Monsanto Makes Half a Discovery

New DNA sequencing technology from companies like Illumina (Nasdaq: ILMN) and Applied Biosystems has revolutionized the development of drugs. Now this technology is also helping to increase farmers' crop yields.

Yesterday, Monsanto (NYSE: MON) announced that it had sequenced the DNA of one of its "top-performing elite" lines of corn. By comparing the DNA sequence of that line to the draft public sequence completed in February, Monsanto can figure out which genes are responsible for the elite production.

The discoveries could be a mixed bag for fertilizer producers such as Mosaic (NYSE: MOS) or PotashCorp (NYSE: POT). Discovering genes that help the corn to grow with less fertilizer could hurt those companies. But if Monsanto is able to develop corn that grows under less-than-ideal conditions, the total area on which farmers plant could increase, driving up sales of fertilizer and other agricultural products like tractors from Deere (NYSE: DE).

While the discovery is exciting, what Monsanto really needs is two different, fully sequenced corn lines. Then it'll be able to combine the best traits from the two lines to create a "super-top-performing elite" line. And then it can sequence another and combine more traits to create a "fantastic super-top-performing elite" line. And so on, until it eventually runs out of adjectives.

All kidding aside, Monsanto has a goal of doubling yields from 2000 to 2030. With modern biotechnology, I have no doubt that its goal is attainable. The big question is whether it'll be able to beat rivals Syngenta (NYSE: SYT), BASF, and DuPont (NYSE: DD) to market. Making discoveries like these quickly should help Monsanto develop its intellectual property moat.

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