Q3 2022 Agribusiness Results Summary

Below is a summary of some of the major publicly traded agribusiness results for Q3 2022.

In order of appearance:

• BASF

• Bayer

• Corteva

• FMC

• Syngenta

• Farmers Edge

• Nutrien

• Yara

• Mosaic

• American Vanguard

• Bioceres

• ADM

• AGCO

• Lindsay Irrigation

The most in-depth coverage in regarding Corteva, Nutrien, Farmers Edge, American Vanguard and ADM.

I will cover UPL, Nufarm, CNH Industrial, Titan Machinery and John Deere results separately within Upstream when their new results come out.

BASF Q3 2022 Results - BASF

Sales in North America rose considerably as a result of positive currency effects, higher prices and increased volumes, especially for herbicides.

Bayer Q3 2022 Results - Bayer

Crop Science registered strong growth in the third quarter of 2022, with sales rising by 8.4% (Fx & portfolio adj.) to €4,692 million.

Bayer achieved double-digit percentage gains in Latin America and Europe/Middle East/Africa, but saw sales fall significantly in North America, mainly due to higher seed returns.

In the Corn Seed & Traits business, sales in North America were heavily impacted by lower licensing revenues and higher returns. This was only partly offset by higher prices in Latin America.

Herbicides posted considerable gains due to price increases, especially in Latin and North America and continued to benefit from a positive market environment for glyphosate-based products.

Sales of Fungicides were level with the prior-year quarter. Weather-related shifts in demand between the second and third quarters resulted in higher sales in North America.

Sales in Soybean Seed & Traits were down year over year, largely due to higher returns in North America. However, business expanded in Latin America thanks to higher volumes and prices.

Corteva Q3 Results Presentation - Corteva

For the third quarter ended September 30, 2022, net sales increased 17% versus the same period last year. Organic1 sales rose 22%, with double-digit increases in all regions. Volume grew 9% versus the prior-year period.

Demand for new Crop Protection products drove double-digit net sales growth for the segment, with an organic1 sales increase of 22%. Higher seed volumes were driven by higher other oilseed sales in India, as well as a later start to the planting season in North America, which shifted some corn and soybean sales into the third quarter.

Price increased 13% versus prior year, reflecting continued execution on the Company’s price for value strategy and recovery of higher input costs. GAAP loss from continuing operations after income taxes was $(322) million in third quarter 2022. Operating EBITDA1 for the third quarter was $96 million, up from a loss of $51 million in the year-ago period.

In September Corteva announced their acquisition of Symborg. On the earnings call and analyst asked a question regarding the future of the biologicals business where CEO Chuck Magro reinforced there will be more M&A on the way to access IP and the market:

And, I guess, to answer your question specifically, what's next? I guess, stay tuned. We're going to use M&A to accelerate our R&D innovation and development and to get access to the market. That's how we're going to use M&A

The Corteva executive team also reinforced that inflation related pricing to the farm gate is not going away:

But as you look at the year, you know, we're up 13% on pricing on a year over year basis, and we expect that momentum to carry us through into next year as well.

There were also some comments on the differentiated products of Corteva

There's three buckets that we think about. When it began to talk about pricing in crop protection, its differentiated products, its next best alternative products and it's those that are close, generic, you know, the differentiated products is one that is really a quarter of our strategy. And that's where we're shifting the portfolio towards because this is a non-elastic less price sensitive because this is a true value add to the to the grower. It actually helps improve the yield on a on a per acre basis. The next best alternative is once we began to think about there are a few more substitutes available than the differentiated. So, it's a little bit more elastic, but it's still far from the generics, which gets us back to that close generic those we're going to have to manage with the market and the commodity price nature there. But overall, our increase in differentiated products is one that over time will put us in a good position as it comes to how we extract value from the market.

The comments around differentiated probably deserve their own breakdown one day, but regardless the point of emphasis is that they will be attempting to break through new technology (eg: Smart Spraying) and generic products with their own focused IP.

