Delta and Pine Land Company's recent announcement of a delinting plant closure and staff cutbacks sends a signal that the big cottonseed company plans to run lean and tough as it fights for market share.
The Scott, Miss.-based company is closing its Chandler, Ariz,. delinting plant and laying off 50 workers, including Steve Hawkins, its president and chief operating officer. Murray Robinson, the company's vice chairman and chief executive officer, will now also be its president.
These changes come as a move to improve profitability and do not reflect current low cotton markets or the depressed farm economy in general, says Randy Dismuke, D&PL senior vice president responsible for all U.S. operations.
“This will not impact what farmers see from the company. We will still deliver the quality product they demand in the short and long term. And in the long term it will allow us to be better positioned to move into new technologies as they become available,” Dismuke says.
“It should reduce expenses and increase efficiencies,” Robinson says.
Closing the Chandler plant, which employed 27 people, should not affect cottonseed supply, he says. The company still owns four delinting plants and has two others on an exclusive contract. In addition, D&PL contracts with two California delinting plants on an as-needed basis.
“There will be no problem getting cottonseed ready. We did not run the Chandler plant at full capacity last year,” Dismuke says.
Seed production is tending to shift eastward due to Bollgard technology, he says. “It's allowing the Arizona farmers to carry the crop longer to maximize yield, exposing the bottom part of the plant to weather longer, so that seed quality deteriorates and we're not able to use it,” Dismuke says. “They lose that bottom crop while they're making the top crop. We do still have several farmers in western Arizona and the Central Valley who are producing for us, though, on the same sort of timetable they used to.”
“At the same time, Bollgard and Roundup Ready technology makes seed production more feasible in the Mid-South. “A lot of seed production has come back east because of this. They're now able to harvest earlier and miss some of the fall rains that tend to hurt seed quality in the South,” Dismuke says.
With more than 70 percent share of the U.S. cottonseed market from its Deltapine and Paymaster varieties, D&PL considers itself the “gatekeeper” of cotton technology.
“We are leveraging our position due to the strength of our germplasm, our market share and our know-how. We are the gatekeeper for anyone who wants to bring technology to the cotton market, and we will partner with them in any way that's beneficial,” Robinson says.
D&PL already has an 85 percent share of U.S. sales of genetically altered cottonseed. “We have the relationships with farmers to get new technology into the marketplace. And we have the means to get new technology into the germplasm,” Dismuke says.
The company's overseas markets are booming, as well. Doing business in 16 foreign nations accounts for 10 percent of D&PL's income, at a 35 percent annual growth rate. “It's a very, very high potential growth area for us,” Robinson says.
Though biotech seeds fuel some of that growth, most noticeably in China, D&PL only sells non-transgenic varieties in some foreign markets. Some nations have not yet approved the use of genetically modified varieties, and Monsanto, the owner of that technology, handles regulatory issues for it.
“Monsanto has the first right to say which market it goes into. For probably very good reasons of their own they'll say they prefer not to put Roundup Ready into a certain market. We cooperate with them on that,” Robinson says.
“We have an idea but don't know which countries Monsanto intends to launch Roundup Ready and Bollgard in. It has to be approved by the countries. In some markets Roundup Ready will be important. In some it'll be stacked with Bollgard. In some Bollgard will be the important trait,” says John Stewart, D&PL vice president of international operations.
During the past three years, D&PL increased sales an average of 20 percent annually, with a 142 percent average annual rise in profits. At the same time, its stock price tumbled from a high of $54 to its current level of about $20. That does concern company management.
“Any business has to be interested in its value to shareholders,” Dismuke says. “It has to have that as a concern. But first and foremost it has to keep its customers' needs in mind. We have to be sure that in our on-going business long term we can deliver a product that meets customers' needs. Enhancement to shareholder value should track along behind it.”
In related news, the lawsuit filed in 1999 resulting from Monsanto's thwarted takeover bid for D&PL is no closer to being resolved. When Monsanto backed out due to Justice Department anti-trust concerns, D&PL demanded Monsanto pay a breakup fee of $81 million, as required by the merger agreement.
The federal judge hearing the case recently retired and assumed status as a senior judge. The new judge assigned to the case, complaining of a too-large workload, has asked the Mississippi Supreme Court to appoint the now-retired senior judge to resume work on it.
A decision on that aspect of the case is expected in October.
“None of this is going to have any impact on farmers” Dismuke says. “They're still going to get the product they want on a timely basis. We're in a strong position financially.
“That's the reason we can look at restructuring. This will not damage our customer relationships.”