Upstream Ag Insights - May 10th
Essentials news and analysis for agribusiness leaders for the week of May 10th, 2020
|Shane Thomas||May 10|| 4|
“We have streamlined our portfolio over the past nine years to become a tier-one leader and the fifth largest global provider in the global agricultural chemicals market. Our strong competitive position is based on our technology and innovation, as well as our geographic balance and crop balance, which helped FMC to take market share in both 2018 and 2019“
We expect to spend approximately 7 percent of sales on research and development annually. Our R&D pipeline includes 7 molecules in our development pipeline (approximately 1-7 years away from commercialization) and an additional 15 molecules in our discovery pipeline (approximately 8-10 years from commercialization). We expect the first two significant product launches out of this pipeline will occur in 2021. We own a total of 26 manufacturing plants, and we have the scale to operate with strong resources and global reach to address changing market conditions.
FMC spends less on R&D as a percentage of sales vs. the four competitors of theirs that are much larger. I found this surprising, but at the same time with them focusing more specifically on the pesticide market (they do not have a seed business), this means they are spending a disproportionate amount on pesticide and chemical R&D vs. their larger competitors.
Molecules they obtained from DuPont (Corteva) have been good for them:
Revenues grew approximately 8% year over year in 2019, driven by growth in insecticides, Rynaxypr® and Cyazypyr®. Rynaxypr® and Cyazypyr® insect control now represent over $1.6 billion in combined sales, representing approximately 40% growth since acquiring them in 2017. Their patents on these products are massive:
“For Rynaxypyr® insect control, as of December 31, 2019, we had 21 granted patent families filed in 76 countries, with a total of 639 granted and pending patents. Together with Cyazypyr® insect control related patents, we have over 30 patent families and close to 1,000 granted and pending patents.”
Interestingly, 60% of their total patents are around those 2 actives!
“As of December 31, 2019, the Company owned a total of approximately 200 active granted U.S. patents and over 2,500 active granted foreign patents; we also have approximately 1,600 patent applications pending globally.”
But if you think the generic market will be able to dive into these once they are off patent, you would be wrong:
“Chlorantraniliprole is a complex molecule to produce, requiring 16 separate steps; FMC owns granted patents covering many of these 16 process steps and several of the intermediate chemicals, and we protect other aspects of the manufacturing processes by trade secret.”
60% of their sales come from insecticides, which are primarily driven by those 2 active ingredients (Rynaxypr® and Cyazypyr®). Few companies are content with that portion of their business coming from 2 active ingredients that are in the insecticide market (see Figure 1 below and more on that later on). Even with these products being exceptional from a human safety, plant and environmental health perspective and show excellent efficacy they have a significant need for insect outbreaks as well as finding new product delivery mechanisms (eg: in furrow or on seed growth vs. foliar).
FMC will be getting into the digital and precision space:
“Our technology portfolio includes specific innovations in plant health, application technology and delivery systems, and it is expanding to offer advanced agronomic insights through precision agriculture tools that will leverage artificial intelligence and machine learning”
Their focus on plant health will be one to watch as well. Based on my commentary above, this isn’t surprising. They have ambitions of diversifying.
FMC is balanced in terms of geography (Figure 1), but very insecticide heavy on their product segments as mentioned. I anticipate a focus towards the growth of fungicides and “other” in the coming years. Even just this week they had a global acquisition of the SDHI fungicide active fluindapyr.
“We are also investing substantially in a plant health program that includes biological crop protection products, seed treatments and micro-nutrients”
The micronutrient comment excites me. I was reading a 2015 document I put together talking about trends for the next 5-7 years (putting the time frame in our current year) and I made the comment that micronutrients and biostimulants would become much more widely accepted by pesticide manufacturers, even explicitly partnering with these micronutrient companies. This hasn’t occurred at the pace I anticipated, but I still foresee this happening in the future. Industry understanding of soil fertility and plant physiology are progressing rapidly and the demands of consumers to more pointedly shifting towards wanting nutrient dense food and sustainably sourced indicates replenishing required nutrients like secondary and micro nutrients. Will we see a partnership or acquisition on the micronutrient/biostimulant side of things? What does a micronutrient product/initiative look like within their organization?
Compared to other organizations decreasing in sales, FMC increased their North American sales in 2019:
“On a regional basis, sales in North America increased 3%”
Their gross margins are in line with organizations like Bayer and Syngenta in the 45% range. Even their marketing and distribution costs are in line with the big players as a percentage of sales (16-18%). I found this surprising, assuming there was some synergy to be had in having seed and chemistry aligned together vs. straight chemistry like FMC.
Growth for the business has continued over the last few years, primarily on the backs of 2 insecticide active ingredients as I mentioned earlier.
