Wednesday, January 11, 2012

Investing: Monsanto - Feeding The World?

Recently we learned that the population of the world crossed the mark of 7 billion. The UNO predicts that the global population could reach the mark of 10 billion by the year 2100. How can we feed so many people?

The answer is rising productivity. For centuries farmers are boosting their harvests by cultivating better seeds and modernizing their cultivating and harvesting methods. Now they get some help from genetic engineering (wikipedia). More and more farmers use genetically engineered seeds which are more resistant against fungal infections, viruses, droughts, chilly weather and other challenges and improve therefore indirectly their crop yields.

This also is a topic for investors with a long term view. Last week Monsanto reported strong numbers ( The company is a multinational agricultural biotechnology and the leading producer of genetic engineered seeds (wikipedia) (

In the first quarter of their new business year Monsanto`s revenue rose  33 percent to $2.44 billion as farmers in the southern hemisphere bought more genetically modified corn seed, the management explained (bloomberg). They reported that Latin American farmers grew more genetically modified corn. They also said that U.S. orders are ahead of last year (   

The management also is very optimistic about the long term. It claims that genetic engineering is still in an early phase of a long-term technology cycle. The situation today seems be comparable with the electronic industry in the 60s of the last century which brought us computers, Color-TV, copy-machines and similar technologies. Today just 10% of the seed used in the U.S. are genetically enhanced. Monsanto therefore expects a large potential to grow.

The Monsanto stock is a wager on the growing use of genetic engineering in farming. But the stock ( also has a lot of risks of course. There is a huge political resistance against genetics, which might result in restraining laws and very costly legal fights. There also are competitors, like the German chemical company BASF, who may develop attractive products and could conquer the markets. Some of the fantasy might be already priced in the stock price.

Disclaimer: I don´t have any position in Monsanto and BASF.

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