Upstream Ag Insights - January 15th 2024

Essential news and analysis for agribusiness leaders

January 15, 2024 • Read Time: 20 minutes

Welcome to the 199th Edition of Upstream Ag Professional!

Index for the week:

  1. The Insight is the Edge: Why CNH Industrial Struggles to Catch Up

  2. The Hierarchy of Agronomic Needs and Biological Growth

  3. Mosaic Biosciences Brings Transparency to Agriculture Biologicals Market

  4. FieldView™: Introducing Our New Subscription Tiers

  5. Dean Banks Appointed CEO of Indigo Ag and CEO-Partner of Flagship Pioneering

  6. Co-operative Mergers and Partnerships

  7. Can A Scouting Technology Increase Farmer Trust?

  8. David Friedberg on How To Build a Billion Dollar Startup

  9. CropLife’s Buying Intentions Survey: Here’s What Ag Retailers Plan to Purchase in 2024

  10. Farmers Edge Provides an Update on Proposal from Fairfax and Enters into Letter of Intent

  11. The Structure of Scientific Revolutions

This week’s edition of Upstream Ag Insights is brought to you by AGI (Ag Growth International)

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Over the holidays, I listened to one of my must-listen agriculture podcasts, The Future of Agriculture by Tim Hammerich.

On the particular episode I want to highlight, Tim had Marc Kermisch, Chief Digital and Information Officer of CNH Industrial.

There are many comments from Mr. Kermisch on the future of precision agriculture and the CNH Industrial business that make the podcast worth the listen.

My biggest takeaway, though?

I can’t help but come away from listening and wondering about the vision of CNH Industrial.

In fact, the messaging comes across as CNH Industrial is content being #2 in North America to John Deere, showing little desire for leadership in any future-driven area, whether it’s autonomy, precision capabilities, or new business models.

A comment that stands out to me reinforcing this was the following regarding annual recurring revenue (emphasis mine):

“If it makes sense for the farmer and the farmer wants to go there, we will go there…we want to make sure the farmer is leading us through that business model change”

If they do not deem recurring revenue to be the future, that’s understandable. However, the rationale behind that view is noteworthy because it likely guides more than just their business model endeavors.

World-class companies lead their customers. Not vice versa.

These companies lead their customers based on unique insights that drive customer actions and behavior.

In most industries, the businesses with the insights have the edge.

CNH Industrial doesn’t clearly state a unique insight or vision guiding them, or their customers, towards the future of agriculture— whether listening to this podcast, their 2022 Tech Day, or reading investor materials, it remains unclear where they are leading their customers and why.

For the full article, including learnings from Amazon and Wal-Mart and a comparison of CNH Industrial to John Deere and AGCO, become an Upstream Ag Professional member today:

Related: Deere Highlights Software as a Service Tech at CES 2024 - Precision Farming Dealer

Deere confirmed the See & pray software-as-a-service (SaaS) pricing model will vary by customer but said it is currently charging $4 per acre in the test run with corn growers.

2. The Hierarchy of Agronomic Needs - Upstream Ag Professional

Generally, we see input costs and farmer incomes affect the buying habits of inputs.

My experience is that when farm income declines, crop prices drop, or weather is suboptimal, certain segments of inputs are cut before others. I think of it as a Hierarchy of Agronomic Needs for the farmer:

For simplicity, the image doesn’t go in-depth about specifics (eg: N vs. P, or generic herbicides vs. branded or all of the agtech out there or things like insurance) which is all well worth understanding, but the image gives a broad overview accounting for my anecdotal experiences with farmers in conventional settings.

Foundational and Functional needs are generally used by farmers as defaults each year.

Optimization Options and Elevated Outcomes categories are often thought of as after-thoughts or used only if economic outcomes are looking positive.

Biostimulants tend to be one of the first on the chopping block as they reside at the top of the pyramid— used primarily when farmers feel good about their economic prospects.

In a recent Agribusiness Global article, there is a question to biological company leaders: Will Growers Reduce Their Spending on Biologicals in 2024?

I think the framing is poor. It frames the scenario as passive and out of the control of the companies.

Most companies in the article say they will see growth, unsurprisingly.

What would be more interesting to hear from these individuals are their comments on some variation of a question like this: “With farm incomes set to decrease, what is your company doing to see growth with biologicals/biostimulants in 2024?”

Every company thinks they are going to grow every year. I am not interested in if they think they will grow; I am interested in what they are doing to make that expectation become a reality.

If you are a company operating in the specialty nutrition or biostimulant space, I’d love to connect and learn more about your business and what you are doing to differentiate and grow for 2024 and 2025. Reach out to shane@upstream.ag.