They do find generic competition to be a challenge globally:
“Competition from generic agrochemical producers is significant as a number of key product patents have expired in the last two decades. In general, we compete as an innovator by focusing on product development, including novel formulations, proprietary mixes, and advanced delivery systems and by acquiring or licensing (mostly) proprietary chemistries or technologies that complement our product and geographic focus.”
Their pipeline has some opportunity in it:
“Our R&D pipeline includes 7 molecules in our development pipeline (approximately 1-7 years away from commercialization) and an additional 15 molecules in our discovery pipeline (approximately 8-10 years from commercialization). We expect the first two significant product launches out of this pipeline will occur in 2021.”
Overall sales in Q1 2020 were up 5%.
Sales in North America during Q1 grew 3.1% to $328 million thanks to large jumps in Rynaxypyr (chlorantraniliprole) and pre-emergent herbicide Authority Edge (Supreme in Canada - sulfentrazone and pyroxasulfone).
They seen double digit growth of sales in Canada. This gives a lot of insight from a Canadian perspective given their portfolio. This indicates they sold more product into the distribution and retail channels. With pulse acres assumed to go up, this isn’t surprising. Turning that into product on ground in Canada still necessary, but it appears they are in a position to have a good year in 2020.
This is a great write up on AgFunder by Sarah Nolet of AgThentic with key take aways from the excellent recording her and Tim Hammerich from The Future of Agriculture did last week with corporate VC’s Derek Norman, vice president at Leaps by Bayer, and Jim Chambers, president and general manager of the Worldwide Agriculture Business at Trimble.
“A strong value proposition and go-to-market strategy are also critical, especially in agriculture where the hype around agtech is high, supply chains are complex, and channels are king.”
“For Trimble, this means less emphasis on the technology and more focus on considerations like:
Is the product standalone or will it be embedded (and how)?
Is this solving a “keep you up at night” problem for a farmer?
Do you replace something that exists, or require a change in behavior?
What is the path to revenue, and what is the evidence that users will pay?”
The earnings weren’t necessarily rosy for Nutrien amid everything occurring in the world (specifically with their fertilizer and mining business), but their retail business continues to be successful.
Adoption of the online portal attributing to purchases continues to grow:
Note: How they calculate what a “platform” sale is isn’t clear.
All of the planned additions will drive usage of their online platform further.
Crop Planning Tool - Planning ability for farmers has long been a necessary path to success. It also is a necessary path to success for retailers to be able to accurately forecast product and optimize sales and inventory levels, understand customer share of wallet, manage programs and more. With less friction to move from plan to execution, this is a win for both the farmer and Nutrien.
Seed Recommendation Tool - A seed selection tool will be beneficial for them to maintain their influence with the grower, with companies like Climate Fieldview offering a tool as well. Where they derive that data to make the recommendation is a question for me and has an impact on how accurate it is. They will use this as a starting point for their staff to have a more nuanced discussion with the farmer.
Fertility Management Tool - This appears to be an integration of the Waypoint Labs data in connection with Echelon where they will be able to more accurately assess fertility needs based on the farmer, conditions, crops etc prior to season and in season.
The tissue testing component will act as an opportunity to tie in usage of their proprietary fertilizer products, but will make their larger fertilizer business more successful on the whole as well - through encouragement of ESN volumes, more in season top dress usage and beyond.
Credit - Credit is instrumental to retail success; if your customers do not have credit it is hard to get the right product on their farm so optimizing their credit levels, based on their crop plans is key. To do this is a manual process today. Nutrien is mitigating that issue. The interesting part as well is when you begin to connect the purchase actions of the farmer and the data from the farmer (Echelon, Waypoint, Agrible) you can begin to offer superior financial products to the farmer based on their actual farm success.
Today seed and fertility begin the conversation in the fall between retailers and farmers as well as are the first things in the ground in the spring. They are the anchors of the conversations. I see digital providing a superior means to doing that and as a means that gets farmers further integrated into the Nutrien business.
Throughout the next 2 years I believe we will see them begin to add features such as disease risk, insect forecasting and mapping, auto crop protection recommendation guidance based on in field scouting or observations (both from staff and remote sensing tools) and further build out on their sustainability platform and metrics just to name a few. With the strategic pillars Nutrien has in place, their ability to continue to integrate their business from all angles will compound.
“Corteva’s strategy against fall armyworm is three-pronged: in the seed, on the seed and on the farm, Gutterson said. Firstly, resistant crop strains… Secondly, pesticides... The third way is to try to nip the problem in the bud, Gutterson said, using technology to spot and contain the pest before it spreads.”
