BIGGER YIELDS AHEAD AT MONSANTO

BIGGER YIELDS AHEAD AT MONSANTO

Shares of Monsanto (MON), the top global producer of seeds and other farm supplies, are withering, plunging to 75.91 a share from 145 in mid-June. "The stock is trading like Monsanto is facing zero growth, which certainly isn't the case," says Kevin Schacknofsky, portfolio manager at Alpine Woods Capital Investors, which owns stock. "Monsanto is seeing significant growth in creating more yield for farmers."

The truth, he says, is that production of grains, such as corn and soybeans, hasn't caught up with surging world demand. Despite recent record harvests, he notes, inventories are near their lows. And the situation isn't likely to get any better in 2009. Because global financing is tight, farmers in many countries will have to cut fertilizer spending in the short term, leading to smaller crops--thus pushing up agricultural prices, he says. That should spur many farmers to seek additional yields by using Monsanto's premium seeds, including genetically modified ones, and herbicides.

Analyst Chris Shaw of investment bank UBS, who rates Monsanto a buy, believes most farmers are willing to pay extra for the crop enhancement and improved harvests that Monsanto's products help provide. Shaw's 12-month target price is 140 a share, based on estimated earnings of $4.55 a share for fiscal 2009 ending Aug. 31, and $5.20 in 2010, vs. 2008's $3.64.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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