Will Monsanto Company Buckle Under Anti-GMO Pressure This Week?

Monsanto (NYSE: MON  ) investors may have started to get a little jittery about the company's future. The seed giant is set to report its second-quarter numbers this Wednesday, and Street estimates run high. But the stock hasn't kept pace with the optimism, giving up nearly 4% gains over the past three months. The market is clearly paying closer attention to the war against genetically modified crops that appears to be heating up.

Dow Chemical's (NYSE: DOW  ) Enlist E3 soybeans may have moved closer to receiving the U.S. Department of Agriculture's approval, but major U.S. grain exporters refused Syngenta's (NYSE: SYT  ) Agrisure Duracade GM corn trait last month following China's rejection even as the FDA approved the trait last year. Meanwhile, France is mulling a revival of its ban on GMO crops, and news is pouring in that Brazil may even suspend Monsanto's glyphosate Roundup herbicide.

Source: Monsanto.

The pressure's building up on Monsanto, but a slowdown in the company's seed sales because of all the noise against GMOs is the last thing that investors want to see. Will Monsanto's upcoming earnings report be a harbinger of tougher times ahead?

Near term looks safe
The second quarter is traditionally Monsanto's most important quarter since it coincides with the peak selling season ahead of the U.S. spring planting. Monsanto ended its first quarter with higher year-over-year prepays (advance payments) from customers in the U.S., indicating robust demand for its seeds. DuPont (NYSE: DD  ) also projects higher sales from its agriculture segment for the first half of the year, backed by a strong North American season.

Analysts expect Monsanto's Q2 revenue to climb 6% year over year, and see its net profit improve a good 13%. So Monsanto's profitability is actually improving, irrespective of all the opposition to its products. The company hopes to improve gross margin from its seeds and genomics by 3% to 4% this year. If its Q2 margins trend higher, Monsanto could easily meet its target.

What you should watch for
In its upcoming report, check how Monsanto plans to boost its revenue and profits when farmers are increasingly opting for soybeans over corn. Farmers are paying more attention to soybeans after the sharp jump in the crop prices in recent months. Farm Futures even expects to see a "significant shift" in acreage from corn to soybeans in the U.S. Department of Agriculture's crop report scheduled for release this week.

Lower corn acreage isn't good news for Monsanto since corn is a major growth driver -- it made up roughly 65% of its seed sales during its financial year ended Aug. 31, 2013. Soybeans contributed nearly 16% to its sales during the period.

But given that Monsanto's Roundup Ready soybean trait already covers nearly 90% of the soybeans acres in the U.S., an increase in soybean acreage should not hurt Monsanto as much as archrival DuPont, which has to license much of its genetically modified soybean traits from Monsanto and has a much smaller footprint in the soybean market. Dow Chemical hopes to edge out the Roundup Ready weed control system once its Enlist E3 goes online, but that story could take several years to unfold.

More importantly, both corn and soybeans are near-equally profitable for Monsanto. Their contribution to the company's gross profit during the last financial year matched their respective percentage contribution to its sales. So the company may be able to balance out the weakness in one product portfolio with strength in another.

Intacta RR2 PRO soybeans. Source: Monsanto.

Plans at risk?
With competition intensifying, look for details about Monsanto's planned launches for 2014 in its upcoming earnings call. Five products are ready to go online this year, including the Intacta RR2 PRO soybeans.

Remember, the company is very excited about Intacta RR2 PRO, and is betting on it heavily to gain traction in the key Latin American market. But any negative publicity out of the ongoing glyphosate-based herbicides issue in Brazil could serve a major blow to Monsanto's dreams. So make sure you don't miss the company's upcoming earnings call that could provide some valuable insight.

The Foolish bottom line
While growing concerns about GMOs is worrisome, Monsanto investors may have a real problem in hand if the company downgrades its earlier 2014 projection of at least 10% upside on its earnings per share. I don't see that coming, though, but even a small hint of doubt in management's words could send the seemingly vulnerable shares down. But before you decide to act, make sure to check back at Fool.com for detailed analysis on Monsanto's earnings and plans for the future. 

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2014, at 3:41 PM, funfundvierzig wrote:

    DuPont Management failed conspicuously in their first major effort to create and commercailise a first-generation genetically-modified seed trait to compete with Monsanto. DuPont OptimumGAP cannot be planted by farmers in their fields "without risk", according to admissions by DuPont executives.

    Consequently and quietly, DuPont must pay Monsanto hundreds of $millions in license fees every year in order to embed Monsanto's superior GM traits into DuPont Pioneer's otherwise inferior conventional seeds.

