Upstream Ag Insights - October 23rd 2023

Essential news for agribusiness professionals

October 23, 2023 • Read Time: 20 minutes

  1. Soil Testing Moats and Evolutions: Pattern Ag in North America and Brazil

  2. Private Equity Investing in Agriculture with Kevin Schwartz, CEO & Managing Partner of Paine Schwartz Partners

  3. AgBiome Announces Layoffs, Potentially “Entire Company”

  4. The OEM Conundrum

  5. Biologicals in Row Crops: Building Towards a Brighter Future

  6. Jeff Rowe named Chief Executive Officer of Syngenta Group

  7. Measuring Nutrition in Crops from Space

  8. Canadian Canola Joins Regenerative Ag Program

  9. In Case You Missed It: Upstream Ag Professional September Video Summary

  10. 10 Charts That Capture How the World Is Changing

This week’s edition of Upstream Ag Insights is brought to you by:

Upstream Ag Professional: Your Competitive Edge in Agribusiness

Are you tired of grappling with complex agribusiness news and press releases, struggling to decipher their implications for your team and business?

Do you covet a comprehensive understanding of the ever-evolving agribusiness and agtech landscape?

Are you seeking powerful frameworks and expert agribusiness insights to fuel your strategic decision-making and industry expertise?

Do you want to receive deep industry insights before your competitors?

Look no further!

Upstream Ag Professional is your ultimate resource, providing the context and framing to synthesize, analyze and visualize the most important information in agribusiness to give you a decisive advantage over 99% of agribusiness professionals.

Whether you're an ag industry consultant, a senior ag retail leader, a leading marketer in crop input manufacturing, or driving strategy for an agricultural equipment company, our frameworks, data points, and actionable insights will propel both you and your career to new heights.

Make quicker and more confident decisions with Upstream Ag Professional on your side.

For those interested in subscriptions for multiple team members or company-wide access, please email me at [email protected]

Become an Upstream Ag Professional Member Today.

Your Competitors Already Are.

1. Soil Testing Moats and Evolutions - Upstream Ag Professional

New for 2024, we are pleased to offer Stine’s Prescriptive Pathogen Report, powered by Pattern Ag. Available at a special discounted price to Stine’s Corn Loyalty level customers, the Prescriptive Pathogen Report is designed to help growers accurately predict their future risk for corn rootworm, one of the most damaging soil-born, yield-robbing pests.

I like this initiative from Stine. I have emphasized the opportunity for companies, such as input manufacturers or retailers, to leverage new soil testing approaches like those from Pattern Ag for years within Upstream.

According to releases, companies like UPL and Syngenta have announced strategic partnerships with Biome Makers, though it has been targeted at the R&D side of the business. CHS announced in 2021 that they would be working with Trace Genomics. Both Trace and Biome Makers have competitive products to Pattern.

Pattern Ag is a “predictive ag company”— they focus on testing the soil's biology, including DNA sequencing, to predict what will happen agronomically on the field that season. These predictive insights include disease and nematode risks, which appear to be Stine's focus since they call it a “Pathogen Report.” Pattern Ag also does traditional soil testing that includes fertility.

Pattern can benefit Stine and farmers by enabling better varietal decisions, or crop protection decisions, that ultimately will help deliver a better outcome for farmers growing Stine varieties. Pattern Ag CEO Rob Hranac has also stated they are working to map the soil genome. For companies partnered with Pattern, we can begin to see how not only does it help them at the field level in working with farmers to get the best results with their current hybrids, but it also can position them to establish better tools for their internal teams in the development of hybrids or the positioning of hybrids by geography.

The price is one of the challenges that has kept the uptake of these testing services from taking off in North America at a faster rate.

According to John Kelly, Director of Strategic Accounts at Pattern, when speaking at Tech Hub Live, a “full biology” test costs $11/ac (MSRP).

Stine is subsidizing the price for their customers, bringing the cost down to $1.50/ac for the farmer, specifically for a pathogen test:

The Prescriptive Pathogen Report is being made available to Stine Corn Loyalty customers for a cost of $1.50 per corn acre planted to Stine brand corn. This is a fraction of the total cost of this service, with the balance covered by Stine

North American farmers have been conditioned to think of soil testing in a commoditized way— test for the basics of N, P, K, S, and organic matter for a cost of ~$30-$100/field, and you are taking proper steps to get the best outcomes for the year. With new technology, this couldn’t be further from the truth.

