Upstream Ag Insights - October 3rd, 2021

Essential news and analysis for agribusiness leaders

Oct 3, 2021

Welcome to the 87th Edition of Upstream Ag Insights!

This week one of my favourite ag resources, Magnetic, released an article of a Q&A I did with them highlighting some of my background, mentors, learnings from recent reads, favourite career advice and more! You can check out the article here:

Movers & Shakers: Shane Thomas of Upstream Ag Insights

And if you haven’t subscribed to Magnetic Ag, I highly recommend it!

Index for the week:

Managing the Murky Waters in Ag Retail Software + The Red Queen Effect and Tech Intensity
Top 20 AgChem Organizations by Revenue
Lunatic Farmers & Velocity
Semios Raises $100m
Ag-Analytics Acquires AcreValue + Partnership with Farmer Mac and Indigo
Biosensing Fertilizer
Ceres Imaging Raises $23m
There Are Big Opportunities in Carbon – and Ag Technology Can Enable Them
Benson Hill Officially Publicly Traded

Thank you for reading and for sharing!

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Managing the Murky Waters in Ag Retail Software - Crop Life

Includes a process overview of identifying digital systems, highlighting the Red Queen Effect in agribusiness and the need to shift to emphasizing “tech intensity”.

The linked article highlights rapid growth in number of software services available for ag retails today. With optionality tends to come a sense of being overwhelmed. But it doesn’t have to be this way.

If you are an agribusiness, in this instance specifically a retail, looking at navigating the digital ag space it helps not to focus on what companies/potential partners are out there, but specifically identify what’s needed by your organization.

“Change the way you look at things and the things you look at change.”

Identifying technology to use is not much different than determining which physical products to bring into your retail locations. The decisions stem from understanding your local geography, understanding your customers, training of staff, relationships with suppliers, and business goals. These drive what crop protection products you bring in for example. The same approach can be created for digital services, albeit with a bit more nuance.

Everything gets easier when you set priorities and identify how those priorities tie into your larger vision or goal. Having been involved in numerous processes around digital system decision making, in my opinion, it gets easier if you have your vision, priorities and expectations set. They guide the entire discovery process and conversation with potential partners.

These steps can get you 80% of the way there, or at least clarify your priorities:

(Note: These are generic on purpose because whether it is an agronomy system vs. an ERP system will bring up more specific questions, but the below work for a macro approach. It helps to be as specific as possible)

What is your strategy? (this is likely already set, but is a good review for answering the later questions). For example, how is your business different? How does your business win in the short, medium and long term and how do digital systems enable that? What’s your point of leverage and how will you exploit that in the short medium and long term?
What are your customers needs currently? What will they need and demand in the next 2-5 years?
What are your staff needs currently? Segment into the various layers (eg: field facing staff and management staff). What will those groups need in the next 2-5 years?
What other business requirements do you have? What expectations do you have of your digital system partners? What will you need from them? eg: communications, timelines, non-negotiable integrations etc.
Prioritize the importance of customer needs, staff needs and business requirements based on problems being eliminated and opportunities to capture along with the budgets.
There are other questions that need to be managed within this for specific partners: How is data managed and where is it warehoused? Who owns the data? What’s your data security like?
One question that I hear often is this: How do we know you’ll be around in 12 months or 36 months? While a fair question to ask when looking at start-ups for example, it’s impossible to know in most instances. I think the better question is one for yourself and your team to answer internally: “do they have a strong team and product”?
A strong product and team in my opinion is the best indicator of long term staying power and requires vetting of the system as well as vetting of the people.
Once the above questions are confidently answered and understood among the group looking to go to the market then looking outward at companies can be done more confidently and efficiently.

Am I over simplifying? 100%. There will always be something to come up to throw a wrench in the decision making process as noted in the article:

They also noted that their efforts are extracting a tremendous amount of financial, temporal, and human capital to build the digital bridge to farmer-customers. And the roadblocks are endless — incompatible software and data, partners with changing priorities and systems, evolving customer demands, the looming specter of sustainability and carbon programs that will need tracking, etc.

What’s worth reminding ourselves as these challenges arise is this: this isn’t unique to agriculture.

Business moves fast and it isn’t going to slow down.

The red queen effect is a useful concept from evolutionary biology and I think everyone is better off understanding it in the context of business, specifically in the context of continual digital progress:

The Red Queen Effect, is a hypothesis which proposes that species must constantly adapt, evolve, and proliferate in order to survive while pitted against ever-evolving opposing species.

The phenomenon's name is derived from a statement that the Red Queen made to Alice in Lewis Carroll's Through the Looking-Glass in her explanation of the nature of Looking-Glass Land:

“Now, here, you see, it takes all the running you can do, to keep in the same place.

