Upstream Ag Insights - October 30th 2023

Essential news for agribusiness professionals

October 30, 2023 • Read Time: 18 minutes

Welcome to the 190th Edition of Upstream Ag Professional!

Index for the week:

  1. Pivot Bio Realigned Resource Allocation and What it Means for the Business

  2. Rankings of Global Top 20 Agrochemical Companies in FY2022 + Revenue, EBITDA, R&D and Revenue per Employee Comparisons

  3. FMC Corporation Provides Adjustment to Expectations + Is Blue Orca Right?

  4. C-Suite Scott Kay of BASF: Specialists in the Field - What are crop input companies doing to position themselves for a world where precision spraying is the norm?

  5. The Patronage Conundrum of Co-operatives

  6. LLM Powered Autonomous Agents and Agribusiness Software Workflow

  7. Paying Strategy Tax with Shane Thomas of Upstream Ag Insights

  8. Decisive Farming by TELUS Agriculture and GrainFox Launch Strategic Partnership

  9. Challenging Assumptions About Regenerative Agriculture With John Kempf

  10. A General Assessment of the Role of Agriculture and Forestry in U.S. Carbon Markets

  11. Kynetec Releases Forecast for Global AgroChemicals Market

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1. Pivot Bio Realigned Resource Allocation - Upstream Ag Professional

This week, Pivot Bio CEO Chris Abbott released a letter citing operational updates.

A portion of that included the following (emphasis mine):

We will be reallocating and focusing our resources on the products that deliver the most value to our growers ... These changes include an update to our teams and how we resource against our key initiatives and investments. To make these investments requires adapting some areas of our business and our employee footprint. We don’t take these decisions lightly, but we believe these changes will help us deliver the innovation growers expect from us.

A softer approach to stating layoffs.

It isn’t clear the number of layoffs, however, it seems unlikely that it would be mentioned if it wasn’t 10%+ of staff. According to LinkedIn, they have 477 employees— using my assumption, this would likely indicate it’s above 50 layoffs total.

The news comes a week after AgBiome suggested they will have to make significant layoffs.

Notably, these are the two biological agriculture companies that have raised the most venture capital, with Pivot Bio raising $617 million and AgBiome raising $250 million (both according to Crunchbase).

The difference, though is that Pivot Bio has product-market fit, announcing that they have over $100 million in revenue for 2023 earlier this year. It is unclear whether AgBiome has any meaningful revenue through its two commercial products.

The high revenue numbers for Pivot indicate the cuts aren’t as dire as AgBiome, but worth paying attention to. Chris Abbott was named CEO in August, and this move is likely the first step in his moving the company forward, consistent with his views of what is necessary for the company to become profitable and on an ever-growing number of acres.

Given the macroeconomics environment and the stage the company is at (the company is 12 years old), that likely means focused priorities based on their current product offering to manage expenses and profitable unit economics.

Profitable unit economics are important for all businesses. Especially agtech startups in the current environment.

Upgrade to become an Upstream Ag Professional member to access premium insights with a dive into the realities of customer acquisition costs, the layout of where Pivot Bio is focusing moving forward, and what changes may mean for their direct-to-farmer strategy long term.

The combined pesticide sales of the top 20 totalled US$85.762 billion in fiscal year 2022, representing an 18.18% year on-year increase from US$72.569 billion in 2021.

Four major agricultural giants (Syngenta, Bayer, BASF and Corteva) accounted for over half (55.00%) of total sales on the list. With the exception of Nanjing Red Sun, all companies surpassed US$1 billion in revenue. There were 13 Chinese companies on the list, with total sales of US$37.069 billion, making up 43.22% of total sales.

AgroPages put together their annual list of top agrochemical companies for fiscal year 2022 which highlights the largest crop protection companies by revenue, specifically for their crop protection business.

Recently, I have been putting together a comparison of the top 6 crop protection and seed companies by revenue, breaking out their EBITDA, EBITDA margin, and revenue per employee, which made sense to share in the context of the AgroPages release:

If looking at Syngenta Group, which includes ADAMA and its China business, they would have $33.4 Billion in revenue with $5.4 Billion in EBITDA, 16.7% EBITDA margin, and $566,100 in revenue per employee.

