Bid For Monsanto: Impact Beyond Seeds And Agrochemicals

  • Bayer’s bid for Monsanto is yet another evidence of a seismic shift in the supply chain power balance: consolidation in agrochemicals and seeds markets.
  • The supply chain becomes even more unbalanced, with concentration even high both down- and upstream from farmers.
  • Resulting competitive dynamic extremely bearish for farms, farm economics, and as an extension, for farm assets: farmland and equipment. The balance sheet effect here is significant.
  • Farmland REITS and farm equipment makers will have to face years of earnings headwind.

Change is the biggest source of return on the stock market. It is the bona fide creator and destroyer of wealth: think of technological change that enabled Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Uber (Private:UBER) or regulatory change that mandated ethanol use in gas or free trade agreement with Canada and Mexico – all these events generated and destroyed wealth for investors at an unmatched scale.This is why when there is tremendous amount of change crammed into a short period of time, one has to take notice. Bayer’s (OTCPK:BAYRY) bid for Monsanto (NYSE:MON) is just such an event.
A large acquisition in itself is already a good indication that the balance of power and economics of businesses in the supply chain will change; more so in the agricultural supplies market, since it is already highly concentrated. Falling agricultural commodity prices have prompted deals throughout the sector, with Dow’s (NYSE:DOW) merger with DuPont (NYSE:DD) in the approval phase, ChemChina’s acquisition of Syngenta (NYSE:SYT), which in turn was a target of multiple takeover attempts by Monsanto.
Further consolidation is bound to have implications for the food/agriculture supply chain and possibly create attractive investment opportunities.
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