Investors in Ceres Inc. received a long-awaited dose of good news last week as the Thousand Oaks seed biofuels company inked a deal with a Swiss agriculture giant to bolster the Brazilian market for its sweet sorghum seeds.

The deal with Syngenta A.G. of Basel, Switzerland, means a major global agricultural company will now incorporate Ceres’ sweet sorghum seed technology into its market development plans. That would give Ceres a major recognition boost.

“This represents a further endorsement of Ceres’ technology and the viability for rising adoption of sweet sorghum by Brazilian mill owners,” said Pavel Molchanov, an analyst who follows the company with the Houston office of St. Petersburg, Fla.-based Raymond James & Associates Inc. Raymond James was involved in the company’s February initial public offering.

Ceres shares rose 9.5 percent to close at $4.02 for the week ended Nov. 28, making it one of the biggest gainers on the LABJ Stock Index. (See page 22.) The stock trades on Nasdaq, which rose 2.2 percent.

Shares continued to climb Nov. 29, closing at $4.23, up 21 percent for the four days after the announcement.

Sweet sorghum is a type of grass that has long been cultivated for use as a sugar substitute. In recent years, technology has emerged to ferment sweet sorghum into ethanol for the biofuels market. In the United States, most ethanol is derived from corn, but Brazil has become a major market for ethanol from sugarcane.

Ceres has been trying to convince Brazilian ethanol mill operators to convert from sugarcane to sweet sorghum, citing the latter’s longer growing season and its compatibility with existing sugarcane processing equipment.

Ceres went public earlier this year, but due to a jittery market, had to lower its initial pricing to $13 a share, well below the $23 it had hoped to get.

Tough slog

Since the February IPO, it’s been a tough slog for investors. The most recent growing season, which peaks January through March, was plagued by a drought that stunted crop growth and forced ethanol mill operators to scale bank their plantings. Ceres’ sweet sorghum seeds were planted on thousands of hectares instead of the tens of thousands initially planned. (One hectare is equivalent to 2.75 acres.)

“Our customers did not get to see the full yield potential of our products,” Ceres Chief Executive Richard William Hamilton told analysts in the company’s most recent earnings teleconference Nov. 20.

Molchanov said the other major issue for investors has been the lack of widespread use and familiarity with sweet sorghum as a sugarcane substitute for ethanol production.

“This is still an early stage technology,” Molchanov said. “And early stage and speculative stocks – including but not limited to Ceres – have been out of favor with investors.”

As a result, Ceres’ stock went into a steady slide after the IPO, hitting a low of $3.49 a share Nov. 23.

That’s why the marketing partnership with Syngenta is viewed as pivotal. Syngenta posted roughly $11.6 billion in sales last year and is one of the world’s largest commercial agricultural seed providers with operations in more than 90 countries.

Investors will be hoping for a more favorable growing season soon. But they’re also hoping that Syngenta’s prominence will prompt more ethanol mill owners to make the switch from sugarcane to sweet sorghum.

Ceres Chief Financial Officer Paul Kuc said the partnership will help give mill owners enough confidence in the seeds to change.

“This sends a clear message to the mills that they are going to have support from seed companies like Ceres and international crop-protection companies such as Syngenta,” Kuc told the Business Journal last week.

The company had orders from 14 Brazilian ethanol mill groups for the last growing season. Hamilton told analysts last month that the company plans to announce in January that it has orders from more than 20 mills for the current sweet sorghum growing season.

Meanwhile, Ceres is also developing and marketing switchgrass seed products for the United States and other markets, as well as new rice seeds that can be used as biofuels.

“What makes Ceres so unique is that it’s the only public company of its kind that focuses only on seeds for energy crops, an increasingly important theme for biofuels,” Molchanov said.

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