Monsanto - potent seed for higher dividends?

Those who are banking on the BRIC countries to recover quickly should note a Reuters report about the deteriorating job situation in Brazil.

Brazil's economy shed the most amount of formal jobs in nearly 10 years in December as the global financial crisis took a toll on Latin America's biggest economy.

The economy cut 654,946 formal jobs in December, the worst loss since May 1999 and more than double the 319,414 jobs cut in December 2007, government data showed on Monday.

The figure was higher than the 600,000 job losses predicted by President Luiz Inacio Lula da Silva last week and more than double the 300,000 considered normal for the month of December because of seasonal factors.

The bulk of the job cuts came in industry, services, agriculture and the construction sectors, with the latter two especially hard-hit.

A look at some agro-chemical companies and related industries with exposure to Brazil through their conference calls:

From Monsanto's FQ109 conference call: (MON)

Latin America as a whole continues to shift to premium corn seed hybrids, and that, combined with a richer trait mix in Argentina and Brazil specifically contributed to the gross profit improvement in the area. Based on our early read, we are on track to gain corn seed market share across the region, even as we are taking a cautious approach to credit through the second season in Brazil.

Agriculture fertilizer stocks - still has growth

Even though commodities' prices have come down from record highs, agribusiness is hardly a fallow sector, Citi Analyst Brian Yu said, deeming fears of slowed agricultural demand "misplaced" in a Sunday note on agricultural commodities.

"We are not suggesting that a global slowdown will have zero impact on grain demand, but [we] want to highlight the weak historical correlation," Yu said. "The point is that fertilizer stocks are being grouped with industrial metals and energy when the supply-demand characteristics are arguably very different."

Shares rallied throughout the agribusiness sector on Monday as Yu said rising cattle and hog prices coupled with low global grain stockpiles bode well for fertilizer fundamentals. Increased meat consumption keeps corn in high demand since the crop accounts for 61.0% of animal feed. That, combined with tight global grain supply, means farmers will continue to invest in fertilizers as a way to maximize crop yields. The Market Vectors Agribusiness exchange-traded fund gained 80 cents, or 1.6% to close Monday's trading session at $49.95.

Soaring fertilizer prices sparked investor concerns of a bubble, especially as corn prices went on a six-week slide on reports that Midwestern flooding didn't destroy as many crops as initially feared. (See " Crops To The Rescue.")

"There is a big different between equities that trade at a low multiple because fundamentals/pricing/earnings are deteriorating and equities that trade at a low multiple [since] earnings expectations are rising while prices have lagged," Yu said, adding that he thinks fertilizers fall into the latter category and reiterating "buy" ratings on Agrium (nyse: AGU - news - people ), CF Industries (nyse: CF - news - people ), Mosaic (nyse: MOS - news - people ), Potash (nyse: POT - news - people ) and Terra Industries (nyse: TRA - news - people ).

Mosaic shares gained 6.1%, adding $5.90 to close Monday's session at $103.42, and CF Industries rose 1.9%, or $2.43, to $131.38. Agrium and CF Industries both added $2.03, or 2.6% for Agrium, which closed at $80.44 and 1.9% for CF Industries, to close at $131.38. Potash rose by 0.1%, adding 23 cents to $170.04.

Yu believes Potash's sell-off--the stock has lost nearly 19.0% in the last month--is overdone, especially since data on Friday showed potash producer inventories fell by 10.0% since July.

Strong results for Monsanto

Comment from Monsanto Chairman, President and Chief Executive Officer Hugh Grant:

"Backed by continued growing demand for our products, the first nine months of our fiscal year has been remarkable and we're now increasing our full-year guidance. This strong growth sets up a solid foundation for our business and to reach our target of more than doubling gross profit in 2012. Because we're both discovering and delivering innovative tools that can help increase productivity on farm, we offer an attractive solution to the farmer and their mission of meeting our world's growing food, feed and fuel needs. While others are asking should it be food OR feed OR fuel, we believe the answer is AND, and we have the solutions in hand to be a significant part of that answer."

