St. Louis Post-Dispatch

ST. LOUIS, Mo. -- Monsanto Co. is eliminating 900 more jobs -- doubling the cuts announced earlier this summer--as the biotech giant responds to a glut of cheap Chinese-made herbicide that's taking a bite out of Roundup sales.

The announcement means Creve Coeur company is eliminating 8 percent of its workforce, or 1,800 jobs, overall.

About 600 of the cuts are in the United States and about half of those are in the St. Louis area, spokeswoman Kelli Powers said. Most of the affected U.S. employees have been notified.

The additional cuts are part of a broader restructuring plan announced by Monsanto on June 25 that included creating a separate division for its Roundup herbicide business.

Carl Casale, Monsanto's new chief financial officer, announced the updated cost savings targets during an investor conference Thursday morning in London.

"Globally on the farm, the underlying economic proposition is still positive," Casale said. "On the other hand, there is some near-term supply-demand imbalance in the chemical side of agriculture."

The updated plan aims to save $220 million to $250 million annually. To implement the plan, Monsanto will incur restructuring charges of $550 to $600 million, most of it in the fourth quarter of fiscal 2009 that ended last month. Results for the quarter will be reported next month.

Overall, the company sees 2010 profit declining to $6.1 billion to $6.3 billion from an estimated $6.7 billion in 2009.

Monsanto's 2010 profit target, equal to $3.10 to $3.30 a share, fell short of the average estimate of analysts. They expected the company to earn $4.11 a share, according to Bloomberg.

The company's stock fell $4.18, or 5 percent, to $79.30 on the New York Stock Exchange.

Thursday's announcement represents the latest attempt to stabilize the Roundup business and steer investor attention to the company's successful seed and genomics business, which has been overshadowed this summer by reports on the weakness in herbicide sales.

The company remains on track to double its 2007 gross profit by 2012, but "there are multiple headwinds causing us to forecast below that mark in the next two years," Casale said.

Monsanto executives had predicted that Roundup profits would peak in 2009. But they were surprised by a wave of inexpensive Chinese-made glyphosate that flooded U.S markets.

In June, the company said herbicide gross profit may fall by half in 2010 to $1 billion from a peak of $2 billion this year. Thursday, Casale further revised the forecast for Monsanto's herbicide business, or Ag Productivity segment, to $650 million to $750 million.

The latest estimate factors in steep price cuts implemented Wednesday to make Roundup more competitive. Monsanto lowered prices from more than $20 a gallon to $10-$12 a gallon. It also includes $100 million to $150 million in one-time incentives to win back farmers who may have switched to less expensive brands, Casale said.

The strategy represents a 180-degree pivot for Monsanto executives, who had pledged to maintain Roundup prices at the expense of market share.

"This order of magnitude shortfall is a surprise, and reflects some of the over-optimism Monsanto has had regarding its Ag Productivity gross profit in the past," BB&T Capital Markets analyst Frank Mitsch said in a research note.

Mitch continues to view Monsanto as an attractive long-term investment, but cut the rating on the stock to "hold" from "buy," saying "overall earnings momentum appears stalled for the upcoming 12-24 months."

Creve Coeur-based Monsanto developed Roundup, a weed killer containing the chemical glyphosate, in the 1970s. For two decades, the company was its exclusive maker and capitalized on its success by developing crops that are genetically engineered resistant to its effects.

Today, the herbicide-tolerance trait is at the heart of the company's multibillion-dollar seed business. But the last patents on Roundup expired nearly a decade ago, allowing competitors to sell less expensive generic products.

As recently as a year ago, that wasn't a problem. Global supply shortfall allowed Monsanto to nearly double Roundup prices, and the company announced the expansion of a manufacturing facility in Louisiana to help keep up with demand.

What Monsanto didn't realize is how swiftly Chinese manufacturers were ramping up production. Today, excess glyphosate supply has depressed prices for the weed killer to about $10 a gallon -- a level last seen in 2006.

Casale dismissed speculation that Monsanto might sell or spinoff the herbicide business, saying it's expected to produce $1 billion in gross profit by 2012 when the restructuring is complete.

What's more, the company has a vested interest in making sure farmers have access to the weed killer.

"If you're in the Roundup Ready crop business, ensuring there's an adequate and affordable supply of Roundup is pretty important," he said.

(c) 2009, St. Louis Post-Dispatch.

Visit the Post-Dispatch on the World Wide Web at http://www.stltoday.com/

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

A service of YellowBrix, Inc.