Monsanto Introduces New Technology - Analyst Blog

 

Monsanto Company (MON) and InterGrain Ptv Ltd agreed to jointly introduce a new wheat growing technology in Australia, the world’s major wheat grower and exporter. In accordance with the agreement, Monsanto has acquired a 19.9% stake in the latter.

 

Together the companies will exchange their germplasm for breeding of wheat, which is expected to enhance yields for the Australian farmers by increasing genetic gain.

 

InterGrain, a leading breeding company in Australia, was established in 2007 by the State Government of Western Australia and the Grains Research and Development Corp. (GRDC).

 

Monsanto has been continuously increasing production and focusing on innovation and technology upgrade to make farmers more productive. The company’s robust pipeline of new products appears encouraging.

 

Monsanto’s capabilities in biotechnology and breeding research are building a rich product pipeline, which is expected to drive long-term growth.

 

Recently, Monsanto introduced a new product called Warrant Herbicide, which is an encapsulated formulation of acetochlor designed for cotton and soybean. The new product was tested by farmers as MON 63410 Herbicide and has proved successful as it helps prevent pigweed on cotton and is effective for more than a month.

 

Monsanto also increased the production of SmartStax corn seeds, which was initially planted on 3 million acres out of a total of 32 million acres. Monsanto plans to cover 15 million acres in fiscal 2011 and additional 9 million acres in fiscal 2012. This increased production will significantly improve top-line results as corn seeds and traits contributed 45% of total revenues in the nine months ended May 31, 2010. Monsanto is also expected to experience a higher profit margin based on economies of scale.

 

We bank on Monsanto’s market leadership and are optimistic on its near-to-mid-term performance. However, an intensely competitive environment and Monsanto’s huge dependence on a few large customers are discouraging. Monsanto also faces foreign currency risk since a significant portion of its income comes from outside the U.S. Thus, we reiterate our Neutral recommendation on the stock and the stock currently retains its Zacks #3 Rank (short term “Hold” rating).