Monsanto's cotton revenues face uphill battle (16/12/2005)

For the extraordinary bull Monsanto successfully feeds its investors on, see "37 mln-acre Europe biotech corn market"!

Monsanto's cotton revenues face uphill battle
For immediate release
December 14, 2005

By the end of the decade Monsanto's revenues from its cotton traits - which account for approximately 10% of overall seed and trait revenues - could be in severe decline. The reversal is likely to happen because competitors are indicating they plan to replace Monsanto traits with their own and others' newly developed technology.

According to a just-released report by the Polaris Institute (attached), the trend can't help but have a negative effect on the company's revenues. The stock price is currently near an all-time high, based on short-term earnings potential. But the report's forward-looking statistics reveal those earnings, particularly in cotton, may not be sustainable.

Polaris looks at the cotton business in the United States, the current consolidation among seed companies and competition over which traits are inserted into which seeds. With the number of acres planted to cotton stable across the country, future industry revenues will increasingly go to seed companies that choose the most commercially viable traits, based on productivity and cost.

The report analyzes the three main industry players - Delta and Pine Land, Bayer and Monsanto - and their prospects for growth. A main focus is on how Delta and Pine Land says it will drop Monsanto's traits over a three-year period starting in 2009. Bayer is also in the process of switching away from Monsanto traits. The two companies control 75 percent of the cotton-seed business.

The report also provides information on the cotton pipeline and field trials and how these can affect market share, with market-share estimates through 2012.

"Although the actual situation will undoubtedly differ from projections, it's likely there will be a significant change in trait market share in the not-too-distant future," says David Macdonald, Polaris analyst.

"Big seed companies are already starting to flex their muscles as new non-Monsanto traits become available. This trend is likely to continue into the future."

Changes in cotton-trait adoption will pick up speed in 2008, marking the first time Monsanto has been faced with real competition in the GE-crop industry. With no new products to introduce in the face of this competition, the company will have a difficult time protecting what today accounts for $300 million on its balance sheets.

For more information, contact David Macdonald at 613 237-1717 or 613 725-7606 (cell).

Polaris: The Polaris Institute is a public interest organization doing research, education and action on the role of corporations in public policy.

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