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Monsanto flags need for seed mega-groups to drive corn, soy yield surge

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Monsanto, questioned over worries of antitrust officials spoiling its $66bn takeover by Bayer, flagged the importance of a combined group in driving a surge in corn and soybean yield growth needed to meet demand.

Don Carson, analyst at Susquehanna Financial, underlined the market doubts over the deal's success, evident in the discount of Monsanto stock, trading at about $102, to the offer price of $128 per share.

"There seems to be some concern over antitrust risks," Mr Carson told a Monsanto investor call.

While Monsanto bosses "don't think that it's a big issue… the regulators have said they're going to evaluate this transaction".

'Need for innovation'

However, Hugh Grant, the Monsanto chief executive, said that "there is very little overlap" between his company, the world's top seeds producer, and a Bayer agriculture business focused on agrichemicals.

"You're bringing together a seed business and a crop protection business," Mr Grant told investors.

Furthermore, the tie-up of the two groups would "going forward allows us to more efficiently drive research and development", which was swallowing $1.5bn in spending on "innovation" – five times the amount it took in 2000.

Such investment was needed to find "much-needed solutions" to the question of how producers meet the extra 500m bushels of soybeans needed every year, and 1bn bushels of corn.

"The irony, Don, is in a tough time in agriculture, there's never been a greater need for innovation," Mr Grant said.

"That's the reality of the marketplace we're in."

Need for soaring yields

Indeed, there is an "overarching need to deliver innovations to growers continues as demand continues to climb," Mr Grant said.

"I know that that may seem incongruent, especially when corn is below $4 a bushel and soybeans are below $10," with strong consumption actually a supportive factor for values.

However, analysis of the US Department of Agriculture's latest Wasde crop report "demonstrates that the demand trend remains both intact and robust".

Meeting the extra corn and soybeans requirements implied by growing consumption "would require a twofold increase in the rate of yield growth for corn and a fourfold increase for soybeans," although the group did not clarify a timeframe for this rise.

"Innovation, quite simply, is the best way to increase productivity to meet this projected demand."

Watchdog worries

The comments come amid continued worries over the level of scrutiny that the Bayer-Monsanto deal is likely to receive from antitrust regulators, particularly given megamergers elsewhere in the sector too.

Syngenta, the world's top agrichemicals group, is being bought by ChemChina, the Chinese state-owned chemicals giant.

And Dow Chemical and DuPont, the US chemicals conglomerates, are planning a merger which would see their combined seeds and crop chemicals operations spun off into a separate group.

Assuming these two deals, and the Bayer-Monsanto tie-up, succeed without significant concessions, analysts estimate that three companies would control nearly 70% of the world's pesticide market and 80% of the US corn-seed market.

Monsanto shares closed on Wednesday at $103.18, up 1.0% on the day, but retaining a 19.4% discount to Bayer's offer price.

By Mike Verdin

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