    There has been no evidence adduced that DuPont is anywhere near closing the gap with front-running Monsanto, largest and leading producer of innovative seeds on the globe.

    ...funfun..

  • Report this Comment On March 31, 2014, at 5:12 PM, getthefacts4 wrote:

    The acres of Gm crops keep going up. 18 years of ant-Gm haven't stopped it. France are french. Enough said. The UK is thinking of selling GM (they wouldn't). Monsanto products going great guns in the Americas. Approved in 59 countries

    Plenty of scare stories by zero hospitalizations in 18 years, billions of acre and trillions of meals....while organic food has killed every year --due to the literal feces they fertilize with.

    Now short term - US is cool so sales move to next quarter. Urkraine seed sales probably Ok - backed by EU loans. Drought in Brazil will eventually increase corn prices and soybeans Intact will sell sell out.

    btw dupont now pays mon $200M per year for soy RR not there before. (due to $1.8 billion lawsuit win.

    BUT THERE IS NOTHING IN HERE ABOUT ANTi-GM it has no effect (except MON would be $300 now if not for it ...I am just happy with $130 target

    So maybe down so but up after next release

  • Report this Comment On March 31, 2014, at 10:53 PM, joe904 wrote:

    Dow AgroSciences' Enlist weed system is more of a worry to Monsanto than renewed anti-GM rhetoric. Farmers will pay more attention to getting an alternative to glyphosate to control herbicide tolerant weeds that to anti-GM noise. For farmers, the real choice is more about selecting the right trait than the right agronomics.

  • Report this Comment On April 01, 2014, at 10:31 AM, getthefacts4 wrote:

    It amazes me that the Fool allows unskilled bloggers to review stocks. They appear to just look at the internet to gain their knowledge of a company instead of looking at its business and then looking at things that could really affect sales. In 18 years anti-GM has never dropped sales of GM crop seed. Monsanto makes seed not food.

    Ag sales depend more on competition, the weather and grain prices not on crazy activists matching on anti-Gm issues that have never been shown to be true.

    Monsnato wins just about every lawsuit on GM seed and the seed rarely goes up but it drops a bit with every scare story - but sales don't get affected.

    yes sales would be higher if the EU allowed planting.

    And about Dow's herbicide tolerance - they have to have it in good germplasm - which they don't have. Only if Pioneer /Dupont starts using it will it count, and if Dow was smart they would license it to Monsanto. Whioch I am sure they will, but Monsanto has they own new herbicide tolerance Dicamba which doesn't have the agent orange histroy that 2,4, D does....again the author is not informed enough yet to write such and article. I would expect lower sales due to cool quarter and then they make it up and mor e the next quarter becuase if you know what you are writing about you would know its the combination of Q1, Q2 amd Q3 sales (and returns in Q3 and Q4) that decides how much you actually sold in 2014 - listen to the analyst call for the truth not a blogger

  • Report this Comment On April 01, 2014, at 11:41 PM, tempchennai wrote:

    This is a junk stock, just like the chemical laden modified foods this company generates!

    No wonder this company is rated "the most hated company on earth" year after year consistently.

    If you investing in company, you may earn a few dollars based on its performance, but please take note that you are "contributing directly to the various illeffects that mankind that goes through due to various Monsanto's products."

  • Report this Comment On April 02, 2014, at 8:34 AM, Farmhound wrote:

    funfun, facts4 appear to have the real story of GM. I'm not anti-organic. Just tired of the Sky is Falling mentality. Science is there for a reason and its not to score political points. There have been exactly 0 studies to show any danger in GMO seed. Oh sure there have been hit job agenda driven dribble but nothing that has withstood solid testing.

  • Report this Comment On April 02, 2014, at 9:13 AM, funfundvierzig wrote:

    Another oddity: The GMO smear campaign conducted by shadowy operatives appears to be waged exclusively against Monsanto and its business. Very rarely mentioned is DuPont, which is the second largest seed producer on the globe, and whose seed lines have been substantially genetically-modified. ...funfun..

  • Report this Comment On April 02, 2014, at 4:17 PM, getthefacts4 wrote:

    Once again the author is totally wrong in their assessments

  • Report this Comment On April 02, 2014, at 4:21 PM, getthefacts4 wrote:

    Temp chennai : you are a person of few words. I on the other hand.......virtually everything you stated is wrong and a sign of considerable ignorance

    there is zero real evidence (except anti-GM activists quoting themselves or distorting reality) that Monsanto is contribuiting to harm in the world. Organic food however is killing people and teh anti-GM activists are also killing people by reducing yields by discouraging more GM seed use

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