Upstream Ag Insights - April 25th 2021

Essential news and analysis for agribusiness leaders

Apr 25, 2021

Welcome back to Upstream Ag Insights!

Index for the week:

Aggregators and Platforms in Agribusiness
21 Tips for 2021 University Graduates
Corteva and Symborg Agreement Expands Farmer Access to Microbe-based Nitrogen Fixation Product
Nutrien Announces Mayo Schmidt as CEO and President
Bushel® Closes $47 Million Investment Round
The Margin You Keep
Ostara Raises US$20 Million to Acquire Strategic Assets to Scale Up Crystal Green® Fertilizer Production
Farmers Reality Check Carbon Markets

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After 6 straight weeks of annual report overviews I am going to take this week off from them. Next week I will start up again!

Aggregator Market Places vs. Platform Enablers in Agribusiness - Upstream Ag Insights

The importance of understanding digital dynamics in the agriculture industry will continue to grow. We are fortunate to be able to look to other industries for guidance.

Aggregator marketplaces and platform enablers are different approaches to business for digital companies in the industry. Identifying the right fit for your agribusiness comes from understanding your own needs and desires to service your staff and customers and then understanding the intentions and focuses of these players. Thinking about these core questions will help uncover deeper conversation to be had with marketplaces and platform service providers.

who’s the customer?
where is the incentive?
who controls the experience?
what’s the pricing model?

Check out the article for a primer on the differences between these two approaches in the ag industry.

21 Tips for 2021 University Graduates - Upstream Ag Insights

Last year I created a twitter thread targeting university graduates with some of the learnings and mental frameworks I have found most useful through the early part of my career. The feedback was significant and to my surprise the feedback I received most often is that there was useful reminders and take aways for those beyond university graduates.

While it isn’t intended to be an all encompassing list, there are some short applications of logic and focus that I think can serve individuals well for continual learning, improvement and success with in the agriculture industry.

This year I wrote it into an article and added one more tip!

Corteva and Symborg Agreement Expands Farmer Access to Microbe-based Nitrogen Fixation Product - Corteva

Symborg is providing an exclusive distribution license to Corteva for the endophytic bacterium Methylobacterium symbioticum, which works with the plant to secure needed nitrogen from the atmosphere. Corteva is leveraging its wide distribution network, market reach and extensive research and development capabilities. Corteva Agriscience and Symborg, an expert in microbiological technologies, announced today a multi-year agreement around a microbe-based nitrogen fixation product in the United States, Canada, Brazil and Argentina.

Methylobacterium is capable of supporting plants to fix nitrogen beyond legumes. This is important, however, not novel. There are other products on the market today from families like azospirillium, pseudomonas and others that have shown similar results.

There is something very novel about this bacteria that I found through some research:

We have provided strong evidence that the dominant leaf-associated Methylobacterium species were able to promote growth and seed yield, at least in part due to nitrogen fixation. To the best of our knowledge, this is the first report of bacterial nitrogen fixation on leaf surface

Journal Source

Nitrogen fixation with most bacteria occurs through the roots. With Methylobacterium symbioticum, there is science showing this type of bacterium can do so through leaves and stems. This means a foliar application to fix nitrogen is possible. I wasn’t capable of finding effectiveness comparisons by method, but a foliar biological provides in season optionality. Instead of top dressing with 28-0-0 (UAN) or liquified urea (46-0-0) there is a non-synthetic option to manage in season requirements.

Symborg has data that states their “BlueN” product (active ingredient is Methylobacterium symbioticum) is compatible with most herbicides, fungicides and insecticides.

They claim that in corn and wheat their product does this (direct quote via copy and paste from their site):

Wheat: supply of 33% of the crop's trop-dressing nitrogen needs.
Corn: supply of 40% of the crop's trop-dressing nitrogen needs.

This is poorly worded and vague, but my interpretation is that in season top dressing needs are being reduced by 33% to 40%, which again doesn’t state much. It depends on the amount of N needed to be top dressed, previous N applied and yield potential just to name a few things. What this does indicate to me is that based on the the percentages and the effort to emphasize “top dress”, the total amount of N being fixed via this bacteria per acre on an annual basis is relatively low. My best guess is no more than 20lbs of actual N per acre which on a 50 bushel wheat crop equates to 18% of N needs (Note: This is speculation, it could be higher, but I am skeptical it would be more than 40lbs/ac and much less than 20lbs will have pricing issues).

