Monsanto counts its cash Seed-and-chemical giant sees its profit triple Posted by Tom Philpott at 10:47 AM on 04 Jan 2008
In a gold rush, the firms that supply the gold diggers with tools -- not the gold diggers themselves -- make the highest and steadiest profits. That's a platitude, but it's also usually true. And it's now playing out in the boom in corn-based ethanol.
Don't waste much time envying corn farmers. Sure, they've seen the price of their product double over the past year and a half or so. But they've also seen their costs inch up. Fertilizer, land rents (much of the farmland in the midwest is rented), pesticides, and seeds -- all have risen since the corn rally. Before long, much-heralded "record farm income" in the corn belt will likely evaporate under those pressures.
As for ethanol producers -- the ones buying up all that corn and spinning it into auto fuel -- even they've seen their profits drop, despite heavy government support. They flooded the market with so much ethanol, so fast, that they overwhelmed it, leading to a glut. Helpfully, though, the federal government solved that problem, for a few years at least, with the 2007 Energy Act and its lofty ethanol mandate.
Corn farmers and even ethanol producers are pikers compared to the input suppliers -- the firms that peddle the special seeds and chemicals required for industrial-scale agriculture. And the granddaddy of all those firms, the genetically modified seed and herbicide giant Monsanto, just delivered what's known on Wall Street as a "blowout" quarterly profit report.
In the three-month period that ended Nov. 30, Monsanto reeled in profit of $256 million. That's nearly three times the amount it made in the same period of a year earlier, and well more than Wall Street analysts had expected. Monsanto shares, which more than doubled in value over the course of 2007, leapt more than 9 percent in Thursday afternoon trading on the news.
How did Monsanto pull off this neat trick? By selling boatloads of herbicide and genetically modified corn, Reuters reports:
Sales of corn seed and traits during the quarter jumped to $467 million from $360 million a year ago, while sales of its Roundup and other glyphosate-based herbicides climbed to $1.0 billion from $649 million.
The company told Wall Street to expect more of the same in 2008, boosting earnings expectations significantly.
South America -- particularly corn-happy Argentina and soy-mad Brazil -- has been a main driver of Monsanto's profitability, sucking in mass quantities of the company's flagship herbicide RoundUp, to complement RoundUp-Ready corn and soy, AP reports.
The company expects to bring in a cool billion in gross profit from RoundUp alone in 2008, according to AP.
