monsanto 10-03-06

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monsanto 10-03-06

  1. 1. ROBB FRALEY CHIEF TECHNOLOGY OFFICER CITIGROUP “ETHANOL ON THE COB” CONFERENCE October 3, 2006 1
  2. 2. Forward-Looking Statements Certain statements contained in the presentations included in this tour are quot;forward-looking statements,quot; such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, business and financial plans and other non-historical facts. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, the company's actual performance and results may differ materially from those described or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, among others: continued competition in seeds, traits and agricultural chemicals; the company's exposure to various contingencies, including those related to intellectual property protection, regulatory compliance and the speed with which approvals are received, and public acceptance of biotechnology products; the success of the company's research and development activities; the outcomes of major lawsuits, including proceedings related to Solutia Inc.; developments related to foreign currencies and economies; successful completion and operation of recent and proposed acquisitions; fluctuations in commodity prices; compliance with regulations affecting our manufacturing; the accuracy of the company's estimates related to distribution inventory levels; the company's ability to fund its short-term financing needs and to obtain payment for the products that it sells; the effect of weather conditions, natural disasters and accidents on the agriculture business or the company's facilities; and other risks and factors detailed in the company's filings with the SEC. Undue reliance should not be placed on these forward-looking statements, which are current only as of the date of this presentation. The company disclaims any current intention or obligation to update any forward-looking statements or any of the factors that may affect actual results. Trademarks Trademarks owned by Monsanto Company and its wholly-owned subsidiaries are italicized in this presentation. Mavera™ is a trademark of Renessen. © 2006 Monsanto Company 2
  3. 3. OVERVIEW Opportunity in Renewable Fuels is Driving Demand in Agriculture U.S. & BRAZIL ETHANOL OUTLOOK ETHANOL 30 45 ASSUMPTION BILLIONS OF GALLONS 40 MILLIONS OF ACRES 25 • MTBE replacement by 35 2010 is the base case 20 30 • Incremental yield 25 gains through 15 20 technological 10 15 innovations allow further substitution 10 5 5 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 CORN U.S. SUGARCANE BRAZIL BIODIESEL 4 20 GLOBAL BIODIESEL OUTLOOK ASSUMPTION 18 BILLIONS OF GALLONS MILLIONS OF ACRES 3.5 16 • In EU, biodiesel to 3 14 represent 5% of 2.5 12 transport fuels with the 2 10 US growing up to 2% 8 1.5 6 1 4 0.5 2 0 0 2005 2006 2007 2008 2009 2010 2011 2012 BIODIESEL PALM SOYBEAN RAPESEED & CANOLA 3 Source: Proexporter Network, Pro Mar And Monsanto Estimates
  4. 4. OVERVIEW While Pathways to Participate in Biofuels Marketplace Vary, Monsanto Is Focusing on Three Primary Raw Materials SOURCES FOR MAJOR BIOFUEL CATEGORIES MARKET SOURCES BIOFUELS ETHANOL FOCUS Sugarcane ETHANOL Corn Increased Yield Cellulosic Switchgrass High Fermentable Trees (Poplar, Pine) Corn Miscanthus 89 91 DIESEL Renessen Corn Waste (Pulp, Hulls) Processing System Alfalfa E85 Expanded Acres BIODIESEL ETHANOL Palm BIODIESEL BIODIESEL Soybean Increased Yield Rapeseed / Canola Higher Oil Corn Renessen Corn Jatrapha Processing System Expanded Acres 4