The rough amount of N being fixed, combined with N prices and crop prices is where pricing would get tricky for the product. Using a number of $0.60 (CAD)/lbs of actual N and that 20lb guess, you get about $12/ac of fixed N.

This is where incentives on the carbon front could become more compelling too. Corteva has stated they do not want to bundle products into their recently launched carbon initiative and I am certain that’s true. However, a logical next step for any carbon initiatives after tillage and cover crops becomes reducing N application amounts and having a product high in optionality and convenience for the farmer makes their product a nice fit.

The Corteva product, to be branded as Utrisha™ N nutrient efficiency optimizer, works in natural field conditions, adapting to the plants’ growth needs and helping to sustainably maximize crop yield potential. It will be available for a broad range of crops, including field and row crops, sugar cane, and turf and ornamental, as well as range and pasture.

This product goes hand in hand with their Optinyte (nitrapyrin) based nitrogen stabilizers too. Corteva is uniquely positioned versus competitors in North America like Syngenta and Bayer to have better informed fertility discussions with their experience over the last decade because of these stabilizer products too.

There are bio based products (eg: Bacillus firmus) for foliar application that increase phosphorous utilization too. The potential for combo based product for N & P, two of the highest demand nutrients, is exciting as well.

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Nutrien Announces Appointment of Mayo Schmidt as President and CEO - Nutrient

Nutrien Ltd. the world's largest provider of crop inputs and services, announced today that its Board of Directors has appointed Mayo Schmidt as President and Chief Executive Officer, effective immediately. Mr. Schmidt succeeds Chuck Magro, who is stepping down from his management and Board role at the company to pursue new opportunities.

I haven’t talked to anyone who saw this coming. Chuck Magro over his last 3 years at the helm of Nutrien has sped up Nutrien’s global ambitions with growth in Latin America and Australia on the retail front along with initiating a technology emphasis on both the fertilizer and retail side of the business.

If you look at performance over the course of the last year, it has been positive. However, if you look at performance since the inception of Nutrien (combination of Agrium and Potash Corp of Saskatchewan) in 2018, their stock price is flat:

It appears to me in reading the release that Magro is leaving on his own accord to pursue other opportunities. I have however, heard speculation that because of the stock performance, he was nudged out to make way for Mayo Schmidt.

Schmidt, up until this point the Chair of the board of Nutrien, is best known for leading the Saskatchewan Wheat Pool grain cooperative's acquisition of competitor Agricore United in 2007, creating Viterra Inc, Canada's largest grain handler. He subsequently bought Australia's ABB Grain before leading the sale of Viterra to Glencore in 2012.

The biggest take away from having Schmidt at the helm is that he has a history as a deal maker. I think a base case is to expect a ramp up of retail acquisitions, but then also looking on the fertilizer front there could be acquisition opportunities such as a company like CF Industries.

There have been questions on earnings calls in the past about the consideration to spin out the retail business too. Personally, I think the integrated approach of Nutrien currently is a competitive advantage on both sides of the business. Not to mention Schmidt’s experience further down the value chain in grain handling and processing which would mean further integration, albeit this might be more difficult for Nutrien to execute on.

Nutrien has now had Mike Frank and Chuck Magro leave since the start of 2021. With Schmidt now at the helm, will we see other changes at the executive level?

Bushel® Closes $47 Million Investment Round Led by Lewis & Clark AgriFood and Continental Grain Company - Bushel

Bushel, an independently owned software company and leading provider of software technology solutions for growers, grain buyers, ag retailers, protein producers and food companies, announced today closings on its $47 million Series C investment round. The oversubscribed round was led by Lewis & Clark AgriFood, a St. Louis-based food and agriculture focused investment firm, and Continental Grain Company, a global holding company focused on agriculture, food and protein production. Participation from new and existing investors include Cargill, Scoular, Germin8 Ventures and others. In addition, Consolidated Grain and Barge Co. is expected to close their investment in the round in the coming weeks.

