Upstream Ag Insights - June 10th 2024

Essential news and analysis for agribusiness professionals.

June 10, 2024 • Read Time: 18 minutes

Welcome to the forefront of agricultural innovation with the 219th edition of Upstream Ag Insights, where over 16,500 agribusiness leaders start their week discovering the latest industry news and learning about groundbreaking innovations and business strategies shaping the future of agriculture.

With curation and analysis from Shane Thomas, each edition delivers unparalleled insights and expert analysis meticulously crafted for the practical professional, empowering you to be among the best informed in the industry.

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. Sentera Launches Precision Weed Management Solution: Is it a See and Spray System Killer?

  2. What AGCO Can Learn From Atlanta's Super Bowl Collapse

  3. Rugged Landscapes and Agribusiness Strategy

  4. AgVend Releases Retail Digital Technology Report and LLM Co-Pilot Teaser

  5. Indigo Carbon Streamlines Enrolment and Increases Credit Prices

  6. China Price Index: The ‘Invisible Hand’ That Is Reshaping Crop Protection Market Strategy

  7. GROWMARK Acquires Chemical Manufacturer AgraForm

  8. Evolution of Ag Marketing

  9. CPUs: Hardware, Yet Infinitely Adaptable Through Software

  10. Other ag articles (12 this week)

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Aerial WeedScout is a selective herbicide application approach that enables a lower total use of herbicides by farmers who do not have actual precision spray capabilities.

Sentera uses aerial imaging (drone flight) and artificial intelligence to detect weeds and create a map to generate machine prescriptions for herbicide applications, with capabilities to do this with less than a 24 hour turn around time. 

There is also the ability to generate incremental insights surrounding plant populations and emergence and crop health with this same pass.

Sentera’s WeedScout offering is attempting to fill a gap based on the current short comings of precision spot spraying technologies, such as those from John Deere and Greeneye (and others):

There are three shortcomings of many precision application systems today that Sentera aims to position against.

For the full overview on the shortcomings of precision see and spray systems, the value proposition of the Sentera service taking advantage of those shortcomings, the gaps in the Sentera service and what that means for the long term viability of Sentera’s service, along with other precision see and spray products, become an Upstream Ag Professional member today:

This is a well written article by Dan Schultz. I shared similar sentiment, too, and wrote about in April of 2024.

I have been thinking more on AGCOs strategy and their corporate make up over the last few weeks and it got me thinking about a 30-year old strategy paper called Adaptation on Rugged Landscapes by Dan Levinthal.

3. Rugged Landscapes and Agribusiness Strategy - Upstream Ag Professional

Defining Strategy

For agribusinesses to thrive, mastering the art of strategy is essential.

There are plenty of definitions of "strategy", but we'll use a variation of Roger Martin’s definition and define it as:

"integrated decisions to align an entity's capabilities and component parts to achieve a unique and specific goal."

Think of it as more than just having a goal and a plan—it's about ensuring all parts of your operation are synchronized for maximum effectiveness in reaching that specific goal— often a vision with associated financial returns around it.

Alignment is key to a winning strategy. This means orchestrating your operations, objectives, incentives, assets, core competencies and every other component to support and enhance each other. This alignment stems from making specific decisions. Strategy is making decisions.

Strategy and War

Business strategy and tactics often stem from the concept of strategy in war.

A basic understanding of battlefield strategy is that you cannot attack an enemy from every direction. It scatters resources and people, leaving you in a weak or vulnerable position. The aim is to focus resources, play to your strengths, and get small wins, then move from there.

Consider a more specific analogy:

In a war, you need your combat units (eg: infantry, air force etc), logistics, commanders, and political systems to work together. If the air force targets random sites with no strategic value, it would undermine the ground troops, decreasing the likelihood of victory.

In the agribusiness world, alignment is just as critical. There is a need to align all the components up together to drive beneficial outcomes.

Effective strategy in agribusiness means ensuring every department and initiative is geared toward a common objective, creating a cohesive and powerful force driving toward success. This holistic alignment will not only streamline operations but also amplify your competitive edge in the market.

