Upstream Ag Insights - November 25th 2024

Essential news and analysis for agribusiness leaders.

November 25, 2024 • Read Time: 19 minutes

Welcome to the forefront of agricultural strategy and innovation with the 242nd edition of Upstream Ag Insights, where over 18,900 agribusiness leaders start their week discovering crucial 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.

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 systems to seize opportunities and grow in your business and career.

Index:

  1. Corteva 2024 Investor Day Highlights and Analysis

  2. John Deere Q4 2024 Results Highlights and Analysis

  3. Bain Capital Purchases BW Fusion, Agronomy 365 and Biodyne

  4. EarthOptics Raises $24M in Financing

  5. Indigo Ag and Truterra launch strategic collaboration

  6. What 1,000 Farmers Told Us About Tech Adoption

  7. Conduit’s Cyber Week Highlights How to Cut Costs For Inputs

  8. Evogene Reports Third Quarter 2024 Financial Results

  9. AgTech Advisory Collective forms to guide agrifood corporates, startups: ‘We’re not your typical consulting firm’ 

  10. Racing to the Bottom

  11. Other Interesting Ag Articles (6 this week)

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

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A few highlights:

  • Corteva is expecting 65% of its crop protection product sales to be “differentiated,” up from 55%.

  • 65% of US Soybean acres had Enlist E3 Trait in 2024, up from ~55%.

  • Corteva biological revenue was $420 million in 2023, with 81% of that revenue from Brazil. For 2024, they expect revenues to come in at ~$500 million.

  • Corteva announced hybrid wheat, expecting 10-20% yield increases vs. conventional, for 2027.

  • This week, Corteva announced an MOU with BP to develop a JV focused on crop-based biofuel feedstocks for sustainable aviation fuel.

  • Corteva aims to launch short stature corn by 2027 via traditional breeding methods, with a gene edited version currently going through regulatory for the future.

  • Announced the launch of CARL (Corteva Agronomic Resource Library), their LLM co-pilot tool for advisors, and the Pioneer channel.

For the full detailed highlights and analysis, including an overview of hybrid wheat, cover cropping and winter crop initiatives, how the Pioneer Channel can be highly leveraged for the future of Corteva’s business, a look at their digital strategy and much more, become an Upstream Ag Professional member:

Next week, expect the full Q3 2024 Crop Protection and Seed Results Highlights and Analysis that will include summary’s and key insights from the earnings results in Q3.

John Deere Q4 Revenue was $11.143 billion, representing a 28% drop, driven by declines in shipment volumes across all segments, with full-year revenue down to $51.716 billion, a16% drop from the prior year. Production & Precision Agriculture Q4 was down 38% to $4.3 billion.

Deere finished the year with a better-than-expected fourth quarter that included 13.1% margins for equipment operations. Full year operating margins came in at 18.2%. Deere stated that this is nearly a 700 bps of improvement from 2020, which was the last time we were at this point in the cycle.

Looking ahead to 2025, Deere expects a continued contraction of ag markets globally to result in ag equipment demand being challenged out to 2026.

Deere anticipates Production in Precision Ag sales to be down ~15% in FY2025. U.S. and Canadian large agriculture markets expected to contract by ~30%. The results showed in their financial business segment, too: Financial Services net income was $173 million for the fourth quarter. The year-over-year decline was mainly due to a higher provision for credit losses.

For the full highlights and analysis, including an overview of their See & Spray orders for 2025, digital acre growth, pricing model commentary, inventory overviews and more, become an Upstream Ag Professional member:

Related: Spot spraying pays dividends - Future Farming

It reveals a significant reduction of the phytotoxic impact of some selective herbicides on the treated crop, with considerable increases in yield and quality that produces a far greater financial benefit than chemical savings alone.

Notable research emphasizing better profit outcomes, not just reduced spend.

I have highlighted that purely emphasizing cost reduction under values the whole package of precision spraying to farmers (though less immediately quantifiable than “cost reduction”), including the reduction in crop stress. 

BW Fusion, an innovator in agricultural crop and soil nutrition; Biodyne, an environmental microbiology company; and Agronomy 365, a tech-enabled crop analytics and management program; today announced their merging to create an integrated platform under BW Fusion. The combined company will offer growers more effective and sustainable biologicals at every stage of the crop nutrition cycle. The transaction formalized a previous strategic alliance between the three companies and will accelerate product innovations and enhance grower support. Financial support for the transaction was provided by Bain Capital Double Impact.