Big raise from a company that has been doing great things in the grain space to support even more companies along with farmers. To date they have focused on a white labeled approach for grain companies to be able to have an app that allows their customers access to grain pricing and account information. Essentially, being the digital portal for grain companies enabling a more robust digital experience for farmers. This raise will enable the evolution of that.

They have reported 60,000 monthly active users on their app - this is a significant number in the ag technology space. That shows they have a stickiness and a value add to their core customer today, grain companies, along with their farmer customers. Reinforced by these numbers:

Bushel’s platform now reaches 40% of grain origination in the United States, resulting in inarguably the largest technology network effect among growers and grain buyers in the U.S. today. $22 billion of grain is contracted annually within Bushel’s ecosystem.

The names involved are impressive too: continued support from Continental Grain, plus new comers Scoular, Cargill and CGB. Significant buyers of grain.

This paragraph stood out to me in the release beyond the raise, or more particularly indicating how they will begin to deploy this new capital injection:

The syndicate will introduce payments, credit, trading offerings and increased data services, including capabilities to help consumer brands sustainably source commodities in the global grain supply chain. The funding will also accelerate Bushel’s current product offerings that currently deliver value to growers, commodity buyers, ag retailers and consumer packaged goods companies (CPGs).

CPG and consumer brand companies. This is moving downstream and connecting the entire value chain. If we think about this too, the enablement of data to flow more seamlessly across the value chain, particularly from downstream where there is more dollars through the value add, means there is more potential for farmers to access premiums.
Through their “Bushel Connect” product it can increase seamlessness for the farmer too, thinking about the opportunities to show yields and other information through insurance companies that are connected to the Bushel infrastructure as well.
This is where they can support carbon initiatives as well, not in the sense of a market place, but through helping to enable insetting for example. This leads to the next part of their evolution.
Bushel is building out a fintech offering. Planning to introduce a digital wallet with payments, credit, and enhanced data services options which will be known as Bushel “Wallet”. This helps to ensure all grain transactions are digitally enabled and payments move away from anything paper and to digital settlement. Once this occurs, the potential for what Bushel can support via this wallet and infrastructure could be important for credit access, insurance, purchasing crop inputs and more.
They mention ag retail in this release as well, something they haven’t mentioned in previous raise announcements but briefly alluded to in their 2020 announcement to partner with Granular. This indicates to me there will be a more pointed focus on expanding out their offering to integrated co-ops with grain and crop inputs as well as targeting ag retailers themselves. This first and foremost benefits farmers having everything in one place, as well as supports integrated retails. It also helps support their connectivity of the entire value chain with input recommendations and applications for example, being able to connect downstream more seamlessly.

Jake Joraanstad, Bushel co-founder and CEO was talking on Clubhouse on Friday and two things came up that were of interest to me:

What’s the run way for this raise? Jake’s answer was that they want this to be the last round they raise ideally (barring other opportunities that arise), working towards cash flow positivity in the coming years.
Exit Strategy? When you raise as much as Bushel has and you’re focused on being an independent platform enabling many industry players, exit options become more limited to the long term viability and trust in the business. While Jake alluded to being open to all options, he emphasized a focus on continuing to build a great business and building a business that has the capability to IPO in the future. Smart answer in my opinion and when you look at a stand alone company in the ag space that has the makings of a company that could IPO, Bushel with some continued and consistent execution is a candidate to do so.

The big focus for the short term for Bushel?

Bringing on ~ 50 more employees in the coming year along with bringing on more strategic industry partners.

The Margin You Keep - Carl Lippert

Carl highlights two ways to manage margins in this article:

Scale has some "race to the bottom" characteristics but it puts you in a pretty good place as an organization to apply leverage on inputs and outputs and perhaps eventually have a regional oligopoly on supply for a product with long term demand

Second he highlights brand:

A brand is just a story. One communicated to the customer with pretty pixels, flowery language, and perhaps, wildly, even real and tangible values.

What also is managed through story is culture which is what enables a company to continue to have that brand externally and maintain those higher margins.

If you do not have a brand then you are a commodity.