I am bullish on companies like Pattern Ag because everything starts with the soil. Not only from a fertility perspective but also from a crop protection perspective— root rots, fungal diseases, and nematodes all can be better managed with a deeper understanding of the soil, something Pattern unlocks.

What hasn’t occurred, though, is an evolution in thinking or agronomist training to adapt to these new technologies.

Today, there is a moat around soil testing in North America.

For complete access to the moat around soil testing in North America, what can be done to overcome it, the difference between North America and Brazil regarding soil testing, full image access and more, become an Upstream Ag Professional member today:

Private equity doesn’t get talked about as frequently within agriculture as venture capital. Paine Schwartz is one of the most prominent private equity groups focusing on agriculture, and this week, CEO and Managing Partner Kevin Schwartz had a conversation with The Modern Acre.

The podcast was a good one that is worth listening to and includes some interesting insights like this:

“3% of private equity goes into ag, when ag makes up 8% of global GDP…and most of that investment is downstream”

Paine Schwartz and Private Equity are worth digging into, and other private equity approaches within agriculture today.

V.C. vs. PE

First, private growth equity strategies differ from venture capital strategies.

At its most basic, venture capital (V.C.) investment primarily targets early-stage startups with high growth potential, involving higher risk and a longer time horizon for potential returns. V.C. investors gain company equity, often provide active support to startups, and have a fund investment horizon of 7-10 years.

Private equity growth investment, on the other hand, focuses on more mature, established companies with revenue that are seeking expansion. It carries lower relative risk, often involves acquiring a controlling interest, and aims to enhance company performance over a 3-6 year time period through actions like management changes, in-house experts to support strategic changes at the investment company level such as pricing strategies, ancillary acquisitions to augment the core business and typically has an exit strategy through a sale to a strategic incumbent, or IPO (which is similar to V.C.). The typical hold time for private equity is 3-6 years, though Mr. Schwartz states on the podcast that they tend to hold for 5-10 years at Paine Schwartz, an astute tweak to the P.E. model given ag industry dynamics such as annual cyclicality.

In summary, V.C. takes on technology and market uncertainty risk, whereas P.E. takes on more execution risk.

Private growth equity groups tend to have some other specialized competencies, too— looking at the operations of a business to understand where to cut or identifying strategic gaps to fill, along with a solid ability to integrate companies, which is a challenge for most organizations.

As an aside, I was talking with a V.C. investor this week who was looking at hybrid investment approaches and unique ways to find returns within the ag space (combination of venture studio, V.C. and P.E., for example), which might look something like what we see from The Production Board that involves a combination of venture investments, company building, and strategic integrations.

Notable Paine Schwartz Upstream Value Chain Portfolio Companies

Paine Schwartz (and heritage companies) themselves has been an investor in the ag and food value chain for more than two decades, with a particular aptitude for specialty nutrition companies— Verdesian being a notable one in which they acquired multiple assets to establish Verdesian as a capable stand-alone business before selling it another private equity business, AEA, in 2021.

Other investment exits by Paine Schwartz include irrigation company Rivulis to Temasek and Advanta Seeds to UPL.

Looking at Paine Schwartz’s portfolio today, we can see a specialty product (natural molecules) emphasis still, including Elemental Enzymes, which focuses on peptides and enzymes, and AgBiTech, a biological insecticide business focusing on baculovirus including nucleopolyhedrovirus (I have dove into AgBiTech here) along with humate business HGS Biosciences.

Notably, two of these organizations have strategic partnerships with incumbents— AgBitech and UPL, and Elemental Enzymes and Corteva, which lay a foundation for short-term growth and longer-term exit potential for Paine Schwartz.

Paine Schwartz also holds Kynetec, a leader in market research and intelligence for agriculture. This group has amassed numerous global research and market intelligence businesses to round out their offerings across animal health, crops, and pets.