  5. 5. OVERVIEW The Greatest Leverage in the Production of Ethanol is Corn OPPORTUNITY: OPPORTUNITY: COST COMPOSITION: ONE GALLON OF ETHANOL INCREASE THE Improve the net realized VALUE OF THE yield on the farm AVERAGE COST: $1.09/GAL AT 40M GAL FACILITY CO-PRODUCT KEY TOOLS: Increasing the nutrient 0.70 value of the co- Molecular breeding product of ethanol improves rate of gain by production opens new 2X versus conventional 0.50 revenue streams that breeding defray cost of $ / GAL production 0.30 KEY TOOLS: 0.10 Renessen corn processing LABOR technology builds on OTHER* CORN -0.10 SUPPLIES high-lysine product to & OVH create new feed DENATURANT DEPR. UTILITIES CO- opportunities and -0.30 PRODUCT improves the quality VALUE of and reduces the amount of DDGs *OTHER INCLUDES ENZYMES DDG = Distillers Dried Grains Source: Proexporter Network, and Monsanto Estimates 5
  6. 6. OVERVIEW Advent of New Technologies Provide Greater Yield Stability And Enhancement USDA U.S. CORN YIELD 160 140 AVERAGE YIELD (BU/AC) 120 100 80 60 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 1995-2006: YIELD STABILITY 1975-1995: SIGNIFICANT YIELD VARIABILITY • With the advent of improved • High variability in per-acre yield genetics and biotech traits, • Yield deviation as high as 25 percent from average yield there is greater consistency in trend yield because traits insulate • Variability largely a result of influence of discrete annual farmers from extremes of events, including weather patterns and insect infestations weather and insect infestations 2006 USDA projection 6
  7. 7. OVERVIEW Monsanto’s Focus is Yield, With Multiple, Complementary Approaches to Target Feed and Fuel Opportunities CURRENT MONSANTO Endosperm COMMERCIAL RENESSEN PIPELINE PORTFOLIO Accounts for most of the kernel’s dry FUEL Improves Process Drive Yield Per Acre Drive Yield Per Acre weight; Main Efficiency • Drought-tolerant • YieldGard source of starch corn Rootworm Monsanto target for food, feed, fuel • Corn processing • Nitrogen-utilization opportunities: • Roundup Ready systems and sweeteners corn Corn 2 • Boost net realized fuel • Higher-yielding • YieldGard Corn opportunity per acre corn Borer • Focus on higher yields Optimize and higher Downstream fermentability Processing increases fuel • Processor production per acre Preferred High- Fermentable Corn Improve Nutrient Drive Yield Per Acre Drive Yield Per Acre Monsanto target Content and • Drought-tolerant opportunities: • YieldGard corn Extraction Per Acre Rootworm • Boost net realized feed • Mavera™ High- • Nitrogen-utilization • Roundup Ready opportunity per acre corn value corn with Corn 2 lysine and 2nd- • Improve the nutrient • Higher-yielding • YieldGard Corn Generation High- corn Borer content of the kernel value corn with Germ and extraction lysine processes to create About 25 percent • Feed corn with value for animal feed balanced proteins of the germ is oil; Most valuable • Corn processing FEED systems component, used for food and feed 7
  8. 8. COMMERCIAL OPPORTUNITY Processor Preferred High Fermentable Corn Hybrids Proven to Enhance Ethanol Yields FOCUS: ETHANOL YIELD IMPROVEMENT THROUGH HIGH CURRENT COMMERCIAL FERMENTABLE CORN PORTFOLIO Improve starch 900 140 TARGET: output and use PROCESSOR PREFERRED PROCESSOR PREFERRED HYBRIDS 800 per acre 120 NUMBER OF SAMPLES #2 YELLOW CORN 700 Processor #2 YELLOW CORN NUMBER OF SAMPLES 100 Preferred High PRODUCT 600 Fermentable Corn 80 (HFC) 500 OPPORTUNITY: 400 60 • Average yield for a 300 conventional dry mill is 2.8 40 gallons of ethanol for every 1 200 bushel of corn 20 100 • HFC provided an 2.7% average increase in ethanol yields in 0 0 large scale commercial trials 45.00 46.00 47.20 48.20 49.20 50.20 51.20 52.20 53.20 54.20 55.20 across 7 states and Canada in 2003 – 2004 PREDICTED ETHANOL YIELD (NIT • A 2.7% increase in UNITS) fermentation is equal to 11 Use of Processor Preferred gal/ethanol per acre corn can shift the ethanol • Some ethanol plants are yield distribution curve to paying a premium of $0.05- the right $0.10 per bushel for Processor Preferred HFC grain 8
