Can Monsanto Double Grain Yields?

Monsanto (MON) is a name I've had on the radar a long while, as part of the global agriculture boom. [Oct 9: Looking Ahead to Monsanto] It has always been deemed 'expensive' but frankly due to it's scarcity value (only one relative true peer in Syngenta (SYT)) it will probably trade at a premium for a long while. The trick for a stock like this is it must be bought during a serious market swoon (i.e. mid March) to get a price that can create comparable upside to some other ideas in the fund.

First let's quickly point out the company has come out with a reiteration last week of guidance to double gross profit by 2012

Monsanto says it still expects its gross profit to more than double by 2012 by increasing productivity and yields to farmers.
In 2007, the company's gross profit was $4.29 billion. If the company can double that number, its gross profit will reach about $8.5 billion by 2012. Gross profit is the difference between income and the expenses directly attributed to it.
Now on to some commentary by the company to double yields by 2030 (again we need breakthroughs left and right across agriculture and energy to compensate for a new batch of 2.5 billion humans set to join us by 2050)

Monsanto Co. Chief Executive Hugh Grant set a bold goal for the company on Wednesday, promising to develop by 2030 new strains of corn, soybeans and cotton that can yield twice as much grain and fiber per-acre while consuming just two-thirds the water.

A key part of realizing the goal is breeding crops that need less water to survive, he said. (for those readers who were not around in the fall - i.e. most of you - I had maintained then that in the future wars between countries will be fought over fresh water, not oil... err weapons of mass destruction - that will be the ultimate shortage; the one truly non negotiable factor in human life)

While grain yields have been relatively flat over the last decade, its possible they could double over the next 22 years, said Michael Aide, chair of the Southeast Missouri State University Department of Agriculture. Farmers in southeast Missouri, for example, can grow about 200 bushels of corn per acre, far more than double what they could grow during World War II, he said. Over the last 60 years, yield increases have come in big jumps when new technologies like artificial fertilizer were introduced.
Monsanto plans to increase its grain yields gradually, Grant said, as the company introduces new strains of crops. The company will use advanced breeding techniques to develop heartier, more fruitful crops. At the same time, it will use genetic engineering to give the plants the ability to withstand pests like corn worms.
Some commentators in this NYTimes story have their doubts
Much of what is in the commitment are things the company was doing anyway. But Monsanto’s chief executive, Hugh Grant, said in an interview Wednesday that the company wanted to make the goals public “so this isn’t just a bound report on some library shelf.”
Soybeans, corn and cotton that have been genetically engineered to provide herbicide tolerance, insect resistance or both are widely grown in the United States and several other countries. But they are largely shunned in Europe and some other areas because of concerns about potential environmental and health effects. (that has already begun to change due to economics - as with the environment once costs hit a certain price level, non economic considerations get thrown out the door)
James E. Specht, a soybean genetics expert at the University of Nebraska, said he doubted it could be done. “The hype-to-reality ratio of that one is essentially infinity,” Mr. Specht said. “Seeing an exponential change in the yield curve is unlikely.” Mr. Specht said that on irrigated farms in Nebraska, soybean yields have been increasing by about 0.6 bushels an acre every year. At that rate it would take 83 years for yields to double from the 50 bushels an acre recorded in 2000.
But Monsanto executives say that a new technique called marker-assisted selection could double the rate of gain made from breeding. That technique does not involve altering crops by putting in foreign genes. Rather it uses genetic tests to help choose which plants to use in conventional cross-breeding, vastly speeding up the process.

Moreover, the company is not talking about the United States alone. In some countries, output could be increased dramatically just by introducing modern hybrid corn, whether or not that corn is genetically engineered, Mr. Grant said.
Bill Freese, a science policy analyst at the Center for Food Safety, a Washington group critical of biotech crops, said some studies had shown that genetic engineering can actually reduce yields. He and other critics also say that the biotech crops developed so far have mainly been aimed at feeding livestock in wealthy countries, not improving the staple crops grown by small farmers in poor countries.

While Mr. Grant said that skeptics might say Monsanto was exploiting the food crisis to win acceptance for its technology, other people “will say it’s long overdue, and thank goodness the companies are stepping up.”