Other Examples of PE

Paine Schwartz has generally stayed out of software-based businesses within agriculture if looking at their portfolio. However, there has been talk of a roll-up of various agribusiness software for years better to manage data along the entire agrifood value chain.

For full insights regarding examples of other Private Equity groups operating in agriculture, how TELUS Agriculture fits in and where we might see Private Equity focus in agriculture next, become an Upstream Ag Professional Member:

Agtech startup AgBiome is “potentially” laying off all its 123 workers, according to a layoff notice filed with the state of North Carolina. AgBiome is trying to raise capital, one of its co-CEO says, in order to stay in business “for the foreseeable future.”

AgBiome was founded in 2012 and, according to Crunchbase, has raised over $250 million over that period, with its most recent raise closing at $112 million in September 2021. Assuming about $100 million burned over the last 24 months indicates they are burning through more than $4 million per month.

AgBiome is well known in the industry and has announced partnerships and collaborations with major input companies Sumitomo, Syngenta, Mosaic, and BASF. Their investors include strategic companies like Syngenta Ventures, Leaps by Bayer, and Novozymes.

AgBiome also has commercial biological pesticides such as Howler and Theia, along with dozens of patents and patent applications.

AgBiome’s proprietary discovery platform is known as GENESIS, which is supposed to give them an advantage in identifying, screening, and developing novel biological products.

When a company runs into financial challenges, there can be many reasons that are not all easily explainable, and I do not have an inside track on the why behind their challenges.

Two things stand out to me regarding AgBiome, though:

  1. Biological crop protection is tricky. There is the need to have the performance and efficacy rival synthetic products while having the cost of goods be competitive— not many biological companies have cracked this code yet, and the expenditures to work towards it are significant.

  2. Fragmented Efforts. AgBiome, judging by its name, makes one think “agriculture-focused”— crop protection, maybe animal health. This isn’t the case, though. AgBiome has efforts in the industrial space, personal care, human health, food, animal health, and crop protection. This doesn’t enable resources to be focused on one specific area.

AgBiome is in efforts to raise, according to the article, but as I highlighted last week from the conversation between CS Liew and Bob Troegle, there are lots of bio-based companies under distress because they can’t get funding, don’t have strong commercial viability or distribution and are running out of cash.

As we see biological companies struggle, along with valuations coming down, it does open the door for private growth equity investors to roll up the ones with solid assets and IP into companies that have market access strategically.

4. The OEM Conundrum - Software is Feeding the World

This is a fantastic article by my friend Rhishi Pethe, delivering insights and frameworks for thinking through the strategic efforts of OEM companies in a world of evolving paradigms.

In the article, he also asks good questions:

Will ground-based agriculture equipment manufacturers acquire drone companies and service providers?

Are the new age drone companies targets for incumbents, or if some of the distribution etc. challenges are solved, will they become competitors to OEMs?

Rhishi goes beyond drones, too, but I want to focus on them.

I recently wrote about Rantizo, which currently prioritizes drones in its business with aspirations encompassing automation beyond drones.

For more on how drones can operate effectively in conjunction with sprayer and what that could look like, become an Upstream Ag Professional member today:

“Some biopesticides in the past might not have worked well by themselves,” says Matthew Pye, Biologicals Subject Matter Expert at FMC Corp. “But we don’t market ours that way. We sell them as working in concert with our synthetic partners’ products in the U.S.”

I think the above is the right approach.

I have talked about this multiple times, more holistically in Synthetics, Biologicals, Systems Agronomy, and Weak Link Problems, illustrating potential evolutionary approaches to synthetics and biologicals for crop protection and plant health:

For full image access, become an Upstream Ag Professional member today:

We can talk about the environmental benefits of biologicals ad nauseam, but at the end of the day, performance is the arbiter of growth, and defaults are powerful change.

Synthetic crop protection products are typically:

  • high efficacy

  • consistent in performance

  • simple (relatively) to formulate

  • cost efficient to produce

  • regulated

  • a fit into current applications methods and operations

  • the current standard

These tendencies bring knowable and desirable outcomes to farmers. It’s challenging to move people away from what works without significant incentives. Especially when more environmentally friendly actives are continuing to be commercialized.