Operations Update

Monsanto reported record net sales of $3.6 billion for the third quarter of fiscal year 2008, which were 26 percent higher than sales in the same period in fiscal year 2007. Results in the quarter reflected increased revenues from the company's Roundup agricultural herbicides globally, increased soybean seed and traits revenues in the United States, increased corn seed and trait revenues in the United States, higher corn seed revenues in Europe-Africa, and higher cotton seed and trait revenue in the United States.

Net sales in the company's first nine months of fiscal year 2008 resulted in year-to-date sales of $9.5 billion, which were 35 percent higher compared with sales in the same period last year. Key contributors to the company's growth included increased sales of Roundup and other glyphosate-based herbicides globally, higher worldwide corn seed and traits revenues as well as increased soybean seed and traits revenues and cotton seed and traits revenues in the United States.

Monsanto's net income for the third quarter of fiscal year 2008 was $811 million or 42 percent higher than net income in the same period last year. For the first nine months of fiscal year 2008, net income was 83 percent higher than net income in the same period last year.

Earnings per share (EPS) for the third quarter of fiscal year 2008 were $1.45 both on an as-reported basis and an ongoing basis. EPS for the first nine months of fiscal year 2008 were $3.93 on an as-reported basis, and $3.70 on an ongoing basis. EPS results for the first three quarters were affected favorably by $0.23 per share after tax from the settlement of Monsanto's claims in conjunction with Solutia's emergence from bankruptcy. (For a reconciliation of ongoing EPS, see page 1.)

Monsanto Company Announces Agreement to Acquire Semillas Cristiani Burkard

Monsanto Company (NYSE:MON) has agreed to acquire Marmot, S.A., which operates Semillas Cristiani Burkard (SCB), a privately-held seed company headquartered in Guatemala City, Guatemala. Once completed, the acquisition will build on Monsanto's corn business leadership and enable it to offer farmers in Central American countries broader access to corn seed varieties. The transaction will be completed as soon as practical. Additional terms of the agreement were not disclosed.

"With more than 40 years in the seed business, SCB is the leading provider of high-quality products to farmers in Central America," said Brett Begemann, Monsanto's executive vice-president of Global Commercial. "This acquisition, which solidifies Monsanto's position as the leading corn seed provider in the Latin and Central American regions, will enable our companies to provide new and innovative higher-yielding corn seed offerings to farmers."

"We are pleased to have entered into this agreement with Monsanto," said Antonio Juan Cristiani Burkard, SCB's President, Founder and Chief Executive Officer. "The agreement will allow both Monsanto and SCB to leverage their strong R&D capabilities, germplasm base and breeding capabilities to bring new technology to farmers."

SCB focuses on hybrid corn seed production and is a leading provider of corn, sorghum, forage sorghum, soybeans, and pastures (grass-type seeds). The company operates in twelve countries throughout North, Central and South America and the Caribbean. SCB's General Manager Antonio Cristiani Moscoso will continue to lead the SCB business and its 360 employees.

SCB adds a strong market presence to strengthen Monsanto's seed footprint in the region. The company has long standing relationships with farmers and works with more than 900 dealers in the Central American region. SCB is also a distributor of Seminis vegetable seeds, a product of Monsanto's vegetable seed division.

Monsanto - Opportunity in Brazil

Monsanto's international seed brands serve as an ideal launching pad that positions the company for new launches of biotechnology traits with significant scale and ramp-up speed, Brett Begemann, Monsanto's executive vice president of global commercial, will tell investors today at the Merrill Lynch Agricultural Chemicals Conference in New York.

Begemann will cite the examples of Argentina and Brazil, where the company recently received separate regulatory approvals for corn biotechnology traits. In Argentina, Monsanto received the first-ever approval for a double-stack trait combination, YieldGard Corn Borer with Roundup Ready Corn 2, and plans to offer the combination on more than 1 million acres in its year of introduction. Likewise, Monsanto received planting approval for the YieldGard Corn Borer trait in Brazil and is planning for a 1 million to 2 million acre launch for the upcoming 2008-2009 season.

"If you combine the scale of our seed businesses in Argentina and Brazil with our proven ability to deliver traits, we're in the best competitive position to enter new trait markets quickly and with an immediate financial benefit," said Begemann. "These two approvals came a year ahead of our original plan, accelerating this opportunity and giving us what we believe is a significant first-mover advantage that translates to an enduring advantage in these new markets."