Upstream Ag Insights - July 8th 2024

Essential news and analysis for agribusiness leaders.

July 08, 2024 • Read Time: 20 minutes

Welcome to the forefront of agricultural innovation and strategy with the 223rd edition of Upstream Ag Insights, where over 16,900 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. Alphabet Winds Down Mineral: What Went Wrong?

  2. Digital payments gain traction in agribusiness, yet hurdles remain: FinTech Bank Data Breach, Agriculture Not Immune

  3. Corteva at 2024 Wells Fargo Industrials Conference: Cost of goods declining and the commercial shift in biologicals

  4. Supply Chain Realities: Just-In-Time Dictates More Planning Ahead: Digitally Enabled Agribusinesses Positioned to Win?

  5. AGCO RetroFit Autonomy

  6. Biological Corner

    1. Syngenta Biologicals and Lithos Crop Protect collaborate

    2. BioConsortia: Discovering Superior Biologicals Powered by its Discovery Platform and Delivering Innovation

    3. 7 Critical Questions to Ask Biological Startups and Questions that Ag Retailers Have

    4. Other interesting biological articles

  7. The Roadmap to Product/Market Fit (PMF)…maybe

  8. Other Interesting Ag Articles (5 this week)

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1. Alphabet Winds Down Mineral: What Went Wrong? - Upstream Ag Professional

In January 2023, Mineral was officially launched as its own operating division.

Mineral is the agriculture arm of Alphabet’s (Google) moonshot factory initiative— the research and development organization that aims to develop breakthrough technologies to solve some of the world's biggest problems.

What’s to come? What went wrong? Why did it happen? What does it mean for AI in agriculture?

More Transactions to Come?

Before diving more into the Mineral business, there is a notable line from a Mineral memo that suggests the Driscoll’s licensing isn’t the only story, either (emphasis mine):

“Mineral will no longer be an Alphabet company, and our technology will live on inside of leading agribusinesses where they can have maximum impact.”

Along with this line from Mineral CEO Elliott Grant’s blog (emphasis mine):

Driscoll’s is the first agribusiness to receive Mineral technology, and is a first step towards ensuring that our breakthrough technologies achieve the greatest impact.

“Agribusinesses” as plural, not just “Driscoll’s”, and “the first” implies there will be a second, meaning there are other ag companies that acquired/licensed assets, or will acquire/license assets from Mineral.

Mineral had patents in high value berry crops and row crops as well.

According to Google Patents, Mineral has 87 patents (or pending)— including “Analyzing crop fields based on agricultural management practices,” “Determining Cereal Grain Crop Yield Based On Cereal Grain Trait Value(s),” “Using empirical evidence to generate synthetic training data for plant detection” and a host of others. It’s not clear which are valuable or not, but depending on the organization there may be utility in some of them.

What I Got Wrong About Mineral

I wrote about Mineral in January of 2023. There are many poor assumptions I made, but none more questionable than this:

Alphabet only “graduates” these companies once they have proven commercial viability, meaning stand on their own as a successful business unit within the Alphabet business.

I was wrong. What I missed here was the trimming of the “fat” in tech companies going on at the time— whether in personnel, wasteful R&D or side projects.

Alphabet’s then CFO, now President and Chief Investment Officer, Ruth Porat had been adamant on “sharpening the focus” within Alphabet— this meant not only job cuts, but minimizing funds for ‘X’ which meant spinning Mineral out was not a signal of commercial viability, but a moment of “sink of swim” for the entity.

For a deep dive into the Mineral strategy, attempted commercial approach, the potential challenges Mineral had, the similarities to Intel, an application of the theory of constraints and the future structure of artificial intelligence in agriculture become an Upstream Ag Professional member today:

A new direct deposit feature for Bushel Wallet was introduced at their Buddy Seat Conference that delivers the value farmers are seeking. Accessible through Bushel’s customer portal, the feature eliminates the need for voided checks and mailed paperwork and reduces fraud risks by offering a deposit-only account as a safer alternative to standard ACH transactions.

This article does a good job sharing some some of the challenges surrounding a change in behavior of farmers when it comes to leveraging digital tools.

The article also talks about the benefits of Bushel Wallets direct deposit feature compared to the likes of ACH and check.

Check fraud is on the rise in the United States. From a 2023 AP News article:

Banks issued roughly 680,000 reports of check fraud to the Financial Crimes Enforcement Network, also known as FinCEN, last year. That’s up from 350,000 reports in 2021. Meanwhile the U.S. Postal Inspection Service reported roughly 300,000 complaints of mail theft in 2021, more than double the prior year’s total.

ACH Fraud is on the rise, too:

According to BusinessWire, payments fraud spiked 71% of businesses saw an increase in fraud attempts in 2023, with the average loss of over $1M. These losses not only impact the financial health of businesses but also erode trust and confidence in electronic payment systems.

