Upstream Ag Insights - August 12th 2024

Essential news and analysis for agribusiness leaders.

August 12, 2024 • Read Time: 19 minutes

Welcome to the forefront of agricultural innovation and strategy with the 228th edition of Upstream Ag Insights, where over 17,400 agribusiness leaders start their week discovering the latest industry news and learning about the latest innovations and business strategies shaping the future of agriculture.

With curation and analysis from Shane Thomas, each edition delivers insights and analysis crafted for the practical agriculture professional, empowering you to be among the best informed in the industry and make superior business decisions.

Whether you're a new subscriber or this email was forwarded to you, Upstream’s field-tested frameworks and in-depth examinations equip you with the knowledge and foresight to seize opportunities and catalyze growth in your business and career.

Index

  1. Q2 2024 Crop Protection Business Earnings Themes, Highlights and Analysis

  2. CHS and AgVend Forge Collaboration to Enhance Ag Retailer Experience

  3. Nutrien Q2 2024 Earnings Highlights and Analysis

  4. BioLumic Pioneers New Seed Traits with Seed Company Partners

  5. Corteva Competitor Inari Must Face Seed Patent Lawsuit

  6. Illustrative AgTech Insights: Eroding Influence, New Products and the Retail Advisor

  7. The Frontier: Extend Through the Value Chain

  8. Other Interesting Ag Articles (7 this week)

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Last week, I went through more than 15 earnings call transcripts and 8 quarterly crop protection company earnings results aiming to synthesize the themes, trends and key takeaways across the crop protection manufacturers segment of the agriculture industry.

In the linked article, I share:

  • one financial comparison chart of major crop protection and seed companies

  • three themes from Q2 2024

  • seven notable insights, quotes and images

  • highlights and key takeaways from eight crop protection and seed manufacturers.

    • Bayer Crop Science

    • BASF

    • Corteva

    • FMC

    • UPL

    • Nufarm

    • Sharda

Note: Syngenta results were not available at the time of publication.

Financial Comparison

Revenue growth of all companies except BASF was flat. BASF had a particularly challenging quarter, in large part due to its glufosinate business which according to their investor call.

Themes

a. Crop Protection Pricing

Volumes are trending more positive in crop protection segments, but pricing in Q2 was not.

Last year the industry experienced much higher COGS and pricing which makes the pricing dynamics look poorer, when what is happening now is a reversion to the mean. However, there is some more nuance to it, being driven by multiple aspects and varying parameters, depending on the company, but some central considerations:

  1. Competitive pressures driving a reduction in price.

  2. Strategic intent to take back market positions in certain product segments, and using price as an avenue.

  3. Incentives to address high-cost inventory in the channel.

  4. High COGS for manufacturing product from last year/high priced inventory

Some quotes from agribusiness executives around pricing dynamics:

UPL CEO Mike Frank:

Price was a clear headwind for us in our first quarter. Again, it's comparing to a quarter last year where prices were quite a bit higher than they were right now. So what I would expect as the year plays out, I don't think there's going to be very material price increase opportunities but our margins will improve and the pricing difference on a quarter-by-quarter basis will start to normalize as we go from Q2 to Q4 this year. So that's what I would expect from a pricing standpoint.

He went on to state the following around the bottoming out of prices:

Prices largely have even now, in last 3 months, largely stabilized…barring one insecticide and one herbicide. But I mean if you see the prices currently, that looks like that it's like at cost or with a very thin margin these guys are selling. So they're just trying to recover the fixed cost. So I do believe that these prices have really bottomed out and don't see much room there for further erosion. We know that China prices are lower than they were a few years ago. Largely, they've stabilized from what we're seeing over the last 3 or 4 quarters. We're not expecting to see prices increase this year. They could. But we also don't expect them to go down really much from this point either. And so -- that's our base assumption that we're baking into how we're forecasting the rest of the year.

Nufarm CEO Greg Hunt stated something similar:

The drawdown of distributor and grower inventory is expected to normalise and create a better demand and supply balance. This should in turn lead to manufacturing inventories and utilisation rates to return to normal. We believe this creates the environment for prices to return to historical averages in the short to medium term.

We ought to see a favourable movement, because the market reflects contemporary price. As prices increase you tend to get margin expansion because you've got a whole lot lower inventory, that's what we've seen in the past. It's what happened in FY22 when we called out - that's why we got expanded margins, you're pricing as the curve goes up and your lower cost inventory. Similar here as that price rises again you should get expanded margins.

From Corteva CEO Chuck Magro:

I think many of us are now moving the high-priced inventory through the P&L and into the marketplace, which is another important step. And our inventories they’re still a little higher than we’d like, but they are a lot better than they have been over the last couple of years. So, when you put all this together, I think we’re on a path of recovery or what we call stabilization

And from FMC CEO Pierre Brondeau:

We do not plan to continue one-time incentives now that much of the high-cost inventory in the channel has been reduced.

