September 14, 2010

Israeli Makhteshim's plans may strain sales deal with Monsanto

A decision by Makhteshim Agan Group (MA Industries) to get in with Chinese manufacturers of glyphosate sprays to sell in the Brazilian market may strain a longstanding sales deal with Monsanto, according to reports.

One reason for concern was the collapse of the group's plans to buy US rival Albaugh had denied MA Industries a catalyst for cutting costs in Brazil to better fit the prevailing pricing environment.

Glyphosate prices have collapsed worldwide due to a ramp up of Chinese production, which has lead to an oversupply of the generic weedkiller.

According to analysts, in the second half of the year, MA's infrastructure in Brazil may prove excessive and lead to a higher-than-expected loss for glyphosate/herbicide prices.

However, analysts also flagged the risk MA is taking by stimulating its own supplies of glyphosate for the through long-term contracts to buy ingredients for the weedkiller from China, and sell the finished product, mainly in Brazil.

The Israel-based company has, since 1998, sold Monsanto glyphosate in Brazil and Europe under a succession of marketing agreements. MA's annual report reveals that its latest glyphosate contract with Monsanto was signed in 2009, and lasted for a period of several more years.

Meanwhile, analysts slashed estimates for the Israeli company's earnings per share in 2010 by nearly one-third to reflect weaker margins. Weaker margin prospects, and the absence of Albaugh, had dampened hopes for 2011 and 2012 too.