FMC Q3 2022 Results - FMC

Revenue of $1.38 billion, an increase of 15 percent versus Q3 2021 and up 19 percent organically1

Consolidated GAAP net income of $118 million, down 27 percent versus Q3 2021

Adjusted EBITDA of $261 million, down 11 percent versus Q3 2021

Sales in North America grew 21 percent versus the third quarter of 2021. In the US, demand in the Midwest on corn and other crops offset weakness on the West Coast due to challenging weather conditions. Latin America sales grew 35 percent year over year driven by strong herbicide and insecticide demand. In Brazil, FMC is reaping the benefits of investing in expanding market access for its products, especially on soybean and corn acres.

Syngenta Q3 2022 Results - Syngenta

Syngenta Group today announced strong financial results for the third quarter and first nine months of 2022. Third quarter Group sales increased 20 percent to $7.9 billion, up $1.4 billion year-on-year. Third-quarter EBITDA for 2022 increased 24 percent to $1.0 billion, driven by higher sales of innovative products and services, increased productivity and prices offsetting higher costs.

Group sales for the first nine months of 2022 were $25.9 billion, up $4.9 billion, 24 percent year-on-year. EBITDA for the first nine months of the year was $4.6 billion, 30 percent higher year-on-year.

Farmers Edge Q2 2022 Results - Farmers Edge

Another dismal quarter for Farmers Edge. They missed revenue and EBITDA targets and decreased total acres down to 12 million from 15 million at end of Q2.

Earlier this year they secured a $75 million credit agreement with their largest shareholder, FairFax Financial, for when they burned through the funds raised in their IPO. They have burned through those IPO funds and have already pulled $20 million from the credit agreement and have begun to use that cash. They say they have enough capital to get them through the next year with that credit line, but it seems unlikely they build the business to the point of positive cash flow 12 months from now. The reason for that is the areas they have chosen to focus on.

The go forward plan is to focus in two areas:

The Company reassessed the reportable segments and determined that it has two reportable segments, digital agronomy operations and e-commerce operations

Farmers Edge states:

In the new operating model and strategy, new digital acres will be acquired through a combination of business to growers (B2C) and business to business (B2B) enterprise partnerships.

Their continued focus on digital acres makes sense, but is unlikely to lead them to any sort of free cash flow positivity in the next 12 months. They have already been churning acres and the unit economics have been challenged for a long period of time. They essentially end up stuck between a rock and hard place in the direct to farmer model: offer high service with an agronomist and/or customer support person plus a high cost of up front assets, such as weather stations and CanPlugs OR try to sell to farmers a straight software solution that is highly scalable, but not as sticky or value added to the farmers operation (like so many companies have done, such as Granular, FarmLogs and a host of others).

Then Farmers Edge have their B2B approach, which can be done how they were doing it before which is essentially going to a partner (such as an input retailer) and getting the retailer to sell the platform offering to the farmer for the fee with the retailer taking a small cut. Or they can take a true enterprise software approach, which makes them more directly in competition with the likes of TELUS and Agrian software, and delivering software to the retailer staff to use to manage their relationship with the farmer.

The challenge with this is that from a product perspective they end up “straddling”. While there are similarities and overlap between what a retailer agronomist first platform and a farmer first platform functionality should have, there are significant differences in how the product is used and what areas are focused on. This will continue to make messaging challenging and product development challenging. Given there is still an emphasis around future carbon efforts, my guess is they will continue to have a a grower focus for the time being, but will eventually transition away from all their farmer first acres and move towards a full enterprise effort (assuming they get any sort of pull thru at the enterprise level).

The second point they are emphasizing is e-commerce:

The company is also working on launching a new CommoditAg (CAG) e-commerce platform in the US and Canada to provide increased selection and improved customer experience. The long-term vision for CommoditAg (CAG) is to offer a compelling e-commerce marketplace to partners and growers.

New CEO Vibhore Arora comes from Amazon. My guess is that he understands marketplace fundamentals and operations better than almost every individual working in agriculture.

