Upstream Ag Insights - March 4th 2024

Essential news and analysis for agribusiness leaders

March 04, 2024 • Read Time: 19 minutes

Welcome to the 205th Edition of Upstream Ag Insights!

Index for the week:

  1. Solinftec: Living in the Field

  2. Indigo Ag Announces Record-Setting Third Carbon Crop

  3. Meristem BIO-CAPSULE TECHNOLOGY™ "...could make liquid seed treatment obsolete."

  4. Compass Regulatory Comes Out of Stealth

  5. Interview with Farmers Edge CEO Vibhore Arora

  6. Digital Solutions for the Largest Ag Retailer in Latin America With Alex Wimbush

  7. Opportunities for LLM's Today in Ag: 4 -Leaf Clover Strategy

  8. Warren Buffett 2023 Annual Letter to Shareholders

This week’s Edition of Upstream Ag Insights is brought to you in partnership with Headstorm

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1. Solinftec: Living in the Field

This week, I saw two notable posts from Solinftec on Linkedin.

The first was images from the manufacturing facility of Solinftec’s solar powered, autonomous platform, the Solix, in Indiana where what looks like dozens of units were pictured— presumably most of which will end up in mid-western United States fields in 2024:

Next was a post from Solinftec CEO Britaldo Hernandez on Linkedin: Living in the Field (emphasis mine)

The vast majority of major agricultural problems such as diseases, pests, etc. within a crop start small and grow. Large-scale chemical applications exist because there is a farming operation incapable of keeping up with the cycle of these problems.

When Solix was designed, we thought of a multi-purpose robotic platform where an AI would be tasked with tracking the biological cycles and the applications would go from anticipating the problem to correcting it in its early stages. This is what we call "living in the field".

The emphasized points from Britaldo are what have had me rethink precision agriculture. I was fortunate to spend time with Britaldo last year where he shared those specific insights with me.

I think the concept is worth considering.

The promises of digital agriculture have been immense. From traceable food to fully autonomous equipment, de-commoditized grains and reduced fertilizer costs, there is no shortage of potential with digital technologies powering agriculture.

Yet, despite all of this digital technology, yields have gone up at about the same 1.3% annually as they have for decades and the profitability of the farmer sways based on the commodity cycle and interest rates.

Much like the famous Peter Thiel line describing a slowdown of innovation and societal progress, “We wanted flying cars and all we got was 140 characters, the digital agriculture equivalent could be “We wanted traceable food and autonomous farms, but all we got was siloed data, hoards of colorful NDVI images and press releases about carbon farming.”

There is satire in that line, but also truth.

There has been a gap between what farmers and the industry have wanted and what has been delivered through digital agriculture.

The current expectation to reality gap stems from many reasons, including:

  • farm internet connectivity

  • lack of technology interoperability

  • localized nature of farming

  • poor incentive structures

But two other big ones are often ignored:

  • cost-effectiveness of insights/actions and timeliness of actions.

Given the commoditized nature of large-scale farming, along with the already significant expenses of farms and the influence of fast-changing weather and quick-moving insects and disease, cost-effective and timely actions are critical.

Digital agriculture began with sensing. This started as basic as weather information, to soil sampling, then progressing to things like NDVI satellite imagery and drones or tractors with cameras on them.

Then we moved to diagnoses. This is synthesizing or interpreting data from the sensors to recognize an issue— a disease on the crop, an insect outbreak, or hail damage, for example.

Sensing and diagnosing have been where 99% of agtech has stopped. There has been a plethora of companies and technologies that sense and diagnose. Still, they are disconnected from the ability to take action, needing to connect to a piece of equipment with a time lag to execute.

Next, we get to action. Action is acting on the diagnosis to mitigate or eliminate any issue. John Deere was one of the first to popularize this capability with their aptly named “Sense and Act” technology which includes their “See and Spray” capability, or the ability to sense weeds, diagnose that they are different from the crop, and then in real-time Act to eradicate the weed with a precise spray response.

Traditional sense and Act is imperfect, though— the field is a complex, dynamic system, and there are constantly new challenges arising, whether it be weeds, disease, planter misses, insects, nutrient deficiency, or other abiotic stresses. Things change daily and in varying areas within a field.

There is a need to be constantly sensing, diagnosing, and acting to optimize outcomes in the field. There is a need to always be in the field.

But most pieces of equipment, such as the sprayer, aren’t entirely autonomous (they demand labor), and they cost farmers hundreds of thousands of dollars, which means every hour they operate comes with a hefty depreciation bill— this makes the efforts of sensing, diagnosing and acting a high-cost endeavor.

For the full deep dive and analysis on Solinftec’s Solix platform, including video’s, images, a breakdown of the capabilities diagrams illustrating what companies are well positioned in precision agriculture and what “living in the field” entails, become an Upstream Ag Professional member today:

Indigo Ag, an innovative leader and trusted partner in sustainable agriculture, has announced the successful completion of its third carbon crop. With 163,048 carbon credits produced, Indigo is the only company to complete three carbon harvests at scale and the unprecedented program continues to show growth with year-over-year increases in the number of farmers paid, fields filed, and credits produced.

