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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Monsanto’s yields should take turn for the better

Universal Press Syndicate

Monsanto (NYSE: MON) won’t be selling its Roundup Ready 2 Yield soybean seeds in Europe, but at least the U.S. farmers it sells them to will be able to hock their final product there. The European Union recently approved the genetically modified soybeans for import.

The E.U. buys about 10 percent of U.S. soybean exports, so the approval should boost the launch of the Roundup Ready 2 Yield soybeans, which are now approved for import in 10 countries or regions. Monsanto expects to make a small launch next year, with a much larger push the year after.

Although 2010 may seem like a long way off, a long-term view is needed. Seed and fertilizer producers have been punished hard this year. But it’s not as if people will stop eating just because there’s a global recession. And the recession will end – eventually.

Investors who buy agricultural companies at current levels could see further dips – the bottom is hard to predict, after all – but overall prospects for the agriculture industry are pretty strong. Monsanto is looking to double yields by 2030. With each small increase in yield comes the ability to increase prices. And of course, the Roundup Ready products end up boosting sales twice over – once for the seed and another for sales of Monsanto’s Roundup herbicide.

Monsanto will grow again, eventually.

Ask the Fool

Q: When I buy stock, what am I buying? I see that the company gets its money when the stock is first issued. But after that, how does the company benefit when I buy a share on the open market? – G.L., Riverside, Calif.

A: A share of stock represents a (small) chunk of a real company. If a firm has a million shares outstanding and you buy 100 of them, you own one ten-thousandth of the company. The company does get its money at the one-time issuance of the share, but as shares fluctuate in the open market, companies do care how they fare. A falling stock can make it easier for the firm to get bought out. A rising stock can help insiders with stock or stock options get richer.

Q: What are REITs? – R.B., Hickory, N.C.

A: Real estate investment trusts (REITs) let you invest in real estate without actually buying any property. They’re organizations that combine the capital of many investors to acquire or finance all kinds of real estate, such as offices, hotels or apartments. A REIT is a little like a mutual fund, as its portfolio is professionally managed and diversified, holding many properties, generally income-producing ones. Many REITs trade publicly on major stock exchanges.

REITs have some other twists, too. For starters, corporations or trusts that qualify as REITs generally don’t pay corporate income tax and are often exempt from state income tax as well. They must invest most of their assets in real estate and pay out at least 90 percent of their taxable income as dividends. In good years, REIT dividends can run quite high, sometimes topping 10 percent. Learn more at www.reit.com.

My dumbest investment

I took a position in Warren Buffett’s company, Berkshire Hathaway, a few years ago, buying one share of his class-A stock for around $20,000 (yes, one share: $20,000). A while later I was reading the annual letter to shareholders, and Buffet said he did not think the business would keep growing as it had in the past. I assumed that since the CEO of the company did not have faith, why should I? I sold the stock around $30,000, and it’s recently been trading around $100,000. Next time I need to read the stock research. – Lloyd F., Raymore, Mo.

The Fool Responds: Shares actually topped $150,000 earlier in the year! You didn’t quite understand Buffett. Since Berkshire has grown so big, he simply doesn’t expect the company to be able to keep growing as quickly as it has in the past, when it was smaller. He does still expect long-term growth, though. Those interested in the stock should know there’s a class-B version, selling for around $3,500 recently.