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MONSANTO COMPANY		2008 FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended Aug. 31, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-16167

(MONSANTO LOGO)

MONSANTO COMPANY

Exact name of registrant as specified in its charter


Delaware		43-1878297
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

800 North Lindbergh Blvd., St. Louis, Missouri		63167
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number including area code:		(314) 694-1000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock $0.01 par value		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X] No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One): Large Accelerated Filer [X] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (Feb. 29, 2008): approximately $64.0 billion.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 547,941,657 shares of common stock, $0.01 par value, outstanding at Oct. 20, 2008.

Documents Incorporated by Reference

Portions of Monsanto Company’s definitive proxy statement, which is expected to be filed with the Securities and Exchange Commission pursuant to Regulation 14A on or about Dec. 1, 2008, are incorporated herein by reference into Part III of this Annual Report on Form 10-K.



MONSANTO COMPANY		2008 FORM 10-K

INTRODUCTION

This Annual Report on Form 10-K is a document that U.S. public companies file with the Securities and Exchange Commission every year. Part II of the Form 10-K contains the business information and financial statements that many companies include in the financial sections of their annual reports. The other sections of this Form 10-K include further information about our business that we believe will be of interest to investors. We hope investors will find it useful to have all of this information in a single document.

The SEC allows us to report information in the Form 10-K by “incorporating by reference” from another part of the Form 10-K or from the proxy statement. You will see that information is “incorporated by reference” in various parts of our Form 10-K. The proxy statement will be available on our Web site after it is filed with the SEC in December 2008.

Monsanto was incorporated in Delaware on Feb. 9, 2000, as a subsidiary of Pharmacia Corporation. Monsanto includes the operations, assets and liabilities that were previously the agricultural business of Pharmacia. Pharmacia is now a subsidiary of Pfizer Inc.

“Monsanto,” “the company,” “we,” “our,” and “us” are used interchangeably to refer to Monsanto Company or to Monsanto Company and its subsidiaries, as appropriate to the context. With respect to the time period prior to Sept. 1, 2000, these defined terms also refer to the agricultural business of Pharmacia.

Unless otherwise indicated, trademarks owned or licensed by Monsanto or its subsidiaries are shown in special type. Unless otherwise indicated, references to “Roundup herbicides” mean Roundup branded herbicides, excluding all lawn-and-garden herbicides, and references to “Roundup and other glyphosate-based herbicides” exclude all lawn-and-garden herbicides.

Information in this Form 10-K is current as of Oct. 23, 2008, unless otherwise specified.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

In this report, and from time to time throughout the year, we share our expectations for our company’s future performance. These forward-looking statements include statements about our business plans; the potential development, regulatory approval, and public acceptance of our products; our expected financial performance, including sales performance, and the anticipated effect of our strategic actions; the anticipated benefits of recent acquisitions; the outcome of contingencies, such as litigation; domestic or international economic, political and market conditions; and other factors that could affect our future results of operations or financial position, including, without limitation, statements under the captions “Legal Proceedings,” “Overview — Executive Summary — Outlook,” “Seeds and Genomics Segment,” “Agricultural Productivity Segment,” “Financial Condition, Liquidity, and Capital Resources,” and “Outlook.” Any statements we make that are not matters of current reportage or historical fact should be considered forward-looking. Such statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” and similar expressions. By their nature, these types of statements are uncertain and are not guarantees of our future performance.

Our forward-looking statements represent our estimates and expectations at the time that we make them. However, circumstances change constantly, often unpredictably, and investors should not place undue reliance on these statements. Many events beyond our control will determine whether our expectations will be realized. We disclaim any current intention or obligation to revise or update any forward-looking statements, or the factors that may affect their realization, whether in light of new information, future events or otherwise, and investors should not rely on us to do so. In the interests of our investors, and in accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Part I. Item 1A. Risk Factors below explains some of the important reasons that actual results may be materially different from those that we anticipate.



MONSANTO COMPANY		2008 FORM 10-K

TABLE OF CONTENTS FOR FORM 10-K


PART I		Page

Item 1.	Business		5
	Seeds and Genomics Segment		5
	Agricultural Productivity Segment		7
	Research and Development		9
	Seasonality and Working Capital; Backlog		9
	Employee Relations		9
	Customers		9
	International Operations		9
	Segment and Geographic Data		9
Item 1A.	Risk Factors		9
Item 1B.	Unresolved Staff Comments		13
Item 2.	Properties		13
Item 3.	Legal Proceedings		13
Item 4.	Submission of Matters to a Vote of Security Holders		15

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		16
Item 6.	Selected Financial Data		18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Overview		19
	Results of Operations		22
	Seeds and Genomics Segment		25
	Agricultural Productivity Segment		27
	Financial Condition, Liquidity, and Capital Resources		29
	Outlook		35
	Critical Accounting Policies and Estimates		38
	New Accounting Standards		41
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 8.	Financial Statements and Supplementary Data		44
	Management Report		44
	Management’s Annual Report on Internal Control over Financial Reporting		45
	Reports of Independent Registered Public Accounting Firm		46
	Statements of Consolidated Operations		49
	Statements of Consolidated Financial Position		50
	Statements of Consolidated Cash Flows		51
	Statements of Consolidated Shareowners’ Equity		52
	Statements of Consolidated Comprehensive Income		53
	Notes to Consolidated Financial Statements		54
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		101
Item 9A.	Controls and Procedures		101
Item 9B.	Other Information		101
EX-10.20.5
EX-10.25
EX-10.27
EX-10.29
EX-12
EX-21
EX-23
EX-31.1
EX-31.2
EX-32

PART I

ITEM 1. BUSINESS

Monsanto Company, along with its subsidiaries, is a leading global provider of agricultural products for farmers. Our seeds, biotechnology trait products, and herbicides provide farmers with solutions that improve productivity, reduce the costs of farming, and produce better foods for consumers and better feed for animals.

We manage our business in two segments: Seeds and Genomics, and Agricultural Productivity. We view our Seeds and Genomics segment as the driver for future growth for our company. In 2008, we acquired the seed businesses De Ruiter Seeds Group, B.V. (De Ruiter) and Semillas Cristiani Burkard (Cristiani) to further this growth. Our Agricultural Productivity segment has enjoyed significant growth in the past year. We have announced plans to increase our production of glyphosate, the major product in that segment. In 2008, we also entered into an agreement to divest our animal agricultural products business (the Dairy business), which focuses on dairy cow productivity. It was previously part of the Agricultural Productivity segment. We determined that the Dairy business was no longer consistent with our strategic business goals. See Note 4 — Business Combinations for further details of these acquisitions and Note 27 — Discontinued Operations for further details of these divestitures.

We provide information about our business, including analyses, significant news releases, news releases and other supplemental information, on our Web site: www.monsanto.com. In addition, we make available through our Web site, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after they have been filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Forms 3, 4 and 5 filed with respect to our equity securities under Section 16(a) of the Exchange Act are also available on our site by the end of the business day after filing. All of these materials can be found under the “Investors” tab. Our Web site also includes the following corporate governance materials, under the tab “Corporate Responsibility”: our Code of Business Conduct, our Code of Ethics for Chief Executive and Senior Financial Officers, our Board of Directors’ Charter and Corporate Governance Guidelines, and charters of our Board committees. These materials are also available on paper. Any shareowner may request them by contacting the Office of the General Counsel, Monsanto Company, 800 N. Lindbergh Blvd., St. Louis, Missouri, 63167. Information on our Web site does not constitute part of this report.

A description of our business follows.

SEEDS AND GENOMICS SEGMENT

Through our Seeds and Genomics segment, we produce leading seed brands, including DEKALB, Asgrow, Deltapine, Seminis, and De Ruiter and we develop biotechnology traits that assist farmers in controlling insects and weeds. We also provide other seed companies with genetic material and biotechnology traits for their seed brands. Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) — Seeds and Genomics Segment — the tabular information about net sales of our seeds and traits, is incorporated herein by reference.


Major Products	Applications	Major Brands

Germplasm	Row crop seeds: Corn hybrids and foundation seed Soybean varieties and foundation seed Cotton varieties, hybrids and foundation seed Other row crop varieties and hybrids, such as canola Vegetable seeds: Open-field and protected-culture seed for tomato, pepper, eggplant, melon, cucumber, pumpkin, squash, beans, broccoli, onions, and lettuce, among others	DEKALB, Channel Bio for corn Asgrow for soybeans Deltapine for cotton Seminis, Royal Sluis, Asgrow, Petoseed, and De Ruiter for vegetable seeds

Biotechnology traits⁽¹⁾	Enable crops to protect themselves from borers and rootworm in corn, bollgard in cotton, reducing the need for applications of insecticides	YieldGard and YieldGard VT for corn; Bollgard and Bollgard II for cotton
	Enable crops, such as corn, soybeans, cotton, and canola to be tolerant of Roundup and other glyphosate-based herbicides	Roundup Ready and Roundup Ready 2 Yield (soybeans only)


⁽¹⁾		Monsanto also offers farmers stacked-trait products, single-seed products in which two or more traits are combined.



MONSANTO COMPANY		2008 FORM 10-K

Distribution of Products

We have a worldwide distribution and sales and marketing organization for our seeds and traits. We sell our products under Monsanto brands and license them to others for sale under their own brands. Through distributors, independent retailers and dealers, agricultural cooperatives, plant raisers, and agents, we market our DEKALB, Asgrow and Deltapine branded germplasm to farmers in every agricultural region of the world. In the United States, we market regional seed brands under our American Seeds, Inc. (ASI) business to farmers directly, as well as through dealers, agricultural cooperatives and agents. In countries where they are approved for sale, we market and sell our trait technologies with our branded germplasm, pursuant to license agreements with our farmer customers. In Brazil and Paraguay, we have implemented a point-of-delivery, grain-based payment system: We contract with grain handlers to collect applicable trait fees when farmers deliver their grain. In addition to selling our products under our own brands, we license a broad package of germplasm and trait technologies to large and small seed companies in the United States and certain international markets. Those seed companies in turn market our trait technologies in their branded germplasm; they may also market our germplasm under their own brand name. Our vegetable seeds are marketed in more than 100 countries through distributors, independent retailers and dealers, agricultural cooperatives, plant raisers and agents, as well as directly to farmers.

Competition

The global market for the products of our Seeds and Genomics segment is competitive. We expect the competition to intensify. Both our row crops and our vegetable seed businesses compete with numerous multinational agrichemical and seed marketers globally and with hundreds of smaller companies regionally. With the exception of competitors in our Seminis and De Ruiter vegetable seed business, most of our seed competitors are also licensees of our germplasm or biotechnology traits. In certain countries, we also compete with government-owned seed companies. Our biotechnology traits compete as a system with other practices, including the application of agricultural chemicals, and traits developed by other companies. Our weed- and insect-control systems compete with chemical and seed products produced by other agrichemical and seed marketers. Competition for the discovery of new traits based on biotechnology or genomics is likely to come from major global agrichemical companies, smaller biotechnology research companies and institutions, state-funded programs, and academic institutions. Enabling technologies to enhance biotechnology trait development may also come from academic researchers and biotechnology research companies. Farmers who save seed from one year to the next, in violation of license or other commercial terms, also affect competitive conditions.

Product performance (in particular, crop vigor and yield for our row crops and quality for our vegetable seeds), customer support and service, intellectual property protection, product availability and planning, and price are important elements of our market success in seeds. In addition, distributor, retailer and farmer relationships are important in the United States and many other countries. The primary factors underlying the competitive success of traits are performance and commercial viability; timeliness of introduction; value compared with other practices and products; market coverage; service provided to distributors, retailers and farmers; governmental approvals; value capture; public acceptance; and environmental characteristics.

Patents, Trademarks, and Licenses

In the United States and many foreign countries, we hold a broad portfolio of patents that provide intellectual property protection for our seeds and genomics-related products and processes. We routinely obtain patents and/or plant variety protection for our breeding technology, germplasm, commercial varietal seed products, and for the parents of our commercial hybrid seed products. We also routinely obtain registrations for our germplasm and commercial seed products in registration countries, such as Plant Variety Protection Act Certificates in the United States and equivalent plant breeders’ rights in other countries. Our insect-protection traits (including YieldGard Corn Borer and YieldGard Corn Rootworm traits in corn seed and Bollgard trait in cotton seed) are protected by patents that extend at least until 2011. Having filed patent applications in 2002 and 2001, we anticipate that the Bollgard II insect-protection trait will be patent-protected in the United States, and in other areas in which patent protection was sought, through 2022. Our herbicide-tolerant products (Roundup Ready traits in soybean, corn, canola and cotton seeds) are protected by U.S. patents that extend at least until 2014; our second-generation trait for cotton, Roundup Ready Flex, is protected by U.S. patents through 2025.

Monsanto broadly licenses technology and patents. We also hold licenses from other parties relating to certain products and processes. We have obtained licenses to protect certain technologies we use to produce Roundup Ready seeds and certain technologies relating to our pipeline products from claims that we are infringing the patents of others. These licenses last for the lifetimes of the applicable patents, after which the respective patented technologies will no longer be subject to the terms



MONSANTO COMPANY		2008 FORM 10-K

of the license. We have also obtained perpetual licenses to certain technologies contained in certain pipeline products such as SmartStax corn, which combines insect control traits with herbicide resistant traits. We hold numerous licenses in connection with our genomics program. For example, we hold a perpetual license to certain genomics technologies for use in plant agriculture, perpetual licenses to patents expiring from 2018 to 2023 for classes of proprietary genes for the development of commercial traits in crops, perpetual licenses to functional characterizations of our proprietary genes, and perpetual licenses to certain genomics sequences and certain genomics technologies.

We own trademark registrations, and we file trademark applications for the names and many of the designs we use on our branded products around the world. Important company trademarks include Roundup Ready, Bollgard, Bollgard II, YieldGard, YieldGard VT, Roundup Ready 2 Yield and SmartStax for traits; DEKALB, Asgrow, Deltapine, and Vistive for row crop seeds; and Seminis, De Ruiter, Royal Sluis, Asgrow, and Petoseed for vegetable seeds.

Raw Materials and Energy Resources

In growing locations throughout the world, we produce directly or contract with third-party growers for corn seed, soybean seed, vegetable seeds, cotton seed, canola seed and other seeds. The availability and cost of seed depends primarily on seed yields, weather conditions, farmer contract terms, commodity prices, and global supply and demand. We seek to manage commodity price fluctuations through the use of futures contracts and other hedging mechanisms. Where practicable, we attempt to minimize the weather risks by producing seed at multiple growing locations and under irrigated conditions. Our Seeds and Genomics segment also purchases the energy we need to produce our seed; these energy purchases are managed in conjunction with our Agricultural Productivity segment.

AGRICULTURAL PRODUCTIVITY SEGMENT

Through our Agricultural Productivity segment, we manufacture Roundup brand herbicides and other herbicides and provide lawn-and-garden herbicide products for the residential market. Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) —Agricultural Productivity Segment — the tabular information about net sales of Roundup and other glyphosate-based herbicides and other agricultural productivity products is incorporated by reference herein.


Major Products	Applications	Major Brands

Glyphosate-based herbicides	Nonselective agricultural, industrial, ornamental and turf applications for weed control	Roundup

Selective herbicides	Control of preemergent annual grass and small seeded broadleaf weeds in corn and other crops	Harness for corn

Lawn-and-garden herbicides	Residential lawn-and-garden applications for weed control	Roundup

Distribution of Products

We use the same worldwide distribution and sales and marketing organization for our crop protection products as for our seeds and traits. We sell our crop protection products through distributors, independent retailers and dealers and agricultural cooperatives. In some cases outside the United States, we sell such products directly to farmers. We also sell certain of the chemical intermediates of our crop protection products to other major agricultural chemical producers, who then market their own branded products to farmers. We market our lawn-and-garden herbicide products through The Scotts Miracle-Gro Company.

Competition

Our agricultural herbicide products have numerous major global competitors. Competition from local or regional companies may also be significant. Our lawn-and-garden business has fewer than five significant national competitors and a larger number of regional competitors in the United States. The largest market for our lawn-and-garden herbicides is the United States.

Competitive success in crop protection products depends on price, product performance, the scope of solutions offered to farmers, market coverage, product availability and planning, and the service provided to distributors, retailers and farmers.



MONSANTO COMPANY		2008 FORM 10-K

Our lawn-and-garden herbicides compete on product performance and the brand value associated with our trademark Roundup. For additional information on competition for our agricultural herbicides, see Item 7 — MD&A — Outlook — Agricultural Productivity, which is incorporated by reference herein.

Patents, Trademarks, Licenses, Franchises and Concessions

The intellectual property protection portfolio for our Agricultural Productivity segment is less broad in scope than the portfolio for our Seeds and Genomics segment. Patents protecting glyphosate, an active ingredient in Roundup herbicides, have expired in the United States and all other countries. However, some of the patents on our glyphosate formulations and manufacturing processes in the United States and other countries extend beyond 2015. We have obtained perpetual licenses to chemicals used to make Harness herbicides, and we hold trademark registrations for the brands under which our chemistries are sold. The most significant trademark in this segment is Roundup.

We hold (directly or by assignment) numerous phosphate leases issued on behalf of or granted by the U.S. government, the state of Idaho, and private parties. None of these leases is material individually, but they are significant in the aggregate because elemental phosphorus is a key raw material for the production of glyphosate-based herbicides. The phosphate leases have varying terms. The leases obtained from the U.S. government are of indefinite duration, subject to the modification of lease terms at 20-year intervals.

Environmental Matters

Our operations are subject to environmental laws and regulations in the jurisdictions in which we operate. Some of these laws restrict the amount and type of emissions that our operations can release into the environment. Other laws, such as the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. (Superfund), can impose liability for the entire cost of cleanup on any former or current site owners or operators or any parties who sent waste to these sites, without regard to fault or to the lawfulness of the original disposal. These laws and regulations may be amended from time to time; they may become more stringent. We are committed to long-term environmental protection and compliance programs that reduce and monitor emissions of hazardous materials into the environment, and to the remediation of identified existing environmental concerns. In accord with a consent order with the state of Idaho, we have embarked on a multiyear program to reduce certain air emissions from our facility at Soda Springs, Idaho. Although the costs of our compliance with environmental laws and regulations cannot be predicted with certainty, such costs are not expected to have a material adverse effect on our earnings or competitive position. In addition to compliance obligations at our own manufacturing locations and off-site disposal facilities, under the terms of our Sept. 1, 2000, Separation Agreement with Pharmacia (the Separation Agreement), we are required to indemnify Pharmacia for any liability it may have for environmental remediation or other environmental responsibilities that are primarily related to Pharmacia’s former agricultural and chemicals businesses. For information regarding certain environmental proceedings, see Item 3 — Legal Proceedings. See also information regarding remediation of waste disposal sites and reserves for remediation, appearing in Note 23 — Commitments and Contingencies, which is incorporated herein by reference.

Raw Materials and Energy Resources

We are a significant purchaser of basic and intermediate raw materials. Typically, we purchase major raw materials and energy through long-term contracts. We buy our raw materials from a number of suppliers; only a few major suppliers provide us with certain important raw materials. The markets for our raw materials are balanced and are expected to remain so. Although some additional capacity does exist, pricing is substantially higher today than under existing contracts. Energy is available as required, but pricing is subject to market fluctuations.