Systems vs. Products. This is an important concept applied to insects, but is a theme we will see built upon in the coming years in all of agriculture. There never has been a silver bullet in agriculture, but some products have been treated as such. When it comes to progressing yields, profitability, sustainability, traceability and mitigating risk there won’t be a specific product that will get us there. There will be systems. Stay tuned for a post in coming weeks on system vs. product thinking.
If you want to better understand one way blockchain could be deployed in North American agriculture I suggest reading this report. It gives an overview of the pilot projects done in Australia to prove out the concept of blockchain for financing.
AgriDigital established a blockchain pilot program testing blockchain in agriculture with the vision to bring together the physical assets, data, and financial flow. The blockchain, a logically centralized data store that is physically distributed over a network of participants, allows the storage of immutable data (Xu et al, 2019). Changes to the state of the data store are limited to appending new data in the form of a transaction, and such changes require verification by and consensus among the participants of the network. These features of a blockchain can support the supply chain participants of grain to have a single source of truth where the information about an asset, title transfers, and corresponding payments are managed, providing better provence and transparency to the grain commodity
A look at what one version of work flow could look like with blockchain as a layer of the grain business:
“These decisions from technology range from operational tasks, agronomic recommendations, and societal impacts. Interestingly enough, these farm level decisions using technology do link up with the pillars (environment, social, economic) of sustainability — a foundation of decision making”
The author, Scott Speck, is a colleague of mine and he does an excellent job explaining and navigating through the complex topic of sustainability.
I used to think quite linearly and too black and white about sustainability, but this image shifted my perspective about what the formula for “sustainable” looks like:
There will always be trade offs (and arguable more to consider), but some things are non negotiable. For example, economic viability of a practice. Without the economics working positively, nothing else matters.
The beauty of Scott’s article is that he discusses why digital tools can make sustainability achievable for any operation and make the trade-offs in an analytical fashion optimizing for better outcomes. Through the capabilities to benchmark, we can begin to see farmers receive a “scorecard” of sorts acting as a point of reference and breaking down specific fields or areas of their farm where they may need to be more conscious of certain practices or applications. To top this off, it makes farms abilities to be more transparent even more attainable.
Global Adoption of 25 Farming Practices Could Reduce CO2 Emissions by 4.6 GT by 2025 – McKinsey Report
“There are a few themes among the 25 practices that the report recommends, including reducing fuel emissions, optimizing the use of existing resources, and improving soil health. The top 15 measures would contribute 85% of the report’s projected total possible reduction in emissions.”
I find several of the 25 listed to be redundant. For example, “Controlled-release and stabilized fertilizers” shouldn’t be considered different than “Nitrogen inhibitors on pasture“ and having 3 seperate points for ONLY rice seems unnecessary. I assume 25 practices for 2025 was the target of the authors of the report. I think they missed some legitimate technologies that could benefit before 2025 as well, such as model based fertilization recommendation in season.
Read the report here.
“In the future, if we envision how we want this to be used someday, we want a device that can breathe in air, take in water, have a solar panel hooked up to it, and be able to produce ammonia. This could be used by a farmer or a small community of farmers”
This is an interesting concept. Localized nitrogen fertilizer production. MIT Researchers are working on making this a reality. It appears this is focused on countries with less infrastructure (eg: Sub Saharan Africa) and presumably lower total N usage. If it was to come to fruition and eventually be viable for North America (this seems way out), the concept applied to not only large farmers, but retailers makes it compelling.
This is a space that I am exceptionally excited about. Drone and intelligent sprayers can improve accuracy of sprayed products, efficiency and reduce costs.
The timelines to launching in the commercial market for see and spray technology may be drawn out Tom Wolfe of Agrimetrix says:
“The proof of concept has happened [but] most of the technology has yet to be field-proven. The challenge will be making it so reliable that it could replace a broadcast herbicide”
Drones, another hot topic for spraying is a bit further behind:
“Wolf expects that Canadian regulations for drone sprayers might change as the technology evolves but it’ll take time before the autonomous machines are the go-to technology on the majority of farms. Widespread adoption requires more mature technology, qualified operators and more competitive pricing. Drone sprayers are quite small, which means more frequent refills, and spray drift is a significant concern.”
Organizations like Rantizo from the USA are working on deploying drone spraying right now - A worthwhile listen is this episode of The Future of Agriculture from Tim Hammerich with the CEO of Rantizo.
Related to the above is a good article from Tom Wolfe who’s quoted above about Reducing Selection Pressure for Herbicide Resistance.
“Herbicide resistance has been called the number one threat to conventional herbicide-based weed management strategies”
The image below from the post looks to me like we need a social distancing measure to “flatten the curve” in herbicide resistance:
Instead of social distancing, the industry has invested a lot of R&D, VC and product development money. There is currently products being developed to increase the number of modes of action/active ingredients in one product, the number of genes in a crop that can tolerate more than 2 herbicides active ingredients (and up to 6) and enhancing the delivery through formulation and surfactant technology. But on top of this there is biopesticide investment and the aforementioned new sprayer tech such as see and spray and drones technology.
