Upstream Ag Insights - September 2nd 2024

Essential news and analysis for agribusiness leaders.

September 02, 2024 • Read Time: 27 minutes

Welcome to the forefront of agricultural innovation and strategy with the 231st edition of Upstream Ag Insights, where over 17,700 agribusiness leaders start their week discovering the latest 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 and make superior business decisions.

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. EarthOptics, Pattern Ag Merge to Digitize Soil Health for Climate and Agriculture

  2. Deere leads HabiTerre’s $10m Series A first close to build ‘the global standard’ for sustainability metrics

  3. Precision Spraying Technology Research from Iowa State and Behavioral Change

    1. Jevons Paradox, Complement Disruption and Precision Applications in Agriculture: Implications for Crop Protection Manufacturers

  4. The shift from single-task autonomous solutions to smart implements

  5. Bayer's Strategies to Increase Biologicals Adoption

  6. Syngenta Integrates CropwiseAI into GHX App

    1. H1 2024 Results for Syngenta Group

    2. Q2 2024 Crop Protection Results Highlights and Analysis

  7. Landus launches new health coverage plans for farmers: Is Landus Becoming FBN 2.0?

  8. Fractal Agriculture Expands Farmer-Aligned Equity Investment Product Amid Turbulent Ag Economy

  9. Sources of Edge

  10. Other Interesting Ag Articles (6 this week)

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EarthOptics and Pattern Ag have merged, creating a category leader in soil digitization to power advanced crop management and climate sustainability.

The newly combined soil intelligence company will operate under the name EarthOptics and be the authoritative source of soil insights and the leader in Predictive Agronomy. Its comprehensive data will enable farmers, ranchers, and their advisors to know their soil's exact physical, chemical, and biological properties, helping them plan their most impactful input and management decisions to maximize profitability and sustainability goals.

This soil company combination takes Pattern Ag’s biology and lab-based analysis with field-based sensing technologies from EarthOptics to create a higher-resolution understanding of the soil— combining insights into pests and pathogens, nutrients, soil compaction, carbon levels, or more broadly combining the biological, chemical and physical parameters of soil:

Rationale

Earth Optics has a soil mapping sensor (GroundOwl measurement sensor system) that can deliver high resolution data points, primarily on some of the chemical (nutrient) and physical parameters of soil. This has scalability to it, but still requires the collecting of and processing of soil cores (traditional soil tests) for many of the services they offer, which is an expensive endeavor. On top, they have a gap in terms of having a deeper pathogen and biological understanding of soil.

Pattern Ag is a soil testing company that specialized in assessing soil biology and then leveraging those biological insights to create predictive tools about pest outbreaks and soil health. Because they were already taking a test and needed to offer a more robust soil test to their customer base, they were testing for physical and chemical parameters in their lab as well.

From the explanations of each we can see two direct benefits to the merger:

  1. Operational cost reduction for EarthOptics by gaining the lab capabilities of PatternAg.

  2. High resolution soil insight + ability to understand the major pillars of the soil (biological, chemical, physical) in one spot.

They had already leaned into these benefits by collaborating to establish a product together called “360 Pro” that delivers insights to farm customers surrounding all soil parameters, from nutrients, to pests, to compaction and more. EarthOptics is positioned as a company that can deliver some of the most well-rounded soil insights to farmer.

Agronomically, and product wise there is sound logic there for the merger. But the deal feels more reactionary than strategic given the current environment.

For the full breakdown of how the macro economic environment and investors also could have driven this merger, and what they will need to come to fruition to have stronger footing in becoming a staple soil testing company, become an Upstream Ag Professional member today:

Building upon extensive research and development by University of Illinois professor Dr. Kaiyu Guan, HabiTerre’s “system-of-systems” technology monitors and measures the environmental impacts of farm operations. The system uses a combination of remote sensing, process models, and artificial intelligence to evaluate past, present and future land performance and create simulations that can predict environmental outcomes on the farm.

HabiTerre is a company that aims to deliver actionable insights to improve ag productivity, efficiency, and environmental outcomes scalably, accurately, and cost-effectively. HabiTerre operates in the same realm as companies like Regrow and Perenniel.

