Battle of the beans: Monsanto faces a
fight for soy market
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[January 24, 2018]
By Rod Nickel and Tom Polansek
WINNIPEG, Manitoba/CHICAGO, Jan 24
(Reuters) - Monsanto Co is facing major threats to its historic
dominance of seed and herbicide technology for the $40 billion U.S.
soybean market.
Rivals BASF SE and DowDuPont are preparing to push their own varieties
of genetically modified soybeans. At stake is control over seed supply
for the next generation of farmers producing the most valuable U.S.
agricultural export.
The market has opened up as Monsanto's Roundup Ready line of seeds -
engineered to tolerate the weed killer glyphosate - has lost
effectiveness as weeds develop their own tolerance to the chemical.
Compounding the firm's troubles is a national scandal over crop damage
linked to its new soybean and herbicide pairing – Roundup Ready 2 Xtend
seeds, engineered to resist the chemical dicamba.
The newly competitive sector has sown confusion across the U.S. farm
belt, particularly among smaller firms that produce and sell seeds with
technology licensed from the agrichemical giants.
Many of these sellers told Reuters they are amassing a surplus of seeds
with engineered traits from multiple developers - at substantial extra
cost - because they can only guess which product farmers will buy.
"Our job is to meet our customers' needs, and we don't know what those
are going to be," said Carl Peterson, president of Peterson Farms Seed
near Fargo, North Dakota. "I don't think I've ever seen anything quite
like this."
Monsanto has much to lose. Soybeans are the key ingredient in feed used
to fatten the world's cattle, pigs, chickens and fish.
Net sales of Monsanto's soybean seeds and traits totaled almost $2.7
billion in fiscal 2017, or about a fifth of its total net sales. Gross
profits from soybean products climbed 35 percent over 2016, beating 15
percent growth of its bigger corn seed franchise.
The firm faces multiple lawsuits, along with regulatory restrictions in
some U.S. states, because dicamba has drifted onto neighboring farms and
fields and damaged crops not genetically modified to resist it.
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BASF and DowDuPont, however, have their own obstacles to overcome,
fueling unprecedented uncertainty among farmers over which seeds they
will plant on an estimated 90 million acres of U.S. farmland this
spring.
BASF is just entering the market, aiming to compete with an older
soybean line called LibertyLink, which the firm is acquiring from Bayer
AG. DowDuPont is eager to join the fray but needs approval from Chinese
regulators before it can broadly market and sell its new soybean
product, Enlist E3.
Monsanto declined comment to Reuters on competition from rivals in the
soybean market. But the firm has previously acknowledged the
intensifying threat to its bottom line as rivals launch new products.
"Our competitors' success could render our existing products less
competitive, resulting in reduced sales compared to our expectations or
past results," Monsanto said in an annual report filed with the U.S.
Securities and Exchange Commission last year.
DICAMBA DISASTER
The name of Monsanto's new dicamba-based herbicide - XtendiMax with
VaporGrip - reflects the problem it tries to solve: the chemical's
tendency to vaporize and drift to neighboring fields, damaging crops.
But last summer, after farmers planted Monsanto's new dicamba-resistant
seeds en masse, the herbicide damaged an estimated 3.6 million acres of
soybeans, or 4 percent of all U.S. plantings.
Monsanto maintains its new formulation of dicamba reduces drift
effectively. It blames farmers for not following spraying instructions
and for illegally applying older versions of dicamba on Xtend seeds.
Despite the controversy, Xtend soybeans have sold briskly, spanning 20
million U.S. acres in 2017, their second year of sales. Monsanto
projects that acreage will double this year, accounting for about 44
percent of all planted acres.
![](http://archives.lincolndailynews.com/2018/Jan/24/images/ads/current/rohlfs_lda_072017.png)
Still, Monsanto faces a slew of regulatory, legal and public relations
challenges from the crop-damage crisis.
Regulators in Arkansas, where crops were heavily damaged in 2017, have
prohibited the use of dicamba-based herbicides between dates that likely
will cover the entire growing season. Missouri, Minnesota and North
Dakota have also restricted when farmers can spray dicamba.
