By Ian Gilson, CFA
S&W SEED CO (SANW): Free Stock Analysis
To read this article on Zacks.com click here.
S&W Seed (SANW) has signed agreements with
Monsanto and Forage Genetics (part of Land O'Lakes) to produce and
sell Genetically Modified Organism alfalfa seeds. GMO based crops
have a strong presence in US markets but are banned in many
international markets so the modified seeds will be sold in the US.
There are very few providers of Roundup Ready alfalfa and the
world-wide market is growing rapidly.
GMO based alfalfa sells at a significant premium to other
proprietary alfalfa seeds, often as much as a 50% premium. The cost
of growing GMO alfalfa is not significantly different than the cost
of growing S&W Seed's propriety alfalfa. There is a royalty
payment to Monsanto but gross profit margins are still much
GMO based crops are not allowed in the Imperial Valley where the
company has close to 70% of its acreage owned or under contract
(including the recent acquisitions), so the new seeds will be grown
in the San Joaquin Valley.
The seeds will be modified in fiscal 2013 and a test crop grown.
Assuming the seeds incorporate the new gene the acreage will be
expanded to include seed for sale and internal use in the fiscal
2014 growing season. At this point we do not know the number of
acres that will be used or the yield per acre for the new seeds.
Assuming the GMO seeds will be proprietary non-dormant species the
market would be in the south western US where S&W Seed has
existing customers. Growing GMO alfalfa on1,000 acres in the
Central Valley has the potential of generating over $5 million of
revenue and $2 million in net income.
Please visit Ian Gilson's coverage page at scr.zacks.com to
access a free copy of the full research report.