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Monsanto to increase glyphosate production

With grower complaints about high prices ringing in its ear, Monsanto has announced it will invest up to $196 million to increase capacity at its glyphosate manufacturing facility in Luling, La. The planned development, which will take place over 18 months, will increase Monsanto's capacity to produce Roundup and other glyphosate-based herbicides by 20 percent globally and by 10 percent in the United States. The plant expansion is expected to be completed in time for the 2010 planting season.

The increase in capacity comes in addition to Monsanto's announcement in February that it was increasing production at its two U.S. manufacturing plants in Luling and Muscatine, Iowa, by 20 percent for 2008.

Earlier this year, the company announced a significant price hike for Roundup. Monsanto said the action was necessary to ration supplies of the brand because glyphosate is in such short supply among generic suppliers.

Many generic suppliers receive their glyphosate from China, one of the world's largest producers of the popular herbicide. But China has scaled back production due to high production costs and other factors.

During a press briefing in early April, Jim Zimmer, vice president, U.S. branded business for Monsanto, said, “A lot of the global pricing increases are due to raw material costs and raw material tightness, as well as demand exceeding our ability to supply glyphosate.”

According to Ron Cooley, Monsanto's director of global manufacturing, “We are seeing higher mining costs for the phosphate ore that goes into some of the early intermediate materials (for glyphosate). All of these are reflective of significantly increased raw materials.”

China found buyers in foreign countries willing to pay a higher price for glyphosate — supply which subsequently was not available in the United States. Zimmer says U.S. generic companies selling to foreign buyers have also contributed to the shortage.

Monsanto has about 60 percent of the glyphosate market in the United States.

Zimmer said the demand growth for glyphosate “on a global basis is coming from conservation tillage for the most part and some Roundup Ready technology. Here in the United States, it's the acceleration of conservation tillage growth due to fuel prices and the continued growth of Roundup Ready technology.

Monsanto expects to have close to 20 million new acres of Roundup Ready crops in the United States this year.

When asked about future Roundup pricing, Zimmer said the company “should have a better idea of what our capacity and supply will be over the next 60 days and will determine if we have the right value for Roundup, or if we're able to roll back some of the prices increases in the future, or if we're going to have to take additional price increases.”

Zimmer said Monsanto “anticipated the growth of Roundup Ready technology in conservation tillage, but global prices had gotten so low that it wasn't fiscally responsible for us to increase capacity for several years, and we could see that the Chinese were increasing capacity.”

Zimmer says since then, with the current higher prices for glyphosate, he expects China “to expand its capacity and put some of their unused capacity back on line.”

He added than commodity prices “have nothing to do with our price of Roundup. It's the raw material costs and competition. Today, it's a supply and demand curve that is out of whack and the price of raw materials that have made the prices escalate. We would fully anticipate that as raw materials come back down and as more capacity comes on line, glyphosate prices will roll back. We don't know when and we don't know how far.

“For our seed and trait business, commodity prices have some impact (on pricing), but not substantially,” Zimmer said. “Monsanto is 100 percent committed and focused on agriculture. We have no side businesses. The only way we're going to be successful is if we come up with innovations that farmers choose to purchase and make higher yields and profits from them. We want to be in a position where if commodity prices roll back, our products are still a profitable option for farmers.”

Monsanto recently received authorization from the Louisiana Department of Environmental Quality on three permits which pave the way for the new enhancements at its Luling facility. The company's investment is designed to both expand infrastructure and front-end manufacturing capacity at the facility.

According to Cooley, the expansion will employ approximately 30 new people directly. In addition to the planned expansion, Monsanto announced that it will implement a hydrogen-recovery project, a step that will enable it to reduce natural gas costs and better conserve and utilize hydrogen, a by-product of the glyphosate manufacturing process.

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