Please ensure Javascript is enabled for purposes of website accessibility

Monsanto's SmartStax Isn't Stacking Up

By Brian Orelli, PhD – Updated Apr 6, 2017 at 11:20AM

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

It's hard to live up to the hype.

Pay more, get less. That's generally not a very good business model, and it's the reason Monsanto (NYSE: MON) is down 12% since Friday.

Investors have become increasingly worried about Monsanto's SmartStax corn, which combines eight different traits to protect against bugs and make them resistant to herbicides used to kill weeds. Monsato sells SmartStax, which was developed with Dow Chemical (NYSE: DOW), at a premium to its older corn seeds that only sport a couple of traits because SmartStax is supposed to produce higher yields. The increased production should, in theory, pay for the increased seed price and then some.

So far that theory isn't holding up. With about 10% of the corn harvested, the SmartStax is actually trailing the production of the older seeds.

Let's take a step back before we declare SmartStax a bust and run out and buy competitors DuPont (NYSE: DD) and Syngenta (NYSE: SYT), and maybe some fertilizer producers such as Agrium (NYSE: AGU), Mosaic (NYSE: MOS), and PotashCorp (NYSE: POT) since the farmers obviously need a boost in yield. The sample size is still relatively small, and the yield comparisons are going to be somewhat dependent on the older seeds being attacked by pests. The corn harvested in other parts of the country later in the season may have better results.

And one season may not be enough to see the results. In a good year, the SmartStax might not live up to the hype, but it's kind of like buying crop insurance in case the bugs do get to the crops.

Will farmers buy my argument, which I'm guessing is the same one Monsanto will make? In the long run, they probably will, but Monsanto may need to discount the seeds for a few seasons until farmers are convinced SmartStax is worth the money.

Considering that Monsanto is counting on SmartStax to be a growth driver now that RoundUp is all dried up, a cut in revenue is going to hurt. Long-term investors will likely be OK, but anyone looking for a quick buck shouldn't expect Monsanto to turn around quickly.

Jeff Fischer decided one stock wasn't enough. He recommended an ETF in today's buy opportunity.

Monsanto is a Motley Fool Inside Value pick. Syngenta is a Motley Fool Global Gains selection. Motley Fool Optionshas recommended a synthetic long position on Monsanto. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

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

DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
DOW
E. I. du Pont de Nemours and Company Stock Quote
E. I. du Pont de Nemours and Company
DD
Monsanto Company Stock Quote
Monsanto Company
MON
Nutrien Stock Quote
Nutrien
POT
The Mosaic Company Stock Quote
The Mosaic Company
MOS
$48.53 (-7.60%) $-3.99

*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.