With Monsanto's (NYSE: MON) herbicide Roundup facing cheap generic competition, the agriculture giant has planted its hopes for growth solely in the field of biotech seeds. We'll see how the shift is going on the other side of tomorrow's sunrise, when Monsanto reports results from its fiscal third quarter. Until then, here's a look at what to expect.

What analysts say:

  • Buy, sell, or waffle? Analysts are cautiously optimistic, with seven buys and 10 holds. Two analysts think it's time to sow your cash somewhere else, and have rated Monsanto a sell.
  • Revenue: Top-line growth may be in the green, but just barely. The average analyst's estimate is just $10 million higher than the year-ago quarter -- a rounding error for a company this big.
  • Earnings: With Roundup margins contracting, analysts see the bottom line getting plowed down this quarter, at just $0.80 per share compared to $1.25 per share this time last year.

What management says:
If you can't beat 'em, join 'em. That was management's basic message as it cut its price for Roundup last month. With some competitors using generic Roundup as a loss leader to sell other chemicals, Monsanto couldn't get enough farmers to buy the brand name at premium prices.

Management is hoping investors will stick with the company, even though it estimates the move will create a $0.50-to-$0.70-per-share hit to earnings this fiscal year. Its seed trait business, which competes with the likes of DuPont (NYSE: DD), Dow Chemical (NYSE: DOW), and Syngenta (NYSE: SYT), is still intact and should provide mid-teens earnings growth in 2011 and beyond.

… As long as there aren't any other pricing adjustments, of course.

What management does:
When the cash cow leaves the barn, there's bound to be a hit on margins, as Monsanto has seen over the past few quarters:

Margins

Nov 2008

Feb 2009

May 2009

Aug 2009

Nov 2009

Feb 2010

Gross

55.9%

57.0%

57.7%

58.1%

55.7%

53.0%

Operating

27.2%

28.7%

29.0%

31.3%

26.9%

23.8%

Net

19.4%

18.6%

18.2%

18.0%

14.2%

12.5%

FCF/Revenue

7.4%

11.1%

7.3%

11.3%

(1.3%)

1.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

Management has cut costs where it could; selling, general, and administrative expenses were down 6% year over year in the first half of the fiscal year. But the company has been steadfast in keeping research and development spending intact, even increasing it by about 5% so far this fiscal year.

One Fool says:
If you're going to invest in agriculture, whether in companies that produce seeds and chemicals, like Monsanto, or fertilizers, like Agrium (NYSE: AGU), Mosaic (NYSE: MOS), and PotashCorp (NYSE: POT), you have to be prepared for the cyclical nature of the beast. When the price of crops falls, margins will suffer, as suppliers are forced to lower their prices.

But for Monsanto in particular, you also have to be willing to ride the cyclical nature of patent expirations. Just like pharmaceutical companies facing patent cliffs for their brand-name drugs, Monsanto's loss of a major product will wreak havoc on its earnings.

Fortunately, the year-over-year comparisons will be over soon enough. As long as Monsanto can continue to innovate -- and the fact that it's keeping R&D spending up is a good sign -- the cycle will be on an upswing soon enough.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Syngenta is a Motley Fool Global Gains pick. The Fool's disclosure policy is considered a cash crop in six states.