For the full article that includes more on Evangelizing the Problem and the Opportunity, The Sauce Paradox and The Stories We Tell Ourselves, become an Upstream Ag Professional member today:

Mosaic, from my experience, has been a leader in delivering high-quality agronomic information and data to the market. First for their MicroEssentials product segment, and now seemingly transferring to their Biosciences segment.

I think biological companies can learn a lot by looking at how Mosaic communicates about their biological products (eg: what is in the product, at what CFU/ active ingredient load, how does it work etc) and what data they share.

This week, I had questions regarding three biological companies websites and all three of them failed to share the basic molecules within their products, meaning no label or MSDS was available. Instant red flag for any potential distributor or farmer.

Biological companies will often get told to “bring data.”

But not all data is the same.

There are layers to it when talking trials, including soil parameters (CEC, pH, OM, temperature at planting etc), location (eg: lab vs. small plot. vs. field scale), geography/weather conditions, and agronomic considerations (eg: row spacing, seeding rate, planting date, tank mix, rate etc).

Failure to share any of the above leaves glaring gaps in understanding the ultimate insight and unlock to product utilization:

Where does the product deliver the best chance of an ROI to the farmer?

In June of 2023, I broke down the need for companies to be coherent, believable, and transparent in their communication about products, referencing DPH Biologicals as a poor example and ATP Nutrition as a glowing example.

Climate FieldView has had multiple pricing structures over the past decade, from priced per acre to free to subscription fees to variations of those depending on specific features.

Bayer does not publicly break out its Digital Farming (FieldView) business unit, but I’d suspect it loses millions per year and likely has revenue below $50 million annually.

Bayer remains optimistic that it can drive their business forward through three different mechanisms within Digital Farming:

Source: Bayer Investor Materials, June 2023

Franchise Value is direct monetization from subscription fees or the lift experienced by FieldView Plus users purchasing more Bayer products, the category which this announcement falls under.

Bayer claims over 220 million acres touched via the FieldView platform. But free users seemingly do not drive increased loyalty or purchases.

The strategy for many agribusinesses with their digital efforts has been to view digital systems as a complement to crop input sales; therefore, they commoditize (decrease the value of) the digital system to try and increase the purchases of their inputs. What most crop protection companies have seemingly found in the digital world is that it hasn’t worked. Bayer’s data shows the opposite: customers paying for their digital offerings and finding direct value in the digital software actually increases loyalty and product purchases. Directly monetizing the digital platform acts as an anchor to get better engagement from the farmer.

Data illustrating that paying FieldView Plus users increases crop input spend with Bayer:

Source: Bayer Investor Materials, June 2023

With that in mind, Bayer is accentuating its service offering further with Premium:

Beyond Prime and Plus, we’ve introduced the new FieldView Premium tier. Our most robust subscription option to date.

The incremental features in Premium includes Insights, Unlimited Seed Scripting and Premium Support:

Bayer seemingly has confidence that a significant portion of its current customers will upgrade from Plus to Premium, and the enhanced offering will further entice a portion of the Free version tp upgrade.

The announcement is notable for another reason: Bayer has big aspirations for FieldView, with 100% of its crop input sales digitally enabled by 2030.

It’s not clear what a “digitally enabled sale” is yet (Bayer hasn’t precisely defined it publicly). But with the Preceon Smart Corn and Hybrid Wheat offerings coming, it will be interesting to see how Bayer integrates FieldView Plus and Premium features into what a farmer gets with the Wheat and Corn systems purchases that they are aiming to digitally enable.

Flagship Pioneering, the bioplatform innovation company, and Indigo Ag, an innovative leader and trusted partner in sustainable agriculture, today announced that Dean Banks will join Flagship Pioneering as CEO-Partner and CEO of Indigo Ag, effective February 1, 2024. Banks will also continue as an Indigo board member, a role he has held since July 2022. As a follow up to the company’s initial financing announcement in September 2023, Indigo also announced the final close of its financing round at an expanded raise of nearly $270 million.

Notable news from Indigo.

I dove into the Indigo challenges in September of 2023:

I don’t know Dean Banks, and I am ill-qualified to determine if his experience and hiring are well suited to make Indigo successful. However, it seems obvious that no matter who is in the chair as CEO, they have an immense hill to climb.

"The purpose of business is to create and keep a customer" -Peter Drucker

Peter Drucker is known as the godfather of business management theory. His above quote sticks out to me as one of the most fundamental aspects of business. The other aspect of a business is to deliver a return to shareholders.

I have been bearish on Indigo's prospects. However, I think it is important to break that down.

Part of the key for Indigo is focusing on building products that add value to farmers and the agribusiness supply chain. It’s possible Indigo could still do this— creating and keeping customers, though previous external comments do not give me confidence and Indigo hasn’t done a great job of this to date.

What I think Indigo will struggle with is returning capital to investors.