Missouri farmer Bobby Aycock joined one of several class-action lawsuits
against Monsanto after dicamba spraying by nearby farmers damaged his
crops in 2016.
He then planted Xtend in 2017 to ensure that drifting dicamba could not
harm his crop again. He found another benefit at harvest time: his
highest yield in 33 years of soybean farming.
Despite his lawsuit against Monsanto, Aycock plans to sow Xtend seeds
again this spring.
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"If something's working," he said, "I hate to change it.”
BASF ENTERS BEAN BATTLE
BASF is waiting for Monsanto and Bayer to close their proposed $63.5
billion merger before it can take over Bayer's LibertyLink brand of
seeds, which are engineered to withstand the chemical glufosinate.
The timing of the takeover, expected in the spring planting season,
is awkward because farmers may have already bought seeds. BASF aims
to prevent any "customer disruption" when it assumes control of the
LibertyLink brand as part of a $7 billion deal with Bayer, BASF vice
president Scott Kay said in an interview.
BASF declined to elaborate further on its strategy because the
purchase of LibertyLink is not yet completed.
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The acquisition complements BASF's herbicide business with a seed
line that should "continue to grow profitably," BASF's outgoing
chief executive Kurt Bock said in October.
Bayer has sold LibertyLink in the United States since 2009, steadily
gaining market share to reach about 15 percent, said Rob Schrick,
who runs North American corn and soy strategy for Bayer. The company
expects the brand to capture 20 percent of the market in 2018.
BASF had a strategic urgency in the LibertyLink acquisition, said
Patrick Jahnke, portfolio manager at Deka Investments, which owns
BASF stock.
"The Bayer seed assets were not a bargain," Jahnke said. "But the
purchase eliminates the risk of being the only major supplier in the
agro business without a seeds offering."
WILD CARD FROM DOWDUPONT
DowDuPont faces the greatest obstacle in the fight for soybean
market share because it is waiting for Chinese regulators to approve
imports of soybeans harvested from its Enlist E3 seeds.
Enlist E3 soybeans are bred to resist glyphosate, glufosinate and
2,4-D, a chemical with roots stretching to the Vietnam War as an
ingredient in Agent Orange, used by the U.S. military to defoliate
jungle.
Launching Enlist widely without Beijing's approval would risk
causing unapproved seeds or soybeans to be inadvertently shipped to
China, the biggest importer. So for now, DowDuPont's seeds will be
grown by a limited, undisclosed number of U.S. farmers who agree to
deliver their harvests only to facilities run by Archer Daniels
Midland Co, according to the company.
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The deal will give Enlist - one of DowDuPont's biggest crop-system
investments - a toehold in the U.S. market. Approval by Chinese
regulators, an uncertain process, could translate to huge profits,
but DowDuPont would still face the challenge of catching rivals who
have a head start, said Michael Underhill, chief investment officer
of Capital Innovations, which manages shares of DowDuPont, Bayer and
Monsanto.
"To go into this market, and be late to the game, you have to be
exceedingly aggressive," Underhill said.
238 BILLION EXTRA SEEDS
DowDuPont's entry makes it especially hard for farmers to decide
what to buy because Enlist E3 may or may not be widely available,
said Mark Denzler, president of Indiana-based 1st Choice Seeds,
which scooped up surplus soybean seeds last autumn.
In Iowa, Stine Seed acquired 238 billion extra soybean seeds to sell
because of the uncertainty, Chief Executive Harry Stine said.
Illinois-based Great Heart Seed has amassed extra supplies of five
varieties of genetically modified soybeans.
"It's a real pain and it will continue to be so going forward,
trying to manage the inventory,” said company co-owner Nels Kasey.
Like the seed sellers, Missouri farmer Milas Mainord plans to hedge
his bets by planting at least three soybean varieties.
He will devote up to 30 percent of his 5,000 acres of soybeans to
Monsanto's Xtend seeds to protect himself from neighbors spraying
dicamba. He also plans to plant some LibertyLink and other seeds in
areas where he doesn't expect dicamba use.
"We're covering our bases," Mainord said.
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(Additional reporting by Patricia Weiss and Ludwig Burger in
Frankfurt; Editing by Simon Webb and Brian Thevenot)
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