Monsanto Can Help Your Portfolio Grow

Monsanto is by far the world leader in this field, with a reported 90% market share of global biotech acreage. Roundup Ready soybeans have been its biggest success so far and were planted on 95 million acres last year, up 8% from 2002. Total Monsanto biotech (or GMO) acres rose 11% in 2003, and are expected to be up by that amount again -- at least in the U.S. -- in 2004 as well. These include seeds with other traits, such as its YieldGard Rootworm Corn, which received approval last year. Rootworm is expected to bring in up to $1 billion in profits lost to crop damage to corn growers.

The company is also developing "stacked trait" seeds, which incorporate multiple genetic traits into one seed, such as combining the YieldGard Rootworm trait with Roundup Ready, giving growers the convenience of both weed and pest control. Stacked traits have been most successful in cotton, where Monsanto's acreage rose to 5.4 million in the U.S. last year, up 13% from the previous year.

With its much higher profit margins, Monsanto's faster-growing seeds and genomics business is likely to overtake its struggling agricultural chemicals business for the first time this year. The seeds and genomics business is expected to produce an operating margin close to 30% in fiscal 2004, 10 percentage points higher than the agricultural chemicals business. It's also expected to represent 53% of total profits, compared to 39% last year.

But while the margin rate is likely to increase on the seeds and genomics business with the development of more traits, margins on the agricultural business could remain under pressure. Ever since Monsanto lost patent protection for Roundup -- 1992 in Europe and 2000 in the U.S. -- its prices and market share have been declining. However, with prices already down to about $16 per gallon in the U.S. from about $30 per gallon in 2000, the big declines are behind it and most analysts expect Roundup prices and market share to begin stabilizing. Meanwhile, Monsanto has been cutting costs aggressively to help offset the impact on its profits, and expects to save around 30 cents per share in 2005.