North America Equity Research

07 April 2011

Monsanto
Roundup Rebounds
We believe it will be difficult for Monsanto shares to exceed market returns over its F2H11 (ends August). The largest part of Monsantos operating profit growth in F2011 is unlikely to stem from its higher multiple Seeds and Genomics operations but from an earnings rebound in its lower multiple Agricultural Productivity businesses (Roundup and selective herbicides). We expect Seeds and Genomics operating profits to rise at a moderate 5.5% pace in F2011 from $1.83bn to $1.93bn. Operating profits in Ag Productivity by contrast could about triple in F2011 from F2010s distressed level of $67mn to $238mn. Monsanto tends to emphasize its mid-teens earnings opportunity in 2011. That opportunity perhaps overstates the normalized underlying EBIT growth pattern. Monsantos challenge over a multi-year period is to accelerate EBIT growth in Seeds and Genomics to a greater than 10% rate in a base case of little acreage growth from current levels, higher commodity seed costs, and incremental rather than fundamental new growth entities in its product portfolio. In future years it is unlikely to have meaningful earnings assistance from depressed comparisons in Ag Productivity. We trim our F2011 EPS from $2.85 to $2.80; our F2012 remains $3.20. We are reducing our December 2011 price target from $70 to $65 given the F2011 earnings reduction and risks stemming from commodity costs pressures in F2012.

Neutral
MON, MON US Price: $69.16

Price Target: $65.00

Previous: $70.00

Specialty, Commodity & Agricultural Chemicals Jeffrey J. Zekauskas

AC

(1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

Silke Kueck
(1-212) 622-6503 silke.x.kueck@jpmorgan.com

Olga Guteneva
(1-212) 622-6488 olga.v.guteneva@jpmorgan.com

Ben Richardson
(1-212) 622-6455 ben.richardson@jpmorgan.com J.P. Morgan Securities LLC
Price Performance
75 $ 65 55 45
Apr-10 Jul-10 Oct-10 Jan-11 Apr-11

A genuinely positive seed pricing dynamic may well have to wait until F2013
for Monsanto. The clear line for Monsanto to raise prices above its cost inflation is achieving market share gains from yield improvements in excess of its competition. Monsantos 2Q:F11 results may well indicate volume losses in soy and market performance in corn. There was no management commentary indicating the promise of domestic market share gain in either seed category. The company is in need of decisive end of year yield data (normally released in December) to catalyze demand for its core corn and soy product lines at the least, or strong subjective indications of above-average yields during the course of the growing season. Seed prices, however, are likely to increase at some inflationary rate to offset the cost pressures stemming from higher purchased corn and soybean seeds from Monsantos growers.

YTD Abs -0.7%

1m -3.5%

3m -2.3%

12m -0.9%

We rate Monsanto Neutral. Monsantos stock price level seems to have speculative
support from the rise in grain prices and agricultural assets generally. The shares trade at an EV/EBITDA of 13.3x for F2011E versus Praxair at 11.1x and Ecolab at 10.1x, which have more consistent rates strong earnings growth. It is difficult to see how its multiple could expand more except in an environment of further advances in grain prices. We believe Potash and Agrium offer better risk-return profiles.
Monsanto (MON;MON US) 2010A EPS - Recurring ($) Q1 (N ov) Q2 (Feb) Q3 (May) Q4 (Aug) FY Bloomberg EPS FY ($) 2011E
(Old)

2011E
(New)

2012E
(Old)

2012E
(New)

2013E

(0.02) 1.70 0.81 (0.09) 2.41 2.43

0.02A 1.95A 1.16A (0.28)A 2.85A

0.02A 1.87A 1.17A (0.25)A 2.80A 2.85A

3.20

3.20 3.35

3.45 3.99

Com pany Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date

69.16 06 Apr 11 76.69 - 44.61 37,512.38 Aug 542 65.00 31 Dec 11

Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.

