Monsanto Company Earnings Call Insights: Corn Volume Outlook and Corn Margins
Corn Volume Outlook
Michael Cox – Piper Jaffray: It seems somewhat early to be speaking to volume growth in corn for 2014 considering the speculation that we’ll plant fewer corn acres here in North America next season. I was just wondering if you could comment on what gives you the confidence to make this statement; and perhaps is this a reflection of what you are seeing from fall orders or indications from South America.
Hugh Grant – Chairman and CEO: We had a record year this year, a very strong volume and a nice mix effect. As I made the comment on my opening remarks, we’re very encouraged by what we’re seeing in the international business as well. Maybe Brett, you can give a little bit more color on confidence going into ’14?
Brett D. Begemann – President and Chief Commercial Officer: Yeah. I think as we look at ’14, it’s important to step back and recognize that the global demand for corn continues to grow by a significant amount. As we project forwards, it’s going to continue to take some new acres, which we’ve looked to and I mentioned in Eastern Europe; but just as importantly, the strength of our portfolio as we continue to perform well and look for share opportunities around the world in our global footprint. So between, a look to total acres, globally, not country-by-country, and we look at it as share contribution. We feel good about projecting ’14 growth.
Michael Cox – Piper Jaffray: And if I could ask one quick follow-up on Intacta, given the value capture formula you’ve described historically, and what seems that you’re steering us towards for pricing as that rolls out, it seems that that would effectively double seed cost for growers in South America on soybeans, and I would just be curious as to what your thoughts are around any sort of pushback of that sort of magnitude of price escalation…
Hugh Grant – Chairman and CEO: Michael, the two years the Ground Breakers done there and this last year we had 1,000 plus farmers that used the technology. We’re now very confident on our four plus sort of strong four bushel advantage versus the older technologies, and we’ll – Brett said, we’re shooting for about 3 million acres or so, so we’ll sell out. So demand is high and we’ll price against the farmer level and we’re working through that farmer price level. We’ll price against that four bushels. But Brett, anything you’d add in terms of how growers are looking up early pricing?
Brett D. Begemann – President and Chief Commercial Officer: I think the important part as you mentioned is the two years the farmers have had the opportunity to participate in Ground Breakers. And when you have a 1,000 growers looking at these opportunities and seeing the product perform in the field, that gives us confidence that they’re seeing the value and talking through their friends and neighbors about the value that they’re seeing. And we’re in the process of pricing today right now and we’re working through that conversation with farmers that I anticipate a very good uptake of the product.
Don Carson – Susquehanna Financial Group: A question on corn margins. Pierre, you guided they were going to down or you expect it to be down a couple of hundred basis points for the year as a whole. I’m just wondering what was the overall impact of eating that costs, because clearly you had positive mix benefits upgrading in both North and South America, is it this quarter sort of 5.6 percentage point decline that’s indicative of the full impact of cost year-over-year, and do you expect to gain all that back and more as we go into fiscal ’14?
Hugh Grant – Chairman and CEO: Don, thanks for the question. I’ll maybe ask Pierre, he will give you a little bit of color on this side. I’d say the headlines in corn despite a really tough planting season for our customers, record volumes, good growth. I’m delighted with the mid-teens growth that we’ve seen in corn and for us, a conscious decision around consistency and maintaining consistency between years. So we saw we eat costs this year and frankly see it as an investment in our customer base. So we consciously absorb that cost with the expectation that we’ll see some of that coming back as an advantage, both in customer sentiment and margin next year. But Pierre, maybe you can go a lot bit deeper on that?
Pierre Courduroux – SVP and CFO: Yeah, maybe to be a little more specifically, we entered the year with a number of goals regarding corn and one was to grow volume. As Brett mentioned during the prepared notes, we are very comfortable that we are going to be hitting a record volume in corn. The second goal was to be able to price and see some price lifts. And we’ve always been talking about a 5% to 10% price lift from a year-to-year perspective, and we are squarely within that range. So we feel very good. So the strategy is definitely working and it’s translated into the numbers where we see sales growing by mid-teens, 14% on a year-to-date basis. So feeling very good about the strategic driver and where the business is going. However as you mentioned Don, I mean, we are seeing the impact of non-structural cost that are definitely related to last year’s droughts and the impact it has on our production cost, the need for us to bring back product from South America and grow more product from South America, but that, as I mentioned, those costs are non-structural. They have disproportionate impact into Q3 as you noted. I mean, we are talking about a couple of points for the full year and you noted that you’re 5% to 6% in the quarter. So, this is disproportionate in Q3. This is non-structural and based on normal growing condition and looking into 2014, I would expect ample supply. I would expect a normalization of COGS and from a margin perspective, I would certainly expect a couple of points leap from where we are right now. Having said so, this is based on seed production and seed has only been in the ground for a month, but we feel as I mentioned, non-structural and we see the margin leap next year.
Don Carson – Susquehanna Financial Group: Just a quick follow-up. You’ve talked about your certainty on volume growth. So, what kind of share gain are you anticipating in U.S. corn in the 2013 season?
Hugh Grant – Chairman and CEO: We’re really pleased with the volume Don, and we’ll wait and see where the total planting acres come out, the smaller the denominator, the bigger the numerator or the better the share growth will be, but based on the number of bags that went out the door and the performance of the crop the previous year, I’m feeling pretty good about performance, but that’s still ahead of us I think.
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