However, synthetics aren’t perfect— resistance is a genuine concern, and other crop enhancements (e.g., abiotic stress mitigation) are possible with bio-based products.

Those small chinks in the armor are the points where we begin to see how that evolution occurs, and in my mind, it is a tag-teamed approach between the varying product segments.

Syngenta Group’s Board of Directors has elected Jeff Rowe as Chief Executive Officer (CEO) of Syngenta Group, effective January 1, 2024. Rowe is currently President, Syngenta Crop Protection, Syngenta Group’s largest business unit. He was previously President, Syngenta Seeds, where he executed a successful turnaround of the Seeds business.  Erik Fyrwald, Syngenta Group CEO, will continue as CEO until the end of the year, when he will retire after seven and a half years with the company. He will continue as Advisor to the Chairman of Syngenta Group and remain on the Board of Directors.

A notable leadership change at Syngenta Group. Given Syngenta's focus on getting ready for a Shanghai listing IPO, it seems likely that it will be of immediate priority for the incoming CEO.

The concept laid out from the research in this journal article is interesting but also unlikely to bring any commercial success in changing agronomic outcomes or quality outcomes within grain or oilseed crops.

According to the work, the research illustrates the potential; however, there are generally poor correlations from using satellite imagery today.

Leveraging PRISMA (hyperspectral imaging satellite) and Sentinel-2 images acquired at critical crop phases development (vegetative, reproductive, maturity) were used to predict Calcium (Ca), Iron (Fe), Potassium (K), Magnesium (Mg), Nitrogen (N), Phosphorus (P), Sulphur (S) and Zinc (Zn) levels. For PRISMA images, the best prediction results were obtained for P in soybean (R2 = 0.69) and K in soybean (R2 = 0.66)— not a horrible correlation, but not strong enough to be valuable either.

When we factor in spatial and temporal dynamics, we can see some of the challenges to leverage this capability today adequately. Ignoring anything spatial, the weaker correlations are challenged by another factor: temporal dynamics— environmental conditions heavily influence nutrient uptake and translocation at any given time, and it can change hourly!

Leveraging other technology, such as InnerPlant*, at some point in the future if they opt to pursue nutrient signals with their technology would be a better way to improve the accuracy and resolution from space drastically. InnerPlant technology wouldn’t decrease the challenges regarding temporal dynamics, but the higher accuracy and resolution would better enable models to be established that could be used effectively.

*Disclosure: I am an investor in InnerPlant

FBN is providing its digital farm business management platform, called Gradable, which allows growers to submit their sustainability information. The company then translates it into "outcomes and claims" that will be passed down the supply chain. In Canada, the information will be used to calculate a carbon intensity score for canola.

Canadian-specific news that illustrates the small payments farmers receive from sustainability-based programs:

FBN members who register for the program will be able to lock in a five cent per bushel premium for participating and another two cents if their score falls below a specific carbon intensity benchmark.

For context, the average canola yield in Canada in 2022 was 37 bushels/acre. That means the premium works out to about $1.85/ac for the $0.05 per bushel premium and to a max of $2.60/ac if the farmer qualifies with a specific carbon intensity level.

Ultimately, there is a need to start somewhere, and if FBN can get funds to farmers, it’s a win. However, it seems unlikely for a farmer to prioritize these efforts when ~$2/ac is roughly all a farmer can bank on.

9. In Case You Missed it:

Upstream Ag Professional members receive exclusive videos, including monthly reviews of the most important news, events, research, and deep dives from around the agribusiness and agtech landscape. For September’s summary, the topics included:

  • AGCO Acquisition of Trimble Assets and Joint Venture

  • Indigo Ag’s $250 million raise

  • Psychology and Incentives: In Inputs and AgTech Adoption

  • Rantizo’s $6 Million Raise and Ambitions for Automation Orchestration

If you want to watch the video, send me an email with the subject “September Video” at [email protected] and I will give you complimentary access.

10. Non Ag Article

This post is well worth the time to read. It includes fascinating stats regarding the number of satellites in orbit (7,702!), employee productivity, exponential technologies, and several other areas.

Other Ag Articles