Bain Capital is a global private investment firm and Bain Capital Double Impact is the the impact investing arm of Bain Capital.

The announcement comes less than a month after Bridgepoint Capital announced an investment in Meristem Crop Performance. For Bridgepoint, there was synergy with Meristem and Rovensa investments, enabling Rovensa to leverage Meristem IP internationally, for example.

In the instance of Bain financing BW Fusion, Agronomy 365 and Biodyne, we see a roll-up strategy where integrating already partnering entities together could bring upside for the business.

To learn the rationale of the merging of the entities together, whether this is just the start, or the end, an overview of other acquisitions and prices/multiples, become an Upstream Ag Professional member:

EarthOptics, a company which specializes in soil digitization and predictive agronomy, raised $24M in funding.

The round was led by Conti Ventures and The Production Board. Backers included Cibus Capital, RuralWorks Partners, Norinchukin Bank, Leaps by Bayer, S2G Ventures, Middleland Capital’s VTC Ventures, Cooperative Ventures, iSelect Fund, Serra Ventures, TO VC, Route 66 Ventures, Shell Ventures, Pappas Capital, CNH Ventures, and Rabo Ventures.

The company intends to use the funds to accelerate technological innovation, broaden its geographic reach, and consolidate its position as an authoritative source for soil insights.

In August, it was announced that Pattern Ag and EarthOptics were merging (check out the article for more on the rationale).

I see the rationale for the merger on a merit basis, citing the integration of the physical, chemical and biological aspects of soil testing along with operational efficiencies.

I also speculated that rationale for merging had more to do with short-term financial demands:

Two start-ups merging would typically be a last resort— in this instance, there are likely tight cash reserves and tight product unit economics that drove urgency to make this deal happen.

Conti was an investor in both and the co-lead of this round. If both EarthOptics and Pattern Ag needed capital simultaneously, it is likely that Conti would have urged this merger to happen sooner rather than later, enabling their dollars invested to be concentrated in one entity.

Overall, I am keen to see how the offerings from EarthOptics progress in the coming years.

Indigo Ag and Truterra today announced a strategic collaboration aimed at simplifying, expanding and accelerating the adoption of ag sustainability solutions. This move aims to address pain points for companies seeking solutions to reduce ag-based emissions or remove carbon from the atmosphere and bring clarity for all participants in this growing market, including farmers. 

The collaboration aims to channel Indigo’s industry-leading science, data and technology capabilities, to create quality, standard setting and predictable ag sustainability outcomes and Truterra’s ability to drive farmer engagement and approach of working with and through the farmer’s trusted advisor, the ag retailer.

This essentially comes across as a “pre-competitive” initiative that aims to decrease the confusion and inconsistency in the carbon credit and scope 3 reduction markets— for both the farmers and the end buyers. The two entities want to bring consistency to the verbiage, program approaches and standards to ensure farmers can be confident in what they are signing up for and buyers can come in and have confidence there is credibility in what they are buying (aka no green-washing).

The general takeaway for me is that carbon entities need to increase the demand for agriculture based carbon credits (increase price per tonne) in order to better entice farmers and actually make their own margin profile more palatable.

One question this collaboration brings up to me is whether Indigo IP ever becomes a target for Winfield United— Indigo raised $~250 million about 16 months ago. It’s not clear that Indigo has the foundation to become a viable stand-alone company from the outside looking in, but they do have some capabilities that could be augmentative to an enterprise like Winfield— proprietary biological packaging (CLIPS), proprietary biologicals, and MRV capabilities to augment TruTerra for example.

There aren’t any surprises in here, but this survey is a good reinforcement.

I like that they included “emotional needs,” I have long emphasized the psychological and sociological dynamics, such as in Predictably Irrational and The Theory of Innovation Adoption, however, I am not confident a survey directly asking and quantifying is the best way to capture— most farmers would not readily admit that they do something in their business that makes them feel “influential” as a driving factor, even if it is an underlying secondary driver, just like the person wearing a Gucci belt wouldn’t directly say “I bought this belt to signal my above average income.”

What I like about the BCG report is the emphasis of segmentation. While not explicitly called out, what they are getting at is psychosegmentation vs. behavioural/demographic segmentation of farmers, something that I think is still under-utilized in the industry (cause it’s hard) but something I have been passionate about.

