If You Want to Bet Big, This Is It!
Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I wasn’t expecting much from Monsanto’s (NYSE: MON) fourth quarter, except that it missed Street estimates for a change. I am sorry, but I won’t tell you by how much its revenue dipped or losses mounted. You surely aren’t here to read what is already strewn all over the place, are you? Besides, I've already moved past the earnings release and am getting super-excited about what lies ahead.
Yes, the seed king has stepped into its new financial year on a solid foundation, and is staring at two big planting seasons that will shape its year. And it appears fully armed to meet them head-on with two markets and several growth drivers. Read along to know what’s going to take Monsanto far.
Tapping feet, the Latin American style
The main planting season has just kicked off in Latin America, which by itself becomes the biggest growth catalyst for Monsanto as it steps into its 2013 financial year.
To start with, the launch of Monsanto’s first double-stack corn trait VT PRO 2 in Brazil should steer both the company’s share in the market as well as its gross profits for the corn business (gross profits per acre from VT PRO 2 could be as much as 70% higher compared to its first generation counterpart). Likewise, Monsanto’s triple-stack-corn will hit the markets of Argentina soon, and make up nearly a third of Monsanto’s total portfolio mix for the market in 2013, up significantly from the current 25%. This again would mean a boost to gross profits.
As Monsanto gets these ready, rival DuPont (NYSE: DD) has lined up some Brazil-specific varieties, and Syngenta’s (NYSE: SYT) four-stack corn has just won approval in Argentina. Not to be left behind, Dow Chemical (NYSE: DOW), through its subsidiary Dow AgroSciences, will start selling its innovative five-gene POWERCORE corn trait in Brazil and Argentina soon, expecting it to increase corn yields by 5% to 10%.
But as I mentioned in an earlier article, companies like Monsanto and DuPont might find themselves in a fix if farmers in Latin America move over to soybean from corn. While DuPont had already given us hints of such possibility during its last earnings call, Monsanto brought up the issue this time when it mentioned how corn acres could slip in the on-going Latin American summer season. Yet, if this season catches Monsanto somewhat unawares, it is making sure it has the weapons ready for the next.
As luck would have it, Monsanto is getting its pest-resistant soybean Intacta RR2 PRO through the final stages of sale in Brazil. Trial runs over the past few years have thrown up extremely positive results, with yields averaging around 4 bushels per acre more than the Roundup Ready trait Monsanto currently sells. Though the launch is still at least a year away, it will also give the company time to study the nature of shift from corn-to-soybeans throughout 2013. The seed giant is already eyeing Argentina as the next stop for this soybean trait. Corn or soybean, Monsanto’s ready for both.
Back home, with a big smile
As the Latin American planting season draws to a close, the race for the U.S. spring planting season will begin, which I see as the biggest growth catalyst for Monsanto in 2013. If 2012 was a year of record U.S. crop plantations, 2013 might not be any different. Record prices of corn and soybean, expected high farm incomes, and lower yields -- fertilizer major CF Industries (NYSE: CF) expects yields be around 135 bushels per acre, the lowest since 2002 -- should see farmers scrambling to plant every corner of their fields next spring. That explains why CF is forecasting U.S. corn acres in 2013 to remain steady at around 96 million, which is on par with this year’s levels. If CF sold record amounts of nitrogen during the first half of the year, it has higher expectations for 2013, backed by robust demand from both markets. Small wonder then that optimism has already pushed its shares up by an amazing 50% year-to-date.
If CF’s projections come true, Monsanto’s customer base should only widen. That’s because after the games Mother Nature played this year, most farmers are going to step into 2013 with more precautions, one of which will be arming themselves with seeds that can withstand adverse weather conditions better. This is exactly where Monsanto steps in, having proved its worth by the increased yields its advanced seeds and traits are capable of generating. Here’s a quick note: 2012 was the second-best yielding year for Monsanto, even in the face of extreme conditions. The company’s popular seed brand DEKALB gave a 5% yield advantage vis-à-vis competitor’s products. This competency is what will take the company far.
In fact, Monsanto also showed how its due-for-launch DroughtGard Hybrids yields as many as 5 bushels per acre more compared to DuPont’s recently launched and widely marketed Optimum AQUAmax hybrids. DuPont estimated these hybrids to have already reached 2 million acres within months of launch. With Monsanto’s comparison sheets doing the rounds, DuPont will surely have to buck up its marketing strategies, especially as the former gets ready to launch DroughtGard in the Western Corn Belt next year.
Meanwhile, Syngenta is already narrating stories of the success of its drought-tolerant Agrisure Artesian corn variety launched sometime back. The company reported the variety to have yielded almost 15% higher than competing products. From 15,000 acres this year, Syngenta is hoping to find Agrisure in a whopping 400,000 acres in 2013. What’s more, the company has already placed six more hybrids under trials in the U.S. Corn Belt.
Not that Monsanto worries a penny about competitors’ moves. It clearly dominates the seed market – as per last reported data by ETC Group, Monsanto’s global seed market share stood at 27% in 2009, which is way more than DuPont’s 17% or Syngenta’s 9%. Dow had a mere 2% share. But probably the biggest evidence of Monsanto’s greatness lies in the fact that the same so-called rivals borrow Monsanto’s licensed gene traits to develop their own products. The $1 billion lawsuit that Monsanto just won over DuPont for patent infringement only adds weight to the former.
Rounding it up
Monsanto’s outlook of at least a 10% improvement in its 2013 year earnings per share looks very achievable, and makes it a buy on any dip. It’s also financially solid (I promise to tell you more soon), and is a good dividend payer. Make sure your watchlist has this revolutionary company in it. Click here to add Monsanto.
Neha Chamaria has no positions in the stocks mentioned above. The Motley Fool owns shares of CF Industries Holdings. 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.If you have questions about this post or the Fool’s blog network, click here for information.