  9. 9. COMMERCIAL OPPORTUNITY Ethanol Demand Creates Positive Pull for Higher Technology in Draw Areas to Assure Supply CURRENT COMMERCIAL PORTFOLIO FOCUS: U.S. ETHANOL PLANTS Drive yield per TARGET: acre Average trait penetration was Current biotech PRODUCT 2.5 X greater in trait portfolio areas with a high OPPORTUNITY: concentration of ethanol facilities • 220K corn acres required to compared to supply a 100M gallon dry mill areas without or • Ethanol draw acres are likely having low to be highly technified with concentrations of elite Processor Preferred ethanol facilities germplasm combined in a Higher trait future 4-way stack penetration per • Pipeline traits should provide acre corresponds greater value and reliability to increased gross profit per ETHANOL PLANTS UNDER ETHANOL PLANTS IN CONSTRUCTION (44) acre PRODUCTION (101) 9
  10. 10. COMMERCIAL OPPORTUNITY YieldGard Rootworm Is First Generation of Biotech Traits Helping to Boost Yields, Especially in Drought Conditions KEY MARKET ACRES U.S. BRAZIL ARGENTINA YieldGard Rootworm AVAILABLE MARKET 25-30M 5M 1M Corn PERCENT PENETRATED 40% 0% 0% U.S. DROUGHT MONITOR CURRENT COMMERCIAL SUMMER 2006 Indications are PORTFOLIO there is drought D0: Abnormally Dry Drive yield per stress in areas of TARGET: D1: Drought - Moderate acre the Western Corn D1: Drought - Severe Belt and Texas YieldGard D1: Drought - Extreme PRODUCT Rootworm Corn D1: Drought - Exceptional OPPORTUNITY: • Delivers effective and Source: U.S. Drought Monitor, Le Comte and Heddinghaus, CPC/NOAA: http://drought.unl.edu/dm consistent in-plant protection against western, northern and Mexican corn rootworms 2006 Field pictures already • Serves as the proxy for the show a significant difference in triple stack having an the performance of YieldGard opportunity of 30 million acres Rootworm. YIELDGARD SOIL-APPLIED ROOTWORM INSECTICIDE DISCOVERY PHASE III PHASE I PHASE II PHASE IV LAUNCH Adv. Development Proof of Concept Early Development Pre-Launch 10
  11. 11. PIPELINE OPPORTUNITY Multi-Generational Drought-Tolerant Corn to Create Value Across Multiple Market Segments KEY MARKET ACRES U.S. BRAZIL ARGENTINA AVAILABLE MARKET 80M 30M 6M Drought-tolerant corn PERCENT PENETRATED 0% 0% 0% P R O JE CT SEGMENTED VALUE OPPORTUNITY MONSANTO PIPELINE ACROSS MARKETS: U.S. EXAMPLE TARGET: Drive yield per acre High annual precipitation PRODUCT Drought-Tolerant Corn PRODUCT CONCEPT: • Drought-tolerance is a family of products, aimed at providing consistent yield and buffering against the effects of water Low annual limitations precipitation Source: Spatial Climate Analysis Service, Oregon State University OPPORTUNITIES: WESTERN IRRIGATED STABILITY • Farmers value water-use in “acre-inches of DRYLAND water” needed to support yield potential – 8-12M acres 10-12M acres 50-60M acres farmers need 18-20 inches of moisture from natural or irrigated sources during growing 14-18” typical 14-18” typical 17-19” typical season precipitation in precipitation in precipitation in growing season growing season growing season • Value of the trait is in better yields under Irrigated Non-irrigated Non-irrigated moisture-stressed conditions; Varies by region (see table at right) Value is in Value is in Value is in replacing improved improved yields • The value will be specific to the variable irrigation, reducing economics for when moisture is costs of water use by farmers, not fixed the variable costs corn less than optimal costs of irrigation of irrigation 11
