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Monsanto and DuPont Sign Multi-Year Herbicide Supply Deal

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Premium agricultural chemical providers Monsanto Company and E. I. du Pont de Nemours and Company (‘DuPont’) (DD - Free Report) have inked a multi-year supply deal in Canada and the United States for the weed destroyer, dicamba. The financial details of the deal have not been disclosed.

In sync with the Roundup Ready Xtend Crop System, Monsanto’s less volatile dicamba formulations would be combined with DuPont’s VaporGrip Technology. The new variant of herbicide, which will be retailed under the name DuPont FeXapan herbicide plus VaporGrip Technology, would help soybean farmers better manage tough-to-control and glyphosate-resistant broadleaf weeds.  

Prior to this, in 2013 DuPont had signed a licensing deal to incorporate Monsanto’s Xtend trait in its own seeds.

Notably, extensive planting of glyphosate-forbearing soybeans, corn and cotton in the United States has resulted to the growth of herbicide-resistant weeds. This has, therefore, heightened the need for more advanced and effective weed killers.

Recent Growth Initiatives

Monsanto intends to boost its financial fundamentals through new investments and product portfolio solidification. The company recently invested $1 billion in a dicamba manufacturing facility in Luling, LA. The initiative was undertaken for mitigating the products booming demand in the coming years. Earlier, Monsanto had announced that the Xtend platform is its biggest technological innovation till date. In 2016, the Xtend soybean trait was planted in roughly 1 million acres of land in the United States. Monsanto anticipates Xtend soybeans to be planted across almost 15 million acres of land in the next season and 55 million acres by the end of 2019.  

Monsanto’s shares gained 1.25% to $100.64 as of Jul 7, 2016. The upside reflects investors’ confidence on the stock.

Risks

Monsanto currently carries a Zacks Rank #5 (Strong Sell), which implies that the stock has high chances of underperforming the broader market in the quarters ahead. The company remains exposed to several macroeconomic headwinds. Negatives like economic slowdown in major emerging nations like China, cyclical downturn of agricultural industry, low prices of agro products, strengthening U.S. dollar and devaluating Argentinean Peso are the major risks faced by the company. In fact, issues like these resulted in Monsanto’s weak third-quarter fiscal 2016 results.  

Moreover, Monsanto operates in a highly competitive industry, which is dominated by six giant companies. Its latest supply deal with DuPont is in sync with its strategy to diminish the market share of rivals through increased mergers and acquisitions or partnerships. Notably, DuPont and Dow Chemical agreed upon a $130 million merger deal in 2015. In Feb 2016, Syngenta agreed to be bought by ChemChina for $43 billion. Although Monsanto turned down the $62 billion acquisition offer from Bayer AG in May 2016, scopes of further negotiations remain open.

Stocks to Consider

Some better-ranked stocks in the industry include Bunge Limited (BG - Free Report) and AK Steel Holding Corporation . Both the companies currently hold a Zacks Rank #2 (Buy).

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