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 Monsanto executives are seeking to reposition the company as a
business built on data science and services, as well as its
traditional chemicals, seeds and genetic traits operations, chief
technology officer Robert T. Fraley told Reuters in an interview.
“We transformed from industrial chemical company to a biotech
company, then to a seeds company,” Fraley said. “Now, we’re
transforming again.”
Top executives are sketching out plans now, and briefing major
shareholders ahead of a wider presentation to investors in November
at the company’s St. Louis headquarters. Fraley and others have met
with at least 195 technology start-ups in recent months and
identified five as potential acquisition targets, pending Monsanto’s
testing of products they make, company sources said.
But the agricultural-data field is crowded, Monsanto’s initial moves
into the sector have had spotty results and the shifting narrative
is a sharp departure from the vision Monsanto described just weeks
ago, as it bid for Syngenta. That vision was of a future based on
agricultural chemicals and high-tech seeds.
The latest pivot comes as longtime profit stalwarts — the weed
killer Roundup and the company’s portfolio of genetically modified
seeds — both are showing signs of strain. Roundup's longevity as a
farmer mainstay has become vulnerable as weed resistance to its
active ingredient glyphosate has grown.
Company officials declined to say how big a part of the firm it
expects the data science and services arm to become, or to project
sales and profits.
It already owns Climate Corp, a weather forecasting firm it acquired
in 2013, and equipment maker Precision Planting, which it bought for
$250 million in 2012.
Still, farmers and agribusiness customers so far have been reluctant
to pay for data services, particularly with farm income down by half
since its 2013 high. Sam Miller, head of agriculture banking at BMO
Harris Bank, said farmers, especially large producers, are looking
for data services. But the competitive landscape is fierce with
Monsanto and rivals Syngenta, Dupont Pioneer, WinField Solutions and
others all fighting to sell data services.
The companies “are all talking to these producers about their data
services,” Miller said.
SELLING ITS VISION
Monsanto is moving toward a Roundup successor, ramping up production
of weed killer dicamba, and seeds tolerant of both glyphosate and
dicamba. But rival Dow AgroSciences has created alternative
herbicide-tolerant crops and a newer herbicide to compete with
Monsanto.
The strong dollar and sluggish commodity prices are adding to
Monsanto’s woes. The company’s 2015 fiscal third quarter showed the
strain.
During the quarter, Monsanto announced a deal with Scotts Miracle-Gro
Co that boosted profits by $274 million. Without that one-time
boost, Monsanto’s crop protection and herbicide segment - dominated
by glyphosate - would have seen a 16 percent drop in gross profits,
according to regulatory filings. Monsanto has warned that its
company-wide fourth-quarter results on Oct. 7 will be break-even,
and gross profits from its seeds and genomics businesses were
expected to be flat year-over-year for fiscal 2015, too.
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Overall, Monsanto's strategy is to cut its operational costs,
improve its return on existing investments and develop lucrative new
product lines. Work already under way includes a focus on tools that
improve planting efficiency, sensors that help Monsanto track its
seeds shipped in cargo containers, and computer modeling that can
speed the rollout of new seeds and traits.
This is not the first time Monsanto has touted data services.
Chief Executive Officer Hugh Grant in 2013 cited a “big change" and
stated data was one of two new platforms for growth, along with
biological research in crop protection. Since then, its biologics
and data efforts have taken a larger overall bite of Monsanto’s more
than $1 billion in annual R&D spending, according to the company.
Securities analysts are skeptical of the shift in vision.
"There's a big difference between profits and meaningful profits
that will move the needle,” said Matt Arnold, an equity analyst with
Edward Jones. “We would not expect [data services] to be a needle
mover in the near future.”
Climate Corp has shown signs of promise. But so far, there is little
evidence that the venture can help Monsanto conquer a $20 billion
market, with its products ranging from precision planting sensors to
weather and planting forecasts, wireless data devices and soil
analysis services.
Climate Corp’s free offerings are used by farmers or consultants on
22 percent of U.S. cropland, or 75 million acres. But only 1.5
percent of U.S. farmland is tilled by people who have agreed to pay
for Climate’s data services, the company said.
“I like what I see, but I like it more because it’s free,” said
Thomas Bonnster, a Midwestern crop farmer, while touring Climate
Corp’s booth at a recent farm show near DeKalb, Illinois.
Monsanto’s rivals have taken different approaches in their own
efforts to earn profits from big data. For example, Bayer
CropScience’s digital strategy is focused on applying data to
improve agrichemicals products the company sells to farmers, company
officials told Reuters.
“We make money the old-fashioned way: Selling those (chemical)
products,” said Bayer CropScience CEO Jim Blome.
(Reporting By P.J. Huffstutter; Editing by Martin Howell)
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