See page 6 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

Details
We believe Monsanto will reach its aggregate goal of F2011 pro forma EPS guidance of a range of $2.72 to $2.82 but through a lower than expected tax rate, higher than expected Ag Productivity profit, and lower than projected Seeds and Genomics income. We forecast Seeds and Genomics gross profit of $4.9B for F2011 compared to Monsanto's guidance of a range of $5.1B to $5.2B.We estimate that for Monsanto to increase Seeds gross profit from $4.638B reported in F2010 to $5.150B (midpoint of the guidance), or $512M, the company would need to grow its Seeds sales by about $730M (assuming 70% incremental gross margin), or 9.6% from $7.611B in F2010 to $8.341B in F2011. This rate of revenue growth seems too aggressive to us. MON's 2Q:F11 results indicate that U.S. corn sales volumes in F2011 are probably growing at the market rate of 3.6% (from 89mn acres to the USDA estimate of 92.2mn acres); soybean volumes appear to be negative in Q2:F11 as the company moves from RR1 to RR2Y product. Therefore, to reach its Seeds gross profit forecast, MON would require at least a 6% better price/mix, which in our view seems high given Monsantos focus on volume growth by attracting customers with flexible pricing.

Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

Table: J. P. Morgan Estimates and Monsanto Guidance

$ in millions F2010A Q1:F11A Sales Corn Soybeans Cotton Vegetable All Other Total Seeds and Genomics Growth Total Ag Productivity Gross Profit Corn Soybeans Cotton Vegetable All Other Total Seeds and Genomics Roundup and Other Glyphosate Roundup volumes All Other Ag Productivity Total Ag Productivity Total Gross Profit SG&A Growth as % of sales R&D Growth as % of sales Operating Income Other expense Pre-tax income Tax rate Net Income Share count EPS, pro-forma 4,260 1,486 611 835 419 7,611 4% 2,891 2,564 905 454 492 223 4,638 155 251 406 561 5,199 2,064 (0%) 20% 1,205 8% 11% 1,930 131 1,799 27% 1,322 547.4 $2.41 614 226 112 183 28 1,163 13% 667 339 153 74 113 0 679 94 60 45 139 818 450 (9%) 25% 303 13% 17% 65 46 19 34% 11 544.5 $0.02 Q2:F11A 2,397 615 67 229 113 3,421 5% 708 1,506 414 42 125 44 2,131 84 69 93 177 2,308 502 (2%) 12% 320 15% 8% 1,486 43 1,443 29% 1,015 542.4 $1.87 Q3:F11E 1,071 565 504 214 172 2,527 7% 880 643 294 378 124 106 1,545 69 80 126 195 1,740 480 (2%) 14% 337 12% 10% 922 27 896 29% 632 542.4 $1.17 Q4:F11E 437 103 118 247 112 1,016 5% 927 182 90 88 143 58 562 97 82 67 164 726 613 9% 32% 349 (2%) 18% (236) 16 (253) 47% (135) 542.4 ($0.25) JPM New 4,519 1,509 801 873 425 8,127 7% 3,183 2,670 951 582 505 208 4,916 344 291 331 675 5,592 2,045 (1%) 18% 1,310 9% 12% 2,237 132 2,105 28% 1,522 542.9 $2.80 F2011E JPM Old 4,436 1,570 747 878 405 8,036 6% 3,191 2,682 980 550 525 207 4,944 327 292 302 629 5,573 2,057 (0%) 18% 1,266 5% 11% 2,250 104 2,146 28% 1,554 544.5 $2.85 MON F2012E JPM New F2013E JPM

8,534 5% 3,303 2,803 992 631 540 210 5,176 297 740 5,916 2,087 2% 18% 1,371 5% 12% 2,459 93 2,367 27% 1,734 542.4 $3.20

8,963 5% 3,378 2,968 1,037 681 578 212 5,476 297 778 6,254 2,133 2% 17% 1,428 4% 12% 2,693 98 2,594 28% 1,873 542.4 3.45

5,150 275 275 300 575 5,725 2,110 2% 1,275 6% 2,340 160 2,180 31% 1,504 542.9 $2.77

Source: Company reports and J.P. Morgan Estimates.