Previous CEO Ron Hovsepian stated that their raise put them in a position to “break even in 2024.” It seems to me that the $270 million is the last ditch effort to get them to cash flow positivity or else they will have to attempt to raise in private markets again, or go public at some presumably deflated valuation.

It seems unlikely that Indigo’s investors will see a return of capital. Given the headwinds surrounding ESG, an area that Indigo needs momentum on for their Carbon business (the only unique aspect of their business), it will be challenging for Indigo, even with strong product uptake in their microbial business, to ever be worth anywhere near their previous $3.5 billion valuation.

While an imperfect comparison, it’s worth contextualizing how far away Indigo is from that number.

Corteva's Enterprise Value to Sales Ratio is 2.1, meaning the enterprise value of Corteva is 2x its sales, of which its revenue is around ~$17 billion annually.

FMC is currently at a 2.26 Enterprise value-to-sales ratio.

A private market valuation is not equivalent to enterprise value (we can’t know Indigo’s EV given they are private) and sales is imperfect to identify a valuation off of, it gives a loose comparison to illustrate where Indigo needs to get to in revenue.

If we assume Indigo has a $3.5 billion enterprise value and uses an EV/Sales ratio of 2, Indigo would need $1.75 billion in revenue to ever meet that valuation.

For context on Indigo’s microbial business, Stoller, acquired by Corteva in 2022, had been around for ~50 years and operated in 60 countries; global micronutrient and biostimulant company Stoller had $400 million in total revenue.

The likelihood of Indigo hitting anywhere that seems unlikely. It illustrates further that they are hoping for a the carbon business to take off.

6. Co-operative Mergers and Partnerships

This week Co-Alliance and Ceres Solutions memberships voted to merge.

The effective date of the merger is March 1, 2024, and the company will be named Keystone Cooperative, Inc., now boasting 1,700 employees and an expected annual revenue of $3 billion.

Additionally, the two largest co-operatives in the United States, GROWMARK and CHS, entered into an “exploratory process” to discover “potential opportunities to better serve customers.”

There is an emphasis on “collaboration” between CHS and GROWMARK, but it feels like there is the potential for this to turn into a merger as well. This isn’t a segment or business unit announcing this— it is the board of directors of both cooperatives.

CHS earlier this week reported a 33% drop in quarterly revenue.

Scale will continue to be important in agriculture and the announced merger, and potential merger, are unlikely to be the only news in this area in 2024.

This is a good article talking about the value derived from a company and area of agtech that I have remained skittish on in terms of future prospects. In the instance of the article, the company highlighted is Taranis.

It’s not that I do not think there is value in what they do, but the ability to deliver value in a scalable and positive unit economic way has seemed increasingly difficult to achieve.

I have been trying to have conversations with users of these services and recently had a conversation with a senior leader of a large co-operative who has spent several years trying to find a way to make Taranis services work, and he said 2023 was a breakthrough.

Not only did he say that the features (eg: models and insights) were getting increasingly better, but that the usability of the systems has improved to the point that they have been able to empower summer interns better to be drivers of the services.

Another comment he made was leadership better understanding how to set expectations with the team. I think a lot of agribusiness professionals have been perplexed as to how to leverage these tools in a way that does any of these four things:

  1. Delivers increased understanding about the field, farm and farmer.

  2. Gain insight in a timely fashion to make an informed decision in-season that has a positive impact.

  3. Establishes increased trust between agronomist/precision provider.

  4. Ultimately, it increases the ability of an ag retailer to sell solutions to a farmer.

After several years of experience, it seems many are becoming more attuned to be able derive one or multiple of the above points.

I still think there is room for consolidation in the segment, but it is encouraging that there are positive experiences and growth in using technology companies like Taranis.

David Friedberg was the founder of The Climate Corporation, the current founder and CEO of The Production Board, his ag and food-focused venture foundry, and the current CEO of gene editing company Ohalo.

Ohalo has been in “stealth” mode, only recently being more openly discussed after their USDA potato approvals.

This podcast overall is interesting if you want to hear more on venture funding and innovation, and it also sheds some incremental insight on Ohalo, which begins around the 22:30 minute mark in the title link.

This article shares survey data on how ag retailers intend to spend money in 2024.

Data shared includes overviews of working capital on seed, crop protection, and fertilizer, most of which isn’t surprising.

What is most interesting is where their intended capital expenditure is on machinery, location assets, and IT:

The Revised Offer Price represents a 218% premium to the closing price and to the 20-day volume weighted average price per share on the Toronto Stock Exchange, in each case, of approximately $0.11, as of the close of trading on November 15, 2023, being the trading day immediately before the Company received the Original Proposal.

I covered the original offer in the November 19th 2023 edition of Upstream Ag Professional.

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