September 24, 2015 / 11:15 AM / in 2 years

Exclusive: Pivoting after failed Syngenta bid, Monsanto to build big data business

CHICAGO/KANSAS CITY (Reuters) - With its shares trading at three-year-lows since it abandoned a $46 billion bid to buy Syngenta AG SYNN.VX last month, Monsanto Co plans to offer its shareholders a new corporate vision: a future in big data.

Soybean Plant Specialist Nancy Brumley ties up a soybean stalk in the soybean greenhouse at the Monsanto Research facility in Chesterfield, Missouri October 9, 2009. I REUTERS/Peter Newcomb

Monsanto (MON.N) executives are seeking to reposition the company as a business built on data science and services, as well as its traditional chemicals, seeds and genetic traits operations, Chief Technology Officer Robert T. Fraley told Reuters in an interview.

“We transformed from industrial chemical company to a biotech company, then to a seeds company,” Fraley said. “Now, we’re transforming again.”

Top executives are sketching out plans now, and briefing major shareholders ahead of a wider presentation to investors in November at the company’s St. Louis headquarters, he said.

Fraley and others have met with around 200 technology start-ups in recent months and identified five as potential acquisition targets, pending Monsanto’s testing of products they make, company sources said. They declined to identify any possible targets.

Monsanto is seeking to provide services, software and hardware tools that use data to help farmers boost their crop yields by understanding what is happening with their fields – including catching shifts in soil chemistry, being more precise with their seed choices and knowing how they should apply pesticides in various conditions.

But the agricultural-data field is crowded, Monsanto’s initial moves into the sector have had spotty results and the shifting narrative is a sharp departure from the vision Monsanto described just weeks ago, as it bid for Syngenta. That vision was of a future based on agricultural chemicals and high-tech seeds.

The latest pivot comes as longtime profit stalwarts — the weed killer Roundup and the company’s portfolio of genetically modified seeds — both are showing signs of strain. Roundup’s longevity as a farmer mainstay has become vulnerable as weed resistance to its active ingredient glyphosate has grown.

The company has also been facing increasing regulatory and consumer scrutiny over the safety and environmental impact of Roundup and Monsanto’s genetically engineered crops that are sprayed with glyphosate.

RELUCTANT TO PAY

Company officials declined to say how big a part of the firm it expects the data science and services arm to become, or to project sales and profits.

It already owns Climate Corp, a weather forecasting firm it acquired in 2013, and Precision Planting, which it bought for $250 million in 2012. The latter makes computer hardware and software tools that seek to help farmers plant seeds in ways that will be most productive for boosting yields.

Still, farmers and agribusiness customers so far have been reluctant to pay for data services, particularly with farm income down by half since its 2013 high.

Sam Miller, head of agriculture banking at BMO Harris Bank, said farmers, especially large producers, are looking for data services. But the competitive landscape is fierce with Monsanto and rivals Syngenta SYNN.VX, Dupont Pioneer, WinField Solutions and others all fighting to sell data services.

The companies “are all talking to these producers about their data services,” Miller said.

SELLING ITS VISION

As the key ingredient in Monsanto’s Roundup herbicide – glyphosate - loses effectiveness, the company is ramping up production of the weed killer dicamba to be combined with glyphosate in a new herbicide that can be used with new herbicide-tolerant crops Monsanto is developing.

But rival Dow AgroSciences has created alternative herbicide-tolerant crops and a newer herbicide to compete with Monsanto. And the strong dollar and sluggish commodity prices are adding to the company’s problems.

The company’s 2015 fiscal third quarter showed the strain.

During the quarter, Monsanto announced a deal with Scotts Miracle-Gro Co (SMG.N) that boosted profits by $274 million. Without that one-time boost, Monsanto’s crop protection and herbicide segment - dominated by glyphosate - would have seen a 16 percent drop in gross profits, according to regulatory filings.

Monsanto has warned that its results for the fourth quarter ended Aug. 31, which are due to be announced on Oct. 7, will only likely be break-even at best.

Overall, Monsanto’s strategy is to cut its operational costs, improve its return on existing investments and develop lucrative new product lines. Work already under way includes a focus on tools that improve planting efficiency, sensors that help Monsanto track its seeds shipped in cargo containers, and computer modeling that can speed the rollout of new seeds and traits.

PREVIOUS MOVES

This is not the first time Monsanto has touted data services. Chief Executive Officer Hugh Grant in 2013 cited a “big change” and stated data was one of two new platforms for growth, along with biological research in crop protection. Since then, its biologics and data efforts have taken a larger overall bite of Monsanto’s more than $1 billion in annual R&D spending, according to company officials.

Securities analysts are skeptical of the shift in vision.

”There’s a big difference between profits and meaningful profits that will move the needle,” said Matt Arnold, an equity analyst with Edward Jones. “We would not expect [data services] to be a needle mover in the near future.”

Climate Corp has shown signs of promise. But so far, there is little evidence that the venture can help Monsanto conquer what the St. Louis company sees as a $20 billion potential market for its Integrated Farming System platform, with its products ranging from precision planting sensors to weather and planting forecasts, wireless data devices and soil analysis services.

Climate Corp’s free offerings are used by farmers or consultants on 22 percent of U.S. cropland, or 75 million acres. But only 1.5 percent of U.S. farmland is tilled by people who have agreed to pay for Climate’s data services, Monsanto and Climate officials said.

“I like what I see, but I like it more because it’s free,” said Thomas Bonnster, a Midwestern crop farmer, while touring Climate Corp’s booth at a recent farm show near DeKalb, Illinois.

Monsanto’s rivals have taken different approaches in their own efforts to earn profits from big data.

For example, Bayer CropScience’s digital strategy is focused on applying data to improve agrichemicals products the company sells to farmers, company officials told Reuters.

“We make money the old-fashioned way: Selling those (chemical) products,” said Bayer CropScience (BAYE.NS) CEO Jim Blome.

Reporting By P.J. Huffstutter; Editing by Martin Howell

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