Friday’s scare was that rootworms have beaten humans. If true, the scare would have been justified as according to the U.S. Department of Agriculture corn rootworms cause one billion dollars of damage each year.
Monsanto makes genetically modified corn seeds designed to kill rootworms.
Some investors clearly had more confidence in rootworms than humans as they aggressively sold the stock of Monsanto (MON). The chart shows the precipitous drop last Friday.
The media was quick to spread the scare with scary headlines and giving the report credibility by relying on an Environmental Protection Agency (EPA) document that rootworm had become resistant to the Monsanto seeds.
As I saw the headlines and watched the reaction in Monsanto stock, I remembered that Monsanto gave the world Agent Orange, DDT, and saccharin.
Over the years, I have made lot of money short selling stocks, i.e., profiting from the fall in stock prices. I have also made lot of money by figuring out the sympathy moves in other stock and commodities before Wall Street.
Dozens of other questions were flying through my head. Was Monsanto a short? Will corn prices go up? Should I buy corn futures? Will sales of pesticides go up? Which company will sell more pesticides? Since corn syrup is a major ingredient of soft drinks, will Coca-Cola (KO) and PepsiCO (PEP) get hurt? Since corn is a big part of chicken feed, will chicken companies such as Tyson (TSN), Sanderson (SAFM), and Pilgrim’s (PPC) get hurt? What about the big egg producer Cal-Maine? Since Monsanto licenses some of the technology from Dow (DOW), will there be a material impact on Dow? What about other big seed companies such as Du Pont (DD) and Syngenta (SYT)?
My first task was to look for the source document from the EPA. Over the years, my habit of checking media reports against a credible source has stood me in good stead. A Google search showed a lot of articles on the subject but none of the articles contained a link to the source EPA document. I went to the EPA’s website. Our government works! I found the document on the EPA’s website.
First I questioned if I was looking at the right document. The EPA had extended the registration for two genetically modified corn seeds from Monasanto. The EPA granted the initial conditional approval of Genuity SmartStax in 2009. This seemed like good news. Would the EPA have granted extended approval if there was a serious issue? My answer was likely not.
This got me digging. In the 2009 conditional approval, the EPA expected some resistance to develop from the very beginning. Scientists at the EPA, Monsanto, and Dow are well aware of the basic principles of evolution. Scientists have well understood evolution for over 100 years. One of the basic principles is that biological populations adapt. Humans attempt to kill the rootworm; the rootworm tries to adapt to the poison in the seed to survive. There is nothing new here.
The stock market is supposed to have discounted in the stock prices what is already known. Apparently some investors had never heard of evolution and Darwin; they sold as though this was new information. Further, a quick study of EPA documents regarding genetically modified seeds showed that the EPA has been engaged in a very sensible and logical program to monitor resistance and take remedial corrective action.
Ideologically, inclined readers, both on the left and the right, may note that the EPA document contains a section on benefits. This section is worth reading and is reproduced here for readers’ convenience.
We expect MON 89034 x TC1507 x MON 88017 x DAS-59122-7 seed blend products to have the following benefits: (1) Reduced pesticide use in the refuge. Currently, the block refuge may be sprayed with pesticide to mitigate pest damage. The blended in-field refuge will not be sprayable. (2) Significantly less complicated refuge deployment for the corn rootworm and lepidopteran active ingredients. Currently, to be fully compliant with the refuge requirements, growers must accurately calculate percentage of the field, accurately determine the proper distance for the refuge field, and properly plant the required acreage in the correct location. Moreover, there are temporal concerns, as the refuge field must be planted at, essentially, the same time as the yield field so that emergence of refuge rootworms is contemporaneous with emergence of field rootworms. Anecdotal reports from growers make clear that meeting each of these requirements can be challenging in the actual on-farm environment. A product with the refuge blended with the field seed will ease deployment of the refuges. (3) Grower compliance with IRM requirements for the corn rootworm and lepidopteran active ingredients. A seed blend product incorporating an effective refuge in the seed bag would lead to 100% grower compliance for planting a refuge. This is a significant benefit, although perhaps not as great as the raw data on refuge compliance might suggest.
In addition, indirect benefits of introducing MON 89034 x TC1507 x MON 88017 x DAS59122-7 seed blends may include reduced energy consumption for manufacture, transport, and application of chemical insecticides; reduced waste streams arising from pesticide manufacture; reduced disposal of pesticide waste containers; and reduced residues from pesticide applications.
The EPA added the following sensible additional conditions:
1) The Agency recognizes that large corn rootworm populations, environmental conditions, and protein expression levels can influence corn root damage and may affect the definition of suspected CRW resistance. The Agency plans to work with the registrants to refine the definition of suspected resistance based on these factors. Until such time that the Agency accepts a modified definition of suspected resistance to corn rootworm, resistance will be suspected in cases where the average root damage in the SmartStax field is > 0.5 on the nodal injury scale (NIS) and the frequency of SmartStax with > 0.5 nodes destroyed exceeds 50% of the sampled plants.