HabiTerre is notable in building out the technology in a research setting before founding the company. From a previous AgFunder News interview with founder, Kaiyu Guan:

For the past seven years or so, I’ve been with University of Illinois. We’ve been quite successful getting federal research grants and we have a big team, 30-plus people, including postdoctoral research scientists and PhD students.

Kaiyu established the IP within the university, and now Habiterre licenses certain aspects of that IP to establish their products.

HabiTerre has two offerings today:

  1. Crop Productivity Insights, including yield prediction and land performance analysis. This service is typically licensed to other platforms.

  2. Scope 3 Agriculture Greenhouse Gas Emissions Quantification. includes Measurement, Monitoring, Reporting, and Verification (MMRV) capabilities, but then gets into soil sampling optimization, tools to streamline farm engagement and data gathering, insights for participating farmers, and environmental impact assessments beyond GHG emissions, and nutrient management insights.

The HabiTerre Approach

Science underpins HabiTerre’s approach. In fact, they have an extensive contribution to scientific literature, including this journal article, which highlights their “system-of-system” approach:

Following a comprehensive review of the scientific challenges associated with existing approaches, as well as their tradeoffs between cost and accuracy, we propose that the most viable path for the quantification of field-level carbon outcomes in agricultural land is through an effective integration of various approaches (e.g. diverse observations, sensor/in-situ data, and modeling), defined as the “System-of-Systems” solution.

A “system-of-systems” are typically complex, interconnected structures where multiple independent systems work together to form a larger, more comprehensive system. Each of these individual systems is capable of functioning on its own, but when combined, they contribute to a more complex whole that provides capabilities or functionality that no single system could achieve on its own.

For more on HabiTerre’s approach, an overview of John Deere investments in agriculture and what the partnership might mean for Deere, become an Upstream Ag Professional member today:

Iowa State University recently completed a field scale demonstration of precision spray technology on five conventional tilled soybean fields that totaled 415 acres using a John Deere See and Spray™ Ultimate machine. Weed pressure before planting was variable based on the field and prior management practices. All fields received similar pre-emergence residual herbicide programs as part of their spring crop management plan.

Three of the five fields showed strong pre-emergence residual herbicide performance despite the high rainfall during the 2024 spring growing season and had the least amount of initial weed pressure. Fields 1, 4 and 5 subsequently had 87.2%, 90.6%, and 87.6% total savings in the post-emergence herbicide pass, respectively. The average savings was 88.4% across these three fields and economically saved $4,300 ($18.1/ac) in chemical costs alone.

The savings number is quite high in this study. What was not touched on is what the level of missed weeds in See and Spray applications vs. broadcast was, if any.

These results illustrate something similarly stated by John Deere on their investor call two weeks ago:

We've been very, very encouraged by the results in the field for those operators that have gotten in and used the technology…they're (farmers) seeing savings on their herbicide at or better than our expectations for See and Spray premium as an example, greater than 50% savings for the folks that had it in the field.

The feedback we're receiving from both customers and dealers on the efficacy of the technology. We continue to hear that See & Spray savings are meeting or exceeding expectations and that the ROI pencils out.

One other thing that piques my interest is how See and Spray changes farmer spraying behavior.

I asked the following on X (Twitter) to Justin Rose, President, Lifecycle Solutions, Supply Management and Customer Success at John Deere:

What’s been one of the biggest learnings in terms of how customer behavior changes (eg: # of passes/types of tank mixes etc) when they adopt See and Spray? And how does it differ (if at all) from a customer w/ Ultimate vs. Premium?

His response included the following:

Many customers looking at opportunity for post-harvest pass to clean up field before winter.

Than Hartsock, Vice President, Precision Upgrades followed up with:

We are definitely seeing customers experiment with how See & Spray can improve their weed management. In addition to the additional late season passes that Justin mentioned, some customers are making their first post pass earlier since they know they can come back later and only.

New tools enable new approaches.

There is a famous quote attributed to John M. Culkin: “We shape our tools and, thereafter, our tools shape us.”

The tools farmers have access to have always shaped the practices they use for weed control— from tillage to number of herbicide applications a season. See and Spray will be no different for those that adopt it. How farmers manage weeds will evolve with the tools available— acting based on current problems and current incentives. It seems unlikely that changes will be that drastic in one-tank retro-fit scenario’s, but as two-tank, or even three-tank systems are used, there could be changes to what products get used, when and how much total crop protection product gets used.