At various sites globally, two major manufacturers use our proprietary technology to make the catalysts used in various intermediate steps in the production of glyphosate. These suppliers have additional capacity at other manufacturing locations. We manufacture and purchase disodium iminodiacetic acid, a key ingredient in the production of glyphosate. We manufacture most of our global supply of elemental phosphorus, a key raw material for the production of Roundup herbicides, and we purchase the remainder through a third-party supplier. We have multiple mineral rights which provide a long term feed stock of phosphate ore to meet our needs into the foreseeable future, including numerous leases for phosphate ore reserves. As part of the ongoing course of operating our phosphorus production, we are required to periodically permit new mining leases. A new mine is currently in the process of being permitted with the U.S. Bureau of Land Management.



MONSANTO COMPANY		2008 FORM 10-K

RESEARCH AND DEVELOPMENT

Monsanto’s expenses for research and development were $980 million in 2008, $770 million in 2007, and $700 million in 2006. In addition, we incurred charges of $164 million in 2008 and $193 million in 2007 for acquired in-process research and development (IPR&D) related to acquisitions. See Note 4 — Business Combinations — for additional information regarding these acquisitions.

SEASONALITY AND WORKING CAPITAL; BACKLOG

For information on seasonality and working capital and backlog practices, see information in Item 7 — MD&A — Financial Condition, Liquidity, and Capital Resources, which is incorporated herein by reference.

EMPLOYEE RELATIONS

As of Aug. 31, 2008, we employed about 21,700 regular employees worldwide and more than 4,700 temporary employees. The number of temporary employees varies greatly during the year because of the seasonal nature of our business. We believe that relations between Monsanto and its employees are satisfactory.

CUSTOMERS

Although no single customer (including affiliates) represented more than 10 percent of our consolidated worldwide net sales in 2008, our three largest U.S. agricultural distributors and their affiliates represented, in the aggregate, 16 percent of our worldwide net sales and 32 percent of our U.S. net sales. During 2008, one major U.S. distributor and its affiliates represented about 8 percent of the worldwide net sales for our Seeds and Genomics segment, and about 9 percent of the worldwide net sales for our Agricultural Productivity segment.

INTERNATIONAL OPERATIONS

See Item 1A under the heading “Our operations outside the United States are subject to special risks and restrictions, which could negatively affect our results of operations and profitability” and Note 24 — Segment and Geographic Data, which are incorporated herein by reference. Approximately 50 percent of Monsanto’s sales, including 40 percent of our Seeds and Genomics segment’s sales and 63 percent of our Agricultural Productivity segment’s sales, originated from our legal entities outside the United States during fiscal year 2008.

SEGMENT AND GEOGRAPHIC DATA

For information on segment and geographic data, see Item 8 — Financial Statements and Supplementary Data — Note 24 — Segment and Geographic Data, which is incorporated by reference herein.

ITEM 1A. RISK FACTORS

Competition in seeds and traits and agricultural chemicals has significantly affected, and will continue to affect, our sales.

Many companies engage in plant biotechnology and breeding research and agricultural chemicals, and speed in getting a new product to market can be a significant competitive advantage. Our competitors’ success could render our existing products less competitive, resulting in reduced sales compared to our expectations or past results. We expect to see increasing competition from agricultural biotechnology firms and from major agrichemical, seed and food companies. We also expect to face continued competition for our Roundup herbicides and selective herbicides product lines. The extent to which we can realize cash and gross profit from these products will depend on our ability to: control manufacturing and



MONSANTO COMPANY		2008 FORM 10-K

marketing costs without adversely affecting sales; predict and respond effectively to competitor pricing and marketing; provide marketing programs meeting the needs of our customers and of the farmers who are our end users; maintain an efficient distribution system; and develop new products with features attractive to our end users.

Efforts to protect our intellectual property rights and to defend claims against us can increase our costs and will not always succeed; any failures could adversely affect sales and profitability or restrict our ability to do business.

Intellectual property rights are crucial to our business, particularly our Seeds and Genomics segment. We endeavor to obtain and protect our intellectual property rights in jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported. However, we may be unable to obtain protection for our intellectual property in key jurisdictions. Even if protection is obtained, competitors, farmers, or others in the chain of commerce may raise legal challenges to our rights or illegally infringe on our rights, including through means that may be difficult to prevent or detect. For example, the practice by some farmers of saving seeds from non-hybrid crops (such as soybeans, canola and cotton) containing our biotechnology traits has prevented and may continue to prevent us from realizing the full value of our intellectual property, particularly outside the United States. In addition, because of the rapid pace of technological change, and the confidentiality of patent applications in some jurisdictions, competitors may be issued patents from applications that were unknown to us prior to issuance. These patents could reduce the value of our commercial or pipeline products or, to the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses or cease using the technology, no matter how valuable to our business. We cannot assure we would be able to obtain such a license on acceptable terms. The extent to which we succeed or fail in our efforts to protect our intellectual property will affect our costs, sales and other results of operations.

We are subject to extensive regulation affecting our seed biotechnology and agricultural products and our research and manufacturing processes, which affects our sales and profitability.

Regulatory and legislative requirements affect the development, manufacture and distribution of our products, including the testing and planting of seeds containing our biotechnology traits and the import of crops grown from those seeds, and non-compliance can harm our sales and profitability. Obtaining permits for mining or production or testing, planting and import approvals for seeds or biotechnology traits can be time-consuming and costly, with no guarantee of success. The failure to receive necessary permits or approvals could have near-and long-term effects on our ability to sell some current and future products. Planting approvals may also include significant regulatory requirements that can limit our sales. Sales of our traits can be affected in jurisdictions where planting has been approved if we have not received approval for the import of crops containing biotechnology traits into key markets. Concern about unintended but unavoidable trace amounts (sometimes called “adventitious presence”) of commercial biotechnology traits in conventional (non-biotechnology) seed, or in the grain or products produced from conventional or organic crops, among other things, could lead to increased regulation or legislation, which may include: liability transfer mechanisms that may include financial protection insurance; possible restrictions or moratoria on testing, planting or use of biotechnology traits; and requirements for labeling and traceability, which requirements may cause food processors and food companies to avoid biotechnology and select non-biotechnology crop sources and can affect farmer seed purchase decisions and the sale of our products. Further, the detection of adventitious presence of traits not approved in the importing country may result in the withdrawal of seed lots from sale or in compliance actions, such as crop destruction or product recalls. Legislation encouraging or discouraging the planting of specific crops can also harm our sales. In addition, claims that increased use of glyphosate-based herbicides or biotechnology traits increases the potential for the development of glyphosate-resistant weeds or pests resistant to our traits could result in restrictions on the use of glyphosate-based herbicides or seeds containing our traits or otherwise reduce our sales.

The degree of public acceptance or perceived public acceptance of our biotechnology products can affect our sales and results of operations by affecting planting approvals, regulatory requirements and customer purchase decisions.

Although all of our products go through rigorous testing, some opponents of our technology actively raise public concern about the potential for adverse effects of our products on human or animal health, other plants and the environment. The potential for adventitious presence of commercial biotechnology traits in conventional seed, or in the grain or products produced from conventional or organic crops, is another factor that can affect general public acceptance of these traits. Public concern can affect the timing of, and whether we are able to obtain, government approvals. Even after approvals are granted, public concern may lead to increased regulation or legislation, which could affect our sales and profitability, and may adversely affect sales of our products to farmers, due to their concerns about available markets for the sale of



MONSANTO COMPANY		2008 FORM 10-K

crops or other products derived from biotechnology. In addition, opponents of agricultural biotechnology have attacked farmers’ fields and facilities used by agricultural biotechnology companies, and may launch future attacks against farmers’ fields and our field testing sites and research, production, or other facilities, which could affect our sales and our costs.

The successful development and commercialization of our pipeline products will be necessary for our growth.

We use advanced breeding technologies to produce hybrids and varieties with superior performance in the farmer’s field, and we use biotechnology to introduce traits that enhance specific characteristics of our crops. The processes of breeding, biotechnology trait discovery and development and trait integration are lengthy, and a very small percentage of the genes and germplasm we test is selected for commercialization. There are a number of reasons why a new product concept may be abandoned, including greater than anticipated development costs, technical difficulties, regulatory obstacles, competition, inability to prove the original concept, lack of demand, and the need to divert focus, from time to time, to other initiatives with perceived opportunities for better returns. The length of time and the risk associated with the breeding and biotech pipelines are similar and interlinked because both are required as a package for commercial success in markets where biotech traits are approved for growers. In countries where biotech traits are not approved for widespread use, our sales depend on our germplasm. Commercial success frequently depends on being the first company to the market, and many of our competitors are also making considerable investments in similar new biotechnology or improved germplasm products. Consequently, if we are not able to fund extensive research and development activities and deliver new products to the markets we serve on a timely basis, our growth and operations will be harmed.

Adverse outcomes in legal proceedings could subject us to substantial damages and adversely affect our results of operations and profitability.

We are involved in major lawsuits concerning intellectual property, biotechnology, torts, contracts, antitrust allegations, employee benefits, and other matters, as well as governmental inquiries and investigations, the outcomes of which may be significant to results of operations in the period recognized or limit our ability to engage in our business activities. While we have insurance related to our business operations, it may not apply to or fully cover any liabilities we incur as a result of these lawsuits. In addition, pursuant to the Separation Agreement, we are required to indemnify Pharmacia for certain liabilities related to its former chemical and agricultural businesses. We have recorded reserves for potential liabilities where we believe the liability to be probable and reasonably estimable. However, our actual costs may be materially different from this estimate. The degree to which we may ultimately be responsible for the particular matters reflected in the reserve is uncertain.

Our operations outside the United States are subject to special risks and restrictions, which could negatively affect our results of operations and profitability.

We engage in manufacturing, seed production, research and development, and sales in many parts of the world. Although we have operations in virtually every region, our sales outside the United States in fiscal year 2008 were principally to customers in Brazil, Argentina, Canada, Mexico and France. Accordingly, developments in those parts of the world generally have a more significant effect on our operations than developments in other places. Our operations outside the United States are subject to special risks and restrictions, including: fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad. Acts of terror or war may impair our ability to operate in particular countries or regions, and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell their commodity at prevailing international prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates may affect our net income, the book value of our assets outside the United States, and our shareowners’ equity.

In the event of any diversion of management’s attention to matters related to acquisitions or any delays or difficulties encountered in connection with integrating acquired operations, our business, and in particular our results of operations and financial condition, may be harmed.



MONSANTO COMPANY		2008 FORM 10-K

We have recently completed the acquisitions of the De Ruiter and Cristiani seed businesses, and we expect to make additional acquisitions. We must fit such acquisitions into our long-term growth strategies to generate sufficient value to justify their cost. Acquisitions also present other challenges, including geographical coordination, personnel integration and retention of key management personnel, systems integration and the reconciliation of corporate cultures. Those operations could divert management’s attention from our business or cause a temporary interruption of or loss of momentum in our business and the loss of key personnel from the acquired companies.

Fluctuations in commodity prices can increase our costs and decrease our sales.

We contract production with multiple growers at fair value and retain the seed in inventory until it is sold. These purchases constitute a significant portion of the manufacturing costs for our seeds. Additionally, our chemical manufacturing operations use chemical intermediates and energy, which are subject to increases in price as the costs of oil and natural gas increase. Accordingly, increases in commodity prices may negatively affect our cost of goods sold or cause us to increase seed or chemical prices, which could adversely affect our sales. We use hedging strategies, and most of our raw material supply agreements contain escalation factors, designed to mitigate the risk of short-term changes in commodity prices. However, we are unable to avoid the risk of medium- and long-term increases. Farmers’ incomes are also affected by commodity prices; as a result, commodity prices could have a negative effect on their ability to purchase our seed and chemical products.

Compliance with quality controls and regulations affecting our manufacturing may be costly, and failure to comply may result in decreased sales, penalties and remediation obligations.

Because we use hazardous and other regulated materials in our chemical manufacturing processes and engage in mining operations, we are subject to risks of accidental environmental contamination, and therefore to potential personal injury claims, remediation expenses and penalties. Should a catastrophic event occur at any of our facilities, we could face significant reconstruction or remediation costs, penalties, third party liability and loss of production capacity, which could affect our sales. In addition, lapses in quality or other manufacturing controls could affect our sales and result in claims for defective products. We perform extensive third party audits and maintain a rigorous Process Safety Management program to reduce this risk.

Our ability to match our production to the level of product demanded by farmers or our licensed customers has a significant effect on our sales, costs, and growth potential.

Farmers’ decisions are affected by market, economic and weather conditions that are not known in advance. Failure to provide distributors with enough inventories of our products will reduce our current sales. However, product inventory levels at our distributors may reduce sales in future periods, as those distributor inventories are worked down. In addition, inadequate distributor liquidity could affect distributors’ ability to pay for our products and, therefore, affect our sales or our ability to collect on our receivables. With demand for our glyphosate products increasing in recent years, we are producing near capacity and have low inventories. While we have implemented plans to increase our glyphosate production capacity, we also expect in future years to need additional sources of phosphorus.

Our ability to issue short-term debt to fund our cash flow requirements and the cost of such debt may affect our financial condition.

We regularly extend credit to our customers in certain areas of the world so that they can buy agricultural products at the beginning of their growing seasons. Because of these credit practices and the seasonality of our sales, we may need to issue short-term debt at certain times of the year to fund our cash flow requirements. The amount of short-term debt will be greater to the extent that we are unable to collect customer receivables when due, to repatriate funds from operations outside the United States, and to manage our costs and expenses. Any downgrade in our credit rating, or other limitation on our access to short-term financing or refinancing, such would increase our interest cost and adversely affect our profitability. In addition, under current market conditions, we may find our ability to access the commercial paper market limited in terms of amount or duration. However, given our current cash position and expectations for our business, we currently anticipate no need, or only a limited need, to access the commercial paper market during 2009.

Weather, natural disasters and accidents may significantly affect our results of operations and financial condition.



MONSANTO COMPANY		2008 FORM 10-K

Weather conditions and natural disasters can affect the timing of planting and the acreage planted, as well as yields and commodity prices. In turn, the quality, cost and volumes of the seed that we are able to produce and sell will be affected, which will affect our sales and profitability. Natural disasters or industrial accidents could also affect our manufacturing facilities, or those of our major suppliers or major customers, which could affect our costs and our ability to meet supply. One of our major U.S. glyphosate manufacturing facilities is located in Luling, Louisiana, which is an area subject to hurricanes.

ITEM 1B. UNRESOLVED STAFF COMMENTS

At Aug. 31, 2008, there were no unresolved comments from the staff of the SEC related to our periodic or current reports under the
Exchange Act.

ITEM 2. PROPERTIES

We and our subsidiaries own or lease manufacturing facilities, laboratories, seed production and other agricultural facilities, office space, warehouses, and other land parcels in North America, South America, Europe, Asia, Australia, and Africa. Our general offices, which we own, are located in St. Louis County, Missouri. We lease additional research facilities from Pfizer at Chesterfield Village in St. Louis County. These office and research facilities are principal properties.

Additional principal properties used by the Seeds and Genomics segment include seed conditioning plants at Boone, Iowa; Constantine, Michigan; Enkhuizen, Netherlands; Grinnell, Iowa; Illiopolis, Illinois; Kearney, Nebraska; Oxnard, California; Peyrehorade, France; Rojas, Argentina; Sinesti, Romania; Trèbes, France; Uberlândia, Brazil; and Waterman, Illinois; and research sites at Ankeny, Iowa; Maui, Hawaii; Middleton, Wisconsin; Mystic, Connecticut; and Woodland, California. We own all of these properties, except the one in Maui. The Seeds and Genomics segment also uses seed foundation and production facilities, breeding facilities, and genomics and other research laboratories at various locations worldwide.

The Agricultural Productivity segment has principal chemicals manufacturing facilities at Antwerp, Belgium; Camaçari, Brazil; Luling, Louisiana; Muscatine, Iowa; São José dos Campos, Brazil; Soda Springs, Idaho; and Zárate, Argentina. We own all of these properties, except the one in Antwerp, Belgium, which is subject to a lease for the land underlying the facility. In connection with Solutia’s exit from bankruptcy protection in 2008, we agreed to transfer ownership of our manufacturing facility in Alvin, Texas, to Solutia, which owns the site and will continue to manufacture an intermediate we use in the production of glyphosate there. In connection with the sale of the Dairy business, we have sold the Augusta, Georgia, facility.

We believe that our principal properties are suitable and adequate for their use. Our facilities generally have sufficient capacity for our existing needs and expected near-term growth. Expansion projects are undertaken as necessary to meet future needs. In particular, we have undertaken significant multiyear projects to expand our corn production facilities in North America in anticipation of increased demand for our corn seed and to implement process improvements at our Luling, Louisiana, glyphosate facility to increase capacity there. We expect to complete these projects in 2010. Use of these facilities may vary with seasonal, economic and other business conditions, but none of the principal properties is substantially idle. In certain instances, we have leased to third parties portions of sites not required for current operations.

ITEM 3. LEGAL PROCEEDINGS

We are involved in various legal proceedings that arise in the ordinary course of our business, as well as proceedings that we have considered to be material under SEC regulations. These include proceedings to which we are party in our own name and proceedings to which our former parent Pharmacia Corporation or its former subsidiary Solutia Inc. is a party but that we manage and for which we are responsible. We believe we have meritorious legal arguments and will continue to represent our interests vigorously in all of the proceedings that we are defending or prosecuting. Information regarding certain material proceedings and the possible effects on our business of proceedings we are defending is disclosed in Note 23 under the subheading “Environmental and Litigation-related Contingent Liabilities — Litigation” and is incorporated by reference herein. Following is information regarding other material proceedings for which we are responsible.



MONSANTO COMPANY		2008 FORM 10-K

Patent and Commercial Proceedings

Starting the week of March 7, 2004, a series of purported class action cases were filed in 14 different state courts against Pioneer Hi-Bred International, Inc. and us. The suits allege that we conspired with Pioneer to violate various state competition and consumer protection laws by fixing and artificially inflating the prices and fees for our various biotechnology traits and seeds containing those traits and imposing certain use restrictions. All of these cases have been transferred to the U.S. District Court for the Eastern District of Missouri and consolidated, except for one case that was pending in state court in Tennessee, which has been dismissed. On May 27, 2008, the Court entered a scheduling order setting dates for class related discovery and requiring the plaintiffs to file their motion for class certification by April 30, 2009. No date is set for the class certification hearing.

Two purported class action suits were filed against us on Sept. 26, 2006, supposedly on behalf of all farmers who purchased our Roundup brand herbicides in the United States for commercial agricultural purposes since Sept. 26, 2002. Plaintiffs essentially allege that we have monopolized the market for glyphosate for commercial agricultural purposes. Plaintiffs seek an unspecified amount of damages and injunctive relief. In late February 2007, three additional suits were filed, alleging similar claims. All of these suits were filed in the U.S. District Court for the District of Delaware. On July 18, 2007, the court ruled that any such suit had to be filed in federal or state court in Missouri; the court granted our motion to dismiss the two original cases. On Aug. 8, 2007, plaintiffs in the remaining three cases voluntarily dismissed their complaints, which have not been re-filed. On Aug. 10, 2007, the same set of counsel filed a parallel action in federal court in San Antonio, Texas, on behalf of a retailer of glyphosate named Texas Grain. Plaintiffs seek to certify a national class of all entities that purchased glyphosate directly from us since August 2003. In the most recent court scheduling order, the court has indicated it will set a hearing on plaintiff’s motion to certify a class. We expect that this hearing will occur in March 2009.

