Tuesday, October 5, 2010

Will Monsanto (NYSE:MON) Thrive, or Just Survive?

There are a lot of challenges in making informed decisions about a company like Monsanto (NYSE:MON), as the anti-business press loves to take a company like this and pummel them.

What makes that a problem isn't the negative press, but the believing of the negative press, which usually entails a very skews and one-sided presentation of the company.

As far as investing goes, this is a disaster, because if the market is buying the company, that means it is viable, and has something to it beyond the emoting media attempting to affect public opinion.

So with Monsanto, there is very little middle ground. People either hate if for the perceived monster seeds they've created, or love it because they're perceived to be an answer to what will ultimately become a global food crisis.

That's of course a generalization, as there's all sorts of secondary elements like emerging super weeds from Roundup or seeds which aren't performing as they were expected to as far as yields go.

There is no doubt an effort going on to destroy Monsanto, which I doubt will succeed, as the uncertainty about the ability to supply food to populations is just too big to allow potential answers to be destroyed.

Social upheaval would emerge if food was scarce or too highly priced, as food riots have shown over the last couple of years.

So there is no doubt Monsanto will survive. The question is whether it will be able to thrive or not.

Monsanto has a strong competitive advantage with certain seeds, and a potentially strong pipeline. The trouble is the courts removed the sugar beet seed they produced from market, and unless there's intervention, that will remain that way for at least a couple of years. What other seeds could be hindered from being brought to market, even with them being in the pipeline?

If the SmartStax corn seed doesn't perform as expected, as early results have shown, that also shows there could be holes in the pipeline as well.

These are just a couple of the variables involved.

Monsanto reminds me a lot of the oil industry. Even though the problems with the BP (NYSE:BP) oil spill gave opponents of the industry a lot of fuel to fight them with, oil exploration continues to grow, and it's not going to go away any time soon, even though some in the financial press attempt to make it look that way.

Monsanto has suffered some black eyes in the battle lately, but demand for their products and the rising population make it very unlikely they'll be kept down for a long period of time.

Short term they're going to struggle immensely, but more than likely, unless they underperform on things they have control of, they will ultimately come back strong, with solid control of major seed markets.

The real major unknown is if laws are created to stop them. Other than that, I don't see them being held down in the long term.

There probably be more pain in the short term before they begin their recovery.

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