Please ensure Javascript is enabled for purposes of website accessibility

Monsanto's Trade Dividend

By Brian Gorman – Updated Nov 16, 2016 at 1:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The giant and competitors in agricultural biotechnology should enjoy rising sales in the developed world as subsidies come down.

It's become so common that the investment news media hardly batted an eye.

Monsanto (NYSE:MON) raised its earnings guidance on Monday, this time for its first quarter. Rather than earnings of $0.10 per share, as initially projected, the agricultural biotechnology firm now anticipates EPS will be $0.20.

A doubling in the quarterly earnings forecast is certainly newsworthy, but Monsanto's other comments in the press release may be more intriguing. Specifically, the firm pointed to better-than-expected performance for cotton traits in Australia as among the reasons for its improved outlook. In addition, Monsanto noted that there could be 15% more U.S. acres using its Roundup Ready and YieldGard Rootworm-protected corn than in previous estimates.

That Australia is eagerly adopting genetically modified (GM) cotton and U.S. farmers are embracing GM corn may be just small signs of a growing trend. I have written before that Monsanto will probably have more customers in the developing world in the future due to changes in the global trading system. However, it seems equally true that market penetration of GM crops in the developed world also probably continue to expand.

The Doha round of global trade talks drags on, and a major sticking point is agriculture. However, after years of keeping agricultural subsidies off the agenda, the U.S. and European Union may finally be forced to commit to cuts, which would hurt domestic farmers. Leading the charge against these subsidies are developing countries such as Brazil and India that have increasing clout thanks to their rapidly expanding economies. Indeed, Brazil has already successfully challenged the U.S.'s cotton subsidies. The end of agricultural supports in the U.S. and EU looks to be a question of when, not if.

Interestingly, Australia has no agricultural subsidies. Faced with competition from developing countries where labor is abundant, Australia's cotton farmers adopted the latest productivity-improving technologies, including GM seeds. Doing so allowed Australia to lead the world in cotton yields per hectare last growing season.

With agricultural subsidies under attack, U.S. farmers may already be making the calculation that they need more GM seeds to compete. Even the EU, which has been squeamish about GM crops, may be forced to change its attitude when confronted with the global market. That's good news, of course, not only for Monsanto, but also for its competitors, like Syngenta (NYSE:SYT) and Bayer (NYSE:BAY).

For related stories, see:

Fools, now is the time to open your hearts and wallets to worthy causes! Please support our five Foolish charities at www.foolanthropy.com.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Monsanto Company Stock Quote
Monsanto Company
MON

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.