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article imageMonsanto has no magic cure for its woes as company flounders

By Stephanie Dearing     Oct 29, 2010 in Business
Monsanto is under the gun on a number of different issues, and the company has no magic elixir or engineered fix to halt the corporation's plummet from its recent position as Forbe's Company of the Year.
Major cracks have formed in the Monsanto facade this past year. Dropping fortunes appear to be the result of a combination of factors, including 'super weeds,' the high cost of Monsanto seeds and inputs and competition on the herbicide front from China. Could Monsanto could be in a dive so precipitous it won't be able to recover?
Glyphosphate-resistant weeds have proven to be a major Achilles heel for Monsanto. Glyphosphate is the key ingredient in the corporation's main product, the herbicide it calls Roundup. Obviously a field full of resistant 'super weeds' is not good business for a farmer, and Monsanto recently announced it would issue millions in rebates to farmers who use other herbicides.
Stephen P. Bowles summarized the glyphosphate issue in a research paper on glyphosphate resistance, published in PNAS earlier this year. "... History shows that threats to food production have major repercussions, including famine, war, and civil unrest. A major threat to food production occurs every single growing season, when wild plant species (weeds) infest crop fields. Humans have battled since the dawn of agriculture to control weeds and to minimize their negative influence on food production. Modern herbicides have largely replaced human labor as the primary tool for weed control, and this has contributed significantly to the productivity of world cropping. However, despite the success of herbicides, weeds remain a primary challenge to food production, in part because selection pressure from herbicides has resulted in the evolution of herbicide resistance in weeds."
Initially, Monsanto paid lip service to the topic of glyphosphate resistance, but even this summer, the corporation was still downplaying the extent of the problem. CBC News reported Monsanto said 'resistance was often overstated.' At the same time, Monsanto was offering American farmers a $12 per acre rebate for using competitors' herbicides.
Monsanto made the rebate official this month after experimenting with it over the summer. Farmers in the United States growing cotton and soybeans are eligible for rebates of either $3 or $20 per acre -- that is, if the farmers follow Monsanto's directions for integrated management outlined in Monsanto's Roundup Ready Weed Management Plus Platform. When announcing the program, Monsanto said ""We have talked with farmers, weed scientists and others in the industry to develop a set of best management recommendations to control glyphosate-resistant weeds where they exist and reduce the risk of developing these weeds on other fields where farmers are growing Roundup Ready crops. The Roundup Ready PLUS platform was designed to improve on-farm productivity, sustain the benefits of conservation tillage and provide effective weed management. We have assembled a set of recommendations, products and incentives packaged together to bring solutions to the farm."
The Roundup Ready PLUS platform provides weed management recommendations for Roundup Ready crops for each farm situation, by pairing crop protection products from Monsanto and other companies."
But not all farmers are pleased with the new program. Some farmers, reported AgFax, have panned the deal, saying (in part) "... Monsanto has helped somewhat in weed resistance management by rebating a small amount ($2.50/ac or so) for each of several herbicides if they are applied. However, it would require that a producer use all five herbicides on the list in order to get a total of $12.50/ac in return.
And there is no consideration for rates. Cotoran and diuron, for instance, must be used at the highest labeled rates for most of our soil types where cotton is grown in our area, yet the same amount of $ is allocated per acre regardless. The $2.50/ac rebate for Cotoran would be less than 20% of the cost of a efficacious rate of that herbicide for many of our acres. We appreciate the thought, but we need more bucks if Monsanto truly wants to help with resistance management in our area."
Why is Monsanto backing down from its denial of glyphosphate resistance? As Joseph Mendelson noted in 1998, writing for The Ecologist, "... Monsanto has built much of its corporate empire upon the back of one chemical - glyphosate. Introduced almost 25 years ago, glyphosate, marketed mainly as the herbicide Roundup, is Monsanto's key agri-chemical product."
Monsanto lost money on its sales of Roundup in the third quarter of 2010, but optimistically predicts the company will make $550 to $600 million from Roundup sales in 2011. Profits from Roundup sales in the 4th quarter of 2009 were $322 million.
Monsanto developed Roundup in 1974, and has been designing crops to be Roundup ready ever since. The herbicide has been hailed as a breakthrough product for agriculture, and Monsanto claims its products create many benefits for farmers and the environment, as well as human health, although there is at least one study claiming Roundup causes liver cell death.
Monsanto's financial fortunes are facing increased pressure from issues such as the US Department of Justice's investigation into Monsanto for allegations that the company has monopolized the seed market with its Roundup ready seeds, said St. Louis Public Radio. In addition, a number of other states are looking into Monsanto's soy beans, and West Virginia just filed a law suit against Monsanto for not backing up its claims about the superiority of its soybeans. At the same time, those who care were rocked by the revelation that the Gates Foundation holds 500,000 shares in Monsanto.
Last year, Forbes named Monsanto "Company of the year," which journalist Robert Langreth said in his Forbes blog was a big mistake.
Zack's just rated Monsanto as "... Underperform Recommendation in line with the stock’s current Sell rating, equivalent to a Zacks #4 Rank." Zack's is confident Monsanto will climb out of this deepening hole, primarily due to the GE corn, SmartStax. Zack's issued its rating for Monsanto on October 20, saying "... We believe this will continue for a substantial period of time based on the slower market recovery. Further, an intensely competitive environment and Monsanto's huge dependence on a few large customers can lead to risk.
Monsanto also faces foreign currency risk since a significant portion of its income comes from outside the U.S. Thus, we downgraded our recommendation on the stock from Neutral to Underperform...
Addendum: Earlier this month, Monsanto told the New York Times the company was taking steps to deal with the growing discontent farmers have expressed with Monsanto's products. One of those steps was the rebate program for integrated weed management to fight glyphosphate resistance, and another step is the lowering of the price of SmartStax corn. The corporation is even going so far as to offer seeds that are less genetically engineered, reported the New York Times.
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