  12. 12. PIPELINE OPPORTUNITY Technology Changes the Value Proposition in Challenged Growing Conditions FOCUS: YIELD PER ACRE – DRYLANDS MONSANTO PIPELINE 140 TARGET: Drive yield per acre 121 bu/ac Drought-tolerant 120 Biotech and trait BUSHELS PER ACRE PRODUCT breeding pipeline 100 88 bu/ac Molecular breeding opportunities contribution 80 OPPORTUNITY: Triple-stack • Pipeline technology can 60 Inherent improve upon existing yields Germplasm Yield 40 and improve costs • Opportunity for more marginal 20 acres to come into production 0 ACRES: 3.4M DRYLANDS 2015 2005 AVERAGE GROSS PROFIT OPPORTUNITY YIELD: 88 bu/ac • Between 2005 and 2015, the combination of breeding and biotechnology could increase the per-acre productivity of the average acre in the Drylands by almost 40 percent • With only traditional breeding tools, the expected gain during that time would have been just 29 percent • In the example above; with 3.4 million acres in the Drylands area and a 31 bushel per acre improvement by 2015, this could mean 300 million more gallons of ethanol 12
  13. 13. RENESSEN OVERVIEW Technological Innovations Create Opportunity For Value Creation in Feed and Fuel Markets FOCUS: IOWA MACRO EFFECT MICRO EFFECT • In the U.S., a doubling • With the ramp up in in the demand for corn ethanol plants in used in ethanol in the Northern Iowa, hog DUBUQUE coming years will farms now compete SIOUX squeeze current corn with ethanol producers CEDAR CITY supplies RAPIDS for feedstock creating “micro” competitive IOWA 2006 2015 markets driving CITY AMES competition for local DAVENPORT FEED 35% 18% corn. DES FUEL 18% 41% MOINES BURLINGTON EXPORT 15% 13% ENDING 14% 7% STOCK OTHER 18% 21% ETHANOL PLANTS UNDER ETHANOL PLANTS IN WET MILL CONSTRUCTION PRODUCTION MOST LEAST INTENSITY OF HOG PRODUCTION: INTENSE INTENSE Source: USDA and Renessen Estimates 13
  14. 14. RENESSEN OPPORTUNITY Renessen’s New System Bolts On to a Conventional Dry Milling Process and Makes More Efficient Use of Corn Seed RENESSEN PROCESS FLOW •FOR ALL PRACTICAL CONVENTIONAL DRY MILL PROCESS PURPOSES, THE RENESSEN NUTRIENT NUTRIENT CORN PROCESSING SYSTEM Hammer Hammer DENSE Distillation Ethanol DENSE BOLTS ON TO A Elevator Fermentation Distillation Ethanol Elevator Fermentation Mill CORN Mill CORN CONVENTIONAL DRY MILL PROCESS STEP 1: Drying Drying •START WITH A RENESSEN FRACTIONATION AND EXTRACTION PROCESS NUTRITIONALLY DENSE CORN DEVELOPED THROUGH BIOTECH OR A HIGHLY HIGHLY HIGH PROTEIN 4 3 CONVENTIONAL HYBRID FERMENTABLE Fractionation FERMENTABLE Fractionation LOW OIL DDG FRACTION FRACTION STEP 2: High oil High oil •PROCESS IT THROUGH A fraction NOVEL PROCESS fraction TECHNOLOGY DEVELOPED BY CARGILL AND RENESSEN Nutrient-rich Nutrient-rich STEP 3: Oil extraction Oil extraction meal meal •DELIVER FOUR HIGH VALUE REVENUE STREAMS 1: HIGH OIL CORN OR Corn oil Corn oil BIODIESEL 2: HIGH VALUE SWINE AND POULTRY FEED 3: HIGHLY HIGH VALUE SWINE FERMENTABLE STARCH 1 2 HIGH OIL CORN AND POULTRY FEED FOR FOOD OR BIODIESEL 4: HIGH PROTEIN, LOW OIL DDG 14
  15. 15. RENESSEN OPPORTUNITY Renessen Corn Processing System Has Potential to Change Competitive Landscape in Ethanol Production SOURCES OF VALUE CONVENTIONAL DRY CONVENTIONAL DRY MILL FOR ETHANOL RENESSEN PIPELINE MILL WITH RENESSEN PLANTS Improve output of Higher fermentable TARGET: Ethanol stream ethanol plants starch stream producing on ETHANOL delivered to dry mill Renessen Corn average 2.8 gallons PRODUCT increasing yield and Processing System per bushel overall plant capacity PRODUCT CONCEPT: For every gallon of • Renessen’s Corn Processing ethanol, 5.1 A higher protein, System coupled with a pounds of DDG are lower oil DDG is conventional dry mill will utilize the created. DDG is a DDG produced resulting in components of corn more low value co- more value and effectively to generate higher value product. Some is reduced utilities cost products being land filled today OPPORTUNITIES: A high value animal • Increase ethanol yield SWINE feed is created that No swine or AND • Increase value of co-products practically doubles N/A poultry feed is POULTRY • Reduce utility costs lysine content while created FEED improving protein composition HIGH OIL A high value corn oil for food and biodiesel CORN FOR No oil stream is N/A is created. Current FOOD AND created value is roughly 26-30 BIODIESEL cents per pound Positive value Neutral value N/A No value stream DDG = Distillers Dried Grains 15