For more on the concept, check out:

Excerpt from the deep dive article that breaks down foundational frameworks that every agribusiness professional operating in the crop protection world should have familiarity with:

Business strategy legend Clay Christensen came up with Jobs to Be Done theory.

The theory of Jobs to Be Done is a framework for better understanding customer behaviour.

Basically the framing is that people don’t buy products, they “hire” them to perform some job in their life or within their business that moves them forward to an outcome or goal.

It’s based on the classic quote that “people don’t want a quarter-inch drill bit, they want a quarter-inch hole”. The premise of the idea is to figure out what kinds of situations people might find themselves in, what kind of pains they experience, and why they might go looking for solutions to solve that problem.

In the instance of crop protection products, there is a need to protect the crop from a specific pest. If we think about weeds in a field, then we would naturally say the “job to be done” is to kill the weed. But the “job to be done” at a level higher is to have a weed free field (which could be supportive of other future efforts from John Deere in the combine with a seed destructor or laser technology, for example) which is generally supported by using a herbicide, which is assessed on a continuum of parameters before a farmer “hires” the right herbicide for the job, including:

  • efficacy on target weeds

  • crop type (and trait)

  • crop safety and safe stage

  • price (and programming)

  • tank mixability

  • soil residual

  • other including bulkiness of product (eg: rate used per acre), formulation (eg: solutions vs. granule), applicator safety, volatility etc.

In the broadcast herbicide application across the entire field scenario we currently operate in, each herbicide will be differentiated in some way (either worse or better) vs. competitors across each of those continuums to which a farmer or agronomist will determine the best fit based on their specific needs.

Along those parameters are how the majority of herbicides are marketed and positioned today, being differentiated across one or some combination of those parameters allows organizations like Corteva or Syngenta to make incremental margins on their IP protected products and compete against generic products or one another.

In our current application system that we operate in, the sprayer has to spray the entire field.

Today, performance of a herbicide, which is the ultimate arbiter of the job to be done (weed free field), will deliver essentially the same outcome whether using a John Deere 612R or a Case IH Patriot 4450. There is some nuance in efficiencies due to water tank size, service thanks to dealership choice or even a tweak in nozzles but generally the efficacy and all other performance parameters of a herbicide on Palmer Amaranth in corn or kochia in wheat comes down to the herbicides unique performance capabilities and the herbicide trait in the crop variety, not what sprayer is being used.

Today, the sprayer is a complement to the herbicide (for the full description of a complementor in a business setting, check out John Deere to Crop Input Companies: “Your Margin is My Opportunity”.)

What happens when the system changes and the biggest point of differentiation is the sprayers ability to identify and spray weeds with precision while having multiple tanks?

All of a sudden the value of tank mixability, crop safety, price and even to a degree, relative efficacy decrease in importance and the ability to “see and spray” becomes the “choke point” where value accrues to, commoditizing the value of differentiated herbicides leading to potentially lower margins for crop input companies. And it is unlikely to stop at herbicides and herbicide traits.

This is known as disruption through complements.

For the full breakdown, check out the Upstream Ag Professional article linked above.

History is an important teacher when it comes to understanding what the outcome of present situations and actions might be.

Morgan Housel has written “History’s cast of characters changes but it’s the same movie over and over again. To me, the point of paying attention to history is not the specific details of certain events, which are always random and never repeat; it’s the big-picture behaviors that reoccur in different eras, generations, and societies.”

Farming has changed over the last 120 years, but a farmers fundamental demand for certainty, efficiency and low risk have remained.

If we want to understand where we are going, I think it’s useful to know where we came from.

One influential book I have read is Tractor Wars: John Deere, Henry Ford, International Harvester, and the Birth of Modern Agriculture by Neil Dahlstrom, a historical overview of what drove the tractor from obscurity to changing how we farm. It’s an insightful read on the innovation that has had one of the biggest influences on farming.

In the above article, Patrick Honcoop shared his assessment of the shift from single-task autonomous solutions to smart implements— it reads similar to what drove challenges with shifting from horses to tractor!

