Monsanto Quarterly Profit Off on Lower Corn Acreage

Monsanto on Wednesday said its second-quarter earnings fell, partly due to lower corn prices and subsequent input cost-cutting by growers.

“Two years of spectacular growing conditions have translated into the current oversupply situation for corn, and in response acres continue to decline while demand from feed accelerates to rebalance supply. In tandem, farmers have sharpened their pencils across their input costs as they in turn balance risk with returns,” Chief Executive Hugh Grant said on a conference call.

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Crop protection products, which are encompassed by its Agricultural Productivity segment, declined primarily on lower volumes, as it continued to convert more of its business to branded from non-branded volumes of Roundup, which it said is shifting gross profit to the second half of the year to support key application windows for over-the-top sprays.

Chief Operating Officer Brett Begemann commented about Roundup, “We’re seeing some of the anticipated softening in price at the retail level and have followed suit with low to mid-single digit price adjustments to maintain a small premium over the generics, consistent with our strategy.”

Net sales decreased to $5.2 billion, compared with $5.8 billion a year ago. Of that, Agricultural Productivity sales were $1.0 billion from $1.2 billion a year earlier. Seeds and Genomics sales slipped to $4.2 billion from $4.6 billion in 2014, reflecting the shift in profit of its Channel seed brand business to the third quarter and the impact of softening foreign currencies, offset by strong soybean sales.

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Grant said Monsanto continues to see annual demand for corn increasing by more than 500 million bushels per year, while soybean demand grows by more than 200 million bushels per year. Estimates now indicate that the global demand requirements for corn have grown by nearly 900 million bushels compared to the prior season, and on the supply side it now estimates that at least 11 to 12 million acres of corn will have come out of production in the primary markets since 2013.

Grant added that the company continues to attract and pursue significant licensing opportunities, some of which come as soon as this year.

Begemann noted that preparations for a record trade launch of Roundup Ready 2 Xtend soybeans continued as it awaits final regulatory approvals and secures seed production acres for what it expects to be a greater than 3-million-acre launch in 2016 and available in more than 60 varieties. Regarding the product in China, it has submitted all the required data to the Ministry of Agriculture, which has all necessary information required to grant an approval, Begemann said, adding: “We are maintaining our focus on execution for this next wave of growth in our soybean business, one whose acre opportunity is almost double that of Intacta as the need for flexible, exceptional weed control reaches across the Americas.”

In the rest of Asia, Monsanto continues to see adoption in traits in the Philippines, and it recently received approvals for its first biotech traits in corn in Vietnam, allowing it to move forward with pre-commercial trials.

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