Focusing on Daily Bread for Farmers and Investors
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Global concerns about sustainable agriculture that can consistently feed a hungry world show no signs of abating. The need for more productive farming to meet increasing worldwide demand is evident. What major companies are addressing these issues?
DuPont's (NYSE: DD) agriculture division is focusing on products that promote higher crop yields and more nourishing foods.
Reading the signs of the times
Becoming more of a high-tech science-based organization, DuPont sees opportunity in creating products critical to sustainable farming.
DuPont's focus is less on chemicals. Chemical Week stated: "DuPont has been moving away from commodity chemicals with increased focus on agriculture, nutrition, and industrial biosciences. The company sold its automotive coatings unit to The Carlyle Group in August 2012 for $4.9 billion." (Feb. 5; Lindsay Frost).
DuPont is addressing crop concerns, which should bode well for farmers and shareholders. I believe its focus on products for higher crop yields is positioning the company to build revenue in a critical market that will become more important as the world population escalates. More food must be produced from every available acre of farmland.
DuPont provides products that address crop yields, crop diseases, insects, and weeds. Important to investors is the mileage the company can obtain from its Optimum AQUAmax products. These assist farmers in harvesting more bushels per drop (growing crops in limited water environments). Possible continuing U.S. drought conditions should foster greater demand for this product as farmers are facing increased expenses and less output.
Investors can takeaway that DuPont is addressing output concerns and opening up a revenue stream based on climate change challenges. I believe this will drive the company forward to greater growth.
Consistent R&D investment
With new initiatives in enhancing crop yields and its crop-protection innovations, R&D is vital to DuPont. Investments in R&D were $521.0 million for Q1 2013. DuPont invested $528.00 million, $506.00 million, and $528.00 million, respectively, in R&D in the three quarters leading up to Q1 2013.
Monsanto (NYSE: MON) provides seed brands, crop protection chemicals and in-the-seed trait technologies. These technologies help farmers protect crop yields and reduce costs.
Investors should consider Monsanto’s innovative R&D efforts. In June, it announced it would invest $100 million over the next 10 years on corn breeding in Western Canada. Its objective is to generate corn that matures earlier than the present types.
For farmers, that means getting full crops to market sooner. For investors, it means a commitment by Monsanto to accelerate the growing cycle of corn, and by extension, sales growth. Farmers, I believe, will jump at this innovation, which should be a growth driver for Monsanto for many years.
The "corn" concern
Monsanto is heavy into corn. Is there enough diversity in its operations? Some think not, and that it's beholden too much to corn seed. The company does get involved in soybean, cotton, and vegetable seeds, but its sales are not strong in these categories, and corn is the driver that's keeping its seed sales popping.
Monsanto recently announced it's building its EU seed business. It's cancelling development of genetically modified (GMO) crops in the EU. Reuters reported that, “Monsanto said it could now focus on increasing sales of its non-GMO seed and other farm inputs, which account for more than 98% of its $1.7 billion annual turnover in Europe.”
Monsanto cancelled its GMO initiatives because, as Reuters said, “…deep opposition to the technology was hurting its commercial prospects.” While some trumpet GMO crops as aiding farmers in producing more, others don't want the tampering of crops in our increasingly organic, all-natural environment.
Mosaic (NYSE: MOS) produces and markets concentrated phosphate and potash crop nutrients. It's sitting on approximately $2 billion of surplus cash and has $3 billion of debt capacity. This is an important element for investors and speaks of financial solidity. It has the reserves required to operate its business, can take on debt to finance initiatives, and can pay debt back on schedule.
Mosaic recorded an all-time potash sales record during 4Q 2013: 2.6 million tonnes. For investors, Mosaic is cash-rich and has robust revenue concerning an all-important crop nutrient.
Mosaic's potash mines operated at 78% of capacity in Q3 2013. Mosaic benefited from greater strength in China/India demand. Investors should consider corporate efforts to utilize available mine capacity. Companies have significant capital tied up in mine infrastructure (with attendant fixed costs). To generate significant ROI, the company must concentrate on operating at capacity.
I like DuPont’s product innovation and commitment to crop yield/crop protection products. Investors must consider corporate changes of direction. New growing markets often open and offer companies opportunities for growth. Upon researching a company's change of direction, investors can benefit from this also. I see crop yield innovation fostering sustained growth for DuPont and its shareholders.
I believe Monsanto's efforts in building consistent sales in other seeds is vital to growth. I might invest if I see growth in other seed categories. I like Monsanto’s decision to say no to GMO - based purely on commercial prospects. It is concentrating on its core-traditional EU seed business.
Mosaic is a wait right now for me. I like Mosaic’s focus on potash crop nutrients for farmers. However, the fear for Mosaic is that potash supply will outstrip demand. This is pounding potash-industry share prices. The reason? OAO Uralkali is terminating production restrictions that were essentially the foundation of potash prices. It halted a venture with Belarus and intends to build sales to consumers including China. A potash price war and a change in supply dynamics will hurt Mosaic.
Michael Ugulini has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!