The specifics are different, but the macro takeaways are related. For example, Patrick highlights farmer skepticism surrounding full autonomy along with the complexity of autonomy. The same occurred with tractors in the early 1900’s according to the book:

Farmers knew what a horse could do, but the farm tractor was complex, confusing and unreliable.

Plus, there is reference to farmers still needing their horses even if they purchased a tractor—alluding to the fact that if a tractor gets stuck, they will need horses to pull it out. An operational/logistical challenge, similar to what Patrick alludes to with logistical challenges with autonomy.

Patrick goes on to talk about single-task limitation. He highlights the shift of FarmWise, Ecorobotics and Carbon Robotics away from a singular autonomous solution, to creating implements that attach to the tractor.

120 years ago the same thing occurred.

For more on what we can learn from the history of the tractor about what will lead to autonomous success, become an Upstream Ag Professional member today:

Related: The Theory of Innovation Adoption in Agriculture - Upstream Ag Professional

Bayer Crop Science has aggressive growth plans for bio-based products over the next decade:

Their aspirations would suggest they also have a very specific approach that makes them uniquely positioned to achieve that ambitious target compared to their largest competitors.

In the above linked article, the Bayer Head of Crop Protection Team Fungicides, Biologics and Fruits & Vegetables at Bayer CropScience stated the following about what differentiates them:

How do you differentiate your product offerings from competitors in the biologicals’ markets?

As a leading global agricultural company, we can bring exceptional product development, commercialization and stewardship capacities to biologicals. Leveraging our extensive testing and quality control operation, we are able to comprehensively confirm the performance of every biological solution we market, before we offer it to any customer. This not just means testing what the active ingredient actually does: it means what needs it fulfills and how it handles at every stage from manufacture through to the user in the field (including factors such as product handling, shelf life and compatibility with other solutions).

We apply exceptionally high standards to our biologicals, just as we do with everything we offer, and we further support this by delivering comprehensive advice on product management to our customers – all as part of a rigorous top-down approach to safety and sustainability. 

On top of this, what truly sets us apart from every other company is our commitment to offering biologicals in integrated packages, not just as standalone solutions. We have an unmatched multidisciplinary portfolio across seeds and traits, synthetic crop protection, biologicals and digital tools, and we are increasingly focused on bringing this portfolio together to create full solutions that address farmers’ challenges with disease or pest pressure as well as biostimulation – smartly, flexibly and comprehensively.

Everything in here sounds fine. I do not think anyone would argue that Bayer does all of that. But none of it is unique to Bayer.

I sent this quote to 10 people in my network and asked each one if they thought it came from Bayer, Syngenta, FMC or Corteva and why.

Two thought Syngenta, four thought Corteva, three thought Bayer and one thought FMC.

If the answer was useful, we would know exactly what company said it, without it being explicitly stated.

There was no direct mention of something specific to Bayer that gives them an advantage — such as leveraging ForGround to incentivize the utilization of biologicals in the United States. There was no emphasis on the potential of informing decisions specific to Climate Field View. The list could go on. Those are assets that have had billions invested in and should be leveraged with action and communication.

If you do not have a differentiation statement, you are by definition not unique. Companies that are not unique do not outgrow the market and do not out compete their competition.

If they were only competing with start-ups, maybe the answer makes sense (“leverage our current capabilities, distribution and market position to win” is how the answer could be summarized). But that’s not the case. They will be competing with Syngenta, Corteva, FMC, BASF, UPL and others. To beat that list of competitors requires something different — but they do not make it clear what it will be.

In defense of Bayer and the individual that made the statement— Bayer is global and operates in so many segments of agriculture it can be difficult to be specific and I suspect most large companies would have had a similar message.

More importantly, this quote was probably re-written 5 or 6 times by the communications team before getting published.

Most communications teams are protecting against the downside— a quote that is perceived negatively by the market or leads to an antitrust issue are not acceptable outcomes for a communications team.

The risk unaccounted for by communications teams is eroding relevancy in a market that your largest competitors are out positioning you in.

Earlier this year, I introduced the potential of Cropwise AI. Now, at the Farm Progress Show, we're bringing this potential to life with the GHX 2.0 app. This tool not only answers pressing questions about products and agronomic challenges like Tar Spot but also provides rapid, accurate insights across all your fields—even those using competitor products.