Psychosegmentation is the process of dividing a target audience or customer base into distinct groups based on psychological traits, behaviors, values, attitudes, interests, or lifestyles. Unlike traditional segmentation methods, which focus on demographic, geographic or behavioral characteristics, psychosegmentation aims to uncover the deeper, emotional, and cognitive drivers behind decisions and preferences.

BCG suggests companies can ascertain the characteristics of individual customers through relationships between growers and frontline sales staff, which is true, as long as there is an effective process, mechanism for capture (eg: CRM) and expectation set for staff. I also think there is a growing opportunity increasingly digital capabilities deployed by the likes of AgVend or Ever.Ag for example where there are actions taken, but an increasing opportunity to increase the surface area for understanding about the customer through how they interact with targeted materials.

“We’ve got to get better at taking the links out of the supply chain and ultimately taking cost out of the supply chain. Think about some of these products that we have that go from a manufacturer to a wholesaler, to a retailer, to a farmer in 2024. That’s nuts. It’s absolutely wrong as a matter of fact,” he says. “Conduit was really built on taking links out. We’ve got to take our costs down. We like to say right now, it runs just slightly over 90% cost savings over our full service model. So comparatively, Conduit is taking 90 plus percent of the cost out that we have in a full service model.”

In Navigating Strategic Development, Strategy Tax and the Opportunity in Uncertainty in Agribusiness I talk about a low-cost retail strategy. Conduit is working on executing a strategy along those lines in the market place via online purchase experiences, among other approaches like bundling and financing incentives.

What resonates with me is Matt Carsten’s comment on an incremental step in the value chain (distributor) adding cost.

One way to differentiate as a retailer, like we have witnessed with the likes of Meristem Crop Performance, is to eliminate that cost, something also worked on by some scaled players (eg: Nutrien, CHS) to vertically integrate themselves.

If you read the Non-Ag Article this week from Roger Martin, Racing to the Bottom, you’ll note this quote:

The best way to spur a race for the bottom is for the competitors in an industry to drive down costs in the same way — and for each to focus on that as its hoped for way to win. That is, they each incur the same set of costs in similar ways. That approach doesn’t produce competitive advantage.

In ag retail, the main method for retailers to try to lower costs is to work at getting improved pricing or better programming from supplier negotiations, but that doesn’t create a consistently different cost structure upstream or permanent competitive advantage for them so they all end up in the same place— a race to the bottom with eroding margins. Gross margins and whole sale costs are simpler to focus on (sell at a higher price to the farmer, negotiate a lower cost with suppliers), whereas looking at the macro strategy (capital investment in unique assets, partnerships/acquisitions further upstream etc), which drive true competitive advantage, often get overlooked.

Conduit doesn’t explain their upstream approach (and has declined my requests for a conversation to dig in over the last ~6 months) surrounding a removal of “links” in the value chain. What is apparent though is their effort to target a specific segment of farmer, different in needs and demands from those that prefer full-service retailers, and do so in offering an online purchase experience.

The results of Evogene weren’t particularly notable, but I want call out further what makes Evogene interesting, at least in terms of strategic approach.

Evogene has effectively attempted to approach corporate structure and discovery like highly successful Nimbus Therapeutics:

The innovation is in corporate structure, where a central hub company containing key technology or personnel is fire-walled from spoke companies centered around specific products. With this structure, spoke companies with valuable assets can be sold off to pharma—much like picking a ripe apple off of a branch instead of chopping down an entire tree for one fruit.

For more on Evogene, check out: Evogene and their Subsidiaries Announce Partnerships - Upstream Ag Professional

The newly announced AgTech Advisory Collective is one such group, made up of several different independent services collectively aiming to provide a broader range of expertise and services to those in the agtech industry.

AgTech-Pro‘s Patrick Honcoop is one of the core members of the new collective, alongside Alan Fetters of US-based AGceleration Advisory; AVL advisor Alejo Valverde Lyons; France-based AgTech Market founder Maxence Guillaumot; Michael Macalino of Australia-based Recode Ventures; and Rhishi Pethe of Metal Dog Labs, based in the US.

A group of colleagues announced a new initiative to support companies looking to solve their agtech related problems. If you are interested in learning more, I encourage you to reach out to Patrick Honcoop or any of the other individuals involved.

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Non Ag Article

Racing to the Bottom - Roger Martin

If you want to have a real low cost strategy, you can’t simply look cost item by cost item and attempt to reduce each. Instead, you need to figure out how to remove a cost item entirely.

Other Interesting Ag Articles

  • Good insight into spray pattern dynamics in drone spraying.