Piper Jaffray Maintains Overweight On Monsanto (MON)

Piper Jaffray is maintaining its Overweight and raising its price target to $75 on Monsanto MON. In a note sent to clients, Piper Jaffray writes, "Based on our channel checks in China, glyphosate prices have increased 20% over the past three months due to strong agricultural demand (domestically and for export), rising raw material prices, and supply constraints. Under Monsanto's new glyphosate pricing strategy (and its captive supply of raw material), we believe this level of price increase could add $0.15-$0.30 to our FY11 EPS estimate of $2.80. We are reiterating our Overweight rating and lifting our price target to $75." Piper Jaffray goes on to say, "Channel checks point to sharp rise in glyphosate prices in China. Based on our discussions with producers, distributors, and other ag chemical contacts in China, the price of glyphosate is up 20% since October, with prices reaching $10 per gallon in recent weeks. Approximately 70% of China's glyphosate production is exported and producers are seeing strong demand both domestically and internationally. Supply constraints have arisen from local government restrictions on energy consumption, particularly targeting the chemical industry. Our industry contacts indicate that dozens of facilities remain idle, which could eventually become a source of additional market supply though the timing is highly unclear. Additionally, the price of phosphorus (the largest input to glyphosate) has increased steeply in recent months, with prices up 30%-40% in the U.S. Monsanto's revised pricing strategy in the glyphosate (RoundUp) segment aims to match generic competition. Given the generic price increases, Monsanto could elect to lift prices as we enter 2011 or hold steady to boost market share. In either scenario, we view it as a positive." Shares of MON gained 40 cents yesterday to close at $67.11.