Is Monsanto Worth a Look? Depends on Which Monsanto You're Talking About.

Disclaimer:  This is not research, advice or an invitation to trade or invest.  My comments below are simply some observations based on publicly available information.  Do not trade based on anything you read here.

Monsanto (MON) is becoming quite the controversial stock in light of the dichotomy of near-term and long-term outlooks.  You could make the case that this is true for all of the agriculture stocks (brutal farm incomes and spending this year but multi-year Ag Supercycle on the horizon). 

Trouble With Monsanto's Roundup

Trouble With Monsanto's Roundup

Let’s look at MON as a microcosm for the ag story at large…

Monsanto’s long-term story is one of the most exciting and imagination-capturing I can think of.

The short version goes something like this: 

The planet’s population is not only growing, it is becoming more prosperous.  As a result, the emerging middle class (China, Latin America, India, Africa) will be looking to upgrade the food they consume and to include more proteins in their diet.  In order to meet this new protein demand, roughly four times the amount of productivity will be required of the available global farmland.  The best way to accomplish this is with enhanced seed and genomic technology, which puts the industry leader, Monsanto, squarely in the driver’s seat for this global mega-trend.

OK, this is all well and good, but right now in 2009, the $43 billion dollar company is not quite being driven by the Ag-Tech story, it is instead being driven in part by the results of its weed-killer business, also known as Roundup.

Monsanto put out an earnings forecast this week and had to lower its 2009 and 2010 profit estimates in light of the fact that consumers are skipping the brand-name Roundup product in favor of cheaper generic herbicides.

The company is pegging its 2010 earnings at $3.10 to $3.30 a share, The Street was thinking more like $4.30.  Not pretty.

Monsanto’s CEO is telling us that the Roundup business will only be 15% of the profit mix at Monsanto by 2012 as the seed and genomic businesses kick into high gear and go to 85% of profits.  The question becomes whether or not you are willing to see through the valley into the intermediate term when this prospect has the potential to become reality. 

The analysts I’ve read on the subject are starting to become unwilling to do so.  They are getting impatient and may not be interested in overlooking the current issues for this company any longer. 

Estimates, ratings and target prices are being slashed as I write.  This near-term vs long-term dichotomy is an issue for investors not only in Monsanto, but in all fertilizer, tractor, irrigation and farming stocks.  The longer-term ag supercycle theory is exciting, but farm cap-ex is anything but for this year and possibly next year.  The USDA just reported that farm income in the US will drop by 38% this year ($87.2 billion to $33.2 billion).  Agribusinesses have been just as starved for credit and reinvestment as the rest of the economy, and in some geographies, even more so.   

So which company will investors react to – the Monsanto of today with the declining ag productivity business or the Monsanto of tomorrow with the potential technological advantages to change the world?

Full Disclosure:  At the time of this writing I do not have any long or short positions in MON for personal or customer accounts.  Please see my Terms & Conditions page for a full disclaimer.

What's been said:

Discussions found on the web
  1. The Pale Scot commented on Sep 12

    ” roughly four times the amount of productivity will be required of the available global farmland.”

    Not going to happen; it’s far more likely that catastrophes, natural, biological and manmade will reduce the population to the less than 4 billion that our current state of technology can support.

    40% of the world’s population relies on water flowing off the Himalayas, climate change will drastically reduce that supply. Will nuclear armed China, India and Pakistan set aside their historical differences to cope or will they use the military option?

    The Ogallala Aquifer under the American midwest which supplies 25% of American corn and cattle production, is dropping a meter year. Combined with the agricultural zone shifting north, in a decade or so, the USA will be feeding only itself.

    Unless Monsanto can produce a corn/cacti cross that defies the Conservation of Mass Law by producing carbohydrates without water, defense industries are the long term bet of choice.

  2. The Pale Scot commented on Sep 12

    ” roughly four times the amount of productivity will be required of the available global farmland.”

    Not going to happen; it’s far more likely that catastrophes, natural, biological and manmade will reduce the population to the less than 4 billion that our current state of technology can support.