Governmental Proceedings and Undertakings

On Oct. 20, 2004, the U.S. Environmental Protection Agency (EPA) issued a Notice of Violation to us, alleging violations of federal and state hazardous waste management regulations at our phosphorus manufacturing plant in Soda Springs, Idaho. The EPA has asserted that the alleged violations may subject us to civil penalties. We are working with the EPA to resolve this matter.

On Sept. 17, 2007, the EPA issued a Notice of Violation to us, alleging violations of the Clean Water Act at the South Rasmussen Mine near Soda Springs, Idaho. The EPA has asserted that the alleged violations may subject us to civil penalties. We are working with the EPA to reach a resolution of this matter.

On April 18, 2005, we received a subpoena from the Illinois Attorney General for the production of documents relating to the prices and terms upon which we license technology for genetically modified seeds, and upon which we sell or license genetically modified seeds to farmers. We are cooperating with the production of the requested materials.

On Sept. 4, 2007, we received a civil investigative demand from the Iowa Attorney General seeking information regarding the production and marketing of glyphosate and the development, production, marketing, or licensing of soybean, corn, or cotton germplasm containing transgenic traits. We are cooperating with the production of the requested materials. Iowa is coordinating with several other states that are also interested in receiving the requested materials.

We have reported to EPA that in prior years sales and planting of our Bollgard and Bollgard II cotton products occurred in ten Texas counties where the registrations had included relevant restrictions. The EPA has asserted that the resulting sales and planting may subject us to civil penalties. We are working with the EPA to reach a resolution of this matter.

On Dec. 2, 2005, the Federal Revenue Service of the Ministry of Finance of Brazil issued a tax assessment against our wholly owned subsidiary, Monsanto do Brasil Ltda., challenging the tax treatment of $575 million of notes issued in 1998 on the basis that the transactions involving the notes represented contributions to the capital of Monsanto do Brasil rather than funding through issuance of notes. The assessment denies tax deductions for approximately $879 million (subject to currency exchange rates) of interest expense and currency exchange losses that were claimed by Monsanto do Brasil under the notes. The assessment seeks payment of approximately $158 million (subject to currency exchange rates) of tax, penalties and interest related to the notes, and would preclude Monsanto do Brasil from using a net operating loss carryforward of approximately $767 million (subject to currency exchange rates). The issuance of the notes was properly registered with the Central Bank of Brazil and we believe that there is no basis in law for this tax assessment. On Dec. 29, 2005, Monsanto do Brasil filed an appeal of this assessment with the Federal Revenue Service. Under the terms of a tax sharing agreement



MONSANTO COMPANY		2008 FORM 10-K

PART II


ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Monsanto’s common stock is traded principally on the New York Stock Exchange, under the symbol MON. The number of shareowners of record as of Oct. 20, 2008, was 45,153.

On June 27, 2006, the board of directors approved a two-for-one split of the company’s common shares. The additional shares resulting from the stock split were paid on July 28, 2006, to shareowners of record on July 7, 2006. All share and per share information herein reflects this stock split.

The original dividend rate adopted by the board of directors following the initial public offering (IPO) in October 2000 was $0.06. The board of directors increased the company’s quarterly dividend rate in April 2003 to $0.065, in May 2004 to $0.0725, in December 2004 to $0.085, in December 2005 to $0.10, in December 2006 to $0.125, in August 2007 to $0.175, and in June 2008 to $0.24.

The following table sets forth dividend declarations, as well as the high and low sales prices for Monsanto’s common stock, for the fiscal year 2008 and 2007 quarters indicated.



	1st		2nd			3rd		4th			Fiscal
Dividends per Share	Quarter		Quarter			Quarter		Quarter			Year

2008	$	—	$	0.35	⁽¹⁾	$	—	$	0.48	⁽¹⁾	$	0.83

2007	$	—	$	0.25	⁽²⁾	$	—	$	0.30	⁽²⁾	$	0.55



		1st		2nd		3rd		4th		Fiscal
Common Stock Price		Quarter		Quarter		Quarter		Quarter		Year

2008	High	$	100.25	$	129.28	$	132.36	$	145.80	$	145.80
	Low		69.22		93.22		90.50		103.50		69.22

2007	High	$	49.44	$	57.08	$	63.90	$	70.88	$	70.88
	Low		42.75		47.12		50.01		58.50		42.75


⁽¹⁾		During the period from Dec. 1, 2007, through Feb. 29, 2008, Monsanto declared two dividends, $0.175 per share on Dec. 11, 2007, and $0.175 per share on Jan. 16, 2008. During the period from June 1, 2008, through Aug. 31, 2008, Monsanto declared two dividends, $0.24 per share on June 18, 2008, and $0.24 per share on Aug. 6, 2008.

⁽²⁾		During the period from Dec. 1, 2006, through Feb. 28, 2007, Monsanto declared two dividends, $0.125 per share on Dec. 12, 2006, and $0.125 per share on Jan. 17, 2007. During the period from June 1, 2007, through Aug. 31, 2007, Monsanto declared two dividends, $0.125 per share on June 15, 2007, and $0.175 per share on Aug. 7, 2007.

Issuer Purchases of Equity Securities

The following table summarizes purchases of equity securities during the fourth quarter of fiscal year 2008 by Monsanto and affiliated purchasers, pursuant to SEC rules.

(c) Total Number of Shares

(d) Approximate Dollar

Purchased as Part of

Value of Shares That May

(a) Total Number of

(b) Average Price Paid

Publicly Announced Plans

Yet Be Purchased Under

Period

Shares Purchased

per Share⁽¹⁾

or Programs

the Plans or Programs

June 2008:

June 1, 2008, through June 30, 2008

91,958

⁽²⁾

137.04

90,900

1,133,198,973

July 2008:

July 1, 2008, through July 31, 2008

—

1,133,198,973

August 2008:

Aug. 1, 2008, through Aug. 31, 2008

1,837,721

⁽³⁾

111.10

1,834,800

929,340,118

Total

1,929,679

112.34

1,925,700

929,340,118


⁽¹⁾		The average price paid per share is calculated on a settlement basis and excludes commission.

⁽²⁾		Includes 1,058 shares withheld to cover the withholding taxes upon the vesting of restricted stock.

⁽³⁾		Includes 2,921 shares withheld to cover the withholding taxes upon the vesting of restricted stock.



MONSANTO COMPANY		2008 FORM 10-K

On Oct. 25, 2005, the board of directors authorized the purchase of up to $800 million of the company’s common stock over a four-year period. The plan expires on Oct. 25, 2009. In April 2008, the board of directors authorized a new repurchase program of up to an additional $800 million of the company’s common stock over a three-year period. This repurchase program will commence at the time the company’s current share repurchase program is completed or Oct. 25, 2009, whichever is earlier. The second plan expires on April 16, 2011. There were no other publicly announced plans outstanding as of Aug. 31, 2008.

Stock Price Performance Graph

The graph below compares the performance of Monsanto’s common stock with the performance of the Standard & Poor’s 500 Stock Index (a broad-based market index) and a peer group index over a 60-month period extending through the end of the 2008 fiscal year. The graph assumes that $100 was invested on Sept. 1, 2003, in our common stock, in the Standard & Poor’s 500 Stock Index and the peer group index, and that all dividends were reinvested.

Because we are involved both in the agricultural products business and in the seeds and genomics business, no published peer group accurately mirrors our portfolio of businesses. Accordingly, we created a peer group index that includes Bayer AG ADR, Dow Chemical Company, DuPont (E.I.) de Nemours and Company, BASF AG and Syngenta AG. The Standard & Poor’s 500 Stock Index and the peer group index are included for comparative purposes only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of the stock involved, and they are not intended to forecast or be indicative of possible future performance of our common stock.

In accordance with the rules of the SEC, the information contained in the Stock Price Performance Graph on this page shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to the SEC’s Regulation 14A, or to the liabilities of Section 18 of the Exchange Act, except to the extent that Monsanto specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act, or the Exchange Act.



MONSANTO COMPANY		2008 FORM 10-K

ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA


	Year Ended Aug. 31,
(Dollars in millions, except per share amounts)	2008			2007			2006			2005			2004

Operating Results:
Net sales⁽¹⁾	$	11,365		$	8,349		$	7,065		$	6,085		$	5,239
Income from operations		2,721			1,409			1,139			746			530
Income from continuing operations		2,007			913			671			173			213
Income on discontinued operations⁽²⁾		17			80			24			82			54
Cumulative effect of a change in accounting principle, net of tax benefit⁽³⁾		—			—			(6	)		—			—
Net income		2,024			993			689			255			267
Basic Earnings (Loss) per Share⁽⁴⁾:
Income from continuing operations	$	3.66		$	1.68		$	1.24		$	0.32		$	0.40
Income on discontinued operations⁽²⁾		0.03			0.15			0.05			0.16			0.10
Cumulative effect of accounting change⁽³⁾		—			—			(0.01	)		—			—
Net income		3.69			1.83			1.28			0.48			0.50
Diluted Earnings (Loss) per Share⁽⁴⁾:
Income from continuing operations	$	3.59		$	1.65		$	1.22		$	0.32		$	0.40
Income on discontinued operations⁽²⁾		0.03			0.14			0.04			0.15			0.10
Cumulative effect of accounting change⁽³⁾		—			—			(0.01	)		—			—
Net income		3.62			1.79			1.25			0.47			0.50
Financial Position at end of Period:
Total assets	$	17,991		$	12,983		$	11,728		$	10,579		$	9,164
Working capital⁽⁵⁾		3,170			2,009			3,182			2,485			3,037
Current ratio⁽⁵⁾		1.71:1			1.65:1			2.40:1			2.15:1			2.60:1
Long-term debt		1,792			1,150			1,639			1,458			1,075
Debt-to-capital ratio⁽⁶⁾		16	%		16	%		20	%		22	%		21	%
Other Data⁽⁴⁾:
Dividends per share	$	0.83		$	0.55		$	0.40		$	0.34		$	0.34
Stock price per share:
High	$	145.80		$	70.88		$	47.58		$	34.62		$	19.25
Low	$	69.22		$	42.75		$	27.80		$	17.08		$	11.54
End of period	$	114.25		$	69.74		$	47.44		$	31.92		$	18.30
Basic shares outstanding		548.1			544.1			540.0			533.6			528.8
Diluted shares outstanding		559.3			555.0			551.6			545.3			538.4

See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — for information regarding the factors that have affected or may affect the comparability of our business results.


⁽¹⁾		In 2005, Monsanto acquired Channel Bio Corp., and the North American canola seed businesses of Advanta Seeds. In 2005, Monsanto completed three acquisitions: Seminis Inc., Stoneville, and NC+ Hybrids Inc. In 2006 and 2007, ASI acquired several regional seed companies. In 2007, Monsanto acquired Delta and Pine Land Company (DPL) and divested the Stoneville^® and NexGen^® cotton seed brands and related business assets. In 2008, Monsanto acquired De Ruiter, Cristiani, and Agroeste and entered into an agreement to divest the Dairy business. See Note 4 — Business Combinations for further details of these acquisitions and Note 27 — Discontinued Operations for further details of these divestitures.

⁽²⁾		In 2008, we entered into an agreement to sell the Dairy business. In 2007, we sold the Stoneville and NexGen businesses as part of the U.S. Department of Justice (DOJ) approval for the acquisition of DPL. In 2005, Monsanto sold substantially all of the environmental technologies businesses. In 2004, Monsanto discontinued the plant-made pharmaceuticals program and finalized the sale of assets associated with the company’s European wheat and barley business. Accordingly, these businesses have been presented as discontinued operations in the Statements of Consolidated Operations for all periods presented above. In 2006, Monsanto recorded an additional write-down of $3 million aftertax related to the remaining assets associated with the environmental technologies businesses. See Note 27 — Discontinued Operations for further details of these pending and completed dispositions.

⁽³⁾		In 2006, Monsanto adopted Financial Accounting Standards Board (FASB) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143. In connection with the adoption of this new accounting guidance, Monsanto recorded a cumulative effect of accounting change of $6 million aftertax.

⁽⁴⁾		For all periods presented, the share and per share amounts (including stock price) reflect the effect of the two-for-one stock split (in the form of a 100 percent stock dividend) that was completed on July 28, 2006.

⁽⁵⁾		Working capital is total current assets less total current liabilities; current ratio represents total current assets divided by total current liabilities.

⁽⁶⁾		Debt-to-capital ratio is the sum of short-term and long-term debt, divided by the sum of short-term and long-term debt and shareowners’ equity.



MONSANTO COMPANY		2008 FORM 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Background

We manage our business in two segments: Seeds and Genomics and Agricultural Productivity. Through our Seeds and Genomics segment, we produce leading seed brands, including DEKALB, Asgrow, Deltapine, Seminis and De Ruiter, and we develop biotechnology traits that assist farmers in controlling insects and weeds. We also provide other seed companies with genetic material and biotechnology traits for their seed brands. Through our Agricultural Productivity segment, we manufacture Roundup brand herbicides and other herbicides and provide lawn-and-garden herbicide products for the residential market. Approximately 50 percent of our total company sales, 40 percent of our Seeds and Genomics segment sales, and 63 percent of our Agricultural Productivity segment sales originated from our legal entities outside the United States during fiscal year 2008.

In the fourth quarter of 2008, we entered into an agreement to divest the Dairy business. This transaction was consummated on Oct. 1, 2008. In the fourth quarter of 2007, we sold our U.S. Stoneville^® and NexGen^® cotton seed brands and related business assets (divested cotton businesses) as part of the U.S. Department of Justice (DOJ) approval for the acquisition of Delta and Pine Land Company (DPL). As a result, financial data for these businesses have been presented as discontinued operations as outlined below. The financial statements have been recast and prepared in compliance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). Accordingly, for all periods presented herein, the Statements of Consolidated Operations have been conformed to this presentation. Also, the 2008 Statement of Consolidated Financial Position has been conformed to this presentation. The Dairy business was previously reported as part of the Agricultural Productivity segment. The divested cotton businesses were previously reported as part of the Seeds and Genomics segment. See Note 27 — Discontinued Operations — for further details.

This MD&A should be read in conjunction with Monsanto’s consolidated financial statements and the accompanying notes. The notes to the consolidated financial statements referred to throughout this MD&A are included in Part II — Item 8 — Financial Statements and Supplementary Data — of this Report on Form 10-K. Unless otherwise indicated, “earnings (loss) per share” and “per share” mean diluted earnings (loss) per share. Unless otherwise noted, all amounts and analyses are based on continuing operations.

Non-GAAP Financial Measures

MD&A includes financial information prepared in accordance with U.S. generally accepted accounting principles (GAAP), as well as two other financial measures, EBIT and free cash flow, that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of EBIT and free cash flow information is intended to supplement investors’ understanding of our operating performance and liquidity. Our EBIT and free cash flow measures may not be comparable to other companies’ EBIT and free cash flow measures. Furthermore, these measures are not intended to replace net income (loss), cash flows, financial position, or comprehensive income (loss), as determined in accordance with U.S. GAAP.

EBIT is defined as earnings (loss) before interest and taxes. Earnings (loss) is intended to mean net income (loss) as presented in the Statements of Consolidated Operations under GAAP. EBIT is the primary operating performance measure for our two business segments. We believe that EBIT is useful to investors and management to demonstrate the operational profitability of our segments by excluding interest and taxes, which are generally accounted for across the entire company on a consolidated basis. EBIT is also one of the measures used by Monsanto management to determine resource allocations



MONSANTO COMPANY		2008 FORM 10-K

within the company. See Note 24 — Segment and Geographic Data — for a reconciliation of EBIT to net income (loss) for fiscal years 2008, 2007 and 2006.

We also provide information regarding free cash flow, an important liquidity measure for Monsanto. We define free cash flow as the total of net cash provided or required by operating activities and net cash provided or required by investing activities. We believe that free cash flow is useful to investors and management as a measure of the ability of our business to generate cash. This cash can be used to meet business needs and obligations, to reinvest in the company for future growth, or to return to our shareowners through dividend payments or share repurchases. Free cash flow is also used by management as one of the performance measures in determining incentive compensation. See the “Financial Condition, Liquidity, and Capital Resources — Cash Flow” section of MD&A for a reconciliation of free cash flow to net cash provided by operating activities and net cash required by investing activities on the Statements of Consolidated Cash Flows.

Executive Summary

Discontinued Operations — As discussed in Note 27 — Discontinued Operations, we entered into an agreement to divest our Dairy business in 2008. The income on discontinued operations of $17 million aftertax, or $0.03 per share, in 2008 relates only to the Dairy business. In conjunction with the DOJ consent decree, we sold our cotton businesses for $317 million during fourth quarter 2007. We recorded income of discontinued operations of $80 million aftertax, or $0.14 per share in 2007, primarily related to the gain on the sale of the divested cotton businesses which were part of the Seeds and Genomics segment.

Consolidated Operating Results — Net sales in 2008 increased $3 billion from 2007. This improvement was a result of increased sales of Roundup and other glyphosate-based herbicides globally combined with higher sales of corn seed and traits globally, as well as increased sales in the United States of soybean seed and traits and cotton seed and traits. Net income in 2008 was $3.62 per share, compared with $1.79 per share in 2007.

The following non-recurring factors affected the two-year comparison:

2008:

	•		We recorded an after-tax gain of $130 million ($210 million pretax), or $0.23 per share (Solutia-related gain), associated with the settlement of our claim on Feb. 28, 2008, in connection with Solutia’s emergence from bankruptcy. See Note 25 — Solutia-Related and Other Income and Expense — for further discussion.

	•		In 2008, we expensed non-tax-deductible acquired in-process research and development (IPR&D) of $164 million, or $0.29 per share, primarily related to the De Ruiter acquisition.

2007:

	•		In 2007, we expensed non-tax-deductible acquired IPR&D of $193 million, or $0.35 per share, related to acquisitions.

	•		We recorded income on discontinued operations of $80 million aftertax, or $0.14 per share, in 2007, primarily related to the gain on the sale of the divested cotton businesses.

Financial Condition, Liquidity, and Capital Resources — In 2008, net cash provided by operating activities was $2,799 million, compared with $1,854 million in 2007. Net cash required by investing activities was $2,027 million in 2008, compared with $1,911 million in 2007. As a result, our free cash flow, as defined in the “Overview — Non-GAAP Financial Measures” section of MD&A, was a source of cash of $772 million in 2008, compared with a use of cash of $57 million in 2007. We used cash of $1,007 million in 2008 for acquisitions of businesses, compared with $1,679 million in 2007. For a more detailed discussion of the factors affecting the free cash flow comparison, see the “Cash Flow” section of the “Financial Condition, Liquidity, and Capital Resources” section in this MD&A.

