledged that SmartStax was, in some instances, yielding less than cheaper seed with fewer genetic traits.

 

One southwest Illinois grower said he paid nearly US$300 a bag for SmartStax, after discounts, making it the most expensive seed he's ever bought. But he's questioning the purchase after the new seed yielded 25 bushels per acre less than other, cheaper varieties.

 

Monsanto said the early harvest data reported September 20 represented just 10% of the SmartStax acreage planted. The data also mostly represented southern parts of the central Corn Belt where fewer varieties were available.

 

Analysts agree that more data are needed to render a verdict on SmartStax. And some early yield problems have been associated not with the genetic traits but the underlying genetics in a particular variety of seed that didn't fair well in hot, dry conditions.

 

"Monsanto clearly is hopeful, and so is anybody that owns the shares, that the other 90% looks better than the first 10%. But it is an unknown," said Horst Hueniken, a Toronto-based analyst at Stifel Nicolaus & Co.

 

On average, it takes 10 years and US$100 million for a new biotechnology product to make it to market, according to Monsanto. SmartStax, developed in collaboration with Dow Chemical Co., was billed as the most advanced corn seed available - one that could help boost yield by 11% to 15% over existing products.

 

The 2010 product was the most ambitious in company history. Monsanto aimed to sell four million acres of SmartStax seed. But some growers were hesitant to take a risk on new technology. Others were unwilling to pay a premium while the economy struggled.

 

In the end, Monsanto sold just three million acres of SmartStax - a million acres less than planned. And six million acres of RoundupReady2Yield beans was less than the eight million to 10 million acres executives had hoped for, prompting them to overhaul their pricing strategy in an effort to win market share.

 

For SmartStax, it meant reducing the premium over the next highest-priced corn seed by 67% to an average of US$8 an acre. But even that may not help win over hesitant farmers unless the company can show that the new seeds are worth the extra cost.