Full Index of Article

  1. Defining Strategy

  2. Strategy and War

  3. Rugged Landscapes from Biology

  4. Levinthal and Adaptation on Rugged Landscapes Paper

  5. King of the Hill

  6. Multiple Peaks

  7. Strategic Haze and Company Baggage

  8. Dynamic, not Static

  9. Bringing it Together: How AGCO is Positioned in Equipment

For the full deep dive on Rugged Landscape Theory, it’s applicability to agribusiness, becoming “king of the hill”, strategic haze and company baggage, the dynamism of a landscape, and AGCOs strategy, become an Upstream Ag Professional member today:

Report Key Takeaways

  • Digital Engagement = More Business for the Retailer: The average retailer that uses AgVend sees 46% of their customer base engage with the software, and those customers make up 70% of their total business.

  • AgVend partners with 23% of the North American ag input retail market.

  • One of the most popular uses of the AgVend platform is farmers making payments. On average, a digitally engaged customers leads to a 14 day reduction in the average number of days it takes the retail to get paid.

  • Sellers and grain merchandisers who are engaged digitally are more profitable, they sell more product, and contract more bushels than non-user counterparts.

This week AgVend released a Digital Adoption Trends in Ag Retail Report that had many notable takeaways, but I want to highlight one:

Digital Engagement = More Business for the Retailer

The average retailer that uses AgVend sees 46% of their customer base engage with the software, and those customers make up 70% of their total business. The takeaway is similar to what Nutrien highlighted in 2020/2021 where the noted increased customer spend, retention and segment number.

This benefits do not stop at the customer though and gets into one under appreciated component of leveraging intuitive digital software in ag retail:

Sellers and grain merchandisers who are engaged digitally are more profitable, they sell more product, and contract more bushels.

These beneficial outcomes to the ag retail team stem from being well positioned within the teams workflow. AgVend owns a control point for the ag retailers.

Control Points and Agribusiness Software

Businesses want a single point of action across their company. They don’t want ten different softwares; they want one.

The way to become the “one” is to own a control point. If a software company doesn’t own the control point, they will struggle with adoption, stickiness and value creation over time making them more prone to being displaced.

A Control Point is the most important application in a software customer’s feature suite. It is the last software users turn off at the end of the day or the first one they look at in the morning. Some might refer to this as a core operating system.

There are typically only one or two control points in any segment: one in the front office that touches the customer and drives sales, and one in the back office for operations and management.

In the world of large-scale row crop farming in North America, the most influential groups tend to be the retail input providers and the grain originators— these are also the points where transactions occur either to purchase inputs or services or for a farmer to be paid for their grain.  

From the early 2010’s into the early 2020’s, many in the industry thought the control point was agronomic software (I am guilty here)– but it’s not.

For a deep dive on Control Points in agribusiness, why this is important for agribusinesses and investors, who is positioned well, what companies are positioned poorly for success in agribusiness and what it means for the future of LLMs and AI in agriculture, along with how it ties into the AgVend co-pilot strategy, become an Upstream Ag Professional member today:

Indigo Ag announced major updates to its carbon program which will maximize financial returns for farmers and agribusiness partners, simplify the participation process, and open doors to new sustainability markets stretching from carbon and Scope 3 programs to realizing the value of biofuel tax credits like 45Z. 

Several takeaways from what Indigo released this week and what they shared with me on a call:

  1. Simplified Process — Indigo has removed paperwork and made the enrolment process more directly integrated between their software and website to streamline the ability to sign up fields and pick practices.

  2. Increased price per carbon offset — Indigo states that prices for their offsets have increased to as high as $80 credit, up from $20-$40. Indigo also stated that they have been diligently assessing and improving their models surrounding total carbon sequestered and are confident they have been conservative in assessing the carbon sequestered outcomes, which will to lead to confidence in more carbon sequestered per acre and more dollars paid out to farmers.

