DuPont’s (NYSE:DD) seed company, Pioneer, announced 132 new corn products for 2013, including 36 new genetic platforms. These new products are available to growers for 2013 planting.  These new seed variants include 27 new Optimum AQUAmax products which double the availability of drought-tolerant corn seeds from Pioneer. This is expected to positively impact DuPont’s market share of corn, soybean and other seeds within the Agro-Science products division that makes up more than 35% of our current price estimate for the company.
- DuPont Earnings Preview: Meaningful Improvement In Growth Is Suspect
- DuPont: The Year 2016 In Review
- Key Takeaways From DuPont’s Q3 Earnings
- DuPont Q3 Earnings Preview: No Surprises Expected, Focus To Remain On Merger With Dow
- Dissecting Dow And DuPont Deal, Part 4: Concern Over Concentration
- Dissecting Dow And DuPont Deal, Part 3: Why Merge And Split?
Importance of Drought-Tolerant Corn
The U.S. is the largest producer of corn which is the most produced grain in the world. Recent years have seen increased demand for corn from ethanol production which is expected to continue going forward due to increasing use of alternative fuels over conventional sources of energy.  Extreme drought conditions in the U.S. during the 2012 growing season led to significantly low corn yields (as low as 120 bushels per acre of planted area) and sent prices soaring to over $7 per bushel.  According to the U.S. Drought Monitor, moderate to exceptional drought covered more than half of the contiguous United States during the first week of this month while almost 17% of the area was under the worst drought category (extreme to exceptional drought).  So, it looks like 2013 could be another tough year for corn production and drought-tolerant corn seeds are expected to remain in demand.
Pioneer AQUAmax and Competition
Dupont’s Pioneer introduced conventionally bred Optimum AquaMax in 2011 that boosted corn yields by almost 9% in water-limited environments during 2012 compared with regular corn varieties. Pioneer’s AQUAmax corn variants were developed using an advanced version of traditional breeding instead of introducing a new gene or trait. On the other hand, Monsanto’s DroughtGaurd variant contains a new gene that enables bacteria to continue growing in cold environments.  Because of this, Monsanto required approvals from the U.S. Department of Agriculture (USDA) ensuring it poses no environmental or agricultural risks before rolling out the seed varieties to the market. DroughGaurd is expected to hit markets sometime in 2013.
With yield results from the past two seasons, better performance than the regular variants of corn in water-limited environments and increased availability its Optimum AQUAmax products, DuPont Pioneer is expected to have a clear advantage over Monsanto’s DroughtGaurd in 2013. However, in the long run, success would largely depend on the relative performance of these alternatives in drought conditions.
We currently forecast DuPont’s Global corn, soybean and other seeds market share to increase to around 21% over the forecast period primarily led by industry consolidation. However, if DuPont could extend its lead in the drought-tolerant corn market with better yields and market reach, it could potentially gain a higher market share and would imply upside to our current $47.50 price estimate.Notes:
- DuPont Pioneer Research Investment Yields 132 New Products for 2013 Season, March 6, 2013, www.pioneer.com [↩]
- Ethanol Fuel Basics, Alternative Fuels Data Center, www.afdc.energy.gov [↩]
- Corn Background, USDA Economic Research Service, www.ers.usda.gov [↩]
- U.S. Drought Monitor Update for March 5, 2013, National Climate Data Center, www.ncdc.noaa.gov [↩]
- Breeding Versus Engineering to Make Drought Tolerant Corn, www.biotech.about.com [↩]