November 20, 2015


New products and higher corn prices in 2016 to drive Monsanto's earnings



The rise of corn prices could occur by 2016, according to Monsanto, and this could help the agrochemical giant to fulfil its earnings forecast.


Monsanto's optimistic outlook came despite a grave slump in commodities, with plunging crop prices at multi-year lows and austerity efforts by farmers, Reuters reported.


The company also expects a US soybean cultivation of three million acres next spring, increasing to about two-thirds of overall US soybean acreage by 2019. Soy acreage in the States is 83 million acres for 2015.


In the coming eight to 12 months, the company foresees a recovery of corn prices to US$4.50 per bushel (25.4kg), an increase from the less-than-US$4 pricing at present. On the contrary, the USDA's projections are less positive; for the marketing year until August 31, the price outlook had been reduced by 15 cents per bushel to a range of US$3.35 to US$3.95.


Still, much of Monsanto's growth will actually be generated by new products and the company's tapping into new markets, said executives. These products, along with other innovations, are expected to produce 80% of the company's earnings over the next three to four years, while remaining 20% would be generated through commodity prices, specifically, corn and soybeans.


However, even if that percentage from commodities does not materialise, Mike Frank, Monsanto's vice president of Global Commercial, sees another revenue channel to drive earnings: this would be the non-commodities section of Monsanto's business which could produce about US$4 in earnings per share by fiscal 2019.


According to Frank, the company will maintain its forecast for earnings per share (EPS) to reach US$5.10 - US$5.60 by the fiscal year of 2019. If corn prices fail to reach adequate rates to meet its EPS target, Monsanto will seek "another path" to fulfil its goal.


In other developments, Monsanto believes that its next-generation Roundup Ready 2 Xtend biotech soybean will gain official approval from China in December this year. So far, more than half of expected seed sales for the upcoming US planting season has been met through preselling.


The company is also exploring "select M&A" possibilities, specifically in agrochemicals used against insects and plant diseases, said Robb Fraley, Monsanto's chief technology officer. Products, such as insecticides or fungicides, would need to work with Monsanto's current portfolio of pest management products, he added.

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