Outlook — We aim to continue to improve our products in order to maintain market leadership and to support near-term performance. We are focused on applying innovation and technology to make our farmer customers more productive and profitable by protecting yields and improving the ways they can produce food, fiber and feed. We use the tools of modern



MONSANTO COMPANY		2008 FORM 10-K

biology to allow farmers to do more with fewer resources and to produce healthier foods for consumers. Our current research-and-development (R&D) strategy and commercial priorities are focused on bringing our farmer customers second-generation traits, on delivering multiple solutions in one seed (“stacking”), and on developing new pipeline products. Our capabilities in biotechnology and breeding research are generating a rich product pipeline that is expected to drive long-term growth. The commercial viability of our product pipeline depends in part on the speed of regulatory approvals globally, and on continued patent and legal rights to offer our products.

We plan to improve and to grow our vegetable seeds business. We are applying our molecular and marker-assisted breeding capabilities to our library of vegetable germplasm. Our purchase of the De Ruiter business, a leading protected-culture vegetable seeds company, will allow us to serve our vegetable seeds customers through three dedicated platforms: protected-culture, open field and regional vegetable seed businesses. Our purchase of DPL has expanded our cotton breeding operation. In the future, we will continue to focus on accelerating the potential growth of these new businesses and executing our business plans.

Roundup herbicides remain the market leader. We have increased our average selling prices and experienced increased demand in recent years. We are implementing strategies to meet the future demand for Roundup. We are focused on managing the costs associated with our agricultural chemistry business.

See the “Outlook” section of MD&A for a more detailed discussion of some of the opportunities and risks we have identified for our business. For additional information related to the outlook for Monsanto, see “Caution Regarding Forward-Looking Statements” above and Part I — Item 1A — Risk Factors of this Form 10-K.



MONSANTO COMPANY		2008 FORM 10-K

RESULTS OF OPERATIONS



	Year Ended Aug. 31,
										Change
										2008 vs.			2007 vs.
(Dollars in millions, except per share amounts)	2008			2007			2006			2007			2006

Net Sales	$	11,365		$	8,349		$	7,065			36	%		18	%
Gross Profit		6,177			4,230			3,443			46	%		23	%
Operating Expenses:
Selling, general and administrative expenses		2,312			1,858			1,604			24	%		16	%
Research and development expenses		980			770			700			27	%		10	%
Acquired in-process research and development (see Note 4)		164			193			—			(15	)%	NM

Total Operating Expenses		3,456			2,821			2,304			23	%		22	%

Income from Operations		2,721			1,409			1,139			93	%		24	%
Interest expense		110			136			133			(19	)%		2	%
Interest income		(132	)		(120	)		(54	)		10	%		122	%
Solutia-related (income) expense — net (see Note 25)		(187	)		40			29		NM				38	%
Other expense — net		4			25			13			(84	)%		92	%

Income from Continuing Operations Before Income Taxes and Minority Interest		2,926			1,328			1,018			120	%		30	%
Income tax provision		899			403			330			123	%		22	%
Minority interest expense		20			12			17			67	%		(29	)%

Income from Continuing Operations		2,007			913			671			120	%		36	%
Discontinued Operations (see Note 27):
Income from operations of discontinued businesses		20			52			32			(62	)%		63	%
Income tax provision (benefit)		3			(28	)		8			NM		NM

Income on Discontinued Operations		17			80			24			(79	)%		233	%

Income Before Cumulative Effect of Accounting Change		2,024			993			695			104	%		43	%
Cumulative Effect of a Change in Accounting Principle, Net of Tax Benefit (see Note 2)		—			—			(6	)	NM			NM

Net Income	$	2,024		$	993		$	689			104	%		44	%

Diluted Earnings (Loss) per Share:
Income from continuing operations	$	3.59		$	1.65		$	1.22			118	%		35	%
Income on discontinued operations		0.03			0.14			0.04			(79	)%		250	%
Cumulative effect of accounting change		—			—			(0.01	)	NM			NM

Net Income	$	3.62		$	1.79		$	1.25			102	%		43	%

NM = Not Meaningful

Effective Tax Rate (continuing operations)		31	%		30	%		32	%

Comparison as a Percent of Net Sales:
Gross profit		54	%		51	%		49	%
Selling, general and administrative expenses		20	%		22	%		23	%
Research and development expenses (excluding acquired IPR&D)		9	%		9	%		10	%
Total operating expenses		30	%		34	%		33	%
Income from continuing operations before income taxes and minority interest expense		26	%		16	%		14	%
Net income		18	%		12	%		10	%

Overview of Financial Performance (2008 compared with 2007)

The following section discusses the significant components of our results of operations that affected the comparison of fiscal year 2008 with fiscal year 2007.



MONSANTO COMPANY		2008 FORM 10-K

Net sales increased 36 percent in 2008 from 2007. Our Seeds and Genomics segment net sales improved 28 percent, and our Agricultural Productivity segment net sales improved 48 percent. The following table presents the percentage changes in 2008 worldwide net sales by segment compared with net sales in 2007, including the effect that volume, price, currency and acquisitions had on these percentage changes:



	2008 Percentage Change in Net Sales vs. 2007
													Impact of
	Volume			Price			Currency			Subtotal			Acquisitions⁽¹⁾			Net Change

Seeds and Genomics Segment		10	%		9	%		3	%		22	%		6	%		28	%
Agricultural Productivity Segment		5	%		35	%		8	%		48	%		—			48	%
Total Monsanto Company		8	%		20	%		5	%		33	%		3	%		36	%


⁽¹⁾		See Note 4 — Business Combinations — and “Financial Condition, Liquidity, and Capital Resources” in MD&A for details of our acquisitions in fiscal years 2008 and 2007. In this presentation, acquisitions are segregated for one year from the acquisition date.

For a more detailed discussion of the factors affecting the net sales comparison, see the “Seeds and Genomics Segment” and the “Agricultural Productivity Segment” sections.

Gross profit increased 46 percent, or $1,947 million. Total company gross profit as a percent of net sales increased 3 percentage points to 54 percent in 2008, driven by the increase in Roundup and other glyphosate-based herbicides average net selling prices. Gross profit as a percent of sales for the Seeds and Genomics segment remained at 61 percent. Gross profit as a percent of sales for the Agricultural Productivity segment increased 10 percentage points to 46 percent in the 12-month comparison. See the “Seeds and Genomics Segment” and “Agricultural Productivity Segment” sections of MD&A for details.

Operating expenses increased 23 percent, or $635 million, in 2008 from 2007. Selling, general and administrative (SG&A) expenses increased 24 percent, and R&D expenses increased 27 percent, primarily because of the Seeds and Genomics business growth and acquisitions coupled with the increase in our investment in our product pipeline. In addition, we incurred higher incentive compensation expense and charitable and business donations in 2008. As a percent of net sales, SG&A expenses decreased 2 points to 20 percent, and R&D expenses remained at 9 percent of sales in 2008.

Interest expense decreased 19 percent, or $26 million, in fiscal year 2008 from 2007. The decreased expense was primarily due to lower average commercial paper borrowings outstanding during 2008.

Interest income increased 10 percent, or $12 million, in 2008 because of higher average cash balances.

We recorded Solutia-related income of $187 million in 2008 and $40 million of expense in 2007. This improvement was a result of our Solutia-related gain as described in Note 25 — Solutia-Related and Other Income and Expense.

Income tax provision for 2008 increased to $899 million, an increase of $496 million over 2007 primarily as a result of the growth in pre-tax income from continuing operations. The effective tax rate on continuing operations was 31 percent, an increase of 1 percentage point from fiscal year 2007. This difference was primarily the result of the following items:

	•		The effective tax rate for 2008 was affected by our Solutia-related gain for which taxes were provided at a higher U.S.-based rate, a tax benefit of $43 million for the reversal of our remaining net operating loss valuation allowance in Argentina and additional tax expense for a transfer pricing item. We also recorded a tax benefit of $33 million in 2007 for the reversal of a portion of our valuation allowance in Argentina.

	•		Nondeductible acquired IPR&D charges of $164 million and $193 million were recorded in 2008 and 2007, respectively.

	•		A tax benefit of $79 million was recorded in 2007 for several discrete tax adjustments. The majority of this benefit is the result of audit settlements, including the conclusion of an Internal Revenue Service (IRS) audit for tax years 2003 and 2004, an ex-U.S. audit, and the resolution of various state income tax matters and, to a lesser extent, a benefit related to the retroactive extension of the R&D tax credit that was enacted as part of the Tax Relief and Health Care Act of 2006 on Dec. 20, 2006.


MONSANTO COMPANY		2008 FORM 10-K

Without these items, our effective tax rate for 2008 would have been lower than the 2007 rate, primarily driven by a shift in our earnings mix to lower tax-rate jurisdictions.

The factors noted above explain the change in income from continuing operations. In 2008, we recorded income on discontinued operations of $17 million compared to $80 million in 2007. As noted above and discussed in Note 27 — Discontinued Operations, we realized a pre-tax gain of $46 million, and a tax benefit of $27 million, in 2007 related to the sale of the cotton business.

Overview of Financial Performance (2007 compared with 2006)

The following section discusses the significant components of our results of operations that affected the comparison of fiscal year 2007 with fiscal year 2006.

Net sales increased 18 percent in 2007 from 2006. Our Seeds and Genomics segment net sales improved 25 percent, and our Agricultural Productivity segment net sales improved 10 percent. The following table presents the percentage changes in 2007 worldwide net sales by segment compared with net sales in 2006, including the effect that volume, price, currency and acquisitions had on these percentage changes:



	2007 Percentage Change in Net Sales vs. 2006
													Impact of
	Volume			Price			Currency			Subtotal			Acquisitions⁽¹⁾			Net Change

Seeds and Genomics Segment		16	%		3	%		2	%		21	%		4	%		25	%
Agricultural Productivity Segment		6	%		1	%		3	%		10	%		—			10	%
Total Monsanto Company		12	%		2	%		2	%		16	%		2	%		18	%


⁽¹⁾		See Note 4 — Business Combinations — and “Financial Condition, Liquidity, and Capital Resources” in MD&A for details of our acquisitions in fiscal years 2007 and 2006. In this presentation, acquisitions are segregated for one year from the acquisition date.

For a more detailed discussion of the factors affecting the net sales comparison, see the “Seeds and Genomics Segment” and the “Agricultural Productivity Segment” sections.

Gross profit increased 23 percent, or $787 million. Total company gross profit as a percent of net sales increased 2 percentage points to 51 percent in 2007, driven by the increase in higher margin traits, particularly in U.S. corn, and an increase in the average selling price of Roundup and other glyphosate-based herbicides. Gross profit as a percent of sales for the Seeds and Genomics Segment remained at 61 percent. Gross profit as a percent of sales for the Agriculture Productivity segment increased 3 percentage points to 36 percent in the 12-month comparison. See the “Seeds and Genomics Segment” and “Agricultural Productivity Segment” sections of MD&A for details.

Operating expenses increased 22 percent, or $517 million, in 2007 from 2006, primarily because of the $193 million acquired IPR&D charge in 2007. SG&A expenses increased 16 percent, and R&D expenses increased 10 percent, primarily because of the Seeds and Genomics business growth and acquisitions in the United States and the increase in our investment in our product pipeline. Also, SG&A expenses increased because of higher charitable contribution expense in 2007 related to the donation of $18 million of equity securities. As a percent of net sales, SG&A expenses decreased to 22, and R&D expenses decreased 1 point to 9 in 2007.

Interest expense increased 2 percent, or $3 million, in fiscal year 2007 from 2006. The increased expense was primarily from higher average commercial paper borrowings outstanding during 2007.

Interest income increased 122 percent, or $66 million, in 2007 because of interest earned on higher cash balances in Brazil and the United States and interest earned on past-due trade receivables in Brazil.

We recorded Solutia-related expenses of $40 million in 2007 and $29 million in 2006.

Income tax provision for 2007 increased to $403 million, an increase of $73 million over 2006, primarily as a result of the growth in pretax income from continuing operations. The effective tax rate on continuing operations was 30 percent, a decrease of 2 percentage points from fiscal year 2006. This difference was primarily the result of the following items:

•

A tax benefit of $79 million was recorded in 2007 for several discrete tax adjustments. The majority of this benefit is the result of audit settlements, including the conclusion of an IRS audit for tax years 2003 and 2004, an ex-U.S. audit, and the


MONSANTO COMPANY		2008 FORM 10-K

resolution of various state income tax matters and, to a lesser extent, a benefit related to the retroactive extension of the R&D tax credit that was enacted as part of the Tax Relief and Health Care Act of 2006 on Dec. 20, 2006. We also recorded an additional tax benefit of $33 million in 2007 and $15 million in 2006 for the reversal of a portion of our valuation allowance in Argentina.

•		Nondeductible acquired IPR&D charges of $193 million were recorded in 2007.

•		A tax charge of $21 million was recorded in 2006, in conjunction with the repatriation of $437 million of foreign earnings under the American Jobs Creation Act of 2004 (see discussion in Note 12 — Income Taxes).

•		A tax benefit of $32 million was recorded in 2006 as a result of the conclusion of an audit of Pharmacia for tax years 2000 to 2002 (when we were a member of Pharmacia’s consolidated group) by the IRS and, to a lesser extent, favorable adjustments related to various state income tax issues.

Without these items, our effective tax rate for 2007 would have been lower than the 2006 rate, primarily driven by a full-year benefit of the R&D tax credit in 2007 and a shift in our earnings mix to lower tax-rate jurisdictions.

The factors noted above explain the change in income from continuing operations. In 2007, we recorded income on discontinued operations of $80 million. As discussed in Note 27 — Discontinued Operations, in conjunction with the DOJ consent decree received in 2007, we agreed to sell our divested cotton businesses, which were part of the Seeds and Genomics segment. We completed our acquisition of DPL and sold our divested cotton businesses during the fourth quarter of 2007 for $317 million. We also divested certain cotton germplasm that was acquired from DPL’s cotton breeding program, as required by the consent decree. We have retained certain rights to this germplasm. The buyers of these assets are licensed to use our traits in their brands prospectively under a royalty bearing agreement. We realized a pre-tax gain of $46 million, and a tax benefit of $27 million, in 2007 related to these divestitures. The tax benefit was driven by a higher tax basis in the businesses sold, compared with the book basis.

SEEDS AND GENOMICS SEGMENT



	Year Ended Aug. 31,						Change
(Dollars in millions)	2008		2007		2006		2008 vs. 2007			2007 vs. 2006

Net Sales
Corn seed and traits	$	3,542	$	2,807	$	1,793		26	%		57	%
Soybean seed and traits		1,174		901		960		30	%		(6	)%
Cotton seed and traits		450		319		376		41	%		(15	)%
Vegetable seeds		744		612		569		22	%		8	%
All other crops seeds and traits		459		325		280		41	%		16	%

Total Net Sales	$	6,369	$	4,964	$	3,978		28	%		25	%

Gross Profit
Corn seed and traits	$	2,174	$	1,721	$	1,019		26	%		69	%
Soybean seed and traits		725		588		667		23	%		(12	)%
Cotton seed and traits		313		267		305		17	%		(12	)%
Vegetable seeds		394		267		296		48	%		(10	)%
All other crops seeds and traits		251		171		146		47	%		17	%

Total Gross Profit	$	3,857	$	3,014	$	2,433		28	%		24	%

EBIT⁽¹⁾	$	1,200	$	905	$	794		33	%		14	%


⁽¹⁾		EBIT is defined as earnings (loss) before interest and taxes. Interest and taxes are recorded on a total company basis. We do not record these items at the segment level. See Note 24 — Segment and Geographic Data and the “Overview — Non-GAAP Financial Measures” section of MD&A for further details.

Seeds and Genomics Financial Performance for Fiscal Year 2008

Net sales of corn seed and traits increased 26 percent, or $735 million, in the 12-month comparison. In 2008, our U.S. corn seed and traits sales improved because of increased sales of U.S. corn seed and traits, increased trait penetration, growth in stacked traits, stronger customer demand and higher average selling prices, compared with 2007. Net sales of corn seed and traits also improved because of growth in corn seed sales volume in Brazil, Argentina and Mexico related to stronger customer demand. Net sales of corn seed in Brazil also improved because of revenues from a recently acquired subsidiary which was not part of the company’s operations during 2007 and the favorable foreign currency translation of the Brazilian


MONSANTO COMPANY		2008 FORM 10-K

real. Further, net sales of corn seed and traits increased in the Europe-Africa region in the 12-month comparison because of higher average selling prices and the favorable foreign currency translation rate of the European euro.

Soybean seed and traits net sales increased 30 percent, or $273 million, in 2008. This sales increase was driven by an increase in sales volume of U.S. soybean seed and traits driven by an increase in soybean acres and stronger customer demand in the United States. Also, soybean seed and traits revenues increased in the United States because of higher average net selling prices and in Brazil due to higher commodity prices.

Cotton seed and traits net sales increased 41 percent, or $131 million, in 2008. This increase was primarily driven by incremental sales from the DPL acquisition. Further, cotton trait sales increased in India primarily due to higher trait penetration. These increases in cotton seed and traits revenue were partially offset by the decrease in cotton trait sales volume resulting from fewer U.S. cotton acres in 2008 than in 2007.

In 2008, vegetable seeds net sales increased 22 percent, or $132 million, in the 12-month comparison because of the favorable foreign currency translation rate of the European euro, the De Ruiter acquisition and higher average net selling prices.

All other crops seeds and traits net sales increased 41 percent, or $134 million, in 2008, primarily because of improved sales of canola seed and traits, sugarbeet traits, sunflower seeds and sorghum seeds. Sales volume of canola seed and traits improved because of an increase in canola acres in Europe and Canada. Sugarbeet trait volume increased because this product was launched in the United States during 2008. Other crops seeds and traits net sales increased because of favorable foreign currency translation rates, higher prices and improved volumes.

Gross profit increased 28 percent for this segment due to increased net sales. Gross profit as a percent of sales for this segment remained at 61 percent. The gross profit percentage declined in soybean seed and traits and cotton seed and traits, but were offset by vegetable seeds. Soybean seed and traits gross profit percentage decreased in 2008 because of the unfavorable impact of higher soybean commodity prices on our cost of production. Cotton seed and traits gross profit percentage declined because of an increase in lower-margin cotton seed sales as a percentage of total cotton seed and traits sales. Vegetable seeds gross profit percentage increased primarily because write downs of inventory experienced in 2007 were not repeated.

EBIT for the Seeds and Genomics segment increased $295 million to $1,200 million in 2008. In the 12-month comparison, incremental SG&A and R&D expenses related to the growth of the business and the 2008 acquisitions partially offset the gross profit improvement from higher net sales across all crops.

Seeds and Genomics Financial Performance for Fiscal Year 2007

Net sales of corn seed and traits increased 57 percent, or $1,014 million, in the 12-month comparison. In 2007, our U.S. corn seed and traits sales volume and sales mix improved because of stronger customer demand, increased trait penetration, growth in stacked traits, and additional acres in 2007, compared with 2006. Our U.S. national branded corn business increased to 23 share points in 2007, a 4 percentage point improvement compared with 2006 results. Net sales of U.S. corn seed and traits also increased because of incremental revenues from the recently acquired American Seeds Inc. (ASI) subsidiaries, which were not part of the company’s operations in 2006. Further, net sales of corn seed in Europe, Argentina and Brazil also increased because of growth in sales volumes related to stronger customer demand.

