August 11, 2009 – Monsanto, Seed Prices and Farmers

Last week I went to a farmland leasing workshop hosted by ISU Extension – the purpose was to look at what was happening with farmland leasing, cash rents, and farm profitability.  The outlook was not good for commodity farmers.  A “perfect storm” of higher energy costs, higher fertilizer costs, lower ethanol demand, higher seed costs and record crops did not paint a good financial picture.  However, of all the profit pressures, the one that worried the economist most was seed prices.  So, I wasn’t surprised when just a week later, Monsanto announces a 42% increase for its new line of GMO seeds.

A story from Bloomberg is included below, along with some of my commentary following.

(Bloomberg) — Monsanto Co., the world’s largest seed maker, plans to charge as much as 42 percent more for its new genetically modified seeds next year than older offerings because they increase farmer’s output.
Roundup Ready 2 Yield soybeans will cost farmers an average of $74 an acre in 2010, and original Roundup Ready soybeans will cost $52 an acre, St. Louis-based Monsanto said today in presentations on its Web site. SmartStax corn seeds, developed with Dow Chemical Co., will cost $130 an acre, 17 percent more than the YieldGard triple-stack seeds they will replace.
Our pricing has the flexibility built in to ensure the grower captures the greatest return from his seed investment, irrespective of market volatility, Chief Executive Officer Hugh Grant said today in a statement.
Grant is introducing new modified seeds that boost yields as part of a plan to double gross profit from 2007 to 2012. The new soybeans, which resist Monsanto’s Roundup herbicide, produce 7.4 percent more soybeans per acre than the older version. SmartStax kills insects in multiple ways, reducing the amount of conventional corn that must be planted to deter insecticide resistance.
SmartStax pricing is higher than we initially expected,  Vincent Andrews, a New York-based analyst at Morgan Stanley, said today in a report.
Pricing for SmartStax is at the high end of expectations, Laurence Alexander, a New York-based analyst at Jefferies & Co., said by telephone.
Roundup Ready 2 Yield soybean seeds were planted on 1.5 million acres this year and will be planted on as many as 8 million acres next year in the U.S. with a potential to one day reach 55 million acres, Monsanto said.
The company is pricing its seeds to share the benefit of increased yields with farmers, said Mark Gulley, a New York- based analyst at Soleil Securities. Prices include seed treatments designed to protect seedlings from pests and disease, Monsanto said.
They are in essence splitting the value of the extra yield 50-50, Gulley said by telephone.

I am especially taken with the assertion that Monsanto will take half the yield profit gained by the seeds via increased seed prices. The notion that they are “essentially splitting the value of the extra yield 50-50 with the farmer” is absolutely absurd to me. Monsanto assumes that the only two factors are seed cost and farmer profit? The farmer still shoulders the risk of high energy and fertilizer costs, risks associated with weather and crop failure. If the crop fails due to weather, is Monsanto going to “refund” their 50% portion of the yield? Yeah right.

If I had money to throw around, it would be in a open-pollinated corn company. Sooner or later, it will be more profitable to have a lower yield, along with significantly lower seed costs. When’s the last time any working stiffs got a 42% increase per year?

one year ago…”Presenting… Linda at the State Fair”

2 thoughts on “August 11, 2009 – Monsanto, Seed Prices and Farmers

  1. Wow – they just really want to control our food supply don’t they! I’m unsuccessfully trying to get dh to eat more locally grown or organic food. Alas, saving money is more important to him. Have you seen the “doomsday” seed vault that’s funded by Monsanto and Syngenta? If their seeds are so much better than anything out there, makes you wonder why they feel the need to have non-GMO seeds stored up. Here’s the link:

    And speaking of seeds… have you been to Ames to tour the USDA’s seed bank? Very cool!

  2. We’ve got a friend who works there and is one of the world experts on amaranth and clovers. It is very interesting all the varieties and periodic replantings of the collection to get “fresh” seed.

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