GHX is focused on enabling farmers to make seed and farm decisions through a digital experience.

Farmers engaging with the GHX app get a prescription recommendation for the right hybrids at the right population for one flat, per-acre price, service from the Syngenta team, and no-premium risk assurance with AgriClime.

Now Syngenta is delivering their genAI solution through the app for agronomic recommendation support. The first of the large agribusinesses to deploy a genAI product beyond a pilot initiative.

The announcement comes on the back of Syngenta’s H1 2024 Results, which stated the following:

Europe saw its first corn and sunflower seed bags sold through a 100% online (end-to-end e-commerce) platform with personalized product recommendation supported by Cropwise® Seed Selector.

North America is a different market, but Corteva and Bayer are the significant leaders in seed in North America. For Syngenta, they have a lot to gain by being different and approaching the market in unique ways — such as expanded digital efforts to augment the customer experience.

H1 2024 Results for Syngenta Group

In Q2 2024, sales were $7.2 billion, down 14% year-over-year, while EBITDA fell 39% to $0.8 billion.

Specific to Syngenta Crop Protection globally:

Sales were 21 percent lower at $6.2 billion in the first half of 2024 amid ongoing channel destocking in key markets.

The North American market was particularly challenged for Syngenta on crop protection in H1 2024:

In the first six months, sales in North America were 37 percent lower.

For more on Syngenta Group results, check out the the fully updated crop protection results highlights and analysis:

Iowa’s largest farmer-owned collective, Landus, has announced a new initiative to offer farmer-focused health coverage through Landus Health and Conduit Health. Policies are provided through Momentum Ag, a division of Patriot Growth Insurance Services, and plans use the Cigna nationwide provider network.

This is not something that I would typically highlight, but given that Landus has launched, the following:

  • Conduit online financing for farmers.

  • Conduit online input purchasing for farmers.

  • Now has health insurance for farmers (interestingly, offered through Momentum Ag, a Division of Patriot Growth Insurance Services which is the entity FBN sold their health insurance assets to earlier this year).

  • Announced Amol Deshpande, co-founder and former CEO of FBN, an advisor and investor in Conduit.

It has me asking, is Landus becoming Amol Deshpande’s second attempt to bring to life his vision for FBN— this time through Landus alongside CEO Matt Carstens with access to physical infrastructure and pre-existing customers? They are just missing some vertical integration on the input side.

Fractal, a US-based company helping to solve a key gap in farmer financing, has announced an expansion of their farmland co-investment product. Fractal has raised more than $15MM of capital and has deployed $8MM to leading farmers across the Midwest.

When I covered the Hierarchy of Agronomic Needs, Corbett Kull, CEO of CamoAg reached out with a thoughtful suggestion to add financing as a foundational need— he was right. Financing for farmers is crucial. Especially considering the following:

American farmers are facing some of the greatest strains since the 1980s with rapidly falling farm income, shrinking cash reserves, and higher interest rates. The USDA projects net farm income and working capital will fall by 37% and 21% from 2022 levels¹ while interest rates on farm loans reach up to 8-9%². Despite this, farm competition is increasing with continued farm consolidation and the threat of outside investors waiting to take advantage of lower land values.

That makes me more keen to continue to see how a company like Fractal grows:

Fractal helps family farms access capital they need to invest in business critical opportunities. This capital comes with lower and more flexible annual payments than traditional debt in return for equally sharing in the upside or downside of farmland appreciation. Fractal works with the farmer and their banker to inject new equity capital into the operation by taking passive, minority investments in farmer-owned land. Farmers remain in full ownership of their land, maintain agronomic control, and receive a 10-year investor commitment.

Non Ag Article

Sources of Edge - Bill Miller

This article is almost a decade old, but is a classic article on where “edge” or advantage comes from in investing. Bill Miller summarizes the sources of edge in investing as:

  1. informational

  2. analytical

  3. behavioral

I think a lot about where edge and competitive advantage come from in any knowledge based business and I think this article provides a framework for thinking about that in any competitive area.

Other Interesting Ag Articles

Category Design with Dan Schultz - The Future of Agriculture