With that said, I am still bearish on the endeavour and think that point of emphasis will be the final nail in coffin for the company. I have talked about this extensively in Upstream including in Aggregator Marketplaces vs. Platform Enablers in Agribusiness and Indigo, Marketplaces & Grain Marketing Tech.

Ultimately, it will depend on the functionality they mean when they talk about an “e-commerce marketplace”. If they mean e-commerce marketplace the same as I define it, meaning matching input sellers with farmers online to transact, it is likely to flounder. Take their current revenue as a basic indicator (can see it under “Crop Input sales” in the finance image above): They sold just $5.5 million in crop inputs through Q3 (GMV or gross merchandize value). That’s revenue including the cost of the products that flowed through the CommoditAg platform. On that revenue they have negative EBITDA of about $300,000.

If they can ramp sales up, they can have a small business as I suspect with their cost cutting initiatives they turn it into a profitable unit eventually (the 3rd quarter was actually run EBITDA positive, but that business will not ever deliver any sort of return to shareholders). However, this is where another challenge is. B2B selling cycles are not short. They are long and arduous to get retail customers onto their platform and attract farm buyers to use the system and as stated earlier, Farmers Edge is running low on cash meaning they don’t have time for a long process.

Just last week I went through the dynamics of e-commerce based on the Farm Journal E-commerce Survey Results. Currently, 18% of farmers are interested in purchasing online:

I do think the number will grow as I discussed last week. However, the need for retailers is beyond accessing an online marketplace. They need tools to support their staff and functionality to further support farmers beyond transacting. From last week:

We often think about the online aspects of ag retail as purely customer based. However, online engagement should extend to the retail staff in terms of how they can interact among one another (eg: agronomist to location manager), what they interact with (eg: real time sales and pricing dashboards) as well as how they interact with suppliers (eg: marketing). Anything digital requires systems thinking and agribusiness leaders need to think strategically through the actual goals and outcomes with rigour.

This extends into another challenge for Farmers Edge. Rebuilding their core competency into new areas. Digital and precision agronomy are not the same as e-commerce and e-commerce is not the same digital enablement. The target customers are different and pain points vary. It is not impossible to learn, however, learning takes time. Given the lack of cash and lack of prospects surrounding free cash flow from the business operations, it is unlikely they have the time to turn their operations into a successful enterprise first business.

Farmers Edge has dropped in value by 98% since their IPO in 2021 and now have a market capitalization of just $18 million CAD after raising well over $250 million in private markets and public markets plus taken on debt from investors.

I was trying to be optimistic when the new leadership came in, but even the smartest people and the best strategy in the world can’t get you out of trouble when you have a deep hole and time isn’t on your side.

Nutrien Q3 2023 Results - Nutrien

Nutrien Ltd. announced today its third quarter 2022 results, with net earnings of $1.6 billion ($2.94 diluted net earnings per share), which includes a non-cash impairment reversal of $330 million relating to our Phosphate operations. Third quarter 2022 adjusted net earnings per share1 were $2.51 and adjusted EBITDA1 was $2.5 billion.

Some comments from Nutrien’s earnings call.

Nutrien CEO Ken Seitz on overall Nutrien Ag Solutions results:

Nutrien delivered record adjusted EBITDA in the third quarter and through the first nine months of the year, supported by higher realized fertilizer prices and record results from our retail business. Retail had a strong third quarter as growers were incentivized to invest in their crops. To increased demand for our proprietary nutritional products, which partially offset a delay in purchases for commodity fertilizer products. Demand for crop protection products was strong and we delivered higher margins, driven by growth in proprietary product sales and tight supply for many crop chemistries. We're on track to exceed our target of $100 million in annual EBITDA from Brazil in 2023.