Bushel talks about the security benefits of their Wallet feature. However, it is worth noting it is imperfect too, through no direct fault of Bushel. CEO Jake Joraanstad has even stated on an X Spaces conversation that “some fraud is inevitable.”

In late June, this has become apparent. Evolve Bank & Trust confirmed it was the victim of a cyber attack and that customer data had been posted on the web where Russian-linked hacker group LockBit 3.0 posted data taken from Evolve’s systems. It has been stated that this may be one of the widest-reaching public data breaches in US history.

I highlight this because last week the names of the entities that had data leaked were released by FinTech Business Weekly, and it included “Bushel Exchange,” indicating Bushel had been impacted by the hack.

I had a brief e-mail exchange with Jake where he said they have a second banking partner and that there is a process in place for everything to be managed securely moving forward.

In late June, Corteva CFO Dave Anderson participated in the Wells Fargo Industrial Conference where he shared some insights on the business:

We had roughly $50 million of headwind in experience in the first half. In contrast, we are going to about to have $150 million of tailwind in the second half in Crop Protection. Think of that on a year-over-year basis, it is about a 6% reduction in terms of the applicable costs, those raw material ingredient costs, on a year-over-year basis. So that's important because that's going to continue.

This is a good sign for Corteva in 2024 and beyond on the margin front, along with a reinforcement that pricing at the farm gate will not move back up to 2022 highs:

Source: USDA

The Corteva CFO also spoke on their biological strategy. For a deeper dive into what they are changing, how they are positioned and why it matters, become an Upstream Ag Professional member today:

Return on invested capital is a phrase that isn’t mentioned enough in the input world— whether for manufacturers or retailers.

ROIC is a KPI used to assesses a company's efficiency in allocating capital to profitable investments. ROIC gives a sense of how well a company is using its capital to generate profits.

One of the contributors to ROIC is how well a company manages its working capital— the capital in a business which is used to fund its day-to-day operations (eg: to fund inventory of products).

As interest rates go up, the more magnification of working capital and inventory levels— that inventory has a higher cost at higher interest rates, without evening considering to the storage and logistics cost of the products.

A general inventory target in retail has been 30% of sales, though in higher interest rate environments I have heard targets lowering, along with a focus on tightening the manufacturing process to hold the product for a shorter period of time.

For an overview of what digital enablement can drive ROIC and more successful working capital strategies, become an Upstream Ag Professional member today:

At their recent Technology Event 2024 (link to presentation), AGCO highlighted the future of their portfolio, getting into autonomous tillage systems, grain cart systems, retrofit autonomy kit pricing structures and more.

AGCO is reinforcing their efforts in the retrofit market, aiming to decouple the purchase of a new tractor from the autonomous functionality.

The Retrofit Kit

Their retrofit kit, being launched in 2025, is a package of guidance systems, sensors, and instrumentation. Some components integrate directly into the tractor, while connected implements will need brand-agnostic retrofit parts, ensuring compatibility across various brands when it hits the market.

The retrofit systems will work with a broad range of major FMIS services and notably doesn’t need a constant data connection. Once the setup data is loaded onto the tractor, it can operate entirely offline.

Tractor Models

AGCO is initially rolling out these retrofit kits for their select Fendt models and John Deere’s 8R tractors (model year 2014 or newer). More options from different manufacturers will follow as development progresses.

Pricing

The kit is a one-time fixed cost, which includes the hardware, installation, training, and a year-long subscription.

But AGCO is opting for a recurring pricing model.

Post-installation, farmers will have the option of variable pricing options based on usage — hourly, a package of hours, or unlimited annual hours. Hours are only counted when the equipment is in autonomous mode.

AGCO hasn't disclosed the pricing yet, but states that they have showed a positive ROI on farms ranging from 900 to 3,300 acres.

AGCO doesn’t break out their revenue targets in autonomy, but they stated in their presentation that they want to expand their precision PTx revenue from $1.3 billion in 2023 to $2 billion by 2028.

When AGCO launches the recurring pricing model, that will mean both themselves and Deere will having a recurring structure. Having two major North American equipment brands with a recurring pricing model in the market, theoretically helps with normalizing the approach with farmers, faster.

CNH Industrial has been hesitant to commit to a recurring revenue model, as I talked about in The Insight is the Edge: Why CNH Industrial Struggles to Keep Up.

For more on AGCOs artificial intelligence initiatives, become an Upstream Ag Professional member today:

6. Biological Corner

Syngenta and Lithos Crop Protect announced the signing of a distribution agreement to supply a sprayable pheromone formulation for mating disruption to control a key Diabrotica virgifera virgifera (Western Corn Rootworm).