Carl is talking about milk and organic products primarily in his article, but it is very applicable to all businesses. For example in retail or as a sales person or senior manager, your brand can’t be just “we/I heavily service our customers” (eg: what does service mean?) the brand has to be very specific and replicable. The more precise, persuasive and consistent the story is, the stronger the brand becomes.

Horsch and Trimble Partner To Deliver Autonomy - Trimble

HORSCH and Trimble announced a collaboration focused on developing solutions that enable autonomy in agriculture with the goal of building a future for autonomous machines and workflows in the industry

The workflow aspect is an important point. Before getting to autonomy, there are steps that need to be taken to support decision making and operational efficiency of manually driven machines and technologies.

Case in point:

The collaboration extends beyond autonomously controlling machines, such as the self-propelled crop protection sprayers, to full workflow automation from the office to the field. This relationship integrates Trimble's established autonomy expertise in guidance systems, path planning and in-field process automation with HORSCH's fleet of machines.

This is what I have touched on in the past with Coutts Agro and the equipment tech stack: it is an operating system.

You cannot have autonomy without first optimizing the movement of machinery on the farm, making it more efficient through positioning of assets in real time. From there you can move forward to autonomy. This also means in conjunction with path planning, machinery optimization and hollistic logistic planning. Once you have developed an operating system with the people and assets, autonomy is a natural progression.

The one thing that has always been apparent to me is this:

Operations often trumps agronomics in on-farm decision making

An agronomist can make the perfect recommendation from a science perspective, but if it is adds too much complexity or slows down the operation too much, it often gets benched. So when we look at the very specific in-roads that can be made with digital technologies, autonomous presents easier in roads than pure agronomy platforms and these platforms can then evolve towards agronomic aspects. This positions equipment companies well, think John Deere, but also shows why many organizations have targeted ag retails with asset efficiency too (See my write up on Logistics Wars and Trojan Horses in Ag Retail). If you look at companies like Climate, or AGI acquiring Farmobile or Farmers Edge, there is a heavy emphasis towards adding value to operational execution, not just agronomics.

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CROP.ZONE Takes Up New Shareholder - Newswire

Australian crop protection and seed company Nufarm announced it has converted its existing financial investment in agtech startup CROP.ZONE to an equity holding.

When it comes to alternatives to synthetic herbicides the talk leans towards biological based options. Electric weed control solutions are another alternative and one that has viability for desiccation and out of crop applications.

Nufarm has their own biological brand called NuBio with over 15 products including bioinsecticides, biopesticides and biostimulants. CROP.ZONE will be included under this umbrella brand.

I covered the Nufarm and CROP.ZONE relationship in January here.

Farmers Reality Check Carbon Markets - AgWeb

OneSoil Raises $5 million - TechCrunch

OneSoil, a company that helps agricultural professionals monitor fields and increase yields, has raised $5 million from international investors Almaz Capital and PortfoLion.
The company’s tech integrates satellite imagery with mobile and desktop applications for farming analytics. These offerings include both remote crop monitoring and variable-rate seed and fertilizer applications that can reduce the time spent on field scouting and improve efficiency as it relates to inputs.

The uptake OneSoil has is significant:

OneSoil already has more than 200,000 farmers and consultants using its service across more than 180 countries just two and a half years after its launch.
The company claims that roughly 5% of the world’s total arable land (197 mln acres) is covered by OneSoil users. Also, OneSoil provides paid analytics and technological solutions to major agricultural companies, such as BASF and Krone, among others..

One of the things that stood out about this raise from OneSoil is that they raised capital from non-ag specific VC firms. In looking at their portfolio’s, I didn’t see any ag related companies. I don’t think it’s good or bad, but noteworthy.

Working with VC’s specific to ag means a few basic things:

a better understanding of the challenges in ag
helps provide industry connections
learning opportunities and alignment from other portfolio companies

Non traditional ag VC’s can offer:

insights into other areas or industries that are adjacent to ag
can bring a unique lens to their business
be focused on expanding into ag and offer more lucrative valuations

I think there is a good chance we see more non-traditional ag and food VC’s invest into agriculture companies in coming 12-24 months as there has been a lot of buzz surrounding the space along with feeding into ESG mandates firms may have.

