Monument Circle Acquisition Corporation (MON)

[Democritus_of_Abdera]

Monsanto’s Refuge advantage...

In July, 2009, The Environmental Protection Agency (EPA) concluded that a 5% refuge requirement was scientifically justified for Monsanto’s SmartStax corn seed (see #msg-39889760). The reduction was justified by the insertion of genes for multiple toxins against the corn borer pest. Reduction of the refuge requirement for SmartStax to 5% vs the 20% requirement that has been standard for GM corn seed up to now will allow farmers to increase farm corn yield 5 to 10 percent over and above the approximately 10% yield increase expected to result from the traits per se.

Refuges are plots that farmers must plant with conventional seeds so as to prevent evolution of insect tolerance to a toxin introduced through genetic engineering.

This EPA decision provides Monsanto with a significant competitive advantage. For example, in its 8K filed on 10/7/09, Monsanto stated

The strength of the triple stack platform for corn, the launch of Genuity TM SmartStax TM in the United States and trait penetration in South America will be the key enablers for growth in 2010, when gross profit for corn is expected in the range of $3.1 billion to $3.2 billion. For soybeans, gross profit is expected to increase to approximately $950 million, driven in part by the full commercial launch of Genuity TM Roundup Ready 2 Yield® and greater penetration of first-generation Roundup Ready in Brazil.

Corn seed and traits accounted for more than a third of Monsanto’s FY2009’s Gross Profit ($2.6B of $6.8B). Hence incremental increases in corn seed sales and profitability have a substantial impact upon the bottom line. Soybean seed and traits contributed $0.87B to FY2009 gross profits.

In the Q&A of the accompanying CC, Carl Casale (CFO, MON) emphasized that the reduction of refuge requirements for SmartStax is the “game-changer” that will reinvigorate corn seed and traits growth. i.e.

Well, I mean, as you pointed out, I mean, SmartStax is a binary trader event. I mean, it’s no longer “my triple is better than your triple.” You either have 5% refuge or you don’t. And we do think that that’s a game-changer, and getting farmers experienced with that trait, we think, can help reinvigorate our share growth again.

The Pioneer Hi-Bred division of DuPont has been trying to obtain approval for a 2% refuge for its Optimum AcreMax corn seed. But, to my knowledge, their efforts have been unsuccessful to date (see: http://ipmnews.msu.edu/fieldcrop/fieldcrop/tabid/56/articleType/ArticleView/articleId/396/Scientific-advisory-panel-makes-recommendations-on-optimum-acremax-seed-blend-refuge.aspx )

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The EPA fact sheet regarding SmartStax: http://www.epa.gov/oppbppd1/biopesticides/pips/smartstax-factsheet.pdf

see for general discussion about the rationale for refuge requirements see: http://www.cals.cornell.edu/cals/css/extension/cropping-up-archive/wcu_vol13no6_2003a2insectrefuges.pdf

One of many descriptions of SmartStax corn seed details can be found at http://www.seedquest.com/News/releases/2009/july/26899.htm

Monsanto’s 10/7/09 8K: http://www.sec.gov/Archives/edgar/data/1110783/000111078309000156/0001110783-09-000156-index.htm