Dow's SmartStax Looks Like a Blockbuster

Folks have wondered why I am so high in Dow Chemical’s (DOW) Dow Ag division. Came across this while on vacation:

From Bloomberg:

Monsanto Co., the world’s largest seed maker, plans to charge as much as 42 percent more for new genetically modified seeds next year than older offerings because they increase farmers’ output.

Roundup Ready 2 Yield soybeans will cost farmers an average of $74 an acre in 2010, and original Roundup Ready soybeans will cost $52 an acre, St. Louis-based Monsanto said today in presentations on its Web site. SmartStax corn seeds, developed with Dow Chemical Co., will cost $130 an acre, 17 percent more than the YieldGard triple-stack seeds they will replace.

“Our pricing has the flexibility built in to ensure the grower captures the greatest return from his seed investment, irrespective of market volatility,” Chief Executive Officer Hugh Grant said today in a statement.

Grant is introducing new modified seeds that boost yields as part of a plan to double gross profit from 2007 to 2012. The new soybeans, which resist Monsanto’s Roundup herbicide, produce 7.4 percent more soybeans per acre than the older version. SmartStax kills insects in multiple ways, reducing the amount of conventional corn that must be planted to deter insecticide resistance.

“SmartStax pricing is higher than we initially expected,” Vincent Andrews, a New York-based analyst at Morgan Stanley, said today in a report.

Monsanto rose $1.57, or 1.9 percent, to $84.03 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 19 percent this year.

Acreage Forecasts

SmartStax corn seed will be planted on as many as 4 million acres in 2010, its first year on the market, with a potential for as many as 65 million acres in the U.S. eventually, the company said. The new seed boosts yields 5 percent to 10 percent compared with other products, partly by reducing the amount of land that must be planted with conventional corn to 5 percent from 20 percent, Monsanto said.

Pricing for SmartStax is at the high end of expectations, Laurence Alexander, a New York-based analyst at Jefferies & Co., said by telephone.

You see, Dow Ag is already growing earning 15%+ a year, without this product. This is a product, it needs to be noted that has every making in no uncertain terms of a blockbuster. It is a JV with Monsanto (MON) so it has the selling/marketing and research arms of two multi-billion dollar companies behind it.

It also has the EPA’s blessing and has shown to improve yields for farmers 5%-10%, huge. Here is a .pdf of the Monsanto/Dow announcement from 2007

Look for more color on sales in Q4 2009 Q1 2010. It is gonna be big….unless we somehow find more farmland or need to feed less people…

Disclosure (“none” means no position):Long DOW, none