2) Within 90 days of this amendment, you must submit an enhanced rootworm resistance monitoring plan for SmartStax that accounts for reports of suspected and/or confirmed resistance. The rootworm resistance monitoring plan and the revised definitions for suspected and confirmed resistance for SmartStax must be found acceptable to BPPD by May 1, 2012 and utilized by the registrant beginning in the 2012 season. This enhanced monitoring program should:
- Be practical and adaptable, and provide information on relevant changes in corn rootworm population sensitivity to SmartStax;
- Be focused on areas where the potential for resistance is greatest for SmartStax and for the corn rootworm active single event components of SmartStax (Cry3Bb1and Cry34Ab1/Cry35Ab1), based on available information on historical pest pressure, unexpected performance issues, historical suspected and/or confirmed resistance incidents as currently defined or as modified in EPA accepted enhanced monitoring programs, prevailing agronomic practices (e.g. crop rotation versus continuous corn), and academic and extension publications on Bt corn field performance;
- Involve coordination to the extent possible with other stakeholders, such as academic and extension experts, in the states where corn rootworm is a major pest, other registrants of SmartStax, and other registrants of similar products, as appropriate;
- Be responsive to incidents of suspected or confirmed resistance to the registrant’s other products containing the same active ingredient(s), as well as to publicly available reports of suspected or confirmed resistance to other Bt protein toxins in SmartStax.
3) Within 90 days of this amendment, you must submit an enhanced remedial action plan for SmartStax that includes actions to be taken in response to both suspected and confirmed resistance. This remedial action plan must include a description of steps to be taken in response to customer product performance inquiries and annual reporting to the agency on the outcomes of investigations into any such inquiries that might indicate potential resistance. The program must include revised definitions of unexpected damage to SmartStax corn that could indicate potential suspected resistance. The enhanced remedial action plan must be found acceptable to BPPD by May 1, 2012.
4) The Grower Guide or its supplements must include language directing the user to contact a company representative if they observe unexpected insect feeding damage to their SmartStax corn. As part of its follow up on reports of unexpected damage to SmartStax corn, the registrant must determine the nodal injury scale (NIS) of affected corn. If the NIS results fall within the definition of suspected resistance for SmartStax, then until such time as the Agency accepts a modified remedial action plan, the registrant must provide specific guidance to affected growers in managing corn rootworms in the affected fields. This will include 1) providing specific grower guidance to control the adult stage of corn rootworms, where adult beetles are still present and laying eggs during the season that unexpected damage meets the suspected resistance definition; and 2) where the grower continues to be an existing customer of the registrant or seed company licensee into the following season, providing specific grower guidance and assistance to use an additional or alternative pest control method during the season following the initial finding that unexpected damage meets the suspected resistance definition.
5) The registrant will submit additional modeling, scientific literature, and other scientific information addressing the impact of pyramid PIP use in areas of confirmed resistance to one of the rootworm-active components of the pyramid by August 30, 2012.
6) Should resistance to any of the constituent toxins of SmartStax be confirmed (from target pest populations collected in 2012 or the prior growing seasons) in accordance with the existing definition of "confirmed resistance" for the appropriate toxin, the EPA will reassess and, if the EPA concludes it is necessary, the registrant will revise the refuge/seed blend requirements for SmartStax. The registrants may independently submit updated definitions of confirmed resistance for their respective SmartStax active proteins for the EPA’s consideration in order to harmonize and/or keep definitions current with scientific standards; any such submission must be found acceptable to BPPD by May 1, 2012. The EPA will incorporate all relevant scientific information (including the data required above) in its reassessment of the refuge/seed blend requirements. The revised refuge/seed blend requirements will be effective for the following growing season (after resistance confirmation) in the geographic areas in which resistance was confirmed. The geographic area of confirmed resistance could be less than a single county, a single county, or multiple counties, depending on the EPA's analysis of the collected data.
7) For the SmartStax block refuge products, submit a revised Compliance Assurance plan by February 28, 2012.
The point is that the real news of allowing genetically modified seeds occurred long time ago. Now it will be an ongoing cycle of evolution. The rootworm will try to adapt to survive. Humans will come up with a better poison for the rootworm to produce more food.
The media simply exaggerated, and investors overreacted. If the silliness continues, astute investors may consider taking positions contrary to the false wisdom being spread.
About Me: I am an engineer and nuclear physicist by background, have founded two Inc. 500 fastest growing companies and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report which publishes four newsletters to help investors profit from change.
Disclosure: I, my hedge fund, and subscribers to The Arora Report may take trading positions in the stocks mentioned in this article.