Indigo officially announced its third carbon credit sale. The production of carbon credits is more than the previous two years combined.

In 2022 Indigo announced 20,000 carbon credits sold. In February 2023 they announced another ~120,000 carbon credits with ~450 farmers being paid for their credits. As of today, 2,000 farmers have enrolled 6 million acres, according to a World Economic Forum report, and they announced a production of 163,048 carbon credits.

Over the first two years, farmers were paid $30/credit, meaning Indigo sold each credit for $40 given the 25% take rate that Indigo has publicly stated. The third year's credit value was not disclosed at this time.

It’s interesting to break down some of the numbers to look at average payment per farmer, Indigo revenue and the real KPIs Indigo should be looking at.

  • At ~2000 farmers and 163,000 credits established, that means the average farmer enrolled is producing around 81 credits annually.Subscribe now

Bayer announced today several enhancements to its Bayer Carbon Program that provide all-new opportunities for more U.S. farmers to earn incentives for implementing regenerative agriculture practices that sequester carbon while promoting soil health.

Meristem Crop Performance today announced the U.S. Environmental Protection Agency (EPA) has approved a new formulation of METALAXYL ST fungicide for use in their patented BIO-CAPSULE TECHNOLOGY™ complete seed-fluency delivery system. The company will now pair METALAXYL ST with its new biocontrol PREPHYTE ST** to bring multiple modes of action and more effective seed protection to soybeans, eliminating the need for liquids and seed treaters.

The BIO-CAPSULE TECHNOLOGY Planter Box Delivery System, is a packaging system designed to carry, protect, and dispense a multitude of biologicals and crop protection products into a seed lubricant blend with micronutrients. It was launched in 2023.

In having a conversation with the Meristem Crop Performance team last year, the adoption of BIO-CAPSULE technology has already been rapid, too— with 3 million acres used in their launch year of 2023 and with over 6 million already sold for 2024 and 8 million forecasted. They are expecting 5.5M acres of corn and 2.5M acres of soybeans in 2024.

Traditionally, applying crop protection has been done through three main mechanisms:

  1. On seed application

  2. In soil liquid application

  3. Foliar application

This goes for all different types of crop protection products, fertilizers and biologicals.

BIO CAPSULE is another mechanism for formulating and applying crop inputs through fluency agents.

The compelling part specific to this announcement is that there is the ability to apply manage on-seed pesticide load while still delivering adequate rates of crop protection product, in this case fungicide, to deliver protection against root disease.

My curiosity is raised for future efforts, too— there has long been research illustrating the benefits of in-furrow fungicides and their suppression of foliar disease for extended periods of time (continuous uptake and translocation throughout the season)— FMC emphasizes this most prominently in the United States today with Xyway fungicides.

Theoretically, Meristem can move beyond root disease products and also target the foliar disease—plus potentially insects as well. BIO CAPSULE then becomes a one-stop suite for crop nutrition and protection.

It can be challenging to fight for spray tank space, and seed real estate is a vicious battleground already, which means a new avenue via a product (seed lubricant) that is already being used by farmers is an elegant opportunity.

Several former FBN employees (including an investment from FBN co-founder and former CEO Amol Deshpande) have founded Compass Regulatory— a company building a regulatory and compliance software platform for the ag industry.

Compass Regulatory states the following on their website:

We help agriculture companies — starting with crop input developers and retailers — easily track and execute their regulatory work, letting them bring new products to market faster while reducing the risk of costly errors.

Agriculture is one of the most regulated industries. And getting more regulated. In the recently released AgbioInvestor Agrochemical Product Discovery, Development and Registration Report (Upstream highlights and analysis here) there was an emphasis of regulatory increasing the cost and timeline to market of crop protection products— more complexity, data requirements, and scrutiny in bringing a product to market.

The reality laid out in the report illustrates an opportunity for crop protection manufacturing companies in leveraging verticalized software to keep data in a centralized spot, automate processes, and integrate the power of LLMs (for example, or larger AI efforts) in creating specialized reports, documents, fill out forms etc and enable alignment across geographies and simplifying the submission process, ultimately speeding up the process. There is likely an opportunity for integration with the likes of Codex to manage maximum residue limit information (MRLs) as another base example.

An evolution of the company seemingly could become a competitor to notable industry compliance company’s like CDMS and Agrian, which has proven to be a lucrative business with few competitors and little innovation.

While the business is early, it seems like an interesting one to watch.

Vibhore Arora was named Farmers Edge CEO in May of 2022.

A first-time CEO and industry outsider but experienced executive from Amazon, Arora inherited a company burning cash, operating across multiple geographies and business segments, and struggling to stabilize as a public entity.

Arora immediately made changes surrounding the company focus and culture when he came in. On the surface, things still look bleak at Farmers Edge, but if you look closely at the financials, we can see some inroads being made towards what Arora has seemingly used as a north star: break-even cash flow. 

