Monsanto's Dominance Continues

Simply put, Monsanto helps farmers grow more food than they would otherwise. And the company can charge a pretty penny for its assistance thanks to innovative products, such as seed that results in corn that is resistant to pests.

Monsanto (symbol MON) is the top dog in the herbicide and seed sector. DuPont (DD) is second and Syngenta (SYT) a distant third, says Credit Suisse analyst Mark Connelly. He says Monsanto will continue to remain ahead of the competition over the next five years.

Monsanto's domination of the market is no secret. The stock has climbed from around $7 in 2003 to more than $100 today.

Sales and profits of the herbicide Roundup, or glyphosate as chemists call it, has contributed mightily to Monsanto's performance. In the second fiscal quarter, which ended Feb. 29, sales of glyphosate and other herbicides soared 85 percent, to $982 million, from the same period a year earlier.

Meanwhile, gross profit (sales minus cost of goods sold) surged 133 percent, to $595 million. The company forecasts a doubling of gross profit from glyphosate sales for the fiscal year that ends Aug. 31.

Corn and soybeans are the engines of Monsanto's seed business. Corn accounted for 57 percent of Monsanto's profit in fiscal 2007, while soybeans contributed 19 percent. All other crop seeds accounted for the rest.

Strong demand for corn in Argentina, Brazil and the United States is boosting results. In the second quarter, the company generated gross profit of $1.6 billion, up 37 percent from the same quarter a year ago. Sales totaled $2.5 billion, up 39 percent.

Some agricultural analysts expect that farmers will plant less corn this year to take advantage of higher soybean prices. Such a move could hurt Monsanto's sales. But Argus Research analyst Bill Selesky calls those concerns "overblown."

Monsanto has yet to unleash a possibly game-changing innovation. It has partnered with Dow Chemical (DOW) to combine eight genetically engineered traits -- such as herbicide tolerance and insect resistance -- into one corn hybrid. Farmers buy hybrid seed because it produces more corn per acre and allows them to use less herbicide.

Monsanto recently raised its quarterly dividend 40 percent, to 17.5 cents a share. The stock yields 0.6 percent based on an annual dividend rate of 70 cents per share.