  3. Acre Enrolment — Indigo’s stated they now have 10 million acres enrolled.

  4. Indigo Partners — Indigo says they have around 40 partners supporting farmers, which includes entities like ag retailers. This has two implications:

    1. The economics of Indigo’s 25% take rate change, lowering their total dollars captured.

    2. They are continually working on increasing the enrolled acres that create a credit. Indigo needs their conversion rate to increase and having boots on the ground support is the best approach to make that happen. Earlier this year I calculated that Indigo only generate a credit for 10% of the farmers that enrol:

In the second tranche announcement Indigo stated they had 5000 farmers enrolled and ~450 being paid for credits, or about 10%.

5. This year will be the Indigo Carbon program’s 4th carbon crop. They have issued more than 296,000 carbon credits according to the website.

This is a very interesting article from David Li. I encourage anyone interested in the crop protection market to read.

The dynamics influencing crop protection companies are less rosy than they ever have been— higher interest rates and a more responsive supply chain have led all crop protection companies to navigate global destocking, leading to challenged margins, revenues and inventories, compounded by “just-in-time” purchases then factoring in that there is little to be optimistic about moving forward—there are very few novel modes of action in the pipeline for organization plus a mass patent expiry starting and a surge of generic risk. Not to mention increased regulatory risk and burdens.

Li starts out talking about how crop protection companies are eager to empower their people to manage this— going on to cite Bayer’s DSO initiative as one example and stating the following:

But making decisions is more difficult to achieve than downsizing an organization.

He’s right. I have a similar view surrounding the macrocultural dynamics that can hinder effective decision making, even in a more “agile” team. From Dynamic Shared Ownership and the Bayer Transition:

It is worth recognizing what incumbents have that start-ups don’t, aside from deeper pockets: something to lose.

For more on the Bayer transition, which other organizations have similar aspirations to Bayer and what North America can learn from Brazilian crop protection strategy, become an Upstream Ag Professional member today:

AgraForm is a St. Louis, MO based chemical contract manufacturing service company specializing in the bulk formulation of pesticides, fungicides and other agrichemicals. They offer process formulation, packaging and other manufacturing services to agriculture companies who continually develop, design and distribute chemical products.

While I do not know the economics of the deal, I like the strategic rationale behind it.

Last week I highlighted vertical consolidation and this is a great example of making GROWMARK more vertically integrated from crop protection manufacturing, to distribution and retailing, positioning them well for building out custom and proprietary products and accruing a higher percentage of the margin to their P&L.

Through a Porter’s Five Forces lens this is interesting too. Without knowing who of their suppliers manufacturers there, or what the capacity of the facility is, the acquisition does likely give them more control over supply of crop protection products.

8. Evolution of Ag 2024 - ThinkShift

For those interested in marketing, there are a lot of interesting tactical and strategic takeaways in this report. A couple highlights:

While customers will typically compare products and services within a category (i.e., seed versus seed, combine versus combine), they compare customer experiences across categories and even industries (i.e., how did my experience with seed company X compare to Amazon, to the Marriott, to Disney).

A strategic decision differs from other decisions in critical ways:

The best course of action is not readily apparent (i.e., it is one of many and likely not the most obvious).

The best course of action is controversial (i.e., one can easily argue for and against it).

Non Ag Article

I have been wanting to learn more about semiconductors and microchips. The entire concept of CPUs vs. GPUs vs. FPGAs and others has been intimidating for me to tackle.

The best source I have found is ChipStrat (thanks to reading a guest article by author Austin Lyons (Austin works in the agriculture industry for Blue River/John Deere) in Software is Feeding the World) — from technical breakdowns, to company strategy it has helped me learn about an area that I think is going to be increasingly important in general, but also for agriculture— whether talking for LLMs, See and Spray technology or for autonomous equipment.

His introduction series on hardware like CPUs (linked above) and GPUs has been incredibly useful for me and others might find the same.

Other Ag Articles

A needle in a haystack - Software is Feeding the World

John Deere Layoffs - The Daily Scoop