The solution features Lithos' patented lithos micro dispenser technology, which utilizes a carrier material with pherolit®-d (the pheromone of Diabrotica v.v. L.), a naturally derived female pheromone that causes mating disruption in corn crops for large-scale row-crop use.

The introduction of pherolit®-d for European farmers will be the third pheromone technology in Syngenta’s portfolio— after announcing relationships with pheromone companies M2i and Provivi in 2022.

FMC and Pheromones

FMC announced pheromone products being launched in Brazil, after their acquisition of BioPhero in 2022.

FMC is taking a compelling approach— integrating its pheromone-based products (eg: Sofero Fall) with synthetic products (eg: Premio Star) along with its Arc Farm Intelligence digital system that helps predict insect levels and timing.

For an overview of what FMCs initiative looks like and what it could look like for Syngenta, become an Upstream Ag Professional member today:

BioConsortia, Inc., an agricultural technology company that designs and licenses microbial products. One area of focus for them is N fixation.

N-fixation is complex, yet as many recognize, presents one of the most significant opportunities within the industry.

In The Challenges of Nitrogen Fixing Microbes and What it Means for R&D and Commercial Efforts in the Industry I highlighted many of the challenges in commercializing crop agnostic nitrogen fixing microbes, including:

  • microbes are produced cost effectively

  • microbes remain viable on-seed or in jugs, throughout the supply chain

  • microbes can effectively fix N and establish a symbiotic relationship with crops to transfer that Nitrogen to the plant

  • high application rate needed

In previously having a conversation with leadership from BioConsortia, they are confident they have successfully overcome these issues.

Today, BioConsortia has organisms that include biostimulants, biocontrol, and N fixing microbes.

In the instance of the nitrogen fixing product, whether it is granulated into a fertilizer, a liquid on-seed treatment, or formulated to be applied through an irrigation pivot it has a shelf life of 2 years. If this holds true whether applied on seed or formulated in a jug, this is the kind of shelf life needed to effectively penetrate the traditional selling channel and get the interest of seed companies and fertilizer organizations.

For more on BioConsortia’s product efficacy, their strategic partnerships and what novel products could come out of those strategic partnerships and the strategic implication on fertilizer companies, become an Upstream Ag Professional member today:

This week Tenacious Ventures highlighted some of the critical questions to ask bio-based start-ups if you are an investor, including:

  1. What category of biologicals are we in?

  2. How well do you know the science?

  3. What are the lab results? What are the field results?

  4. How does it fit into the environment?

  5. Are your milestones focused on scientific or commercial risk?

  6. Are you building a product or a platform– and why?

  7. What’s your go-to-market?

These are all great questions for investors and it reminded me of some of the questions that would come to my mind when I was working in retail.

Tenacious Ventures has often said to me, founders pitching them need to suspend disbelief in their company and the problem they are solving. Radicle Ventures Managing Partner Kirk Haney has stated “We are looking for reasons not to invest” when it comes to biological companies.

In a retail setting, the questions might be slightly different, but the same is true: a product manager or agronomist is looking for the holes— you can have the perfect product or portfolio, but one gap can effectively multiple everything else by zero.

When I was in retail I was apart of the team that connected with biological and specialty nutrition companies to identify new supplier and product opportunities. This has afforded me direct exposure to 100+ biological companies over the last 15 years and here are some of the questions that would be going through my head that I wanted answered before moving forward with a product or company.

For an overview of the eight segments along with the questions and desired insight that an ag retailer looks for in a biological organization, become an Upstream Ag Professional member today:

d. Other notable biological articles:

The Perfect Pesticide - Science.org

Speaking during the event Alexey Rostapshov, head of JD Labs & sustainability, said John Deere’s ExactShot system, which “essentially micro doses seeds during planting with fertilizer” is precise enough to cut fertilizer use by 60%; the See & Spray system reduces herbicide application by 50%.

“When you think about expensive new biological solutions, all of a sudden the economics start to be a little bit more palatable when you’re able to be very precise in an application,” he said.

8. Non Ag Article

There’s only one source of truth for what customers will buy: Customers.

Not advisors, not experts, not analysts, not Twitter polls, not research, not past data, not even competitors’ behavior. You have to talk to customers.

Customers can tell you what their lives are like, which is how you validate your business model and strategy. Customers can tell you what they won’t buy, which has happened to me repeatedly. You can discover that the average customer doesn’t know the problem exists, or doesn’t have a budget for it, or isn’t prioritizing it. When they say “yes,” it’s a “maybe,” but when they say “no,” it’s a “no,” and you just saved yourself months or years of wasted time.

This is a very thorough, and realistic process on identifying product market fit from someone who built a business that exited for 10 figures.

Other Interesting Ag Articles