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Monsanto warns of scarcity of hormone for dairy cows

(Friday, Jan. 30, 2004 -- CropChoice news) -- Andrew Pollack, NY Times, 01/27/04: Genetically engineered growth hormone for cows that is widely used to increase milk production will be in severe short supply this year, its manufacturer, Monsanto, has told dairy farmers.

In letters to farmers and a press release to dairy industry publications Thursday, Monsanto said that customers would be allocated 50 percent of the amount of the hormone that they had bought in the past. The allocation, beginning March 1, is expected to last all year.

A Monsanto spokeswoman, Janice Armstrong, said the cutback came after a Food and Drug Administration inspection in November of the factory at which the product was made. The F.D.A. found that more batches of hormone than expected were failing the factory's quality control tests, she said.

Although those batches were not sold, Ms. Armstrong said, the factory, which is in Austria and is owned by Sandoz, must make changes to correct the problems, cutting into output.

The growth hormone, known as bovine somatotropin and sold under the name Posilac, is used in 22 percent of the nation's dairy cows, according to a 2002 survey by the Department of Agriculture. Injected once every two weeks, the hormone can increase a cow's milk output by 10 percent to 15 percent, according to the company and to farmers.

The product, which has been sold in the United States since 1994, has not been approved in Canada and Europe, primarily because it can cause health problems in cows. The F.D.A. has said that milk from cows treated with the hormone is indistinguishable from milk from untreated cows.

The shortage of growth hormone could tighten supplies of milk a bit, and milk futures prices surged last week in response. Steven A. Larson, managing editor of Hoard's Dairyman, a trade publication, said, however, that the Posilac cutback "would be pretty far down the list" of factors determining milk supply.

Lloyd Holterman, a dairy farmer in Watertown, Wis., said that although the cutback would hurt his milk output, the rise in milk prices would offset that. "We like the high price, so I can't be totally negative," he said.

Monsanto, which is the only supplier of the hormone, told customers in December that it would cut supplies by 15 percent. But the company now says the manufacturing changes will have a greater effect on output than it initially thought.

Monsanto has shifted some production of the main ingredient to a new $180 million factory in Augusta, Ga., but that factory has not received approval to make the final product.

Monsanto, based in St. Louis, also told farmers last week that it was increasing the price of Posilac by 9 percent. It said the increase, the first for the product, was independent of the supply shortfall.

Andrew Kimbrell, executive director of the Center for Food Safety, a Washington group that has tried to have the hormone removed from the market, called the production cutbacks "good news for dairy cows and good news for consumers, though obviously a body blow to Monsanto."

But Kevin W. McCarthy, an analyst at Banc of America Securities, said Monsanto would not be hurt much because Posilac, even before the cutbacks, accounted for what he estimates at $250 million to $300 million in annual sales, or about 5 percent of the company's expected total this year.

"I don't think this is a business investors are particularly focused on, nor should they be," said Mr. McCarthy, whose firm has done investment banking for Monsanto. Monsanto does not break out sales of Posilac.