    40% of the world’s population relies on water flowing off the Himalayas, climate change will drastically reduce that supply. Will nuclear armed China, India and Pakistan set aside their historical differences to cope or will they use the military option?

    The Ogallala Aquifer under the American midwest which supplies 25% of American corn and cattle production, is dropping a meter year. Combined with the agricultural zone shifting north, in a decade or so, the USA will be feeding only itself.

    Unless Monsanto can produce a corn/cacti cross that defies the Conservation of Mass Law by producing carbohydrates without water, defense industries are the long term bet of choice.

  3. The Pale Scot commented on Sep 12

    ” roughly four times the amount of productivity will be required of the available global farmland.”

    Not going to happen; it’s far more likely that catastrophes, natural, biological and manmade will reduce the population to the less than 4 billion that our current state of technology can support.

    40% of the world’s population relies on water flowing off the Himalayas, climate change will drastically reduce that supply. Will nuclear armed China, India and Pakistan set aside their historical differences to cope or will they use the military option?

    The Ogallala Aquifer under the American midwest which supplies 25% of American corn and cattle production, is dropping a meter year. Combined with the agricultural zone shifting north, in a decade or so, the USA will be feeding only itself.

    Unless Monsanto can produce a corn/cacti cross that defies the Conservation of Mass Law by producing carbohydrates without water, defense industries are the long term bet of choice.

  4. Mr. Unexpectedly commented on Sep 14

    They are hardly different companies. The same Monsanto that pushes Round-up Ready patents, lobbies, scatters, and sues aggressively. Their GMO technology has been controversial from day one–it’s essentially banned in Europe, though welcome here, at least in the livestock food chain–and their corporate practices have been herbicidal at best.

    Their innovations, in the long run, will do about as much to feed the planet as Enron did to provide it with energy. Where Enron was all about creative accounting, however, Monsanto practices creative law. Their record in the courts and in politics has set new standards for strong-arming, presumably because they know their version of the GMO fight is (and, from all available research, should be) a lost cause that they wish to sell as if it cured cancer and hunger both.

    There is no long view possible for the Monsanto brand of agribusiness, until it grows up and enters the 21st-century business culture. Having shown no willingness to do so thus far, it’s bound to wither and die like a weed drinking its own poison.

  5. Mr. Unexpectedly commented on Sep 14

    They are hardly different companies. The same Monsanto that pushes Round-up Ready patents, lobbies, scatters, and sues aggressively. Their GMO technology has been controversial from day one–it’s essentially banned in Europe, though welcome here, at least in the livestock food chain–and their corporate practices have been herbicidal at best.

    Their innovations, in the long run, will do about as much to feed the planet as Enron did to provide it with energy. Where Enron was all about creative accounting, however, Monsanto practices creative law. Their record in the courts and in politics has set new standards for strong-arming, presumably because they know their version of the GMO fight is (and, from all available research, should be) a lost cause that they wish to sell as if it cured cancer and hunger both.

    There is no long view possible for the Monsanto brand of agribusiness, until it grows up and enters the 21st-century business culture. Having shown no willingness to do so thus far, it’s bound to wither and die like a weed drinking its own poison.

  6. Mr. Unexpectedly commented on Sep 14

    They are hardly different companies. The same Monsanto that pushes Round-up Ready patents, lobbies, scatters, and sues aggressively. Their GMO technology has been controversial from day one–it’s essentially banned in Europe, though welcome here, at least in the livestock food chain–and their corporate practices have been herbicidal at best.

    Their innovations, in the long run, will do about as much to feed the planet as Enron did to provide it with energy. Where Enron was all about creative accounting, however, Monsanto practices creative law. Their record in the courts and in politics has set new standards for strong-arming, presumably because they know their version of the GMO fight is (and, from all available research, should be) a lost cause that they wish to sell as if it cured cancer and hunger both.

    There is no long view possible for the Monsanto brand of agribusiness, until it grows up and enters the 21st-century business culture. Having shown no willingness to do so thus far, it’s bound to wither and die like a weed drinking its own poison.