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Opinion: corn investors should bless Monsanto

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Monsanto has been a pretty rum bet for its own shareholders this year, falling more than 40%.

But at least the seed giant's setbacks might be helping some investors - in corn.

The grain on Thursday continued its upward path, after a double-blast of US Department of Agriculture statistics revealed that US corn supplies may not prove so ample after all.

If prices keep on rising, corn's followers should raise a toast to Monsanto for its role in keeping the rally going.

Yield play

The USDA data helped prices on two fronts.

USDA US corn data, difference from forecasts, and from (previous data)

Area planted: 87.87m acres, -1.36m acres,(-930,000 acres)

Area harvested: 81.01m acres

Inventories, as of June 1: 4.31bn bushels,-290m bushels, (+49m bushels)

Data taken from USDA's June 30 reports

But it's not difficult to imagine yields doing better, and at least matching last year's. The crop is, after all, in slightly better condition.

Factoring in 2009's yields of 164.7 bushels per acre gets the crop back to 13.34bn bushels, enough to make up for all but a small slice of the harvest lost to the acreage revision.

Structural change?

But the second statistic, that inventories sank to 4.31bn bushels as of a month ago, is more difficult to get over so easily.

The challenge to the grain's balance sheet isn't just replacing the extra 290m bushels or so that the market had been expecting to be lying in silos. That gap on its own is equivalent to 3.5 bushels per acre in yield.

There is also the question of whether the run down in stocks is more than a one-off. The amount of corn used in the March-to-June period was 25% more than a year before.

If that is down to structural change, such as a step up in ethanol production, then supplies could really feel the squeeze.

Fertilizer help

It looks a stretch to think that yields can go too much further in filling a void. The five-year average, after all, is only 153.3 bushels per acre.

Greater fertilizer use will be a help. Farmers appear have returned to normal levels of fertilizer applications, after a year when they cut back sharply to save money during the credit crunch

But another great hope for raising yields, biotechnology, looks unlikely to shift into an extra gear this time.

Farmers genetically modified seed is on a smidgen greater this year than last, and actually fell in Illinois, the USDA said.

Nor was there any shift to more advanced biotech seeds, which mix a cocktail of GM attributes.

Stagnant sales

That stagnation looks in part to Monsanto's decision to keep a premium in its seed prices. It certainly marries with the group's flat corn seed takings during the February-to-May quarter.

That's why corn bulls should be grateful to Monsanto for putting margins before volume, and keeping the spread of biotech in check this time.

Still, investors in the seeds and sprays giant itself may get to see some benefit - eventually.

If corn prices do take off, shareholders can expect the company's corn seed sales to be much higher next year as farmers reach for every lever to exploit a stronger market.


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