Resistance will continue to be a challenge. However, I am bullish on our ability as an industry to educate producers on the risks and empower them with technology that cost effectively manages the problem.
This survey data is almost 2 years old, but I think the sentiment would be relatively close to the same, if not improved. The positives of variable rate technology and precision agriculture I believe will continue to show through - albeit with speed bumps and challenges along the way, just like any technology.
I am excited to see more progress on in season VR, specifically for crop protection products. This has been a relatively untapped market in North America, yet one of great opportunity.
“Building on a first-year trial, Valley Irrigation and Prospera aim to quadruple acreage in 2020 and continue an on-pivot sensor test.”
Last week I highlighted some of the technology expansion in irrigation. This is apart of that expansion, along with the Lindsay and Farmers Edge partnership working to better manage irrigation for farmers.
The connection of remote sensors to the cloud and analytics to accurately assess and decipher the next steps by field, or field zone (or nozzle..), that automatically starts and executes on top of an ability to be notified and monitor remotely via tablet or phone is very powerful for farmers and the environment.
This is more on some of the topic of data privacy, obviously a hot topic. Of course, there is reference to the Tillable/Climate debacle in February. I may be in the minority on this with regards to that incident, but I think one take away from this scenario actually shows us (there are many others) is not that data sharing is bad, but how accurate algorithms and models can be from public records. Extrapolate that out to more data, that is private, and apply it to other areas of farming over the course of the next decade and what kind of tools do you think we will get? I’m optimistic.
Note: I am NOT downplaying the importance of data privacy, that is paramount for the future of successful data usage in our industry.
“Blockchain as a part of any data sale should be viewed as the gold standard for building farmer trust”
The usage of blockchain for data privacy and security will be something we see more of in the future to further ensure privacy and transparency is upheld.
“More and more arable farms have ‘smart’ technology available such sensors and gps, in combination with decision support software. “This is the first step towards a business model”, say Rabobank analysts. “And now it is important that arable farmers take the next steps together with value chain partners. Such as setting up markets, setting standards and further developing precision farming to create the conditions needed to be rewarded for delivering ecosystem services.”
Enabling farms to take advantage of new technology to create new markets for their products is going to be something we see more of. Here is an example being worked on in Canada where a route to traceability throughout the supply chain could trickle more dollars into the farmer pockets.
“Through a set of visual sensors, machinery schematics, and mock-ups, the service tech can be on the farm without actually being on the farm. Operators could potentially stand in front of their machines in the field, on the job, or in the maintenance shop, with augmented reality images projected to show the difference between a fully functioning machine and the one in front of them.”
We are inching towards this today. Digital twin technology is a combination of modelling, machine learning and IoT coupled with augmented reality. On top of this, this isn’t just for machinery either. Just like equipment, crops are complex systems with unique dependencies and known needs based upon specific variable. “Digital twins” will be a reality (in a simplified way, they are today through basic models and the start of machine learning) in farm fields. The capacity to execute is being developed further when it comes to sensor technology and data acquisition giving real time insights into what is happening in a crop. The system of cropping is much more complex than the world of closed machines because of having to understand the dynamics of soil, weather, variety and variability in field though, so it wont be without challenges.
Once this begins to be done more accurately, farmers and advisors will be able to do a better job of grasping outcomes beforehand (and therefore influence real time decisions) based on likelihoods around weather or even grain marketing dynamics. I think about the technology out there today to allow for the remote connection of experts and those needing informaton, like AGvisorPRO, and I see lots of opportunity for digital twin technology to be layered within it.
We will continue to hear about digital twins in numerous areas of agriculture.
How is agriculture changing in light of COVID-19? What are short-term effects and what are sustainable changes? COVID-19 is hitting farmers during an agricultural downturn. Already pressured crop farmers across the globe are now also confronted with a diverse set of challenges caused by the pandemic.
Other Ag Articles
Farmobile Unveils Crowd-Sourced Index for Farmers - Precision Farming Dealer
Perspectives From AgTech Founders / CEO’s on COVID-19 - Cultivation Corridor
Bunge Reports Loss - Reuters
What Does Coronavirus Mean for Equipment Manufacturers? - Successful Farm
Corteva Reports Strong Q1 Results - Yahoo Finance
Myriota Raises AUD $ 28 million for Expansion of IoT Services - Future Farming
Non Ag Article
“What are you optimizing your life for? For the last few years, my answer has been “interesting.”
“What the smartest people do on the weekends is what everyone else will do during the week in ten years”