Soybean seed and traits net sales decreased 6 percent, or $59 million, in 2007. This sales decrease was driven by a decrease in sales volumes of U.S. soybean seed and traits because fewer soybean acres were planted. This decrease was partially offset by the incremental soybean seed and traits revenue from the recently acquired ASI subsidiaries, which were not part of the company’s operations in 2006. Further, this decrease was partially offset by the increase in net sales of soybean traits in Brazil, primarily resulting from a volume increase in the grain-based payment system related to saved and replanted Roundup Ready soybeans.

Cotton seed and traits net sales decreased 15 percent, or $57 million, in 2007. This sales decrease was driven by lower cotton trait sales volumes in Australia resulting from a decline in cotton acres. Planted cotton acres declined 54 percent there in the 12-month comparison because of a severe drought in certain parts of Australia in first quarter 2007. In addition, there was a decline in net sales of cotton seed and traits related to the decline in cotton acres in the United States.


MONSANTO COMPANY		2008 FORM 10-K

In 2007, vegetable seeds net sales increased 8 percent, or $43 million, in the 12-month comparison because of higher average net selling prices and the favorable effect of the exchange rate of the European euro.

All other crops seeds and traits net sales increased 16 percent, or $45 million, in 2007, primarily because of higher canola seed volumes driven by stronger customer demand in Europe and higher canola trait volumes driven by an increase in acres planted to canola in Canada.

Gross profit increased 24 percent for this segment due to increased net sales. Gross profit as a percent of sales for this segment remained at 61 percent. The positive factor of increased penetration of higher margin traits, particularly in U.S. corn, was offset by declines in the gross profit percentage in vegetable seeds and soybean seed and traits. Vegetable seeds gross profit percentage decreased in 2007 primarily because of certain charges to cost of goods sold for write downs of inventory to the lower of cost or market. The decrease in vegetable seeds gross profit percentage was partially offset by the effect on cost of goods sold associated with the inventory step-up for the Seminis acquisition, which was $5 million in 2007 and $50 million in 2006. Soybean seed and trait gross profit percentage decreased in the 12-month comparison, primarily because of the unfavorable impact of higher soybean commodity prices and lower soybean volumes on our cost of production.

EBIT for the Seeds and Genomics segment increased $111 million to $905 million in 2007. The acquired IPR&D write-offs that resulted from the DPL and Western Seed acquisitions negatively affected EBIT by $193 million in 2007. In the 12-month comparison, incremental SG&A and R&D expenses related to the growth of the business and the 2007 acquisitions partially offset the gross profit improvement.

AGRICULTURAL PRODUCTIVITY SEGMENT



	Year Ended Aug. 31,						Change
(Dollars in millions)	2008		2007		2006		2008 vs. 2007			2007 vs. 2006

Net Sales
Roundup and other glyphosate-based herbicides	$	4,094	$	2,568	$	2,262		59	%		14	%
All other agricultural productivity products		902		817		825		10	%		(1	)%

Total Net Sales	$	4,996	$	3,385	$	3,087		48	%		10	%

Gross Profit
Roundup and other glyphosate-based herbicides	$	1,976	$	854	$	648		131	%		32	%
All other agricultural productivity products		344		362		362		(5	)%	NM
Total Gross Profit	$	2,320	$	1,216	$	1,010		91	%		20	%

EBIT⁽¹⁾	$	1,691	$	470	$	301		260	%		56	%


NM = Not Meaningful

⁽¹⁾		EBIT is defined as earnings (loss) before interest and taxes. Interest and taxes are recorded on a total company basis. We do not record these items at the segment level. See Note 24 — Segment and Geographic Data and the “Overview — Non-GAAP Financial Measures” section of MD&A for further details.

Agricultural Productivity Financial Performance for Fiscal Year 2008

Net sales of Roundup and other glyphosate-based herbicides increased 59 percent, or $1,526 million, in 2008. In the 12-month comparison, sales of Roundup and other glyphosate-based herbicides increased globally as the average net selling price increased in all regions. Net sales of Roundup and other glyphosate-based herbicides also increased in Europe in 2008 because of the favorable foreign currency translation rate of the European euro. Global sales volumes of Roundup and other glyphosate-based herbicides increased 2 percent in 2008 from 2007.

Sales volumes of Roundup and other glyphosate-based herbicides increased in Brazil because of the improvement in the market for Roundup and other glyphosate-based herbicides in Brazil. Key contributors to the increase in the herbicide market were an improvement in farmer liquidity resulting from higher soybean commodity prices and the increase in acres planted for Roundup Ready soybeans and sugarcane in 2008 over 2007. Further, net sales of Roundup and other glyphosate-based herbicides increased in the 12-month comparison because of the favorable effect of the exchange rate of the Brazilian real and, to a lesser extent, because of higher average net selling prices.


MONSANTO COMPANY		2008 FORM 10-K

Sales of Roundup and other glyphosate-based herbicides improved in the United States because of an increase in the net selling price as well as an increase in volume due to customer demand resulting from an increase in Roundup Ready corn acres.

Gross profit as a percent of sales increased 10 percentage points for the Agricultural Productivity segment to 46 percent in 2008. This improvement was primarily because of an increase in the average net selling prices of Roundup and other glyphosate-based herbicides.

The sales increases discussed in this section resulted in $1,104 million higher gross profit in 2008. EBIT for the Agricultural Productivity segment increased $1,221 million, to $1,691 million in 2008. Contributing to this increase was our Solutia-related gain recorded in second quarter 2008. See further discussion at Note 25 — Solutia-Related and Other Income and Expense.

Agricultural Productivity Financial Performance for Fiscal Year 2007

Net sales of Roundup and other glyphosate-based herbicides increased 14 percent, or $306 million, in 2007. In the 12-month comparison, sales of Roundup and other glyphosate-based herbicides increased globally, especially in Brazil, Europe and the United States. Sales volumes of Roundup and other glyphosate-based herbicides increased 6 percent in 2007 from 2006. The average net selling price remained relatively flat in the United States, but it increased moderately in most other regions.

Sales volumes of Roundup and other glyphosate-based herbicides increased in Brazil because of the improvement in the market for Roundup and other glyphosate-based herbicides in Brazil. Key contributors to the increase in the herbicide market there were an improvement in farmer liquidity resulting from higher soybean commodity prices and the increase in acres planted with Roundup Ready soybeans and sugarcane in 2007 over 2006. Further, net sales of Roundup and other glyphosate-based herbicides increased in the 12-month comparison because of the favorable effect of the exchange rate of the Brazilian real and, to a lesser extent, because of higher average net selling prices.

Sales of Roundup and other glyphosate-based herbicides increased in Europe because of the favorable effect of the exchange rate of the European euro. Sales volumes of Roundup and other glyphosate-based herbicides increased in Europe, primarily because of more favorable weather conditions in 2007 than in 2006.

Sales volumes of Roundup and other glyphosate-based herbicides improved in the United States because of an increase in customer demand resulting from an increase in Roundup Ready corn acres.

Gross profit as a percent of sales increased 3 percentage points for the Agricultural Productivity segment to 36 percent in 2007. The primary contributor to this increase was higher average selling prices.

The sales increases discussed in this section resulted in $206 million higher gross profit in 2007. EBIT for the Agricultural Productivity segment increased $169 million, to $470 million in 2007.


MONSANTO COMPANY		2008 FORM 10-K

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Working Capital and Financial Condition



	As of Aug. 31,
(Dollars in millions)	2008		2007

Cash and Cash Equivalents	$	1,613	$	866
Trade Receivables — Net		2,067		1,499
Inventories		2,453		1,719
Other Current Assets⁽¹⁾		1,476		1,000

Total Current Assets	$	7,609	$	5,084

Short-Term Debt	$	24	$	270
Accounts Payable		1,090		649
Accrued Liabilities⁽²⁾		3,325		2,156

Total Current Liabilities	$	4,439	$	3,075

Working Capital⁽³⁾	$	3,170	$	2,009
Current Ratio⁽³⁾		1.71:1		1.65:1


⁽¹⁾		Includes miscellaneous receivables, deferred tax assets, assets of discontinued operations and other current assets.

⁽²⁾		Includes income taxes payable, accrued compensation and benefits, accrued marketing programs, deferred revenues, grower production accruals, dividends payable, liabilities of discontinued operations and miscellaneous short-term accruals.

⁽³⁾		Working capital is total current assets less total current liabilities; current ratio represents total current assets divided by total current liabilities.

Working capital increased $1.2 billion between Aug. 31, 2008, and Aug. 31, 2007, primarily because of the following factors:

	•		Cash and cash equivalents increased $747 million. For a more detailed discussion of the factors affecting the cash flow comparison, see the “Cash Flow” section in this section of MD&A.

	•		Trade receivables — net increased $568 million, primarily because of increased sales and favorable foreign currency of $62 million and partially offset by higher collections and lower days sales outstanding.

	•		Inventories increased $734 million, primarily because of increased corn production to support our market share growth in our global corn business as of Aug. 31, 2008. Further, our chemistry inventories increased because of cost increases in certain raw materials required for herbicide production. In addition, inventory increased $59 million due to favorable foreign currency. Offsetting these increases was a recast of $116 million of Dairy business inventory at Aug. 31, 2008, to discontinued operations.

	•		Short-term debt decreased $246 million, primarily because $236 million of 4% Senior Notes, due May 15, 2008, were classified as short-term debt as of Aug. 31, 2007. See the “Capital Resources and Liquidity” section of the MD&A for further discussion of the retirement of the 4% Senior Notes.

	•		Accrued liabilities and accounts payable increased $1,169 million and $441 million, respectively, primarily because deferred revenue increased related to increased customer prepayments, primarily in Brazil and the United States. In addition, higher activity levels in 2008 resulted from the increase in sales and the 2008 acquisitions. Further, favorable foreign currency increased accrued liabilities and accounts payable by $83 million in 2008.

Backlog: Inventories of finished goods, goods in process, and raw materials and supplies are maintained to meet customer requirements and our scheduled production. As is consistent with the nature of the seed industry, we generally produce in one growing season the seed inventories we expect to sell the following season. In general, we do not manufacture our products against a backlog of firm orders; production is geared to projected demand.

Customer Financing Programs: We refer certain interested U.S. customers to a third-party specialty lender that makes loans directly to our customers. We established this revolving financing program of up to $250 million, which allows certain U.S. customers to finance their product purchases, royalties and licensing fee obligations. The funding availability may be less than $250 million if certain program requirements are not met. It also allows us to reduce our reliance on commercial paper borrowings. We received $66 million in 2008, $305 million in 2007 and $286 million in 2006 from the proceeds of loans made to our customers through this financing program. These proceeds are included in the net cash provided by operating activities in the Statements of Consolidated Cash Flows. We originate these customer loans on behalf of the third-party


MONSANTO COMPANY		2008 FORM 10-K

specialty lender, a special purpose entity (SPE) that we consolidate, using our credit and other underwriting guidelines approved by the lender. We service the loans and provide a first-loss guarantee of up to $130 million. Following origination, the lender transfers the loans to multi-seller commercial paper conduits through a nonconsolidated qualifying special purpose entity (QSPE). We have no ownership interest in the lender, in the QSPE, or in the loans. We account for this transaction as a sale, in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 140).

As of Aug. 31, 2008, and Aug. 31, 2007, the customer loans held by the QSPE and the QSPE’s liability to the conduits were $66 million and $301 million, respectively. The lender or the conduits may restrict or discontinue the facility at any time. If the facility were to terminate, existing loans would be collected by the QSPE over their remaining terms (generally 12 months or less), and we would revert to our past practice of providing these customers with direct credit purchase terms. Our servicing fee revenues from the program were not significant. As of Aug. 31, 2008, and Aug. 31, 2007, our recorded guarantee liability was less than $1 million, primarily based on our historical collection experience with these customers and a current assessment of credit exposure. Adverse changes in the actual loss rate would increase the liability.

We entered into an agreement with a lender to establish a program to provide financing of up to $40 million for selected customers in Brazil. The agreement qualified for sales treatment under SFAS 140. Proceeds from the transfer of the receivables are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. Total funds available under the program have increased to $250 million under subsequent amendments. We received $239 million, $139 million and $73 million of proceeds through these customer financing programs in 2008, 2007 and 2006, respectively. The amount of loans outstanding was $187 million and $86 million as of Aug. 31, 2008, and Aug. 31, 2007, respectively. In this program, we provide a full guarantee of the loans in the event of customer default. The maximum potential amount of future payments under the guarantees was $187 million as of Aug. 31, 2008. The liability for the guarantee is recorded at an amount that approximates fair value and is primarily based on our historical collection experience with customers that participate in the program and a current assessment of credit exposure. Our guarantee liability was $10 million and $3 million as of Aug. 31, 2008, and Aug. 31, 2007, respectively. If performance is required under the guarantee, we may retain amounts that are subsequently collected from customers.

We also have similar agreements with banks that provide financing to our customers in Brazil through credit programs that are subsidized by the Brazilian government. In addition, there are similar financing programs in Europe and Argentina. All of these programs also qualify for sales treatment under SFAS 140. Accordingly, proceeds from the transfer of receivables through the programs described above are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. We received $146 million, $115 million and $65 million of proceeds through these customer financing programs in 2008, 2007 and 2006, respectively. The amount of loans outstanding was $92 million and $66 million as of Aug. 31, 2008, and Aug. 31, 2007, respectively. For most programs, we provide a full guarantee of the loans in the event of customer default. The terms of guarantees are equivalent to the terms of the bank loans. The maximum potential amount of future payments under the guarantees was $92 million as of Aug. 31, 2008. The liability for the guarantee is recorded at an amount that approximates fair value and is primarily based on our historical collection experience with customers that participate in the program and a current assessment of credit exposure. Our guarantee liability was $11 million and $2 million as of Aug. 31, 2008, and Aug. 31, 2007, respectively. If performance is required under the guarantee, we may retain amounts that are subsequently collected from customers.

We also sell accounts receivable, both with and without recourse. These sales qualify for sales treatment under SFAS 140 and, accordingly, the proceeds are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. The gross amounts of accounts receivable sold totaled $48 million, $46 million and $49 million for 2008, 2007 and 2006, respectively. The liability for the guarantees for sales with recourse is recorded at an amount that approximates fair value and is based on the company’s historical collection experience for the customers associated with the sale of the accounts receivable and a current assessment of credit exposure. Our guarantee liability was less than $1 million as of Aug. 31, 2008 and 2007. The maximum potential amount of future payments under the recourse provisions of the agreements was $33 million as of Aug. 31, 2008. The outstanding balance of the receivables sold was $33 million and $28 million as of Aug. 31, 2008, and Aug. 31, 2007, respectively.


MONSANTO COMPANY		2008 FORM 10-K

Cash Flow



	Year Ended Aug. 31,
(Dollars in millions)	2008			2007			2006

Net Cash Provided by Operating Activities	$	2,799		$	1,854		$	1,674
Net Cash Required by Investing Activities		(2,027	)		(1,911	)		(625	)

Free Cash Flow⁽¹⁾		772			(57	)		1,049

Net Cash Required by Financing Activities		(102	)		(583	)		(117	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		77			46			3

Net Increase (Decrease) in Cash and Cash Equivalents		747			(594	)		935

Cash and Cash Equivalents at Beginning of Period		866			1,460			525
Cash and Cash Equivalents at End of Period	$	1,613		$	866		$	1,460


⁽¹⁾		Free cash flow represents the total of net cash provided or required by operating activities and provided or required by investing activities (see the “Overview — Non-GAAP Financial Measures” section of MD&A for a further discussion).

2008 compared with 2007: In 2008, our free cash flow was a source of cash of $772 million, compared with a use of cash of $57 million in 2007. Cash provided by operating activities increased 51 percent, or $945 million, in 2008, primarily because of the increase in sales, collections and earnings.

Cash required by investing activities was $2,027 million in 2008 compared with $1,911 million in 2007. This increase is primarily attributable to our capital expenditures, which increased $409 million in 2008 because of the expansion of corn seed facilities and expenditures related to improvements at a glyphosate production facility. In addition, we used cash of $78 million in 2008 for the purchase of long-term equity securities. Offsetting these increases, we used cash for acquisitions of $1,007 million in 2008 compared with $1,679 million in 2007. Further, we received proceeds of $317 million in 2007 related to the sale of the divested cotton businesses.

Cash required by financing activities was $102 million in 2008, compared with $583 million in 2007. The net change in short-term financing was a source of cash of $82 million in 2008 compared with a use of $5 million in 2007. Cash proceeds from long-term debt increased $538 million in 2008 from 2007. Cash required for long-term debt reductions was $254 million in 2008, compared with $281 million in 2007. The 12-month comparison of long-term debt proceeds and reductions are affected because we issued $550 million of long-term debt and $238 million of short-term debt was repaid in 2008. We purchased shares under the four-year $800 million share repurchase program authorized by our board of directors in October 2005. Our purchases under this plan required cash of $361 million in 2008, compared with $197 million in 2007.

2007 compared with 2006: In 2007, our free cash flow was a use of cash of $57 million, compared with a source of cash of $1,049 million in 2006. Cash provided by operating activities increased 11 percent, or $180 million, in 2007, primarily because of the increase in earnings. This positive factor was partially offset by an unfavorable change in trade receivables because of the increase in sales activity in 2007 and the significant collections improvement made in 2006.

Cash required by investing activities was $1,911 million in 2007 compared with $625 million in 2006. In 2007, we used cash for acquisitions of businesses of $1,679 million compared with $258 million in 2006.

Cash required by financing activities was $583 million in 2007, compared with $117 million in 2006. The net change in short-term financing required cash of $5 million in 2007 compared with $139 million in 2006. Cash proceeds from long-term debt decreased $248 million in 2007 from 2006. Cash required for long-term debt reductions was $281 million in 2007, compared with $118 million in 2006. The 12-month comparison of changes in long-term debt proceeds and reductions are affected because a $251 million three-year term bank loan was obtained in 2006 and repaid in 2007. We purchased shares under the four-year $800 million share repurchase program authorized by our board of directors in October 2005. Our purchases under this plan required cash of $197 million in 2007, compared with $114 million in 2006.


MONSANTO COMPANY		2008 FORM 10-K

Capital Resources and Liquidity



	As of Aug. 31,
(Dollars in millions, except debt-to-capital ratio)	2008			2007

Short-Term Debt	$	24		$	270
Long-Term Debt		1,792			1,150
Total Shareowners’ Equity		9,374			7,503
Debt-to-Capital Ratio		16	%		16	%

A major source of our liquidity is operating cash flows, which are derived from net income. This cash-generating capability provides us with the financial flexibility we need to meet operating, investing and financing needs. To the extent that cash provided by operating activities is not sufficient to fund our cash needs, which generally occurs during the first and third quarters of the fiscal year because of the seasonal nature of our business, short-term commercial paper borrowings are used to finance these requirements. Currently, credit markets, including commercial paper markets, are not providing historical levels of liquidity nor length of maturity to the market. While we do not anticipate borrowing in commercial paper markets in 2009, if conditions change and we need to borrow commercial paper, we may find our options limited in terms of amount or duration and cost.

Total debt outstanding increased $396 million between Aug. 31, 2008, and Aug. 31, 2007, primarily because we issued $550 million of long-term debt and repaid $238 million of short-term debt in third quarter 2008. See Note 13 — Debt and Other Credit Arrangements — for additional information on this debt.