Ostara Raises US$20 Million to Acquire Strategic Assets
to Scale Up Crystal Green® Fertilizer Production - Ostara

Ostara Nutrient Recovery Technologies Inc. announced today the closing of a financing for proceeds of US$20M The Financing was led by Forage Capital, with additional participation from Export Development Canada, ADM Capital’s advised Cibus Enterprise Fund and Wheatsheaf Group. Proceeds of the Financing will be used to acquire and upgrade a strategically located fertilizer production facility in Missouri that significantly scales up Ostara’s capacity for the production of its Crystal Green fertilizers.

Ostara is another sustainability play in the fertilizer space. While not the same as a company like Anuvia, Ostara has a phosphorous product that is supposed to be agronomically and environmentally sound:

Crystal Green® fertilizers are the first continuous-release phosphorus fertilizers to release nutrients in response to plant demand; these Root-Activated™ granules are proven to increase yields, enhance soil health and significantly reduce phosphorus tie-up and runoff

I dug into the product and my understanding is that the “response to plant demand” is that excretions and exudates of plant roots are what activates the availability of the phosphorous, meaning less tied up in the soil by high calcium or aluminum levels and therefore less phosphorous lost due to various types of erosion. On top of this, they have a lower salt index increasing safety for the seed and soil microbes. In theory, this is great.

However, in doing some research on the company website does a poor job conveying the value of the product. They have a differentiated, higher priced product in their Crystal Green compared to a commodity MAP (11-52-0 phos) and are focusing on yield. They should be talking about return on investment, or incremental return per acre, along with percentage of the time they are delivering that plus being able to emphasize that this “higher efficiency” fertilizer is in fact getting into the plant more effectively via tissue analysis as one example.

I found this to be a strange way to convey the benefit of the companies product too:

I know what they are getting at, that their product is more efficient than standard products so there was more phosphorous left.

If your product is more efficient you should have been able to use less product and receive a higher yield, which is why ROI is where they should be focusing their messaging on because it combines the benefit of a sustainability and profitability message. This should also turn into 2 - 4 year trials where the product is used consistently. Products mentioning an enhancement of soil health, but then not attempting to measure it at all in any form (eg: microbial load as one KPI, comparisons of mineralization etc) or over a longer than 1 year period indicates to me they are looking at their product with a commodity mindset versus a differentiated product mindset and aimlessly using buzz words.

PepsiCo Scaling Up Regenerative Practices on 7 Million Acres - Fast Company

Interesting choices of highlighting potatoes as a crop to use “regenerative” practices; I am certain potatoes have some of the most tillage of any crop grown. A major innovation would be successfully growing them at scale without significant tillage.

Additionally, found the comment that they consider “crop rotation” a regenerative practice interesting. Inevitably, it is, but I think most would agree that PepsiCo is hardly unique in suggesting it.

Long Tail For Crop Protection Supply Chain Snafus - The Daily Scoop

I have been talking with colleagues and reading comments on Twitter for weeks now regarding supply challenges with crop protection products. There was some good comments in this article regarding the macro challenges arising:

The main troubles have been with glyphosate and glufosinate…And I’m worried more about glufosinate. Fungicide supplies will also be tighter this year, it’s herbicides that are garnering the most angst.
Growmark’s Bunting credits the shortage to logistics–limited containers for overseas shipments, slow port turnarounds, stressed trucking resources, and hard to source packaging materials. He cites it usually takes 10 weeks to get material from China to the US and in a warehouse, whereas in 2021 it’s taking well over 16 weeks and with some products longer.
Growmark’s consultants have advised that the issues could last for another 12 months into the first quarter of next year.

Non Ag Article

Innovation Starts with Defining the Right Constraints - Harvard Business Review

What drives big, breakthrough innovations? Often it’s constraints — limitations that force designers to rethink the whole problem and come up with something completely new to address it. The caveat here is that certain constraints spur big thinking, while others tamp it down. Limiting outcomes (a new product needs to cost 10% what it’s competitors do) or time (design this product in nine months) or both creates specific bounds for designers, but leaves the path they take to reach this goal wide open, forcing them to consider bold new solutions. Most leaders, however, constrain budget and risk.

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