Valuation
We rate Monsanto Neutral for year-ahead performance. Monsanto trades at 24.7x EPS and 13.3x EBITDA for F2011. We are reducing our December 2011 price target for Monsanto shares from $70 to $65, or 23.2x EPS and 12.5x EBITDA, reflecting estimates reduction and risks stemming from commodity costs pressures in F2012. Praxair and Ecolab, companies with higher consistent rates of EPS growth, trade at 19.6x and 20.7x P/E and 11.1x and 10.1x EBITDA respectively for 2011. We believe the opportunities for share appreciation for MON based on current high crop prices is limited by its premium valuation and risk for earnings disappointment should crop prices reverse or competitive pricing pressures limit sales and profit growth. We believe Potash and Agrium offer better risk-return profiles.

Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

Risks to Rating and Price Target

Monsanto is a stock that for periods of time can trade with the price of corn, the price of oil, the agricultural sector generally, as well its level of EPS growth and EBITDA. A higher priced grain environment would likely enhance pricing power and EPS growth performance. Low prices for corn and soybean seeds could inhibit Monsanto's ability to increase the prices of its products over a longer period of time. Corn and Soybean seeds are the most valuable elements of the farmers purchases because of their effects on yield. Lower grain prices reduce the additions to incremental value offered by increased yields. A low grain price environment would be likely to stunt the rate of longer term EPS expansion and possibly lead to poor price performance. DuPont is a formidable competitor. We believe that Monsanto possesses impressive competitive advantages versus other major producers in most all areas of biotechnology development for corn, soybeans, and cotton. Monsanto remains the sole entity to commercialize glyphosate tolerance traits for soybeans, corn, and cotton, among the most widely utilized products by farmers. DuPont appears to have made material progress in improving its germplasm and, hence, its yields in soy and corn. Moreover, during the next several years, DuPonts Pioneer unit could launch several potentially differentiated biotech trait products under the Optimum GAT name, including double herbicide tolerance traits (glyphosate and sulfonylurea) for both corn and soybeans. Monsanto may see its monopoly status end, and depending on the performance of these new products and other factors, Monsanto could see its leadership position erode. These factors could affect Monsanto's EPS growth rate and also its valuation. Conversely, technical achievements by Monsanto may well surpass those of DuPont, leading to market share gains and large profit opportunities. MON's Roundup franchise is faced with competition from both imports of generic product and also from branded competition. A faster than expected decline in either product prices or branded volumes could drive earnings below our current assumptions and the shares price could fall. Conversely, changes in the cost structure for generic producers could lead to higher product prices and benefits to Monsanto.

Company Description
Monsanto Corp is among the world's foremost producers of crop chemicals, seeds, and related biotechnology products for agriculture, with F2010 revenues of $10.5 billion and operating income of $1.9 billion. MON was established as a separate agricultural-input focused company in 2000 upon its spin-off from Pharmacia Corp. Seeds and Genomics is a leading producer of seeds, biotechnology traits, and services sold both directly to growers and licensed to other seed companies. Its Holden's unit develops germplasm for breeding of traditional and new seed varieties. The DEKALB and Asgrow units are among the largest marketers of branded seed products, including genomics-based varieties and hybrids.

Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

Agricultural Productivity includes the Roundup herbicide franchise as well as selective herbicides, products for animal agriculture, and a lawn and garden unit. Its Roundup brand of non-selective glyphosate herbicide has been the most successful crop chemical in history due to its high effectiveness, broad spectrum of weed control, and strong environmental profile. Among selective herbicides, Harness (acetanilide) is the second-largest selective herbicide for control of grassy weeds.

Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

Other Companies Recommended in This Report (all prices in this report as of market close on 06 April 2011) Agrium (AGU/$93.21/Overweight), Potash Corp. (POT/$60.00/Overweight)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures
Client of the Firm: Agrium is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service and non-securities-related services. Monsanto is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. Potash Corp. is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service and non-securitiesrelated services. Investment Banking (past 12 months): J.P. Morgan received, in the past 12 months, compensation for investment banking services from Monsanto. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Agrium, Monsanto. Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for products or services other than investment banking from Agrium, Monsanto, Potash Corp.. An affiliate of JPMS has received compensation in the past 12 months for products or services other than investment banking from Monsanto.

