Seed giant flexes muscle
August 8, 2008
In late March, Monsanto Co. sent a “Dear Valued Customer” letter to most U.S. corn and soybean farmers. The reason, wrote Jim Zimmer, Monsanto’s vice president of U.S. branded business, was “to discuss… some current marketplace dynamics that will directly affect you in terms of increased prices for Monsanto’s line of Roundup herbicides for 2008.”
Demand of glyphosate, Roundup’s generic counterpart, “is at an all time high,” explained Zimmer. As such, “…we have seen the demand for Roundup brand herbicide increase more than our current ability to supply.”
That’s a problem, he continued, because “We have a reliable supplier commitment to farmers who choose to purchase Roundup Ready technology and who choose to purchase Roundup brand herbicide that we will have supply available.”
“Our competitive challenges have put our commitment at risk, forcing us to increase our price for Roundup herbicide.”
Golly, a farmer who telephoned me about the letter asked, “How much is their promise to me going to cost me?”
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Globally, about $411 million, the amount Roundup net sales increased from March through May over the same three months in 2007, according to Monsanto’s third quarter, Form 10-Q filed with the Securities and Exchange Commission June 27.
That’s a 54 percent increase.
Additionally, the 10-Q reports, “Net sales of Roundup and other glyphosate-based herbicides increased 63 percent, or $1,222 million” – $1.222 billion – “in the nine-month comparison” with fiscal 2007’s first three quarters.
Remarkably, however, that $1.2 billion increase in Roundup sales, notes the 10-Q, was posted despite a seven percent sales volume drop in “Roundup and other glyphosate-based herbicides in third quarter 2008” and only an eight percent increase in global Roundup sales for the nine-month period ending in May.
Clearly, Roundup – mostly because Monsanto boosted its price – hit a home run. “Gross profit increased $927 million because of higher sales of Roundup and other glyphosate-based herbicides in the first nine months of 2008.”
What Monsanto did for Roundup herbicide this spring, it promises to do for Roundup seed corn next year, according to a July interview company officials held with DTN and Progressive Farmer editors.
Indeed, wrote Marcia Taylor for DTN after the gathering, “Even the list price on seed corn will topple the $300 per bag barrier starting this fall, up about $95 to $100 per bag, or 35 percent on average, according to Monsanto officials…”
Monsanto, “thinks it deserves some extra profit sharing,” offered Taylor because it “claims” its triple-stacked, genetically modified corn hybrids deliver a 12 bu. yield advantage over competitors in a normal year and maybe as much as a 35 bu. increase in a dry year.
As such, the company – which estimates 76 percent of all its 2009 seed corn sales will be triple stacked varieties – wants a hunk of that value. In short, that’s why seed prices are set to soar.
But, John Jansen, a Monsanto exec, told the editors, the company is certain its seed is so hot that “We can pass the red-faced test from the Panhandle of Texas to McLean County, IL.”
Well, maybe not your red-faced test, so you check out a competitor.
Again, according to Monsanto’s most recent 10-Q: “In the first quarter 2008, Monsanto entered into an agreement on corn herbicide tolerance and insect control technologies with Pioneer Hi-Bred International, Inc… (whereby Monsanto will receive) cumulative cash receipts of $725 million over an eight-year period.”
Drat. How about a soybean competitor?
“In third quarter 2008, Monsanto and Syngenta entered into a Roundup Ready 2 Yield Soybean License Agreement… (under which) the minimum obligation from Syngenta over this (nine-) year period is $81 million,” reports the 10-Q.
Is Monsanto everywhere? Almost; according to its June SEC filing, it recently bought a vegetable seed company in Europe, a seed corn company in Guatemala, another in Brazil…
© 2008 ag comm
Write to Alan Guebert at agcomm, 21673 Lago Dr., Delavan, IL 61734, or by email at email@example.com