Crop Seeds: What Big Players Should You Invest In?

The genetically modified seeds business, where soybeans and corn remain the stars, is experiencing strong demand in the U.S. and Brazil. Three big players are looking into getting a bigger piece of the seeds business. What are they up to?

According to the U.S. Department of Agriculture, nearly 90% of the world's soybean production comes from the Americas, which has approximately 200 million acres dedicated to this crop. Regarding corn, U.S. farmers planted 97.4 million acres last year, and although early industry forecasts point for a modest reduction in corn acres, soybean acreage is expected to increase, especially in Brazil and Argentina, where pricing and local currency devaluation have become big incentives.

Let's see how the three top companies in industrial agriculture are handling these trends.

Monsanto: Cash coming up from acquisition
First, we have Monsanto (NYSE: MON  ) , which produces seeds, biotechnology trait products, and herbicides. As a global provider, the company has a leading position in every key corn-growing region.

The company reported weak results for its fourth quarter of 2013, with a loss per share of $0.47 from operations. However, revenues of $2.2 billion increased 5% year over year.

The good news for Monsanto going forward is that the company expects a contribution to earnings coming from its $930 million acquisition of The Climate Corporation. The company's unique predictive analytics software and know-how will boost Monsanto's integrated farming system platform. Monsanto wants to position itself as a leader in the field of data sciences, which will be the next major breakthrough field in agriculture. Big data processing will help develop better seeds, and considering that Monsanto is already getting data in every single region, the opportunity is enormous.

Syngenta: Seeds division trying to catch up
Then we have Switzerland-based Syngenta AG (NYSE: SYT  ) , which produces herbicides, insecticides, fungicides, and seeds.

The third quarter for the company showed an 8% year-over-year hike in sales, which reached $2.9 billion. Latin American operations grew 17% compared to previous year on a constant exchange rate basis. Strong demand of corn and soybean in Brazil and the U.S. pushed herbicides sales up 14% year over year.

Removing currency fluctuations, Syngenta experienced double-digit growth in seeds and crop protection. Brazil's demand for soybean seeds was the main driver of this growth, to the point that management expects record plantings of this crop, pushed by a strong commodity price and the depreciation of the Brazilian Real.

Thanks to its constant innovation, the company remains a global leader in crop protection. However, Syngenta's share of the genetically modified seeds market is not as big; it's still well behind Monsanto and DuPont. In fact, the company licensed Monsanto's Roundup Ready 2 Yield soybean trait in the North American market, showing that its products were not technologically ready to compete in such market. Unfortunately, developing a better relative position in seeds will take years.

DuPont: Seeds gaining share
Normally referred to as DuPont, EI DuPont de Nemours & Company (NYSE: DD  ) is a global chemical and life sciences company, and a leader in developing and producing corn hybrid and soybean varieties.

The company is experiencing strong momentum in its agriculture business, driven by higher corn seeds and crop protection sales. The agriculture division, which accounted for 30% of sales in 2012, is gaining market share in seed genetics following strong planting activity in North and Latin America. Developing markets are key for growth, and management expects sales in these markets to make up 40% of DuPont's sales by 2015.

As you probably heard, R&D is very important for DuPont, and during 2012 the company launched a record number of new products, including 154 new corn hybrids and 33 new soybean varieties. This quarter, the company introduced 470 new products, and its pipeline has numerous products coming up.

Bottom line
Monsanto should give investors a surprise in the near future, assuming its data-gathering acquisition pays off. In the long run, turning "big data" into actionable insights will help Monsanto's seed products remain absolute market share leaders, making it harder for its peers to catch up.

Despite having good research and development, it is hard to foresee a scenario in which Syngenta improves its share in the genetically modified seeds market. Nonetheless, plantings and overall demand in Brazil could give sales a boost. The company, however, will retain its leadership in crop-protection chemicals.

In the case of DuPont, its strategies for further development of its seeds and crop protection products, along with the growth in its market share, should drive more growth for the company. But since DuPont is very diversified, the performance of other divisions might substantially alter its overall results.

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  • Report this Comment On November 22, 2013, at 4:18 PM, funfundvierzig wrote:

    Monsanto and Syngenta are the largest and leading global enterprises in seeds and crop protection respectively. Notwithstanding the constant PR bombast of DuPont's big bosses, this unwieldy Delaware-based conglomerate lags well behind in the agricultural arena. For example, annually, DuPont must shell out hundreds of $millions in license fees payable to Monsanto in order to embed Monsanto's superior GM traits in Pioneer's otherwise inferior seed line-up.

    After years of severe cost-slashing and dismembering and shrinking a now demoralised DuPont, DuPont leaders lack the competitive pool of scientific and Managerial talent in order to catch up with the world leaders in agricultural science. Two cases in point: in the past few years, DuPont "leaders" have delivered two massive, multi-$billion ag blunders:

    * The failure to develop and commercialise a first-generation GM seed trait to compete with Monsanto, DuPont OptimumGAP.

    * The falsely, if not fraudulently marketed "very environmentally friendly" dandelion lawn treatment, DuPont Imprelis, which has decimated a couple of $billion or more of mature landscaping trees across the nation!

    Merely the opinion of one individual retail investor, long MON, AVD, SYT, DOW, and both long and short, DD...funfun..

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