  16. 16. BIODIESEL OPPORTUNITY Monsanto’s Pipeline in Soybeans Supports Accelerated Growth in Biodiesel Cotyledon CURRENT MONSANTO Holds the most COMMERCIAL RENESSEN PIPELINE nutrient value of PORTFOLIO the soybean. FUEL Improves Process Drive Yield Per Acre Drive Yield Per Acre Accounts for 93% Efficiency of the soybean • Roundup • Roundup Ready RReady2Yield soybeans • High-oil soybeans Monsanto target and is 43% soybeans for processing opportunities: • Winter Canola protein. • Dicamba-tolerant • Corn oil for • Boost net realized fuel soybeans biodiesel opportunity per acre • Drought-tolerant A bushel soybeans • Improve economics for of • Higher Yielding production on marginal soybeans soybeans acres produces 11 lbs. of oil and 48 lbs. of Drive Yield Per Acre Improve Nutrient Drive Yield Per Acre Monsanto target meal Content and • Roundup opportunities: • Roundup Ready RReady2Yield Extraction Per Acre soybeans soybeans • Boost net realized feed • Mavera™ I & II • Winter Canola and food opportunity • Dicamba-tolerant High-value soybeans per acre soybeans – • Drought-tolerant increased oil and • Improve the nutrient soybeans protein content content of the soybean • Higher Yielding Hypocotyl to create value for soybeans animal feed and food Accounts for 2.4% Improve Food Improve Food Quality per Acre Quality per Acre of the soybean and is 41% • Vistive II and • Vistive soybeans Vistive III soybeans protein. FOOD / FEED • Omega-3 soybeans • Improved-protein soybeans 16
  17. 17. SUMMARY Future Innovation in Breeding and Biotech Holds Key to Feed, Fuel and Food Demand MONSANTO’S HISTORY AND PROJECTED EVOLUTION OF U.S. CORN YIELD OPPORTUNITY (MULTIPLE REGRESSION MODEL ANALYSIS) The delta between what is predicted and what is possible 200 is where opportunity lies 180 AVERAGE YIELD (BU/AC) Molecular breeding boosts the genetic potential of the 160 seed Biotech traits protect that 140 genetic potential for more practical yield 120 Breeding and Biotech come 100 together to change the curve of yield potential 80 60 1975 1980 1985 1990 1995 2000 2005 2010 2015 “ USDA TREND LINE PROJECTED YIELDS WITH MOLECULAR BREEDING AND BIOTECHNOLOGY The corn yield curve is increasing at an accelerated rate due to advances in Biotechnology … Increased yields allow growers to harvest considerably more corn without significantly increasing acreage. -- National Corn Growers Association (NCGA) 17
  18. 18. SUMMARY “Pull” Created by Demand for Ethanol Speeds Stacked Penetration, Accelerating Seeds-and-Traits Opportunity FOCUS: GROSS PROFIT EFFECT OF STACKED TRAITS OPPORTUNITY 70% • Stacking traits provides additive layers of protection to 67% 65% seed germplasm to protect GROSS PROFIT PER ACRE AS A PERCENTAGE OF NET SALE inherent yield • In 2006, Monsanto sold more 60% 59% stacked traits than single traits • In 2007, in our national brands, 55% Monsanto expects to sell more 52% triple stacks than singles 50% • Stacking corn traits on to our germplasm improves gross 45% 45% profit contribution to the business 40% SEED ONLY 1 TRAIT 2 TRAITS 3 TRAITS GROSS PROFIT OPPORTUNITY • In highly technified areas, the demand for triple- stacked traits can improve per-acre profitability by almost 50 percent 18

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