Agrium (AGU) Price Chart

198 N $50 165 N $45 132 Price($) 99 N $40 N $37 N $59 OW $75 N $70 OW $105 OW $95

Date

Rating

Share Price Price Target ($) ($)

36.38 34.89 44.49 49.12 60.68 66.23 68.89 84.92 96.54 40.00 37.00 45.00 50.00 59.00 70.00 75.00 95.00 105.00

06-Nov-08 N 26-Feb-09 N 11-May-09 N 10-Aug-09 N 10-Feb-10 N 05-Aug-10 N

66

17-Aug-10 OW 04-Nov-10 OW 10-Feb-11 OW

33

0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Dec 31, 2001 - Sep 05, 2002. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

Monsanto (MON) Price Chart Date

228 190 152 Price($) 114 76 38 0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 OW $100 OW $83 OW N $75 N $72 N $47 N $80 N $72 N $54 N $70

Rating
OW OW N N N N N N N N

Share Price Price Target ($) ($)

75.48 74.48 86.16 81.41 79.00 74.97 85.96 71.18 68.86 50.27 46.05 48.65 62.77 70.79 83.00 100.00 82.00 75.00 72.00 80.00 72.00 68.00 54.00 47.00 49.00 62.00 70.00

06-Oct-08
N $62 N $49

19-Dec-08 OW 08-Jan-09 03-Apr-09 08-Oct-09 07-Jan-10 26-Feb-10 08-Apr-10 01-Jul-10 07-Oct-10 07-Jan-11

N $82

N $68

28-May-09 N

28-May-10 N

09-Nov-10 N

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Feb 28, 2002 - Dec 31, 2003. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Potash Corp. (POT) Price Chart

144 N $35 120 OW $30 96 OW $33.5 Price($) 72 N $30 N $37 N $33.5 OW $52 N $33.5 N $36.5 OW $64.5

Date
24-Oct-08 23-Jan-09 24-Jul-09 11-Jan-10 29-Jan-10 16-Jul-10 30-Jul-10

Rating
OW OW N N N N N OW

Share Price ($)

22.84 24.87 32.00 40.96 34.83 41.65 32.20 34.96 47.05 58.05

Price Target ($)

33.50 30.00 30.00 37.00 33.50 35.00 33.50 36.50 52.00 64.50

16-Mar-10 N
48

24

22-Nov-10 OW 28-Jan-11

0 Feb 08 May 08 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Feb 08, 2002 - Sep 05, 2002. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stocks expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teams coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Jeffrey J. Zekauskas: Agrium (AGU), Air Products and Chemicals (APD), Albemarle Corporation (ALB), Amyris, Inc. (AMRS), Ashland Inc. (ASH), Avery Dennison (AVY), CF Industries Holdings, Inc. (CF), Cabot
7

Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

Corporation (CBT), Compass Minerals International, Inc. (CMP), Dow Chemical (DOW), DuPont (DD), Eastman Chemical Company (EMN), Ecolab Inc. (ECL), Ferro Corp (FOE), Georgia Gulf (GGC), H.B. Fuller (FUL), Huntsman Corporation (HUN), International Flavors & Fragrances (IFF), Lubrizol Corporation (LZ), LyondellBasell Industries (LYB), Minerals Technologies (MTX), Monsanto (MON), Nalco (NLC), Novozymes (NZYMb.CO), Pall Corporation (PLL), Polypore International (PPO), Potash Corp. (POT), Praxair (PX), RPM International Inc. (RPM), Scotts Miracle-Gro Co. (SMG), Sherwin-Williams (SHW), The Mosaic Company (MOS), Valspar Corp (VAL), WD-40 Company (WDFC), Westlake Chemical Corp. (WLK)
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2011 Overweight (buy) 47% 50% 43% 70% Neutral (hold) 42% 45% 49% 62% Underweight (sell) 11% 33% 8% 56%

J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

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Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

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Jeffrey J. Zekauskas (1-212) 622-6644 jeffrey.zekauskas@jpmorgan.com

North America Equity Research 07 April 2011

publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. Other Disclosures last revised January 8, 2011.

Copyright 2011 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan.#$J&098$#*P

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