Friday, March 11, 2005

Roundup, ready

"Roundup, ready" is an occasional feature of Bitter Greens Journal. Named in honor of Monsanto's famed line of seeds genetically engineered to withstand its herbicide Roundup, this feature will give a brief overview of recent news, trends, and topics in the food-politics world. Each of them is a candidate for expansion in the days and weeks to come.

Monsanto's cotton grab
I'm woefully behind in covering the doings of genetically modified seed giant Monsanto (MON).

Last month, the company dropped $300 million to snap up Emergent, which investment Web site Motley Fool calls the "third-largest cotton seed company in the U.S. and India."

Reuters reports that Emergent controls 12 percent of the US cottonseed market and had already been using Monsanto GM technology through licenses. Its strong position in India might have been particularly alluring. If the US government is serious about reducing its generous subsidies to large-scale U.S cotton farmers, then so-called developing countries might see a jump in cotton production.

Monsanto got a lift on March 4 when India lifted a ban on GMO cotton in its northern region (it already allowed GM cotton in some southern and central states). Monsanto's cotton germoplasm containing Btacillus thuringiensis, a bacteria that kills cotton-loving boll worms, weilds a GM monopoly in India, according to the Associated Press. In the above-linked article, AP states:
Monsanto's BT [Btacillus thuringiensis] cotton is the only genetically modified crop allowed in India, a reluctant entrant into the world of biotechnology. Ever since three varieties of the seed were given three-year licenses in 2002, the company has faced stiff opposition from environmental groups. But it managed to get approval for one more strain in 2004.

Before its acquisition by Monsanto, Emergent had licensed Monsanto's BT technology for sales in India. India's lifting of the ban pushed Monsanto shares up 4.4 percent on March 4.

In 1998, Monsanto made a $1.9 billion bid for cottonseed titan Delta and Pine Land, which failed under antitrust pressure form the US Justice Department. No one expects the Bush justice department to question the Emergent deal.

Monsanto's Agent Orange escape
A federal judge rejected a class-action suit by 4 million Vietnamese against US chemical manufacturers, including Monsanto, for selling the herbicide Agent Orange to the US government during the Vietnam War.

The government used Agent Orange to defoliate the countryside in places it thought enemy insurgents were hiding. Associated Press reports:
Many U.S. veterans and Vietnamese have long blamed Agent Orange for a variety of illnesses, including cancer, diabetes and spina bifida. The U.S. government claims there is no direct evidence linking dioxin [Agent Orange's active ingredient] with the illnesses. However, about 10,000 Vietnam War veterans in the United States receive disability benefits related to Agent Orange exposure.

Clinging to the tenuous fig leaf provided by official US government denial, a spokesman for Monsanto's co-defendent Dow Chemical declared Wednesday that: "We believe that defoliants saved lives by protecting allied forces from enemy ambush and did not create adverse health effects."

A Monsanto spokesman added: "This was a good decision for law. I think the judge recognized the problems with the plaintiffs' case."

The ethanol trap revisited
The Wall Street Journal ran an excellent article yesterday on the craze among Midwest farmers for investing in ethanol plants, a topic I touched on here.

The piece is unfortunately only available to subscribers, so I'll hit a few key points.

The article warns that the rush to produce ethanol facilities could create a glut of the stuff, meaning lower prices and, possibly, failed investments. It notes that Archer Daniels Midland, the leading producer of ethanol and the world's biggest buyer of corn, has "tellingly" declined to boost its own production. "Production is growing faster than demand," a top ADM exec tells the Journal.

And it quotes credit-rating agency Standard & Poor's as calling the new facilities "highly speculative."

The saddest thing reported in the article is that farmers are not only betting their own money on the plants, they're also borrowing money to invest, a practice Wall Street calls investing "on margin." The article profiles one farmer who's investing $100,000 in a facility--$20,000 of his own, the rest coming from a bank. If the investment fails, the guy will not only be out 20k, he'll also owe 80k to a bank!

All the signs of a bubble waiting to burst are here. The article states:

David Nelson, a farmer who's chairman of the two-year-old Midwest Grain Processors ethanol plant in Lakota, Iowa, is well aware of the overexpansion threat. "It's starting to get crowded around here," says Mr. Nelson, 52, sipping a Corona in the smoky bar of Cattleman's Steak & Provisions near his Belmond, Iowa, farm. "In the back of our minds, we know there is to be a day of reckoning."

But his solution isn't to cut back. It's to grow big enough to survive a shakeout. Midwest Grain Processors sold about $17 million more stock in January to double the size of its plant. That means this plant alone will be able to make 100 million gallons a year. And its farmer owners are already thinking about where to build a second plant. (Emphasis added.)

That sort of thinking, multiplied, will cause a huge glut of ethanol to hit the market, resulting in a nosedive in price. As I said before, all ADM has to do is sit back and wait.


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