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What this DowDuPont seed maker and weed killer spin-off will look like

Brian Sozzi
Corteva will look to capitalize on farmers seeking new ways to protect crops.

June 2019 couldn’t get here quick enough for Jim Collins.

Collins, a veteran of the agricultural science business, started hitting the road today to pitch prospective investors on a new business he will lead as its CEO. Corteva, maker of genetically modified seeds and weed killer, is set to be spun off from industrial giant DowDuPont (DWDP) in June next year.

“I think culturally we got it right because we put together the best teams to create this company Corteva, and I think that sets us apart from others who may not be so focused on the farmer,” Collins told Yahoo Finance, when asked for his quick pitch to investors.

DowDuPont was formed in August 2017 by the $130 billion mega-merger of Dow Chemical Company and E.I. du Pont de Nemours & Company (DuPont). By the end of next year, the company will have been split into three separate companies: Dow, DuPont and Corteva.

Why it matters: Although the genetically modified seed and weed killer market is a lightning rod for controversy from the healthy food movement, there is no denying its future growth potential. With farmable land becoming more scarce globally, farmers continue to focus on finding new ways to improve the yields from their crops. That’s especially so in a current environment for corn, soybeans and other agricultural commodities that have been hammered lately due to growing trade tensions with China.

Collins said on the tariff issue with China, “Could it [commodities prices] get a little bit worse from here, sure. Supply and demand does its job and it will depress prices a little further. I don’t think prices will go down much further — there isn’t much more stress you can put out there, it has gotten a lot of it already.”

According to industrial industry research site ReportLinker, the global genetically modified seed market is expected to reach an estimated $43.57 billion by 2022. It’s forecast to grow at a compound annual growth rate of 9.8% from 2017 to 2022.

Yahoo Finance by the numbers: Corteva, which now lives as the “Agriculture” segment inside DowDuPont, has seen its results pressured this year on the back of plunging corn and soybean prices. Net sales rose 2% to $1.95 billion in the third quarter. The segment racked up an operating loss of $104 million compared to a loss of $239 million a year ago.

Through the nine months ended September 30, the business’ sales have fallen slightly to $11.5 billion. The division’s profits have gained 4% to $2.5 billion on efforts to cut costs ahead of the June 2019 spin-off.

Bottom line: Investors looking for a pure play seed grower and weed killer in light of Bayer’s purchase of RoundUp maker Monsanto this year may gravitate to Corteva.

“With the acquisitions of Monsanto by Bayer and Syngenta by China, there are a limited number of large, pure-play non (commodity) fertilizer agricultural companies in the world to invest in — DowDuPont Ag will be the largest. With the large amount of investor interest in agriculture, notwithstanding the currently depressed conditions in the industry, we believe investors will pay a premium for this large, unique asset,” thinks Deutsche Bank analyst David Begleiter. 

It will be important for Collins to quiet concerns on weak crop prices and pitch Corteva’s product pipeline — the company projects $9 billion in peak sales from products released from 2017 to 2022 — to win early supporters.

“I think we will continue to see some stress related to this trade/tariff issue until early 2019 given where things are between our countries,” Collins acknowledges.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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