Syngenta set to benefit from rising crop prices

Food prices boosted by the Russian drought fuelled forecasts of a strong 2011 for the worlds largest agrochemicals company Syngenta AG as it reported forecast-beating third quarter 2010 sales on Thursday.

Seeds and crop protection companies came under pressure during the first half of the year as fierce competition from cheap Asian herbicides and uncertainty regarding regulation of genetically modified crops took their toll.

But rising commodity prices and demand for more bug and weed killers enabled Syngenta to strike a more confident tone, boosting the groups shares by 3 percent by 1120 GMT on Thursday.

"We have seen a number of developments from the Russian drought to the ongoing recovery in some markets, so the demand on these grain piles is growing," Chief Executive Mike Mack told Reuters in an interview.

"That combined with attractive conditions for growers in places like Latin America gives farmers a great opportunity to invest in technologies," he said, underlining the grounds for optimism about the business.

Prices for many agricultural commodities have risen sharply, with corn Cc1 climbing to its highest in more than two years this week, boosted by a smaller-than-expected crop in the United States, while wheat hit a two-year peak in early August as Russia halted exports following a severe drought.

The surge in grain prices also underscores the rationale behind BHPs $39 billion gambit for Canadas Potash Corp, the worlds top fertilizer maker.

GMO DEBATE

Syngenta, which competes with Germanys Bayer and BASF , also makes genetically modified seeds, a hot-button issue currently under scrutiny in the European Union.

However, Mack was not anticipating any big policy shifts in Europe any time soon.

"GMO in the EU is at the moment not gathering any momentum. Virtually nothing has changed," the CEO said.

EU environment ministers will discuss the possibility of member states restricting or prohibiting the cultivation of genetically modified organisms in their territory at a meeting in Luxemburg on Thursday.

Syngentas rise in sales to $2.2 billion between July and September was driven by an upturn in markets in the Northern hemisphere and strong demand in Latin America.

"Especially crop protection exceeded expectations," Helvea analyst Martin Flueckiger said, adding that Syngenta also seemed to slowly regain pricing power in the business unit.

Syngenta is trading at its highest since the end of June, at 15.8 times estimated 2011 earnings, at a slight discount toMonsanto--1.htm">Monsanto--1.htm"> Monsanto but at a premium to European chemicals companies.