Plus 2023 Agribusiness Innovation Strategy Comparison

Become an Upstream Ag Professional member today to see exclusive charts, designs, and images to help elevate your career:

3. FMC Corporation Provides Adjustment to Expectations + Is Blue Orca Capital Right? - FMC

(FMC) Revenue in the third quarter is now expected to be $982 million with adjusted EBITDA of $175 million and adjusted earnings per share of $0.44.  The revised outlook is mainly driven by substantially lower sales volumes in Latin America, particularly destocking in Brazil and to a lesser degree drought in Argentina. While results for EMEA, North America and Asia were broadly in line with Company expectations, destocking behavior continued in those regions as well.

Destocking was an important topic for crop input companies in the latter half of Q2 and Q3, with it being a key theme of the Q2 2023 Earnings season.

For more on what agribusiness CEO’s are saying about when destocking of inputs in the value chain will subside, and more on what it means for FMC in the context of the short position taken by Blue Orca Capital, become an Upstream Ag Professional member today:

Q3 2023 earnings are beginning to be released, with the likes of Yara and Lindsay Corp already out. Based on announcements from company’s, I expect to have a Q3 Agribusiness Summary, Insights and Analysis published in the November 19th Edition of Upstream Ag Professional.

What is most promising about the smart spraying solution in development?

One Smart Spray will revolutionize how we look at weed control. With a road map of where weeds are located, we will have a better view of when to apply. All that information will help retailers make better recommendations. BASF is open to other spraying technologies, including green-painted sprayers.

The subject of crop protection strategies in the context of precision spraying technology is interesting to me— what is most interesting, though is not what gets said, but what doesn’t get said.

For more on what Bayer, BASF and Corteva are doing, or not doing, in the context of precision spraying technology, how Jevon’s Paradox will play in, and what a shift in the locus of differentiation shifting from herbicide to sprayer unit means for the future of bundling input products and crop protection margins, become an Upstream Ag Professional member today:

5. The Patronage Conundrum of Co-operatives: Co Alliance Says It’s Big Year Pays Back to Farmers - The Daily Scoop

Co-operatives are incredibly influential in North American agriculture.

Co-ops do a lot for farmers in many agricultural markets.

There is one peculiar thing that has always stood out to me about co-operatives though— their affinity to emphasize, first and foremost, the level of patronage being delivered to their farmer members.

In the linked article, the point of emphasis is patronage first, and this is consistent with what I see from almost every co-operative report I read or presentation I listen to.

On the surface, I get it. It’s a point of differentiation compared to Nutrien Ag Solutions, Simplot, or Helena Agri-Enterprises, for example.

However, what is apparent to me is that this point of differentiation is also one of their downfalls.

For more on why this is a challenge for co-operatives, what it signals and the where they can shift their messaging, become an Upstream Ag Professional member today:

Last month, I wrote about Artificial Intelligence and the Supply Chain in a World of Converging Agribusiness Software— touching on how to think about LLMs in vertical software scenarios. Two weeks ago, I touched on The Shortcomings and Opportunities of Large Language Models in Agronomy.

One area I didn’t touch on is LLM autonomous agents, a notable capability in the context of integrations into agribusiness software.

An LLM agent is an artificial intelligence system that utilizes a large language model as its core engine to deliver capabilities beyond text generation, including conducting conversations, completing tasks, reasoning, and can even demonstrate some degree of autonomous behavior.

LLM agents can be directed through prompts that encode personas, instructions, permissions, and context to shape the agent's responses and actions.

The key advantage of LLM agents is their ability to have varying degrees of autonomy. Based on the capabilities granted during the design phase, agents can exhibit self-directed behaviors ranging from purely reactive to highly proactive.

LLM agents, with proper access to data and prompting, can work semi-autonomously to assist people in a range of applications, from the typical chatbots to goal-driven automation of workflows and tasks.

This enables possibilities for a customizable AI partner integrated directly into software where work happens today and accomplish tasks.

For examples of how this can work in the context of agronomy and ag input sales, upgrade and become an Upstream Ag Professional member today:

Related: How about that user experience? - Software is Feeding the World

This week, I was on The Pace Setter Pod with Joe Mosher.