Looking at Farmers Edge financials, we can see the in-roads being made by Arora and the new leadership team:

  • In the first nine months of 2023, Adjusted Free Cash Flow deficiency improved by 27% year over year.

  • Adjusted EBITDA deficiency improved 25% for the first nine-months of 2023.

  • Operating Expenses (excluding nonrecurring items) were decreased by almost 33% for the first nine-months 2023 over 2022.

Revenues did shrink, though it seems apparent that Arora is focused on stabilizing the cost structure so that there is sturdy ground on which to grow their new efforts.

I highlight these stats because Nathan Faleide had Arora on his podcast, and there were a couple things that stood out to me surrounding not just the financial changes, but the effort to evolve the culture that were discussed on the podcast:

  1. Decentralizing the Brazil Business

According to the podcast, Farmers Edge had previously operated in a centralized and top-down fashion with the direction for all geographies coming from the head office in Canada. There is immense nuance between geographies, and applying a Canadian mental model to Brazil is sure to have shortcomings— there is a lack of understanding of the country's culture, language, competitive landscape, and more. Delegating the day-to-day decisions to Brazil staff and empowering leadership illustrates a culture shift, highlighting some of what Arora is bringing to Farmers Edge.

  1. Focusing on Soil and Where the Idea Came from

Farmers Edge has strong soil testing assets in North America. I am of the opinion that deeper soil knowledge and products surrounding soil insights have more potential moving forward in agriculture at the farm and enterprise level. But what stood out to me was Arora’s comment that one of the reasons to emphasize the soil offering moving forward was because he “listened to employees.”

Essentially, passionate employees on the soil side of the business emphasized the opportunity within their business and the unique operating efficiency they have— ironically, earlier this year I had lunch with an individual who does 7-figures (and is very particular on soil testing) worth of soil testing annually, and his company made the switch to Farmers Edge’s lab and he said he would never look back.

While many will not find it novel to listen to employees, it’s easy to overlook how frequently staff ideas get pushed aside and how doing the basics well goes far to push companies ahead— both from a morale perspective and operating perspective.

I think there are still challenges within the Farmers Edge business, including what I wrote recently surrounding CommoditAg, but there are positives in place for the intended transition, too.

Lavoro is a compelling retail organization out of South America, that is publicly traded in the United States.

I have been intending to do a deeper dive on Lavoro given the public investor documents which I will work on in the coming weeks, but this podcast gives a great overview of the business and how they think about customers, Brazilian agriculture, building digital products, and supporting retail staff.

In his most recent AI for agriculture focused newsletter, Patrick Walther wrote about opportunities for enterprises in agriculture to leverage LLMs and AI.

Patrick raises some great use cases in the article.

It has been an area I have been trying to bring more structured frameworks to think through within agribusiness enterprises.

The baseline has been:

  1. Find

  2. Enhance

  3. Automate

Find

The first surrounding “find” is based around what Doug Clinton has written on how to think about “search” and the four types:

  1. Information search: a specific desire and a single answer. What is the capital of Pennsylvania?

  2. Narrowing search: a specific desire with many potential answers. Where should I stay on vacation in Costa Rica? Product commerce searches largely happen here.

  3. Question search: a vague desire with a specific answer. Why won’t my car start? In question searches, you’re one or more layers away from the actual question you need to ask. If your car won’t start because your spark plugs are shot, you need to ask how to replace the spark plugs. Service commerce searches largely happen here because service providers figure out the right question for you, then fix the problem.

  4. Curious wandering: a vague desire with many potential answers. The “I’m bored” category. Curious wandering is a form of search, but social fills the need more than Google. You go to YouTube, Instagram, or TikTok to find something to fill your boredom.

We will focus on the first three.

If we bring this to the agribusiness enterprise level we can look at “finding” in numerous senses, from marketing, to sales to agronomic where LLMs integrated into enterprise software can deliver answers to the following prompts:

For a dive into the entire Find, Enhance, Automate framework, including examples for ag retails and agribusinesses surrounding AI, agents and and agribusiness software, become an Upstream Ag Professional member today:

Non-Ag Article

Warren Buffett’s annual letter is always worth the read. Here were a few components that caught my attention:

Regarding Buffett’s long time business partner, Charlie Munger, who passed away late in 2023:

Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I blundered he never – never –reminded me of my mistake.

Notable stats surrounding the rail industry:

BNSF is the largest of six major rail systems that blanket North America. Our railroad carries its 23,759 miles of main track, 99 tunnels, 13,495 bridges, 7,521 locomotives and assorted other fixed assets at $70 billion on its balance sheet. But my guess is that it would cost at least $500 billion to replicate those assets and decades to complete the job.

BNSF must annually spend more than its depreciation charge to simply maintain its present level of business.

An incredible example playing long term games, being patient and still being optimistic no matter how wild the numbers seem:

Property-casualty insurance (“P/C”) provides the core of Berkshire’s well-being and growth. We have been in the business for 57 years and despite our nearly 5,000-fold increase in volume – from $17 million to $83 billion – we have much room to grow.

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