For the full Upstream Ag Professional article breaking down crop protection company themes from Q2, including what’s driving the attraction to generics, how disruption theory can explain potential competitive actions to generics, seven key charts and quotes for agribusiness professionals, including highlights and insights from input manufacturer earnings calls like Corteva Enlist market share, glyphosate pricing, BASF’s glufosinate business plus dives into eight of the largest crop protection manufacturing Q2 and H1 results.

Note: Previously, I have included all agribusinesses results in the same article. Moving forward I will have them broken out as: Crop Protection and Seed Manufacturers, Equipment Manufacturers, Fertilizer Manufacturers and will highlight other companies individually. Next week you can expect highlights and analysis of Fertilizer manufacturers.

CHS, is announcing a new agreement with AgVend. This first-of-its-kind collaboration enhances the digital connection between the AgVend Network, which partners with 25% of the North American ag input retail market, and CHS, through streamlined workflows and increased visibility directly connected to the AgVend platform.

Overview

Beginning next month, CHS wholesale crop protection customers will have access to place orders, view transaction and invoice history, and to reorder within the AgVend platform.

The integration allows CHS wholesale customers to do business within their AgVend-built platform including placing orders, viewing invoices, tracking shipments and more. This partnership is set to deliver value to both ag retailers along with a distributor like CHS:

  1. For ag retailers: The ability to more readily manage their procurement of crop protection products, which is often fraught with challenges including:

    1. the need of retail personnel to move between softwares to look at product forecasts and then input orders in a different software platform.

    2. There is also a lack of visibility into where a shipment of product is once ordered and when it will be arriving— a key in-season when product application timing can be tight.This enhanced visibility now gets integrated into the AgVend workflow, which keeps retail staff better informed.

  2. For CHS Wholesale: One way for a distributor to differentiate themselves is to make themselves easier to do business with— if it is easier for a retailer to know where their order is, or to keep track of invoices and pay them, that can help them become a distributor of preference. Additionally, enhanced connection to their retail customers allows them to work towards better outcomes for their own business; that can be in reduced time to invoice payment, or it can be in terms of a deeper understanding of demand signals, such as through a retail sharing a product forecast with them, better informing their product ordering needs for example.

In a confirmation from AgVend, the process is opt-in for the retailer— the retailer talks to their CHS account manager or AgVend partnership manager and the functionality can be made available in their AgVend platform.

For the full analysis of “What’s in it for AgVend?” and why this evolution makes sense for their business and their customers, where AgVend will move next in the crop input value chain in customers and features and the influence that could have on the economics and structure of the value chain, why this announcement is important for CHS, along with how the initiative ties into AgVend’s genAI strategy, become an Upstream Ag Professional member today:

Nutrien’s retail adjusted EBITDA totalled $1.2 billion in the first half of 2024, up 17% from the prior year, driven by higher gross margin across all product lines.

Crop nutrient sales volumes were similar to the prior year. Crop nutrient margins increased by $21 per tonne in the first half, supported by the stabilization of fertilizer markets and a lower cost inventory position compared to the prior year.

Crop protection margins in North America returned to normalized levels.

Total revenue was down for Nutrien, while gross margin and EBITDA expanded, reinforcing a sell-thru of more expensive inventory. Nutrien ended the second quarter with retail crop protection inventory down 17% compared to the prior year.

Notably, their proprietary products percentage of product line decreased slightly year-over-year, though is likely just a dynamic of where their cost position was with 3rd party products last year vs. this year:

For further insights into the Nutrien Ag Solutions adjuvant business, including percentage of their business and gross margin made up by the segment, become an Upstream Ag Professional member:

BioLumic, the world’s only company treating seeds with light to activate genetic expression for new crop traits, has achieved a breakthrough in enhancing inbred corn lines. These genetically ‘pure’ parent seeds are crucial for producing the world’s high-performing hybrid seeds favored by most farmers.

After achieving significant performance milestones in 2023 field trials, BioLumic is partnering with Beck’s Hybrids, Peterson Corn Genetics, Peterson Farms Seed, Breeder Direct and other seed companies to use BioLumic’s Genetic Expression Trait™ light-activated technology on a wide range of inbred and hybrid corn lines aiming to enhance their productivity. The inbred trials specifically target improved germination, emergence, seedling vigor, yield, and hybrid seed quality.

BioLumic, a company that has raised ~$24 million (USD), is focused on treating seeds with ultraviolet light to stimulate specific physiological responses in plants. This is known as photomorphogenesis.

Photomorphogenesis is how seeds and plants respond to specific light waves and regulate their growth and development in response to light.

