What's going on?
Monsanto is the world’s largest producer of seeds (like seeds for corn and soybeans). On Wednesday it said that it expects to make a lot less profit this year than it previously had forecast – and its stock fell 8% as a result.
What does this mean?
You’ve read about the big decline in commodity prices since…well, since you subscribed to Finimize. We usually write about oil and metals, but agricultural commodities like corn and soybeans have also fallen significantly in price in recent years. And similar to how low oil prices have hurt oil producers, low crop prices have hurt the profits of farmers. That makes them less able to buy seeds from Monsanto (as well as the pesticides that it sells). Also, Monsanto sells a lot of seeds internationally and as foreign currencies decline in value, its overseas profits are worth less when converted to Monsanto’s home currency (US dollars).
Why should I care?
The bigger picture: Monsanto had tried to merge with Syngenta. It was hoping to benefit from a bigger scale so that it could cut costs and sell similar products to the same customers (and also remove a competitor who could undercut it on price). Well, you might recall that ChemChina bought Syngenta instead (read our story). Meanwhile, Dupont and Dow Chemical, two other competitors, have agreed to merge – thus leaving Monsanto on its own.
For the stock: Monsanto’s stock is down about 30% in the past year – will it fall further? Monsanto’s management stressed that long-term opportunities remain, but in the short-term, it’s probably more important whether agricultural commodities have hit their lows. The fact that it’s been left out of the “merger party” probably doesn’t help its future profits. But if agriculture as a whole can rebound, Monsanto’s customers will do well and thus Monsanto will as well.