Corn Growers Thinking Ethanol
By Bob Fernandez
Inquirer Staff Writer
Out in the rolling hills of eastern Iowa, farmer Bob Bowman has heard news of the ethanol boom and he's been watching corn prices soar to $4 a bushel, and he's come to one conclusion for the 2007 season:
Plant more corn.
Bowman said in a telephone interview that he would boost corn production on his 2,000-acre spread in Dewitt 20 percent this year. Bowman, who is president of the Iowa Corn Growers Association, said other Iowa farmers could do the same if crop rotations allowed.
The big question is what seed corn: DuPont's Pioneer Hi-Bred brand or one of Monsanto Co.'s many brands, including DeKalb and Asgrow.
DuPont, of Wilmington, is pouring an additional $100 million into breeding research and sales campaigns for its Pioneer seed business to halt a startling market-share slide. But rival Monsanto plans to crunch away at the seed-corn market as it has in recent years. Monsanto says it intends to add one or two percentage points of share of the $3 billion seed-corn market each year through 2010.
The St. Louis company, which entered the business in the mid-1990s, could seize the mantle as the nation's No. 1 seed-corn company from DuPont within a couple of years if current trends hold, industry experts say. There still are hundreds of smaller independent seed companies.
DuPont acquired Pioneer Hi-Bred for $9.7 billion in the late 1990s and wants to avoid falling to No. 2.
"I can't tell you exactly where our share will play out, because nothing has been planted yet," Erik Fyrwald, DuPont's group vice president of agriculture and nutrition, said of the 2007 season. "Orders are very strong, and farmers are buying all the stacked products we have," he said in a phone interview from the Pioneer headquarters in Johnston, Iowa. Stacked products are seeds with multiple biotech traits. These traits, for instance, prevent pest or weed damage to the crop, leading to higher yields.
In 2008, though, "we will hold our share and start to grow from there," Fyrwald said. Pioneer will have sufficient triple-stacked seeds - the most advanced seed - to fill farmers' orders by then, he said. Pioneer's Herculex triple-stack seeds resist above-ground insects and below-ground rootworms and tolerate weed-killer Roundup.
These advanced seeds accounted for 1 percent of Pioneer's seed-corn sales in 2006, when the company ran out of them. They will account for 10 percent in 2007, DuPont officials say.
DuPont's stock price has risen in recent months partly in anticipation of stronger sales and earnings in the agriculture and nutrition business.
Merrill Lynch & Co. Inc. analyst Don Carson said in a January research report that he expected "significant improvement" in the division's profit in 2007. "The Pioneer seed unit will drive most of this gain due largely to a significantly improved product mix from expanded biotech trait availability," he wrote. Sales will also be helped by underlying growth in the corn industry.
DuPont reported that sales fell slightly in its agriculture and nutrition division to $6.3 billion in 2006 from $6.4 billion the previous year. DuPont reported total corporate sales of $27.4 billion for 2006.
Pretax profit in the agriculture and nutrition division dropped to $507 million in 2006 from $862 million a year earlier, the company said. The division's earnings included a $192 million restructuring charge in 2006. DuPont will lay off 1,500 employees in the division to finance additional corn-breeding research and marketing.
Pioneer was late to the market with biotech traits, Fyrwald said. It takes about a decade to develop and commercialize a biotech seed trait. Pioneer will insert more biotech traits into seed corn to recapture business in the next few years, he said. Among them is fungus resistance, which will be available in 2008.
Pioneer also is developing Optimum GAT, which will be available in 2010 for corn. The trait makes the corn tolerant to Roundup and another class of herbicides. It is Pioneer's first proprietary herbicide-tolerant trait. The company licenses the Roundup-tolerant trait from Monsanto, which makes the weed-killer.
Pioneer also is plugging into the ethanol boom with starch-rich corn hybrids that produce high levels of ethanol, which is increasingly being used in gasoline blends as a way to trim oil imports. The company has found 180 of these corn hybrids in its seed portfolio and markets them to farmers near ethanol plants. At the moment, though, ethanol plant operators do not pay extra for starch-rich corn.
About 20 percent of the nation's corn harvest is destined for ethanol production. According to government and industry estimates, farmers will boost the nation's corn acreage 8 percent to about 86 million acres in 2007, reflecting the ethanol industry's needs.
Although Pioneer has lost seed-corn market share in the United States, it has held or grown share in other parts of the world where genetically modified corn seeds have not made inroads.
Since 2002, Pioneer gained three percentage points of market share in Europe, five points in Latin America, three points in Asia, and seven points in Africa, the company said. "There has never been a more exciting time for agriculture," Fyrwald said.
Carl Casale, executive vice president at Monsanto, agreed, but he was not willing to concede a single corn plant of market share in the United States to DuPont.
"We're 100 percent focused on agriculture, and that's all we do," said Casale, referring to the fact that Pioneer is a large business unit in the DuPont chemical conglomerate. "There is not another division that will come to save us if we have a down year."
In 2006, Monsanto reported that sales rose to $7.3 billion from $6.3 billion. Net income was $689 million in 2006, compared with $255 million a year earlier. The company also sells herbicides and other seeds.
Monsanto's strategy of buying regional seed companies and allowing them to operate quasi-independently - with research assistance from Monsanto - has paid off because of the way farmers plant corn, Casale said.
Farmers typically plant at least three brands of seed, with one brand covering about 60 percent of the crop. To get its seed into as many acres as possible, Monsanto distributes its seed through national and regional sales channels. It also licenses its traits.
Monsanto has acquired three dozen seed companies around the world and combed through their corn types for "sheer genetic potential," Casale said. Monsanto is taking market share because it has the best-yielding seeds, he said.
On his Dewitt farm, Bowman has plotted the contours of his farm, monitors moisture, and can tell you his crop yield acre-by-acre. He plants Pioneer seeds. He also plants Mycogen, Wyffels, Kruger and Midwest Seed Genetics - all Monsanto licensees or owned by Monsanto. Different seeds are good for different parts of his fields, Bowman said. He did not provide a breakdown of how much of his crop comes from each brand. And he would not say how he would alter his seed mix this year.
"I look for performance. I use the actual proof on my farm. What produces the best for me in my situation and my situation is different than someone a few miles away," Bowman said.
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Contact staff writer Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.
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