Whatever happened to peak weedkiller? On Wednesday, Monsanto announced a fourth quarter loss of $233 million, blaming the shortfall on weakening demand for one of its prize products, the herbicide RoundUp.
In April 2008, the last time HTWW reviewed global herbicide pricing trends, Monsanto was raising RoundUp prices, sticking it to farmers. The reason? Both the cost of production and demand for weedkiller had risen sharply. Industrial production of glyphosate, the key ingredient in RoundUp, is highly energy intensive, and the commodity boom that pushed corn and other grain prices sky-high in 2008 had farmers hungry for as much weed-killer as they could get. Even though Monsanto's patent for RoundUp expired in 2000, paving the way for scores of Chinese generic glyphosate companies to enter the market, demand was still so high that Monsanto could cover its rising energy costs and still reap significant profits.
This year, it's a different story. Demand for glyphosate, post-global recession, has plummeted, and production cost pressures have eased as energy prices have fallen. But that hasn't stopped Chinese generic production. In recent months, Monsanto has slashed prices by as much as fifty percent in a desperate attempt to keep market share, and even mulled the idea of divesting itself of the one-time cash cow and spinning it off as its own separate concern.
So what looked like a bottleneck with all kinds of nasty implications for the future of agriculture in a resource-constrained world with billions of upwardly mobile humans demanding more and more food, is suddenly a surfeit. How long the current market abundance will last if the global economy starts growing vigorously again is anyone's guess, but the whole episode offers a good reminder about why generalizing into the future based on today's prices for any given commodity is a pretty risky business.
Monsanto's plan is to concentrate on its genetically engineered seeds business, where profits are higher, and where it can continue to roll out new, more biotechnologically advanced products as the old ones lose patent protection. But you've got to wonder how long it will be before Chinese competitors start selling their own genetically modified organisms.
Putting aside the health and environmental complications that could ensue from cut-throat GMO competition for the moment, one also wonders whether American corn and soy farmers, who currently have essentially no choice but to buy Monsanto seeds, would mind a little monopoly-busting variety.
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