Light can trigger various physiological and morphological changes in plants through their photoreceptors. When specific groups of plant photoreceptors absorb a particular light, it goes through a complex process that activates signaling components, ultimately leading to changes in gene expression and plant physiology.

This change in gene expression can stimulate increased root growth, earlier flowering, quality changes (e.g., protein levels in grains, lipid levels), or even pest tolerance, for example.

Seed Companies

In 2023, BioLumic announced a partnership with GroAlliance to deploy BioLumic’s light treatments platform in Gro Alliance’s corn and soybean seed production facilities.

This meant the seed would be exposed to light before bagging and distribution.

The 3rd party studies on light treatment state times ranging from 3 to 15 minutes to obtain physiological responses. This depended on the energy density of light, type of light, and much more, but it’s easy to see how this could be an operational hurdle to overcome.

When I first wrote on Biolumic I highlighted that as a challenge for them to overcome, even with reducing their treatment time to the seconds and low minutes range today.

But Biolumic has been savvy at alleviating this operational challenge, seeking to move upstream.

Biolumic is first going to treat the in-bred lines of corn that make the hybrid seed.

The initial benefit is increasing hybrid seed yield— making seed production more efficient.

The next benefit is really compelling, too.

BioLumic is assessing the passthrough of inbred seeds’ beneficial, light induced traits to the hybrid seeds that get grown on commercial farms.

For the full breakdown on what light influenced traits could look like, what they could mean for farmers and agribusinesses, the business model potential and why the move by BioLumic to move upstream is so compelling, become an Upstream Ag Professional member:

Agriculture technology giant Corteva Agriscience can move forward with its lawsuit accusing startup Inari Agriculture of unlawfully copying its patented seeds, according to a ruling made public in Delaware federal court on Monday.

Background on the Lawsuit

Last year, Corteva filed a lawsuit in federal court accusing Inari Agriculture of obtaining Corteva seeds from a United States depository and illegally shipping them to Europe. Corteva alleges that the startup made small changes to the plants’ genetics and now is seeking to patent the seeds in the U.S.

Corteva claims Inari began taking its technology in 2020 through a nonprofit depository of seeds called the American Type Culture Collection that makes them available for research. The suit alleges that Inari used a separate seed-distributor company to purchase Corteva’s proprietary seeds from the ATCC and then had them shipped to Inari, which moved them out of the U.S. to Belgium.

Corteva alleges that Inari tried to pressure Corteva into a “quid pro quo” agreement: Inari offered not to sell certain corn seeds containing Corteva’s technology, but only if Corteva agreed to pay Inari to use the startup’s soybean products, according to the lawsuit.

Inari moved to dismiss under a theory positing that once Corteva deposited its seeds with a depository and made them available to the public, it was open season to use as they deem fit (notably they argue this, yet moved the seeds outside of US jurisdiction…).

United States District Judge John Murphy refused to dismiss the lawsuit, finding that Inari failed to prove that its Belgian subsidiary could develop its own genetically modified plants from Corteva's seeds without violating U.S. intellectual property laws.

According to the court document, the patent in question is surrounding insect resistance in corn.

I am not a lawyer, but based on the court documents, the allegations appear damning that Inari “exceeded the bounds of mere public availability.”

Trusted Advisors

When it comes to informing farmers crop protection, and most crop input decisions, retails are the most influential group of individuals.

Survey data from Stratus Ag Research in 2022 (USA survey) confirms this specifically surrounding crop protection, with almost 92% of farmers saying they consulted with their main retailer to inform their crop protection purchase decisions:

Source: Stratus Ag Research

The next highest group, other farmers/neighbors, is cited by less than half as many farmers.

Ag retailers, on average, are competent and comfortable in the realm of traditional crop protection products.

But what happens when we start getting outside the traditional crop protection world what could that mean for the rest of a farmer’s purchase decisions in the future?

Influence Erosion

Two years ago I wrote about the concept of influence erosion in ag retail, defined as a lessening of power to change or affect a farmer’s decision. I cited the multiple angles that the influence of the retail trusted advisor was getting eroded.

Influence erosion is happening across all product segments, but it is especially prominent in new technology areas, which can bleed to other product segments.

To check out what segments are being challenged for ag retailers, what it means for their business and what they should look at doing to overcome, become an Upstream Ag Professional member:

Non Ag Article

Tidemark Capital has been influential on how I think about vertical software in agribusiness, specifically how I think about companies like Bushel, or Ever.Ag, AgVend, Smartwyre and others in various verticals of the value chain.

This article shares some foundational logic that underpins how I think about software strategy in agribusiness.

Other Interesting Ag Articles

Kevin Still, Keystone Cooperative - Agbioscience Podcast