Our August 2008 debt-to-capital ratio was flat compared with the August 2007 ratio, primarily because of the increase in shareowners’ equity and the increase in total debt outstanding.

In June 2008, we assumed debt of $73 million as part of the De Ruiter acquisition. The assumed debt is denominated in European euros and is due on Sept. 25, 2012. The interest rate is a variable rate based on the Euro Interbank Offered Rate (Euribor).

In connection with the acquisition of DPL, we borrowed $1.5 billion pursuant to the terms of a 15-day term bank loan (Bank Loan), dated June 1, 2007. On June 5, 2007, we repaid the entire principal amount outstanding under the Bank Loan, together with all accrued and unpaid interest thereon. The repayment of the indebtedness outstanding under the Bank Loan was funded through borrowings under our existing commercial paper program. During the fourth quarter of 2007, this commercial paper was repaid with cash from operating activities and the $317 million of proceeds from the sale of our divested cotton businesses on June 19, 2007.

In May 2002, we filed a shelf registration with the SEC for the issuance of up to $2.0 billion of registered debt (2002 shelf registration). In August 2002, we issued $800 million in 7³/8% Senior Notes under the 2002 shelf registration (7³/8% Senior Notes). As of Aug. 31, 2008, $484 million of the 7³/8% Senior Notes are due on Aug. 15, 2012 (see the discussion later in this section regarding a debt exchange for $314 million of the 7³/8% Senior Notes). In May 2003, we issued $250 million of 4% Senior Notes (4% Senior Notes) under the 2002 shelf registration, which were repaid on May 15, 2008.

In May 2005, we filed a new shelf registration with the SEC (2005 shelf registration) that allowed us to issue up to $2.0 billion of debt, equity and hybrid offerings (including debt securities of $950 million that remained available under the 2002 shelf registration). In July 2005, we issued 5¹/2% 2035 Senior Notes of $400 million under the 2005 shelf registration. The net proceeds from the sale of the 5¹/2% 2035 Senior Notes were used to reduce commercial paper borrowings. In April 2008, we issued 5¹/8% 2018 Senior Notes of $300 million. The net proceeds from the sale of 5¹/8% 2018 Senior Notes were used to finance the expansion of corn seed production facilities. Also in April 2008, we issued 5⁷/8% 2038 Senior Notes of $250 million. The net proceeds from the sale of 5⁷/8% 2038 Senior Notes were used to repay $238 million of 4% Senior Notes that were due on May 15, 2008. As of Aug. 31, 2008, $1 billion remained available under the 2005 shelf registration.

In August 2005, we exchanged $314 million of new 5¹/2% Senior Notes due 2025 (5¹/2% 2025 Senior Notes) for $314 million of our outstanding 7³/8% Senior Notes due 2012, which were issued in 2002. The exchange was conducted as a private transaction with holders of the outstanding 7³/8% Senior Notes who certified to the company that they were “qualified institutional buyers” within the meaning of Rule 144A under the Securities Act of 1933. Under the terms of the exchange, the company paid a premium of $53 million to holders participating in the exchange. The transaction has been accounted for as


MONSANTO COMPANY		2008 FORM 10-K

an exchange of debt under Emerging Issues Task Force (EITF) 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments, and the $53 million premium will be amortized over the life of the new 5¹/2% 2025 Senior Notes. As a result of the debt premium, the effective interest rate on the 5¹/2% 2025 Senior Notes will be 7.035% over the life of the debt. The exchange of debt allowed the company to adjust its debt-maturity schedule while also allowing it to take advantage of market conditions which the company considered favorable. In February 2006, we issued $314 million aggregate principal amount of our 5¹/2% Senior Notes due 2025 in exchange for the same principal amount of our 5¹/2% Senior Notes due 2025, which had been issued in the private placement transaction in August 2005. The offering of the notes issued in February was registered under the Securities Act through a Form S-4 filing.

During February 2007, we finalized a new $2 billion credit facility agreement with a group of banks. This agreement provides a five-year senior unsecured revolving credit facility, which replaced the $1 billion credit facility established in 2004. This facility was initiated to be used for general corporate purposes, which may include working capital requirements, acquisitions, capital expenditures, refinancing and support of commercial paper borrowings. This facility, which was unused as of Aug. 31, 2008, gives us the financial flexibility to satisfy short- and medium-term funding requirements. As of Aug. 31, 2008, we were in compliance with all debt covenants under this credit facility.

Capital Expenditures: Our capital expenditures increased by 80 percent, or $409 million, to $918 million in 2008, compared with 2007. The largest drivers of this increase were the expansion of corn seed production facilities and a debottlenecking project at our U.S. Roundup production facility. We expect fiscal year 2009 capital expenditures to be in the range of $1 billion. The primary drivers of this increase compared with 2008 are projects to increase glyphosate production as well as expand corn seed production facilities.

Pension Contributions: In addition to contributing amounts to our pension plans if required by pension plan regulations, we continue to also make discretionary contributions if we believe they are merited. Although contributions to the U.S. qualified plan were not required, we contributed $120 million in 2008 and $60 million in 2007 and 2006. For fiscal year 2009, quarterly contributions in the range of $15 million are planned for the U.S. qualified pension plan. Although the level of required future contributions is unpredictable and depends heavily on plan asset experience and interest rates, we expect to continue to contribute to the plan on a regular basis in the near term.

Share Repurchases: In October 2005, the board of directors authorized the purchase of up to $800 million of our common stock over a four-year period. In 2008 and 2007, we purchased $361 million and $191 million, respectively, of our common stock under the $800 million authorization. A total of 9.5 million shares have been repurchased under this program. In April 2008, the board of directors authorized a new share repurchase program of up to $800 million of our common stock over a three-year period. This repurchase program will commence at the time the company’s current share repurchase program is completed or Oct. 25, 2009, whichever is earlier.

Dividends: We paid dividends totaling $419 million in 2008, $258 million in 2007, and $207 million in 2006. In June 2008, we increased our dividend 37 percent to $0.24 per share. We continue to review our options for returning additional value to shareowners, including the possibility of a dividend increase.

Recent Divestiture: In October 2008, we consummated the sale of the Dairy business after receiving approval from the appropriate regulatory agencies and received $300 million in cash, and may receive additional contingent consideration. The contingent consideration is a 10-year earn-out with potential annual payments being earned by the company if certain revenue levels are exceeded. Based upon current revenue levels we expect the annual payment to be in the range of $20 million to $25 million per year.

2008 Acquisitions: In September 2007, we acquired 100 percent of the outstanding stock of Agroeste Sementes, a leading Brazilian corn seed company, for approximately $91 million (net of cash acquired and debt assumed), inclusive of transaction costs of $1 million. Agroeste focuses on hybrid corn seed production and serves farmers throughout Brazil. We consummated the transaction with cash. The financial results of this acquisition were included in the Monsanto’s consolidated financial statements from the date of acquisition.

In June 2008, we acquired 100 percent of the outstanding stock of De Ruiter and a related company for approximately $756 million (net of cash acquired and debt assumed), inclusive of transaction costs of $3 million. De Ruiter is a leading protected- culture vegetable seeds company based in the Netherlands with operations worldwide. Monsanto consummated the transaction with existing cash after receiving approvals from the appropriate regulatory authorities.


MONSANTO COMPANY		2008 FORM 10-K

In July 2008, we acquired Marmot, S.A., which operates Cristiani, a privately held seed company headquartered in Guatemala City, Guatemala, for $135 million (net of cash acquired and debt assumed), inclusive of transaction costs of $3 million. Monsanto consummated the transaction with existing cash.

2007 Acquisitions: On June 1, 2007, we completed the purchase of all the outstanding stock of DPL, the largest cotton seed breeder in the world, for a cash purchase price of $42 per share, or approximately $1.5 billion (net of cash acquired and debt assumed), inclusive of transaction costs of $38 million.

During 2007, our ASI subsidiary acquired 10 regional U.S. seed companies in separate transactions for an aggregate purchase price of $87 million (net of cash acquired), inclusive of transaction costs of $3 million, with potential additional earn-out amounts of up to $9 million. In conjunction with one of these acquisitions, we entered into a five-year global technology license agreement. See Note 9 — Goodwill and Other Intangible Assets — for further discussion of the agreement. Also during 2007, we acquired two European vegetable seeds businesses for $61 million, inclusive of transaction costs of $10 million. Additional contingent purchase price may be payable in the future if certain earnings targets are met. Such amounts are not expected to be material.

For all acquisitions described above, the business operations and employees of the acquired entities were added into the Seeds and Genomics segment results upon acquisition. These acquisitions were accounted for as purchase transactions. Accordingly, the assets and liabilities of the acquired entities were recorded at their estimated fair values at the dates of the acquisitions. See Note 4 — Business Combinations — for further discussion of this acquisition.

We have certain obligations and commitments to make future payments under contracts. The following table sets forth our estimates of future payments under contracts as of Aug. 31, 2008. See Note 23 — Commitments and Contingencies — for a further description of our contractual obligations.



	Payments Due by Fiscal Year Ending Aug. 31,
													2014 and
(Dollars in millions)	Total		2009		2010		2011		2012		2013		beyond

Long-Term Debt, including Capital Lease Obligations	$	1,792	$	—	$	18	$	15	$	499	$	35	$	1,225
Interest Payments Relating to Long-Term Debt and Capital Lease Obligations⁽¹⁾		1,646		110		109		108		108		71		1,140
Operating Lease Obligations		412		166		73		52		42		31		48
Purchase Obligations:
Uncompleted additions to property		346		287		56		3		—		—		—
Commitments to purchase inventories		1,840		1,274		178		158		119		104		7
Commitments to purchase breeding research		219		45		45		45		45		3		36
R&D alliances and joint venture obligations		81		34		19		17		11		—		—
Other purchase obligations		17		3		3		3		3		3		2
Other Liabilities:
Postretirement and ESOP liabilities⁽²⁾		148		104		—		—		—		—		44
Unrecognized tax benefits⁽³⁾		317		11
Other liabilities		267		45		20		19		23		16		144

Total Contractual Obligations	$	7,085	$	2,079	$	521	$	420	$	850	$	263	$	2,646


⁽¹⁾		For variable rate debt, interest is calculated using the applicable rates as of Aug. 31, 2008.

⁽²⁾		Includes the company’s planned pension and other post retirement benefit contributions for 2009. The actual amounts funded in 2009 may differ from the amounts listed above. Contributions in 2010 through 2014 and beyond are excluded as those amounts are unknown. Refer to Note 15 — Postretirement Benefits — Pensions — and Note 16 — Postretirement Benefits — Healthcare and Other Post Employment Benefits — for more information. The 2014 and beyond amount relates to the ESOP enhancement liability balance. Refer to Note 17 — Employee Savings Plans — for more information.

⁽³⁾		Unrecognized tax benefits relate to uncertain tax positions recorded under Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48), which we adopted on Sept. 1, 2007. We are unable to reasonably predict the timing of tax settlements, as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation. See Note 12 — Income Taxes — for more information.

Off-Balance Sheet Arrangements

Under our Separation Agreement with Pharmacia, we are required to indemnify Pharmacia for certain matters, such as environmental remediation obligations and litigation. To the extent we are currently managing any such matters, we evaluate them in the course of managing our own potential liabilities and establish reserves as appropriate. However, additional matters may arise in the future, and we may manage, settle or pay judgments or damages with respect to those matters in


MONSANTO COMPANY		2008 FORM 10-K

order to mitigate contingent liability and protect Pharmacia and Monsanto. See Note 23 — Commitments and Contingencies and Part I — Item 3 — Legal Proceedings — for further information.

Other Information

As discussed in Note 23 — Commitments and Contingencies and Item 3 — Legal Proceedings, Monsanto is responsible for significant environmental remediation and is involved in a number of lawsuits and claims relating to a variety of issues. Many of these lawsuits relate to intellectual property disputes. We expect that such disputes will continue to occur as the agricultural biotechnology industry evolves.

Seasonality

Our fiscal year end of August 31 synchronizes our quarterly and annual results with the natural flow of the agricultural cycle in our major markets. It provides a more complete picture of the North American and South American growing seasons in the same fiscal year. Sales by our Seeds and Genomics segment, and to a lesser extent, by our Agricultural Productivity segment, are seasonal. In fiscal year 2008, approximately 72 percent of our Seeds and Genomics segment sales occurred in the second and third quarters. This segment’s seasonality is primarily a function of the purchasing and growing patterns in North America. Agricultural Productivity segment sales were more evenly spread across our fiscal year quarters in 2008, with approximately 52 percent of these sales occurring in the second half of the year. Seasonality varies by the world areas where our Agricultural Productivity businesses operate. For example, the United States, Europe and Brazil were the largest contributors to Agricultural Productivity sales in 2008. The United States and Europe experienced most of their sales in the second half of 2008. Brazil had a higher concentration of sales in the first half of 2008.

Net income is the highest in second and third quarters, which correlates with the sales of the Seeds and Genomics segment and its gross profit contribution. Sales and income may shift somewhat between quarters, depending on planting and growing conditions. Our inventory is at its lowest level at the end of our fiscal year, which is consistent with the agricultural cycles in our major markets. Additionally, our trade accounts receivable are at their lowest levels in our first quarter, primarily because of prepayments received on behalf of both segments in the United States, and the seasonality of our sales.

As is the practice in our industry, we regularly extend credit to enable our customers to acquire crop protection products and seeds at the beginning of the growing season. Because of the seasonality of our business and the need to extend credit to customers, we use short-term borrowings to finance working capital requirements. Our need for such financing is generally higher in the second and third quarters of the fiscal year and lower in the first and fourth quarters of the fiscal year. Our customer financing programs are expected to continue to reduce our reliance on commercial paper borrowings.

OUTLOOK

We have achieved an industry-leading position in the areas in which we compete in both of our business segments. However, the outlook for each part of our business is quite different. In the Seeds and Genomics segment, our seeds and traits business is expected to expand. In the Agricultural Productivity segment, our glyphosate business grew through increases in our average net selling prices, and our selective chemistry business is expected to decline. As a result, we are striving to expand our seeds and traits business and working to maintain our position in our chemistry business.

We believe that our company is positioned to sustain earnings growth and strong cash flow, and we remain committed to returning value to shareowners through vehicles such as investments that expand the business, dividends and share repurchases. We will remain focused on cost and cash management for each segment, both to support the progress we have made in managing our investment in working capital and to realize the full earnings potential of our businesses. We plan to continue to seek additional external financing opportunities for our customers as a way to manage receivables for each of our segments. In 2009, we also expect to see increased gross profit as our higher-margin seeds and traits business grows and we realize the full-year impact of improved average net selling prices in our Roundup business.

We expect to continue to implement locally responsive business strategies for our businesses in each world area. Outside of the United States, our businesses will continue to face additional challenges related to the risks inherent in operating in emerging markets. We have taken steps to reduce our credit exposure in those areas, which has the potential to affect sales negatively in the near term.


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Seeds and Genomics

Our capabilities in plant breeding and biotechnology research are generating a rich and balanced product pipeline that we expect will drive long-term growth. We plan to continue to invest in the areas of seeds, genomics and biotechnology and to invest in technology arrangements that have the potential to increase the efficiency and effectiveness of our R&D efforts. We believe that our seeds and traits businesses will have significant near-term growth opportunities through a combination of improved breeding and continued growth of stacked and second-generation biotech traits.

We expect advanced breeding techniques combined with improved production practices and capital investments to continue to contribute to improved germplasm quality and yields for our seed offerings, leading to increased global demand for both our branded germplasm and our licensed germplasm. Our vegetable portfolio will focus on 25 crops. We plan to continue to apply our molecular breeding and marker capabilities to our vegetable seeds germplasm, and we expect that to lead to growth in that business. The acquisition of De Ruiter will broaden our focus to include the protected-culture vegetable seed market, which is a faster growing sector of the vegetable industry. We also plan to continue making strategic acquisitions by our seed businesses to grow our branded seed market share or expand our germplasm library and strengthen our global breeding programs. We expect to see continued competition in seeds and genomics in the near term. We believe we will have a competitive advantage because of our breeding capabilities and our three-channel sales approach for corn and soybean seeds.

Commercialization of second-generation traits and the stacking of multiple traits in corn and cotton are expected to increase penetration in approved markets, particularly as we continue to price our traits in line with the value growers have experienced. In 2009, we expect that higher-value, stacked-trait products will represent a larger share of our total U.S. corn seed sales than they did in 2008. Acquisitions may also present near-term opportunities to increase penetration of our traits. In particular, we expect that our acquisition of DPL will enable us to accelerate penetration of our second-generation cotton traits in 2009 and later years. We expect the competition in biotechnology to increase, as more competitors launch traits in the United States and internationally by the end of the decade. However, we believe we will have a competitive advantage because we will be poised to deliver second- and third-generation traits when our competitors are delivering their first-generation traits.

Regulatory approvals have been obtained in the United States, Canada, and various importing countries like China and Japan for Roundup Ready 2 Yield soybeans, our second-generation glyphosate-tolerant soybean product that is expected to have a controlled commercial release in 2009. In addition, regulatory submissions and reviews for Roundup Ready 2 Yield are proceeding in other key soybean-importing countries including the European Union. Significant progress has also been made for our second generation stacked Bt corn product, YieldGard VT Triple Pro. The EPA granted registration for YieldGard VT Triple Pro with a reduced corn borer refuge requirement for the dual Bt gene-containing product to 20 percent in the southern cotton growing areas from the current 50 percent requirement for single Bt gene corn borer products. In addition, we have submitted an amendment to the EPA for YieldGard VT Triple Pro requesting a refuge reduction from 20 percent to 5 percent in the Corn Belt for corn borers. The U.S. Department of Agriculture has also granted deregulation for YieldGard VT Pro completing the necessary U.S. approvals for a limited launch in 2009. In Canada YieldGard VT Triple Pro was granted food, feed, and environmental release approval from Health Canada and the Canadian Food Inspection Agency (CFIA), respectively. The CFIA was the first agency to grant commercialization approval for YieldGard VT Pro with a reduced 5 percent refuge requirement for corn borers. Regulatory submissions have also been initiated for SmartStax corn including a request to the EPA for a 5 percent refuge in the Corn Belt for this dual Bt gene product which will control above and below ground pests and is anticipated to launch in the United States in 2010, assuming regulatory approval. Global cultivation opportunities were expanded for corn, with Argentina and South Africa’s regulatory approvals for YieldGard Corn Borer stacked with Roundup Ready Corn 2 in 2007, and with Brazil’s recent approval for YieldGard Corn Borer. YieldGard Corn Borer is our first biotech corn product to be commercialized in Brazil.

During 2007, we and BASF announced a long-term joint research and development and commercialization collaboration in plant biotechnology that will focus on high-yielding crops and crops that are tolerant to adverse conditions such as drought. Over the long-term life of the collaboration, we and BASF will dedicate a joint budget of potentially $1.5 billion to fund a dedicated pipeline of yield and stress tolerance traits for corn, soybeans, cotton and canola.

Our international traits businesses, in particular, will probably continue to face unpredictable regulatory environments that may be highly politicized. We operate in volatile, and often difficult, economic environments. Although we see growth potential in our India cotton business with the ongoing conversion to new hybrids and Bollgard II, this business is currently operating under state governmental pricing directives that we believe limit near-term earnings growth.


