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South America corn surge drives Monsanto back into profit

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Monsanto enhanced the prospects for its swansong as an independent company, nudging higher its forecast for full-year earnings, after a boost from soaring South American demand for its corn seed.

The seeds giant, which has agreed a $66bn takeover by German chemicals conglomerate Bayer, raised to $3.97-4.45 per share, from $3.83-4.35 per share, its forecast for earnings for the year to August.

The upgrade came as the US-based group unveiled a modestly more marked return to the black for the September-to-November quarter than investors had expected, with earnings coming in at $29m, equivalent to $0.07 per share, compared with the $0.01 per share that Wall Street had forecast.

The recovery from the $253m loss reported a year came despite a $93m hit from costs related to the Bayer takeover, which Robb Fraley, the Monsanto chief technology officer, said would create "the opportunity to accelerate innovation, optimise integrated solutions and expand offerings".

Hugh Grant, the Monsanto chief executive, said: "We expect the combination with Bayer to amplify the rate of innovation faster than either company could achieve alone."

However, results in the latest quarter benefited from the non-recurrence of a $266m restructuring charge booked a year ago, amid a cost reduction drive, and from a surge in profitability in its core seeds division, where gross profits jumped 57% year on year to $1.14bn.

Brazil boost

The jump, on revenues up 32% at $1.85bn, reflected increases in both sales volumes and prices in South America, for which the September-to-November period brings the start of the key main-crop corn and soybean sowings period.

The group flagged a "greater-than-25% increase in planted corn acres in Argentina and more than a 10% increase in corn acres planted in Brazil".

This growth was "accompanied by double-digit price increases in corn germplasm in local currency in both countries", Monsanto said.

Gross profits soared by nearly 50% in both corn and soybean seeds, while near-tripling in the smaller cotton market, to $73m, helped by a jump in sowings in Australia.

"Cotton had a strong start in the first quarter, with increased acres in Australia."

'Pricing headwinds'

The jump in seed profits more than offset the impact of a dent to herbicide earnings from lower prices of glyphosate, which Monsanto sells under the Roundup brand.

Gross profits at the group's agricultural productivity division tumbled by 31% to $119m, on sales down 2.2% at $8.02m, "reflecting glyphosate pricing headwinds that are expected to continue into the second December-to-February] quarter", the group.

"The current global pricing is lower than the prior comparable period."

Market reaction

The immediate market impact was to send Monsanto shares up 0.8% to $105.915 in early deals on the Nasdaq exchange.

However, they remain well below the $128-per-share price being offered by Bayer, amid doubts that the deal will succeed – at least, without significant disposals to meet antitrust requirements, reducing the benefits of the merger.

Mr Grant said: "We've been very pleased with the strong support - especially from shareowners and growers - for the agreement to combine with Bayer."

By Mike Verdin

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