Monsanto's annual field tour addressed the slower-than-anticipated launches of SmartStax corn and Roundup Ready 2 Yield soybeans, and highlighted promising near-term prospects such as refuge in a bag and drought-tolerant corn.
Noticeably absent from the two-day event was a presentation on Roundup herbicide, which Monsanto CEO Hugh Grant simply stated he expects to be EBIT and cash flow positive next year, with ongoing SG&A reductions.
The 2010 miss in RR2Y boils down to three factors: 1) forced coupling with seed treatment, 2) too-high pricing, and 3) a white mold problem in the 2009 crop. Monsanto has responded by unbundling the seed treatment option and reducing the premium over the previous generation. The white mold problem could be solved in one of two ways: 1) more-normal weather--white mold loves the lack of hot days that prevailed in 2009 in key areas, or 2) increased varieties of RR2Y, which should provide the right option for the prone region.
The disappointment in SmartStax stemmed largely from pricing, and Monsanto responded accordingly. However, there are certain areas of the Corn Belt that simply won't migrate to SmartStax en masse, due to factors such as lower rootworm pressure. Outside of the central Corn Belt, Monsanto will offer VT Double PRO and VT Triple PRO.
This is where refuge in a bag and drought tolerance come in. RIB lets growers seed their entire field from a "one bag" mixture of 95% B.t. corn, 5% refuge; there is no need to reload planters with non-B.t. seed to plant the structured refuge acres the EPA requires. This is a convenient solution for farmers. Since RIB will be available only for SmartStax (and VT Double PRO), Monsanto is hoping that VT Triple PRO users will migrate to SmartStax simply to get the RIB option.
Finally, Monsanto's first-generation drought trait, which will address the needs of growers in the dry western Corn Belt, is in the final phase of the R&D pipeline. It is likely that the drought tolerant trait will be offered on the SmartStax and VT Double PRO options, giving VT Triple PRO users another nudge in the direction of SmartStax.
We will have to wait and see. VT Triple PRO is used by growers in the surrounding Corn Belt and the South, where Monsanto is only now beginning to turn the corner against DuPont's DD Pioneer. Our experience tells us that growers require empirical proof before opening their wallets, so it could take several seasons for SmartStax to gain prevalence in the South.
© Copyright 2010 Morningstar, Inc. All rights reserved.