Joe’s unique perspective and insights made it a fun conversation, bouncing thoughts and ideas around the following topics:

  • Understanding "strategy tax" within your agribusiness

  • Risk-Taking, Innovation, and the "incumbent's dilemma"

  • The green shoots under cloudy skies of AgTech

  • The "precision problem" vexing the self-proclaimed disruptors of ag

If you haven’t, I recommend checking out previous installments of The Pacesetter Pod too - Joe brings on unique guests and dives into the operational side of agribusiness, and I have learned a lot listening!

Decisive Farming by TELUS Agriculture, an innovative technology and data solutions provider, and GrainFox announced a new partnership to bring more digital grain trade and sell options to Canadian farmers, providing technology-based solutions to support the ongoing transformation of Canada’s agriculture industry.

This announcement has similarities to that of Bayer Crop Science’s acquisition of Combyne earlier this year. The rationale tends to fall along the same lines.

TELUS doesn’t have any software that touches the grain side of the world, so the collaboration makes sense— not to mention the founder of Grain Fox, Mark Lepp, sold TELUS it’s first agricultural asset, Farm at Hand.

I always enjoy listening to John Kempf’s perspective.

Tim Hammerich and him go through a host of topics, two of which I think are specifically worth highlighting:

  1. John talks about the shortcomings of the scientific method in complex biological systems—like farming. The point of the scientific method is to test and measure the outcome of one parameter change while holding all else constant. In agriculture and farming, this is challenging to do because when you change one parameter, the implication cascades throughout the system because of impact on biology or impact in a given instance regarding weather, making it challenging always to determine if that one thing is valuable. The reality, everything needs to be thought of as a system— something I agree with.

  2. John and Tim highlight a shortcoming of agtech— creating technology for the current paradigm vs. optimizing for a future paradigm or rethinking the paradigm altogether. I touch on this in Reimagining Farming from First Principles.

Overall, this is a great listen.

If you are looking for an overview of the challenges within the carbon market, this provides a view into some of the hurdles to overcome and provides stats and background that I think many wanting to get better up to speed in this area will find useful.

Key Takeaways:

  • Medium-term (2028) positive outlook for all segments, with the largest growth likely in fungicide

  • The CAGR for the global CP market from 2023 to 2028 is projected to be 0.53%. 2023 and 2024 are expected to show declining growth.

  • Generic pressure is expected to stay elevated as more AI’s go off-patent before 2030.

  • This suggests that the market could see an increase in the availability of generic products, leading to price and margin erosion. The introduction of new products amid generic competition is expected.

Non Ag Article

Parallel bet strategies have several core advantages, from increasing corporate optionality (especially when it comes to acquisitions) to covering strategic bases, maximizing learnings, and (potentially) neutralizing (or at least moderating the risk of) any potential competitors.

But there are costs. More money tends to be spent, but each bet tends to receive less funding than they might have under a more focused approach, which can constrain the would-be “winners.” Overseeing many bets can also lead to mixed signals on what is (and is not) the “right bet” and harm internal morale. Worse still, these teams typically hate when their corporate parent funds external competitors that, with a little more funding and support, they might been able to beat but now threaten to put them out of a job.

This is a long article focused on Microsoft and artificial intelligence, but I think it has relevance to agribusiness professionals, specifically the concept of “many parallel bets”— there is often not a strong sense of conviction in any specific new direction within large enterprises because there is a lot to lose. This leads to divergent efforts and messaging, lots of spradic investment and a potentially conflicted pipeline. With all that said, it is probably still the right approach, as Ball alludes to at the end of the post.

Consider BASF as a basic example— they are a legacy chemistry company with strong synthetic fungicides and herbicides, that acknowledges the need for biological capabilities, that also has bets in precision spraying technology (ONE Smart Spray), farm decision software (xarvio) and corporate venture capital fund that has investments in ag biologicals and robotics.

Not all of these are inherently conflicted, some even are augmentative to one another. Consider the biological and chemistry side of their business though— every R&D dollar invested in chemistry takes away from the potential breakthrough on the biological side, which means outside biological companies have the potential to move faster and more precisely, leading to BASF needing to eventually (likely) acquire more biological capabilities anyways as that segment gains steam.

Other Ag Articles