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Like it or not, genetically modified crops are taking over the world. The U.S. is conquered already: The overwhelming majority of corn, soya and cotton seeds that get planted there have fiddled DNA. Others are not far behind. Brazil is about 75-per-cent penetrated in those three crops. Frankencorn and cybersoya spook a lot of people, for reasons rational and irrational (drug-resistant pests, lost genetic diversity, farmers enslaved by biotech patent holders). Those who have channelled their fear by investing in the leader in the field, Monsanto, have flourished: The shares have returned almost 1,400 per cent over a decade.
The company's latest quarterly results, released on Wednesday, were characteristically strong, sales and operating profit rising 15 and 18 per cent, respectively. The market expected it, though; the stock rose only marginally. The question, then, is whether the growth that is priced into the stock (it trades at 23 times forward earnings) will continue indefinitely.
More than half the operating profit growth came from the company's agricultural productivity segment, which is much smaller than its seed business. The driver was glyphosate weedkiller prices, and as the company acknowledges, high prices for this generic chemical will not last forever.
The sustainable source of growth for Monsanto is increasing the penetration of genetically modified crops internationally. In its last fiscal year, 55 per cent of Monsanto's profits came from the U.S., which represents less than a third of world production for corn and soya. China is now the second-largest producer of corn in the world; Asia as a whole represented 6 per cent of Monsanto's sales last year. Some regions are clearly thriving.
Sales in Brazil grew 25 per cent last year. Unfortunately, Monsanto reports its sales by geography only annually, and does not break out regional profitability at all. Investors deserve deeper and more frequent updates, given that global growth will be the decisive factor in the company's future.