Jeff Tarsi, President of Global Retail on fertilizer rates:

And when I look at application rates, as I call and talk around, nobody's cut back on application rates. I made this remark a bit earlier, these are science-based decisions. At Waypoint Analytical last week, which is our soil testing business and over three days last week, they had record soil testing that was coming in. So we're out doing soil testing, we're looking at what was removed from the crop this year and looking into areas that we expected that crop to be good. It was as good, if not a little bit better than. There were some areas that were weak, but remember it was very strong and these growers are going to replenish the soil with Nutrien. So if I'm looking ahead to next year and looking at our early seed book, it certainly appears that corn acreage is going to be up next year. And so we would expect our volumes in '23 to return to where they were in '21.

We hear a lot about reducing fertilizer rates whether because of carbon credits coming to fruition, government regulation or moves to better manage expenses, the reality is that farmers today, and for the forseeable future are still going to be be focused on growing more. I am a big advocate for nitrogen stabilizers, biostimulants to enhance nutrient uptake and making and using precision application technology, however, these technologies for the most part can be used with current (and higher) application rates and the farmer is going to be in a better place financially. Synthetic fertilizer use is not going to decline the way farmers are currently incentivized to produce crops.

Tarsi on margin outlook:

Our margins are still at a very attractive rate, and I think we've talked about this at some point in time, we will see margins return to a more historical basis. But even when I look at it from a historical basis, it will be a step up from what we would have seen in 2020 and such like that. And again, the returns for the growers are strong, they still see tremendous amount of value and we talk about these things, again, these decisions are becoming science-based decisions and growers are putting a lot of input value into an acre of ground and they're going to give that crop whatever it is every opportunity to maximize from a yield standpoint.

So again, I think, we will see margin stay strong through the end of '22. As we get into '23, we will reset ourselves because I think we'll be in a good position from an inventory standpoint, and inventories will be low.

Inflationary impacts have been inescapable for the Ag Solutions division, illustrated by some gross margin percentage decreases:

Yara Q3 2022 Results - Yara

Yara’s third-quarter net income was USD 402 million compared with a net loss of USD 143 million a year earlier, mainly reflecting improved margins this quarter and lower net income in third quarter a year earlier due to impairment loss of USD 366 million. Excluding special items, EBITDA was USD 1,001 million compared with USD 765 million in third quarter 2021.

Check out the increase in MMbtu (natural gas cost) from 2021 to 2022 in the lines directly above this sentence.

Mosaic Q3 2022 Results - Mosaic

AMVAC Q3 2022 Results - American Vanguard

Total company sales during the quarter increased by 3.3% to $152.1 million. Within this, crop protection revenues in the USA increased by 3.6% to $69.1 million.

International sales during the third quarter increased by 8.7% to $64.1 million, constituting 42% of the company’s quarterly sales.

In the nine-month period, total company sales were up by 13.0% to $449.6 million. Within this, US Crop Protection sales increased by 19.8% to $220.5 million, while domestic non-crop ($53.6 million) revenues declined by 11.4%.  International sales over the nine-month period were up by 14.4% to $175.5 million.

Notable slides from their investor presentation:

Smart Integrated Multi-Product Prescription Application System (SIMPAS) will enable farmers to prescriptively apply multiple products in one pass. This equipment just became commercially available in 2021.

This system takes cartridges with RFID tags by product type and allows farmers to load them onto a planter. It is designed to be used with both liquid and dry products. Farmers can apply fungicides, nematicides, biologicals and micronutrients in furrow, at the same time and to only those parts of the field needing them.

They have been focused on biologicals, making acquisitions and building strategic alignments with the aim of essentially doubling their revenue every 2 years:

I went through American Vanguard most recently in 2021 for more on their biological and SIMPAS businesses.

Bioceres Q1 2023 Results - Bioceres

Total revenues in 1Q23 were $127.1 million, a 71% increase with respect to the comparable pro forma numbers for the first quarter of last year, which are inclusive of historical revenues from Pro Farm (previously Marrone Bio…for more on merger see Upstream Ag Insights March 20th 2022).

Top line growth was driven by continued outstanding performance in microbeaded fertilizers, as well as inoculants, adjuvants and third-party products.

• Gross profit for the quarter increased 52% year over year compared to 1Q22 pro forma numbers, reaching $51.4 million, with all three product segments contributing to gross profit growth.