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In Brazil, we expect to continue to operate our dual-track business model of certified seeds and our point-of-delivery payment system to ensure that we capture value on all our Roundup Ready soybeans and Bollgard cotton crops grown there. Income is expected to grow as farmers choose to plant more of these approved traits. However, full regulatory system approval of additional traits must be realized for us to see a step change in contributions from seeds and traits. As noted above, YieldGard Corn Borer corn was approved recently. The agricultural economy in Brazil is benefiting from relatively strong global commodity prices, particularly for corn and soybeans, however volatility on commodity prices and foreign exchange may impact future farmer profitability. Thus, we continue to maintain our strict credit policy, expand our grain-based collection system, and focus on cash collection and sales, as part of a continuous effort to manage our Brazilian risk against such volatility.

It is likely that rulings of patent infringement from several ongoing court cases in Europe will be required before we can expect to capture value from our Roundup Ready soybeans grown in Argentina. One Spanish case, which we have appealed, and a U.K. case have had adverse early results. We recently settled the U.K. case, and both we and the defendants have dismissed our appeals of that matter and agreed to work together to provide commercially-viable technological solutions for agriculture in Argentina. The first case in Holland has now been referred to the European Court of Justice (“ECJ”) for an interpretation of the EU patent law for biotech products. This will probably take up to two years. It is likely that all other cases on continental Europe will await the outcome of the ECJ ruling. We are continuing to discuss alternative arrangements with various stakeholders. However, we have no certainty that any of these discussions will lead to an income producing outcome in the near term. We do not plan to commercialize new soybean or cotton traits in Argentina until we can achieve more certainty that we would be compensated for the technology.

In March 2008, a judge of the French Supreme Administrative court (Conseil d’Etat) rejected an application for interim relief by French farmers, French grower associations and various companies including us to overturn the French government’s suspension of planting of YieldGard Corn Borer pending review and completion under a new regulatory regime. The outcome means that there will be no sales or planting of this product in France during the forthcoming growing season. The legality of the suspension will be decided after a full hearing before the court later this year.

Agricultural Productivity

We believe our Roundup herbicide business will continue to generate a sustainable source of cash and gross profit. Prices of generic formulations of glyphosate herbicides increased during 2008. The generic and private-label pricing can be somewhat unstable during the short-term, but we believe both the short- and long-term trends will be favorable relative to the previous three-year period. We have experienced increased demand in recent years, and we are increasing production capacity at our Luling, Louisiana, plant to meet the anticipated future demand for Roundup, as well as for our glyphosate supply business. To sustain the cash and income generation of our Roundup business, we will continue to actively manage our inventory and other costs and offer product innovations, superior customer service and logistics and marketing programs to support or allow us to maintain premium prices commensurate with our brands value. Further expansion of crops with our Roundup Ready traits may also incrementally increase sales of our Roundup products.

We have submitted a mine plan to the U.S. Bureau of Land Management regarding a new phosphate ore mine in Soda Springs, Idaho, that we intend to use to meet existing and future production demands for our Roundup herbicides and licensed glyphosate. We anticipate receiving regulatory approvals for our new mine in late 2009. However, we are aware that certain environmental groups have initiated litigation against other phosphate producers to disrupt and delay the permitting process.

Like most other selective herbicides, our selective acetochlor herbicide products face increasing competitive pressures and a declining market, in part because of the rapid penetration of Roundup Ready corn in the United States. We will continue to seek ways to optimize our selective herbicides business, as we believe it is important to offer fully integrated crop-protection solutions, particularly in Roundup Ready Corn 2. We anticipate a continued decline in this business in the near term, but the gross profit from the Roundup Ready traits and from the Roundup herbicides used on these acres is significantly higher than the gross profit from the lost selective herbicide sales.

The lawn-and-garden business should continue benefiting from the Roundup brand equity in the marketplace and remain a strong cash generator for Monsanto. Price increases and driving purchases to more profitable products will be used to offset higher production cost and increased commission expenses owed to The Scott’s Miracle-Gro Company.


MONSANTO COMPANY		2008 FORM 10-K

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements, we must select and apply various accounting policies. Our most significant policies are described in Note 2 — Significant Accounting Policies. In order to apply our accounting policies, we often need to make estimates based on judgments about future events. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our results of operations, financial condition and changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection of our critical accounting estimates, and our disclosure regarding them, with the audit and finance committee of our board of directors, and do so on a regular basis.

We believe that the following estimates have a higher degree of inherent uncertainty and require our most significant judgments. In addition, had we used estimates different from any of these, our results of operations, financial condition or changes in financial condition for the current period could have been materially different from those presented.

Goodwill: The majority of our goodwill relates to our seed company acquisitions. We are required to assess whether any of our goodwill is impaired. In order to do this, we apply judgment in determining our reporting units, which represent component parts of our business. Our annual goodwill impairment assessment involves estimating the fair value of a reporting unit and comparing it with its carrying amount. If the carrying value of the reporting unit exceeds its fair value, additional steps are required to calculate a potential impairment loss. Calculating the fair value of the reporting units requires significant estimates and long-term assumptions. Any changes in key assumptions about the business and its prospects, or any changes in market conditions, interest rates or other externalities, could result in an impairment charge. We estimate the fair value of our reporting units by applying discounted cash flow methodologies. The annual goodwill impairment tests were performed as of March 1, 2008, and March 1, 2007. No indications of goodwill impairment existed as of either date. In 2008 and 2007, we recorded goodwill related to our acquisitions (see Note 4 — Business Combinations). Future declines in the fair value of our reporting units could result in an impairment of goodwill and reduce shareowners’ equity.

Intangible Assets: In accordance with SFAS 144, all amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying amount of the intangible is reduced by the estimated cash-flow shortfall on a discounted basis, and a corresponding loss is charged to the Statement of Consolidated Operations. Significant changes in key assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized or expected to be utilized, could result in an impairment charge.

Litigation and Other Contingencies: We are involved in various intellectual property, tort, contract, antitrust, employee benefit, environmental and other claims and legal proceedings; environmental remediation; and government investigations. We routinely assess the likelihood of adverse judgments or outcomes to those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. We record accruals for such contingencies to the extent that we conclude their occurrence is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. Disclosure for specific legal contingencies is provided if the likelihood of occurrence is at least reasonably possible and the exposure is considered material to the consolidated financial statements. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, past history, scientific and other evidence, and the specifics and status of each matter. If our assessment of the various factors changes, we may change our estimates. That may result in the recording of an accrual or a change in a previously recorded accrual. Predicting the outcome of claims and litigation, and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates and accruals.

Our environmental and litigation reserve at Aug. 31, 2008, was $272 million. This reserve represents the discounted cost that we would expect to incur in connection with litigation and environmental matters. We expect to pay for these potential liabilities over time as the various legal proceedings are resolved and remediation is performed at the various environmental


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sites. Actual costs to us may differ materially from this estimate. Further, additional litigation or environmental matters that are not reflected in this reserve may arise or become probable and reasonably estimable in the future, and we may also manage, settle or pay judgments or damages with respect to litigation or environmental matters in order to mitigate contingent potential liabilities.

Pensions and Other Postretirement Benefits: The actuarial valuations of our pension and other postretirement benefit costs, assets and obligations affect our financial position, results of operations and cash flows. These valuations require the use of assumptions and long-range estimates. These assumptions include, among others: assumptions regarding interest and discount rates, assumed long-term rates of return on pension plan assets, health care cost trends, and projected rates of salary increases. We regularly evaluate these assumptions and estimates as new information becomes available. Changes in assumptions (caused by conditions in the debt and equity markets, changes in asset mix, and plan experience, for example) could have a material effect on our pension obligations and expenses, and can affect our net income (loss), liabilities, and shareowners’ equity. In addition, changes in assumptions such as rates of return, fixed income rates used to value liabilities or declines in the fair value of plan assets, may result in voluntary decisions or mandatory requirements to make additional contributions to our qualified pension plan. Because of the design of our postretirement health care plans, our liabilities associated with these plans are not highly sensitive to assumptions regarding health care cost trends.

In 2007, we adopted SFAS 158 and recognized the under funded status which resulted in a pre-tax charge of $72 million to accumulated other comprehensive income. Prior to the adoption of SFAS 158, in fiscal years 2007 and 2006, we recorded a $79 million decrease and a $148 million increase, respectively, to adjust the additional minimum pension liability in our financial statements. These adjustments were necessary to keep the recorded pension liability at least equal to the unfunded accumulated benefit obligation for the plan. These noncash adjustments to adjust the additional minimum pension liability affected shareowners’ equity, but did not affect our results of operations.

Fiscal year 2009 pension expense, which will be determined using assumptions as of Aug. 31, 2008, is expected to increase compared with fiscal year 2008 because we decreased our expected rate of return on assets assumption as of Aug. 31, 2008, to 8 percent. This assumption was 8.25 percent in 2008, 8.5 in 2007, and 8.75 percent in 2006. To determine the rate of return, we consider the historical experience and expected future performance of the plan assets, as well as the current and expected allocation of the plan assets. The U.S. qualified pension plan’s asset allocation as of Aug. 31, 2008, was approximately 62 percent equity securities, 32 percent debt securities and 6 percent other investments, in line with policy ranges. We periodically evaluate the allocation of plan assets among the different investment classes to ensure that they are within policy guidelines and ranges. While we do not currently expect to further reduce the assumed rate of return in the near term, holding all other assumptions constant, we estimate that a half-percent decrease in the expected return on plan assets would lower our fiscal year 2009 pre-tax income by approximately $7 million.

Our discount rate assumption for the 2009 U.S. pension expense is 6.50 percent. This assumption was 6.05 percent, 5.9 percent and 5 percent in 2008, 2007 and 2006, respectively. In determining the discount rate, we use yields on high-quality fixed-income investments (including among other things, Moody’s Aa corporate bond yields) that match the duration of the pension obligations. To the extent the discount rate increases or decreases, our pension obligation is decreased or increased accordingly. Holding all other assumptions constant, we estimate that a half-percent decrease in the discount rate will decrease our fiscal year 2009 pre-tax income by approximately $5 million. Our salary rate assumption as of Aug. 31, 2008, was approximately 6 percent for the next year, 5 percent for the following year and then 4 percent prospectively on all plans. Holding all other assumptions constant, we estimate that a half-percent increase in the salary rate assumption would decrease our fiscal year 2009 pretax income $1 million.

Income Taxes: Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established or increased, an income tax charge is included in the consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax laws, statutory tax rates, and estimates of the company’s future taxable income levels could result in actual realization of the deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write off the remaining deferred tax asset and increase the tax provision, resulting in a reduction of net income and shareowners’ equity.

On Sept. 1, 2007, we adopted the provisions of FIN 48. Under FIN 48, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the


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largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Tax authorities regularly examine the company’s returns in the jurisdictions in which we do business. Management regularly assesses the tax risk of the company’s return filing positions and believes its accruals for uncertain tax benefits are adequate as of Aug. 31, 2008.

As of Aug. 31, 2008, management has recorded a deferred tax asset of $439 million in Brazil primarily related to net tax operating loss carryforwards (NOLs) that have no expiration date. We also had available approximately $300 million of U.S. foreign tax credit carryforwards. Management continues to believe it is more likely than not that we will realize our deferred tax assets in Brazil and the United States.

As of Aug. 31, 2005, management had recorded a valuation allowance of $103 million in Argentina related to NOLs. Monsanto Argentina generated taxable income in its 2007 and 2006 tax year (calendar 2007 and 2006) and, accordingly, reversed $33 million and $15 million of the valuation allowance as a favorable adjustment to our 2007 and 2006 tax provision, respectively. At the beginning of fiscal 2008, we had a valuation allowance of $43 million related to the remaining NOLs. However, based upon improvements in Monsanto Argentina’s operations, we now believe it is more likely than not that such deferred tax assets will be realized. Accordingly, the previously recorded $43 million valuation allowance was reversed in third quarter 2008.

Marketing Programs: Accrued marketing program costs are recorded in accordance with EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer, based upon specific performance criteria met by our customers, such as purchase volumes, promptness of payment, and market share increases. The associated cost of marketing programs is recorded in net sales in the Statements of Consolidated Operations. As actual expenses are not known at the time of the sale, an estimate based on the best available information (such as historical experience) is used as a basis for the liability. Management analyzes and reviews the marketing program balances on a quarterly basis and adjustments are recorded as appropriate.

Allowance for Doubtful Trade Receivables: We maintain an allowance for doubtful trade receivables. This allowance represents our estimate of accounts receivable that, subsequent to the time of sale, we have estimated to be of doubtful collectibility because our customers may not be able to pay. In determining the adequacy of the allowance for doubtful accounts, we consider historical bad-debt experience, customer creditworthiness, market conditions, and economic conditions. We perform ongoing evaluations of our allowance for doubtful accounts, and we increase the allowance as required. Increases in this allowance will reduce the recorded amount of our net trade receivables, net income and shareowners’ equity, and increase our bad-debt expense.

Allowances for Returns and Inventory Obsolescence: Where the right of return exists in our seed business, sales revenues are reduced at the time of sale to reflect expected returns. In order to estimate the expected returns, management analyzes historical returns, economic trends, market conditions, and changes in customer demand. In addition, we establish allowances for obsolescence of inventory equal to the difference between the cost of inventory and the estimated market value, based on assumptions about future demand and market conditions. We regularly evaluate the adequacy of our return allowances and inventory obsolescence reserves. If economic and market conditions are different from those we anticipated, actual returns and inventory obsolescence could be materially different from the amounts provided for in our consolidated financial statements. If seed returns are higher than anticipated, our net sales, net trade receivables, net income and shareowners’ equity for future periods will be reduced. If inventory obsolescence is higher than expected, our cost of goods sold will be increased, and our inventory valuations, net income, and shareowners’ equity will be reduced.

Stock-Based Compensation: SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R) requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair value. Pre-tax stock-based compensation expense recognized under SFAS 123R was $90 million and $73 million in 2008 and 2007, respectively.

We estimate the value of employee stock options on the date of grant using a lattice-binomial model. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The use of a lattice-binomial model requires extensive actual employee exercise behavior data and a number of complex assumptions including expected volatility, risk-free interest rate, and expected dividends. We based our estimate of future volatility on a combination of historical volatility on our stock and implied volatility on publicly traded


MONSANTO COMPANY		2008 FORM 10-K

options on our stock. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption is based on the history and expectation of dividend payouts. The weighted-average estimated value of employee stock options granted during 2008 was $30.04 per share using the lattice-binomial model.

We estimate the value of restricted stock and restricted stock units based on the fair value of our stock on the date of grant. When dividends are not paid on outstanding restricted stock units, we value the award by reducing the grant-date price by the present value of the dividends expected to be paid, discounted at the appropriate risk-free interest rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our restricted stock units. The weighted-average value of restricted stock units granted during 2008 was $128.13.

Pre-tax unrecognized compensation expense, net of estimated forfeitures, for stock options, nonvested restricted stock and nonvested restricted stock units was $153 million as of Aug. 31, 2008, which will be recognized over weighted-average remaining vesting periods of two to four years. This increased during 2008 due primarily to 874,900 restricted stock units issued to certain eligible Monsanto employees under a one-time, broad-based award.

If factors change and we employ different assumptions in the application of SFAS 123R in future periods, or if employee exercise behavior or forfeiture rates of restricted stock units is significantly different from the assumptions in our model, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period.

NEW ACCOUNTING STANDARDS

In June 2008, the FASB issued FASB Staff Position (FSP) EITF Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 requires that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents to be included in the two-class method of computing earnings per share as described in SFAS No. 128, Earnings per Share. This FSP is effective for financial statements issued for fiscal years beginning after Dec. 15, 2008, and interim periods within those years. Accordingly, we will adopt FSP EITF 03-6-1 in fiscal year 2010. We are currently evaluating the impact of FSP EITF 03-6-1 on the consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation and presentation of financial statements in accordance with generally accepted accounting principles. This statement will be effective for Monsanto in first quarter 2009. We do not anticipate the adoption of SFAS 162 will have an effect on the consolidated financial statements.

In April 2008, the FASB issued FSP SFAS No. 142-3, Determining the Useful Life of Intangible Assets (FSP SFAS 142-3). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. This FSP must be applied prospectively to intangible assets acquired after the effective date. This FSP is effective for fiscal years beginning after Dec. 15, 2008, and interim periods within those years. Accordingly, we will adopt FSP SFAS 142-3 in fiscal year 2010. We are currently evaluating the impact of FSP SFAS 142-3 on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal periods beginning after Nov. 15, 2008. Accordingly, we will adopt SFAS 161 in second quarter 2009. We are currently evaluating the impact of SFAS 161 on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires an entity to clearly identify and present its ownership interests in subsidiaries held by parties other than the entity in the consolidated financial statements within the equity section but separate from the entity’s equity. It also requires the amount of consolidated net income attributable to the parent and to the


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noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; changes in ownership interest be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This statement is effective for financial statements issued for fiscal years beginning after Dec. 15, 2008. Accordingly, we will adopt SFAS 160 in fiscal year 2010. We are currently evaluating the impact of SFAS 160 on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). Under SFAS 141R, an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies and contingent consideration measured at their fair value at the acquisition date. It further requires that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred. In addition, acquired in-process research and development (IPR&D) is capitalized at fair value as an intangible asset and amortized over its estimated useful life. SFAS 141R is effective for business combinations for which the acquisition date is after the beginning of the first annual reporting period beginning after Dec. 15, 2008. Accordingly, we will adopt SFAS 141R in fiscal year 2010. We are currently evaluating the impact of SFAS 141R on the consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities using different measurement techniques. SFAS 159 requires additional disclosures related to the fair value measurements included in the entity’s financial statements. This statement is effective for financial statements issued for fiscal years beginning after Nov. 15, 2007. Accordingly, we will adopt SFAS 159 in fiscal year 2009. We do not believe the adoption of SFAS 159 will have a material impact on the consolidated financial statements because we have not made any fair value measurement elections.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after Nov. 15, 2007. Accordingly, we will adopt SFAS 157 in fiscal year 2009 for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We have not completed our evaluation of the impact of adopting SFAS 157 on the consolidated financial statements. The adoption of SFAS 157 may require modification of our fair value measurements and will require expanded disclosures in the notes to the consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the effect of interest rate changes, foreign currency fluctuations, and changes in commodity and equity prices. Market risk represents the risk of a change in the value of a financial instrument, derivative or nonderivative, caused by fluctuations in interest rates, currency exchange rates, and commodity and equity prices. Monsanto handles market risk in accordance with established policies by engaging in various derivative transactions. Such transactions are not entered into for trading purposes.

See Notes 2 and 3 to the consolidated financial statements for further details regarding the accounting and disclosure of our derivative instruments and hedging activities.

The sensitivity analysis discussed below presents the hypothetical change in fair value of those financial instruments held by the company as of Aug. 31, 2008, that are sensitive to changes in interest rates, currency exchange rates, and commodity and equity prices. Actual changes may prove to be greater or less than those hypothesized.

