Monsanto Roundup annual gross profit drop by half

Monsanto will see gross profit from its Roundup herbicide business drop by half to about $1 billion annually because of increased competition, the company said on Wednesday.

The business, once a core money-maker for Monsanto, should fall from about $2 billion in gross profit this fiscal year to $1 billion by 2012 and in the future should amount to less than 15 percent of the company's total gross profit, Chairman Hugh Grant said.

Company officials said they were creating a separate division for the herbicide business to help stabilize and better align spending and working capital needs.

They did not rule out eventual divestiture but said they were focused on stabilizing the business.

Monsanto Executive Vice President Carl Casale said the pace and magnitude of the competition in the sector had surprised the company as the price gap between its glyphosate herbicide offering and competitors grew from about 50 cents per acre last fall to more than $2 currently.

As a result, volume sales of Roundup have been steadily sliding this year. Monsanto said herbicide values had dropped to $3 a kilo from $10 last year.

Total volume sales for the quarter were down 28 million gallons and company officials said 2009 should be the peak for this business, with competition remaining tight.

"What we are facing is a changing supply environment," said Casale. "Our goal now is to manage the volatility."

The company had previously forecast Roundup gross profit annually at $1.9 billion based on a competitive price of $6.00 per kilo. The company now is basing its forecast of $1 billion in annual gross profit on a price of $3 a kilo. In August of last year, the price per kilo was $10.

The slide in herbicide revenue comes as Monsanto continues to strengthen its position as a leading global developer of genetically modified seeds for corn, soybeans, cotton and other crops.

Officials said strong growth in those businesses should keep the company on track to increase gross profits companywide to a range of $8.6 billion to $8.8 billion by 2012 from $4.2 billion in 2007.