• Adjusted EBITDA for the quarter was $24.5 million, nearly doubling last year’s quarterly result, reflecting strong top line and gross profit growth.

• The company announced an agreement with Syngenta Seedcare for the development and commercialization of certain biological seed treatments. The partnership will drive global expansion, sustain double digit growth in the category, and provide a baseline of minimum profit sharing over the life of the agreement. Additionally, an upfront payment of $50 million was received in early October 2022.

• HB4 Wheat harvest and Soy planting are beginning in Latin America, a season characterized by a very severe drought. HB4 Soy hectares more than double year ago seed multiplication level, for early season plantings. Two soybean varieties are being scaled in Brazil for an upcoming launch in this territory.

A notable slide on biologicals in terms of market penetration globally:

ADM Q3 2022 Results - ADM

Notable that this slide made it into their results presentation:

It’s interesting in that they state they are “uniquely positioned to lead”. They are uniquely positioned to incentivize regenerative practices, however they do still need some unique partnerships to be able to execute in supporting the farmer. They acknowledge this in their transcript, with their CEO calling out the following:

I already mentioned our strategic partnership with PepsiCo, which we believe is truly groundbreaking in its scope and long-term vision. We're working with other partners as well. For example, in the spring, we announced an agreement with the National Fish and Wildlife Foundation that includes a commitment of $20 million to sign up more Regen Ag acres. And we're partnering with Farmers Business Network to make their Gradable farm management platform available as the Regen Ag technology enabler for our North American farmer base. We've signed about 750,000 unique Regen Ag acres in the U.S. so far this year. We expect this number to grow with every passing year.

But this is the most interesting comment:

These programs are getting us closer to farmers and closer to our customers. And we anticipate that within the next 5 years, our annual operating profit impact from this work will reach more than $100 million while continuing to help lead our industry to a more responsible, sustainable future.

Notably, this statement got a question from an analyst to which their President answered the following:

We are working very hard to simplify the process for the farmer. And as you described, there are many ways to potentially create value here. When we thought about the differentiated bushel, one is, as you described, eventually, and we're seeing more evidence of that, there's going to be a premium price for bushels that are grown or metric tons that are grown in a certain way. And I think that the whole society is looking for that. It's looking for agriculture to actually do their part in creating a more sustainable world. One is that.

The second, and that's where we're working with FBN with Gradable and all that, is to simplify the collection of data and all that in the preparation. We're working with the government on that on the protocols to be able to have carbon offsets or carbon credits based on that. So it's a little bit of both. The economics that you described are not as simple as $10 per ton or whatever. But to a certain degree that they are also not that much more complicated than that, we just have a portfolio of different accounts and different contracts. And they're all slightly different, but it is conceptually aligned to what you described. It's converting more acres. It's signing more acres. That's where we leverage the relationship we have with farmers globally. ADM has 220,000 farmers portfolio in the world that we are engaged in discussing this. Of course, the customer -- the farmers will embrace these as they see more demand for this. That's why it's important to have the CPG companies aligned to this. And that's why we make these agreements because, of course, the farmer will generate the production in order to satisfy the demand. So both lines need to grow together.

AGCO Q3 2022 Results - AGCO

Lindsay Irrigation Q4 2022 Results - Lindsay

Revenues for the fourth quarter of fiscal 2022 were $190.2 million, an increase of $36.5 million, or 24 percent, compared to revenues of $153.6 million in the prior year fourth quarter. Net earnings for the quarter were $17.9 million, or $1.62 per diluted share, compared with net earnings of $5.8 million, or $0.53 per diluted share, for the prior year fourth quarter.

Revenues for the year ended August 31, 2022 were $770.7 million, an increase of $203.1 million, or 36 percent, compared to revenues of $567.6 million in the prior year. Net earnings for the year were $65.5 million, or $5.94 per diluted share, compared with net earnings of $42.6 million, or $3.88 per diluted share, for the prior year.