Sometimes you need a little help from a friend -- even if that friend is also a competitor.
Monsanto (NYSE: MON) and Dow Chemical (NYSE: DOW) certainly couldn't have developed a seed with such blockbuster potential so quickly without each others' help. The two announced yesterday that the Environmental Protection Agency (EPA) and Canadian Food Inspection Agency (CFIA) had completed the authorization process for their SmartStax seed, which combines eight different traits into one corn seed.
The eight combined traits will increase yields by 2% to 4% compared to the triple-stacked standard, but the biggest advantage to farmers will come from changes by the government.
Farmers are required to plant a certain percent of their acreage with seeds that don't have insect resistance -- it's called a refuge, but "sacrificial lamb" might be more appropriate. The point of the refuge is to avoid selecting for insects that are resistant to the trait. Since SmartStax contains multiple disease-resistant traits, it's less likely that insects will become resistant, so farmers will be able to decrease the required refuge from 20% to 5% in the corn belt and from 50% to 20% in the cotton belt. Increasing the acreage planted with higher-yielding disease-resistant corn should boost the farm's yield by an additional 3% to 6%, for a total potential increase of 5% to 10%.
Monsanto and Dow will market the seed under their own brand names and pay royalties to each other for the shared traits. The friendly competition should make for an interesting rivalry, but in any case the new seed, which should launch next year, should compete well against rivals Syngenta (NYSE: SYT) and DuPont (NYSE: DD). In fact, the companies are planning to make it the largest biotech corn seed launch ever.
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