For Monsanto, a Season of Woes

Agribusiness giant Monsanto Co. is confronting some of its stiffest challenges in years, as it contends with consumer criticism of biotech foods, farmers tightening their belts, and a global health agency that has labeled its trademark weed killer as a potential carcinogen.

The latest and most prominent threat came from a World Health Organization agency’s classification last week of glyphosate—which Monsanto sells under the Roundup brand—as likely having the potential to cause cancer in humans. The finding marks the highest-profile critique of Roundup, a product the U.S. agriculture industry has long touted as a safe way to protect cornfields and lawns.

Monsanto has angrily rebutted the claims. In a sign of how serious it is taking the issue, the company has mounted a broad counter campaign, marshaling academics and farm-group officials in an effort to cast doubt on the finding March 20 by the WHO’s International Agency for Research on Cancer.

The challenge to Roundup adds to a pile of other woes. Monsanto’s stock is roughly flat over the past 12 months)—lagging behind the S&P 500 index’s 11% rise and far underperforming its own 65% increase from 2009 to 2014. Back-to-back bumper harvests in 2013 and 2014 in the U.S. have also been bad for Monsanto, as prices of corn and soybeans are down to their lowest level in years, prompting some farmers to choose cheaper seeds and skimp on other farm supplies. Currency shifts have also made seeds and chemicals more expensive for farmers abroad in agricultural countries including Brazil, analysts said.

Monsanto and other biotech seed companies meanwhile have spent heavily to combat efforts to label foods made with genetically modified ingredients, part of a movement that has fueled sharp growth in sales of non-GMO food products. Meanwhile, farmers are battling hard-to-kill weeds and bugs that have evolved to resist sprays of glyphosate and the insect-killing proteins produced by some biotech crops.

“They just can’t catch a break,” said Mark Connelly, analyst with brokerage firm CLSA Ltd. The IARC classification, he said, “is very significant because it’s the first time a relatively credible agency has taken aim at glyphosate.”

Monsanto shares have declined 2.9% over the past week.

The steep drop in crop prices may be Monsanto’s biggest challenge, analysts say. Corn futures prices have dropped 47% over the past two years, and soybeans 33%, crimping spending by farmers Monsanto relies on to pay for high-tech seeds and farming services. The U.S. Department of Agriculture in February projected that U.S. farm incomes will drop by nearly one-third this year to the lowest level since 2009, amid a third straight year of lower prices for major agricultural commodities.

St. Louis-based Monsanto grew to dominate the agricultural seed business by jumping aboard the biotech bandwagon in the early 1980s. It hit upon a method to insert genes into plant seeds that enabled them to withstand glyphosate, which Monsanto had patented and launched in the early 1970s. Since the first “Roundup Ready” seeds hit the market in 1996, such products have become pervasive in the U.S. Farm Belt, with genetically modified crops planted on 93% of corn acres and 94% of soybeans last year, according to the U.S. Department of Agriculture.

Farmers embraced the crops partly because glyphosate made it simple to eradicate weeds—which can choke out crops and diminish yields—but also because of the product’s safety versus older, harsher chemicals, according to academics.

Monsanto’s agricultural productivity segment, which includes Roundup sales, generated $5.1 billion in revenue for fiscal 2014, representing about one-third of total sales. Stiff competition from rival glyphosate makers, however, means the division is only about 63% as profitable as Monsanto’s core seeds business, and some analysts believe Monsanto may eventually spin off the division. Monsanto declined to comment.

“We expect our farmer customers will continue to use [glyphosate] and do not expect an impact on our sales,” Brett Begemann, Monsanto’s president, said on a conference call with reporters Tuesday.

Chris Novak, chief executive officer of the National Corn Growers Association, a farmer group, endorsed glyphosate’s safety and said on the conference call that the IARC finding “creates unnecessary fear and confusion.”

Monsanto has sought a meeting with World Health Organization officials on the matter and wants the classification retracted.

Company executives likely will field questions on the matter after the company reports fiscal second-quarter earnings April 1. Monsanto has become a favorite target for consumer groups and activists critical of GMOs and large-scale agriculture, and Monsanto’s swift reaction to the glyphosate classification comes after executives have admitted they were slow to respond to growing public concerns and mistrust over genetically modified crops.

Since the IARC reviewed existing research in classifying glyphosate, rather than conducting any new studies on its safety, pesticide and environmental regulators are unlikely to take action in response to the report, according to Thomas Redick, a lawyer who advises farm groups on regulations.

Brett Wong, an analyst with Piper Jaffray, called concerns over the classification “overblown” in a note to clients this week and said that the IARC has classified alcohol consumption and working night shifts as representing similar potential to cause cancer.

Write to Jacob Bunge at jacob.bunge@wsj.com

Jacob Bunge
March 26, 2015 3:13 p.m. ET
http://www.wsj.com/articles/for-monsanto-a-season-of-woes-1427397228