Changes in Interest Rates: Because the company’s short- and long-term debt exceeds cash and investments, Monsanto’s interest-rate risk exposure pertains primarily to the debt portfolio. To the extent that we have cash available for investment to ensure liquidity, we will invest that cash only in short-term instruments. The majority of our debt as of Aug. 31, 2008, consisted of fixed-rate long-term obligations.


MONSANTO COMPANY		2008 FORM 10-K

Market risk with respect to interest rates is estimated as the potential change in fair value resulting from an immediate hypothetical 1 percentage point parallel shift in the yield curve. The fair values of the company’s investments and loans are based on quoted market prices or discounted future cash flows. We currently hold debt and investments that mature in less than 360 days, and variable rate medium-term notes. As the carrying amounts on short-term loans and investments maturing in less than 360 days and the carrying amounts of variable-rate medium-term notes approximate their respective fair values, a 1 percentage point change in the interest rates would not result in a material change in the fair value of our debt and investments portfolio.

On Aug. 14, 2002, Monsanto issued $600 million of 7³/8% Senior Notes, and on Aug. 23, 2002, the aggregate principal amount of the outstanding notes was increased to $800 million. In August 2005, the company exchanged $314 million of new 5¹/2% Senior Notes due 2025 for $314 million of the company’s outstanding 7³/8% Senior Notes. As of Aug. 31, 2008, the fair value of the 7³/8% Senior Notes was $533 million, and the fair value of the 5¹/2% 2025 Senior Notes was $286 million. A 1 percentage point change in the interest rates would change the fair value of the remaining 7³/8% Senior Notes by approximately $19 million, and the fair value of the 5¹/2% 2025 Senior Notes by $33 million.

In July 2005, Monsanto issued $400 million of 5¹/2% Senior Notes due 2035. As of Aug. 31, 2008, the fair value of the 5¹/2% 2035 Senior Notes was $353 million. A 1 percentage point change in the interest rates would change the fair value of the 5¹/2% 2035 Senior Notes by $51 million.

In April 2008, Monsanto issued $300 million of 5¹/8% Senior Notes due 2018. As of Aug. 31, 2008, the fair value of the 5¹/8% 2018 Senior Notes was $294 million. A 1 percentage point change in the interest rates would change the fair value of the 5¹/8% 2018 Senior Notes by $23 million.

In April 2008, Monsanto issued $250 million of 5⁷/8% Senior Notes due 2038. As of Aug. 31, 2008, the fair value of the 5⁷/8% 2038 Senior Notes was $243 million. A 1 percentage point change in the interest rates would change the fair value of the 5⁷/8% 2038 Senior Notes by $37 million.

Foreign Currency Fluctuations: In managing foreign currency risk, Monsanto focuses on reducing the volatility in consolidated cash flow and earnings caused by fluctuations in exchange rates. We use foreign-currency forward exchange contracts and foreign-currency options to manage the net currency exposure, in accordance with established hedging policies. Monsanto hedges recorded commercial transaction exposures, intercompany loans, net investments in foreign subsidiaries, and forecasted transactions. The company’s significant hedged positions included the European euro, the Brazilian real, the Canadian dollar, the Romanian leu and the Argentine peso. Unfavorable currency movements of 10 percent would negatively affect the fair values of the derivatives held to hedge currency exposures by $180 million.

Changes in Commodity Prices: Monsanto uses futures contracts to protect itself against commodity price increases and uses options contracts to limit the unfavorable effect that price changes could have on these purchases. The company’s futures and options contracts are accounted for as cash flow hedges and are mainly in the Seeds and Genomics segment. The majority of these contracts hedge the committed or future purchases of, and the carrying value of payables to growers for, soybean and corn inventories. A 10 percent decrease in the prices would have a negative effect on the fair value of these instruments of $41 million. We also use natural gas and diesel swaps and natural gas options to manage energy input costs. A 10 percent decrease in price of gas and diesel would have a negative effect on the fair value of these instruments of $12 million.

Changes in Equity Prices: The company also has investments in marketable equity securities. All such investments are classified as long-term available-for-sale investments. The fair value of these investments is $23 million. These securities are listed on a stock exchange or quoted in an over-the-counter market. If the market price of the traded securities should decrease by 10 percent, the fair value of the equities would decrease by $2 million. See Note 10 — Investments and Equity Affiliates — for further details.


MONSANTO COMPANY		2008 FORM 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management Report

Monsanto Company’s management is responsible for the fair presentation and consistency, in accordance with accounting principles generally accepted in the United States of America, of all the financial information included in this Form 10-K. Where necessary, the information reflects management’s best estimates and judgments.

Management is also responsible for establishing and maintaining an effective system of internal control over financial reporting. The purpose of this system is to provide reasonable assurance that Monsanto’s assets are safeguarded against material loss from unauthorized acquisition, use or disposition, that authorized transactions are properly recorded to permit the preparation of accurate financial information in accordance with generally accepted accounting principles, that records are maintained which accurately and fairly reflect the transactions and dispositions of the company, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company. This system of internal control over financial reporting is supported by formal policies and procedures, including a Business Conduct program designed to encourage and assist employees in living up to high standards of integrity, as well as a Code of Ethics for Chief Executive and Senior Financial Officers. Management seeks to maintain the effectiveness of internal control over financial reporting by careful personnel selection and training, division of responsibilities, establishment and communication of policies, and ongoing internal reviews and audits. See Management’s Annual Report on Internal Control over Financial Reporting for Management’s conclusion of the effectiveness of Monsanto’s internal control over financial reporting as of Aug. 31, 2008.

Monsanto’s consolidated financial statements have been audited by Deloitte & Touche LLP, independent registered public accounting firm. Their audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), and included a test of financial controls, tests of accounting records, and such other procedures as they considered necessary in the circumstances.

The Audit and Finance Committee, composed entirely of outside directors, meets regularly with management, with the internal auditors and with the independent registered public accounting firm to review accounting, financial reporting, auditing and internal control matters. The committee has direct and private access to the registered public accounting firm and internal auditors.

/s/ Hugh Grant

Hugh Grant
Chairman, President and Chief Executive Officer

/s/ Terrell K. Crews

Terrell K. Crews
Executive Vice President and Chief Financial Officer

Oct. 23, 2008


MONSANTO COMPANY		2008 FORM 10-K

Management’s Annual Report on Internal Control over Financial Reporting

Management of Monsanto Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In conducting our evaluation of the effectiveness of our internal control over financial reporting as of Aug. 31, 2008, we have excluded the acquisitions of De Ruiter Seeds Group, B.V. and Semillas Cristiani Burkard, as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission. These acquisitions were completed in the fourth quarter of 2008 and in total constituted 5 percent of total assets as of Aug. 31, 2008, and less than 1 percent of total revenues for the fiscal year then ended. See Note 4 — Business Combinations — for a further discussion of these acquisitions and their impact on Monsanto’s Consolidated Financial Statements.

Based on our evaluation under the COSO framework, management concluded that the company maintained effective internal control over financial reporting as of Aug. 31, 2008.

The company’s independent registered public accounting firm, Deloitte & Touche LLP, was appointed by the Audit and Finance Committee of the company’s Board of Directors, and ratified by the company’s shareowners. Deloitte & Touche LLP has audited and reported on the Consolidated Financial Statements of Monsanto Company and subsidiaries and the effectiveness of the company’s internal control over financial reporting. The reports of the independent registered public accounting firm are contained in Item 8 of this Annual Report.

/s/ Hugh Grant

Hugh Grant
Chairman, President and Chief Executive Officer

/s/ Terrell K. Crews

Terrell K. Crews
Executive Vice President and Chief Financial Officer

Oct. 23, 2008


MONSANTO COMPANY		2008 FORM 10-K

Report of Independent Registered Public Accounting Firm

To the Shareowners of Monsanto Company:

We have audited the internal control over financial reporting of Monsanto Company and subsidiaries (the “Company”) as of August 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Semillas Cristiani Burkard (“Cristiani”) and De Ruiter Seeds Group B.V. (“De Ruiter”), which were acquired on July 1, 2008 and June 13, 2008, respectively. These acquisitions constitute 5% of total assets and less than 1% of total revenues of the consolidated financial statement amounts as of and for the year ended August 31, 2008. Accordingly, our audit did not include the internal control over financial reporting at Cristiani and De Ruiter. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.


MONSANTO COMPANY		2008 FORM 10-K

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of consolidated financial position as of August 31, 2008 and the related statements of consolidated operations, cash flows, shareowners’ equity, and comprehensive income for year ended August 31, 2008, of the Company and our report dated October 23, 2008 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109; Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R); and Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143, effective September 1, 2007, August 31, 2007, and August 31, 2006, respectively.

/s/ DELOITTE & TOUCHE LLP

St. Louis, Missouri
October 23, 2008


MONSANTO COMPANY		2008 FORM 10-K

Report of Independent Registered Public Accounting Firm
To the Shareowners of Monsanto Company:

We have audited the accompanying statements of consolidated financial position of Monsanto Company and subsidiaries (the “Company”) as of August 31, 2008 and 2007, and the related statements of consolidated operations, cash flows, shareowners’ equity, and comprehensive income for each of the three years in the period ended August 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Monsanto Company and subsidiaries as of August 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109; Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R); and Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143, effective September 1, 2007, August 31, 2007, and August 31, 2006, respectively.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of August 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 23, 2008 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

St. Louis, Missouri
October 23, 2008



MONSANTO COMPANY		2008 FORM 10-K

Statements of Consolidated Operations


	Year Ended Aug. 31,
(Dollars in millions, except per share amounts)	2008			2007			2006

Net Sales	$	11,365		$	8,349		$	7,065
Cost of goods sold		5,188			4,119			3,622

Gross Profit		6,177			4,230			3,443
Operating Expenses:
Selling, general and administrative expenses		2,312			1,858			1,604
Research and development expenses		980			770			700
Acquired in-process research and development (see Note 4)		164			193			—

Total Operating Expenses		3,456			2,821			2,304
Income from Operations		2,721			1,409			1,139
Interest expense		110			136			133
Interest income		(132	)		(120	)		(54	)
Solutia-related (income) expenses — net (see Note 25)		(187	)		40			29
Other expense — net		4			25			13

Income from Continuing Operations Before Income Taxes and Minority Interest		2,926			1,328			1,018
Income tax provision		899			403			330
Minority interest expense		20			12			17

Income from Continuing Operations		2,007			913			671

Discontinued Operations (see Note 27):
Income from operations of discontinued businesses		20			52			32
Income tax provision (benefit)		3			(28	)		8

Income on Discontinued Operations		17			80			24

Income Before Cumulative Effect of Accounting Change		2,024			993			695
Cumulative Effect of a Change in Accounting Principle, Net of Tax Benefit (see Note 2)		—			—			(6	)

Net Income	$	2,024		$	993		$	689

Basic Earnings (Loss) per Share:
Income from continuing operations	$	3.66		$	1.68		$	1.24
Income on discontinued operations		0.03			0.15			0.05
Cumulative effect of accounting change		—			—			(0.01	)

Net Income	$	3.69		$	1.83		$	1.28

Diluted Earnings (Loss) per Share:
Income from continuing operations	$	3.59		$	1.65		$	1.22
Income on discontinued operations		0.03			0.14			0.04
Cumulative effect of accounting change		—			—			(0.01	)

Net Income	$	3.62		$	1.79		$	1.25

The accompanying notes are an integral part of these consolidated financial statements.



MONSANTO COMPANY		2008 FORM 10-K

Statements of Consolidated Financial Position


	As of Aug. 31,
(Dollars in millions, except share amounts)	2008			2007

Assets
Current Assets:
Cash and cash equivalents	$	1,613		$	866
Trade receivables — net (see Note 5)		2,067			1,499
Miscellaneous receivables		742			407
Deferred tax assets		338			449
Inventories (see Note 7)		2,453			1,719
Assets of discontinued operations (see Note 27)		153			—
Other current assets		243			144

Total Current Assets		7,609			5,084
Total property, plant and equipment		6,725			5,916
Less accumulated depreciation		3,402			3,260

Property, Plant and Equipment — Net (see Note 8)		3,323			2,656
Goodwill (see Note 9)		3,132			2,625
Other Intangible Assets — Net (see Note 9)		1,531			1,415
Noncurrent Deferred Tax Assets		1,000			730
Long-Term Receivables — Net (see Note 5)		636			79
Noncurrent Assets of Discontinued Operations (see Note 27)		236			—
Other Assets		524			394

Total Assets	$	17,991		$	12,983

Liabilities and Shareowners’ Equity
Current Liabilities:
Short-term debt, including current portion of long-term debt	$	24		$	270
Accounts payable		1,090			649
Income taxes payable		161			150
Accrued compensation and benefits		441			349
Accrued marketing programs		754			517
Deferred revenues		867			260
Grower production accruals		172			86
Dividends payable		132			96
Liabilities of discontinued operations (see Note 27)		26			—
Miscellaneous short-term accruals		772			698

Total Current Liabilities		4,439			3,075
Long-Term Debt		1,792			1,150
Postretirement Liabilities		590			542
Long-Term Deferred Revenue		566			—
Noncurrent Deferred Tax Liabilities		204			83
Long-Term Portion of Environmental and Related Litigation Reserve (see Note 23)		168			135
Noncurrent Liabilities of Discontinued Operations (see Note 27)		52			—
Other Liabilities		806			495
Commitments and Contingencies (see Note 23)
Shareowners’ Equity:
Common stock (authorized: 1,500,000,000 shares, par value $0.01) Issued 583,581,984 and 577,244,601 shares, respectively; Outstanding 548,592,933 and 545,609,310 shares, respectively		6			6
Treasury stock 34,989,051 and 31,635,291 shares, respectively, at cost		(1,177	)		(814	)
Additional contributed capital		9,495			9,106
Retained earnings (deficit) (includes cumulative effect of adopting FIN 48 as of Sept. 1, 2007, of ($25))		1,138			(405	)
Accumulated other comprehensive loss		(78	)		(377	)
Reserve for ESOP debt retirement		(10	)		(13	)

Total Shareowners’ Equity		9,374			7,503

Total Liabilities and Shareowners’ Equity	$	17,991		$	12,983

The accompanying notes are an integral part of these consolidated financial statements.



MONSANTO COMPANY		2008 FORM 10-K

Statements of Consolidated Cash Flows


	Year Ended Aug. 31,
(Dollars in millions)	2008			2007			2006

Operating Activities:
Net Income	$	2,024		$	993		$	689
Adjustments to reconcile cash provided by operating activities:
Items that did not require (provide) cash:
Pre-tax cumulative effect of change in accounting principle (see Note 2)		—			—			9
Depreciation and amortization expense		573			527			519
Bad-debt expense		57			70			47
Receipt of securities from Solutia settlement (see Notes 10 and 25)		(38	)		—			—
Stock-based compensation expense		90			73			63
Excess tax benefits from stock-based compensation		(198	)		(83	)		(98	)
Deferred income taxes		47			(89	)		39
Equity affiliate expense — net		(2	)		34			31
Acquired in-process research and development (see Note 4)		164			193			—
Net gain on sale of Stoneville and NexGen businesses (see Note 27)		—			(73	)		—
Other items		7			15			26
Changes in assets and liabilities that provided (required) cash, net of acquisitions:
Trade receivables		(318	)		(2	)		159
Inventories		(691	)		60			(25	)
Deferred revenues		492			129			59
Accounts payable and other accrued liabilities		889			147			135
Pension contributions		(120	)		(60	)		(60	)
Net investment hedge settlement		(124	)		(23	)		(1	)
Other items		(53	)		(57	)		82

Net Cash Provided by Operating Activities		2,799			1,854			1,674

Cash Flows Provided (Required) by Investing Activities:
Purchases of short-term investments		(132	)		(59	)		(171	)
Maturities of short-term investments		59			22			300
Capital expenditures		(918	)		(509	)		(370	)
Acquisitions of businesses, net of cash acquired		(1,007	)		(1,679	)		(258	)
Purchases of long-term equity securities		(78	)		—			—
Technology and other investments		(41	)		(54	)		(147	)
Proceeds from sale of Stoneville and NexGen businesses (see Note 27)		—			317			—
Other investments and property disposal proceeds		90			51			21

Net Cash Required by Investing Activities		(2,027	)		(1,911	)		(625	)

Cash Flows Provided (Required) by Financing Activities:
Net change in financing with less than 90-day maturities		92			(5	)		(106	)
Short-term debt proceeds		—			8			6
Short-term debt reductions		(10	)		(8	)		(39	)
Long-term debt proceeds		546			8			256
Long-term debt reductions		(254	)		(281	)		(118	)
Payments on other financing		(3	)		(16	)		(9	)
Debt issuance costs		(5	)		—			—
Treasury stock purchases		(361	)		(197	)		(114	)
Stock option exercises		114			83			116
Excess tax benefits from stock-based compensation		198			83			98
Dividend payments		(419	)		(258	)		(207	)

Net Cash Required by Financing Activities		(102	)		(583	)		(117	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		77			46			3

Net Increase (Decrease) in Cash and Cash Equivalents		747			(594	)		935
Cash and Cash Equivalents at Beginning of Period		866			1,460			525

Cash and Cash Equivalents at End of Period	$	1,613		$	866		$	1,460

See Note 22 — Supplemental Cash Flow Information — for further details.
The accompanying notes are an integral part of these consolidated financial statements.



MONSANTO COMPANY		2008 FORM 10-K

Statements of Consolidated Shareowners’ Equity


						Additional			Retained			Accumulated Other
	Common		Treasury			Contributed			Earnings			Comprehensive			Reserve for
(Dollars in millions, except per share amounts)	Stock		Stock			Capital			(Deficit)			Income (Loss)⁽¹⁾			ESOP Debt			Total

Balance as of Sept. 1, 2005	$	3	$	(500	)	$	8,588		$	(1,572	)	$	(889	)	$	(17	)	$	5,613
Net income		—		—			—			689			—			—			689
Treasury stock purchases		—		(120	)		—			—			—			—			(120	)
Restricted stock withholding		—		(3	)		—			—			—			—			(3	)
Grants of restricted stock (48,200 shares)		—		—			1			—			—			—			1
Issuance of shares under employee stock plans		—		—			116			—			—			—			116
Excess tax benefits from stock-based compensation		—		—			98			—			—			—			98
Stock-based compensation expense		—		—			64			—			—			—			64
Cash dividends of $0.40 per common share		—		—			—			(216	)		—			—			(216	)
Foreign currency translation		—		—			—			—			191			—			191
Minimum pension liability, net of tax		—		—			—			—			90			—			90
Net unrealized gain on investments, net of tax		—		—			—			—			11			—			11
Accumulated derivative loss, net of tax		—		—			—			—			(26	)		—			(26	)
Allocation of ESOP shares, net of dividends received		—		—			—			—			—			2			2
Two-for-one stock split (see Note 1)		3		—			(3	)		—			—			—			—
Other adjustments⁽²⁾		—		—


PART III

Item 10.	Directors, Executive Officers and Corporate Governance	102
Item 11.	Executive Compensation	103
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	103
Item 13.	Certain Relationships and Related Transactions, and Director Independence	103
Item 14.	Principal Accounting Fees and Services	104

PART IV

Item 15.	Exhibits, Financial Statement Schedules	105

SIGNATURES		106
EXHIBIT INDEX		107

MONSANTO COMPANY