The Red Queen Effect applied to business is a metaphor used to describe the efforts of a company to get ahead, and then attempt to stay ahead.

Competition in business isn’t like a football game that ends with a winner who can then take a break. It never stops. A company that gains an advantage over a competitor instantly incentivizes the competitor to improve. It’s an arms race. You’re never safe and can never stop. In fact, it only speeds up and not linearly, exponentially. Consider The Law of Accelerating Returns.

The choice not to participate with ample resources, or to simply throw your hands up, is the biological equivalent of being a gazelle opting to lay down while being chased by a lion.

The sooner organizations accept the fact that digitization and new trends surrounding it will not stop emerging, the sooner organizations can more voraciously focus on what Microsoft CEO Satya Nadella calls “tech intensity”; an indicator of a business’ capacity to innovate in a landscape where digital skills and tools are a must-have to win. We should at this point acknowledge that these skills and organizational competencies will not only grow in importance in agriculture, but become the lever for competitive differentiation for years to come.

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List of Global Top 20 Agrochemical Enterprises for FY2020 - Agro Pages

For some additional context, here is how the top companies R&D spend looks (Note: Revenue in the below includes seed):

Lunatic Farmers & Velocity - Prime Future

My friend Janette Barnard nailed it in this article!

Here are a few of my favourite highlights along with my tie into agribusinesses (emphasis mine):

I think the successful producers (or packers or xyz business) who will thrive come-what-may are the ones who don’t think of their business based solely in terms of the output (corn, soy, weaned calves, whatever), but rather view their business as a business model that is is in continual refinement. They constantly ask what's the process that most effectively generates the output. They think in systems that can optimized.

The last sentence that I highlighted particularly resonates with me. Whether in talking with the best farmers I know or the best agribusiness professionals, they think in systems. Thinking linearly is limiting, particularly in a dynamic system like a farm or business. For more on systems thinking I wrote a post on it that can be accessed here: Powering Agriculture with Systems Thinking.

It seems that the really successful producers are the ones that have a vision of where they are going and how they will get there. There's no doing it this way because that's how we've done it, there's no growth for the sake of the growth. There is only relentless learning and improvement.

I couldn’t agree more with Janette’s take above and it can be stated for all businesses.

"No farmer referenced what a farmer smaller in acreage than themselves was doing as applicable or worthy of study. Everyone preferred to learn from someone larger than themselves."

The below is a noteworthy quote that Janette highlighted, albeit not surprising. As Janette alludes to in the article, there is a “bigger is better” mentality. In my opinion a winning mind set is that you can learn from anyone; whether in farming talking to a smaller, less experienced farmer, or you are the most educated, most experienced person in the room. Acknowledging that everyone knows something you don’t is a powerful force multiplier to learning and continuous improvement - the only true differentiator in business on a long enough time horizon.

The sad truth is that the vast majority of farmers prefer to fail conventionally rather than to succeed unconventionally. It is very, very difficult to be more innovative than the community in which you live.

This isn’t a farmer specific trait, this is a human bias thanks to our evolutionary tendencies. We inherently do not want to break from the pack for fear of being ostracized, a death wish for the majority of human life on earth. It is the same reason “no one gets fired for buying IBM” or in hiring it’s easiest to hire the person with the most years experience because you can justify that to your boss if they don’t work out. However, outsized returns in business disproportionately accrue to the groups making bold moves. Otherwise, all margin would essentially get competed away down to the average weighted cost of capital. So actually the incentive is to be different, not only better. It’s also not simply about being different, but incrementally right. Whether that is in how you capitalize the business, hire for the business etc.

Janette also highlights “observed markers that lunatic farmers seem to have that indicate high velocity of business model innovation”:

They ask questions. A lot of questions. They find smart people to ask questions. They find smart people in non-traditional places to ask questions.
They read. Not just industry magazines, they look outside.
They have a sense that what they are saying sounds half crazy, dare I say they know it might make them sound like a lunatic farmer.
They surround themselves with high quality people, high quality teammates.
They have a system they are building/running, a flywheel they are looking to spin faster.
They have some insight that most of their peers don’t, some belief that isn’t widely held.
They know new practices & ideas take time to implement correctly, so they allow margin (time, energy, $) to experiment.

I think these are spot on. I think what’s notable here is that these tendencies are what make a culture. And just like all businesses, farms have a culture.

Culture is a legitimate differentiator in business. The above approaches reinforce a culture of innovation, growth mindset and lead to higher returns on capital over time especially in a rapidly changing environment.

And strategy influences culture, and culture influences strategy. In farming or otherwise.

I think Janette’s points are noteworthy for agribusinesses too. While not all farms will highlight every above characteristic, they will show some of them. And being able to tap into that aspect of their culture (eg: being a resource, their confidant etc) is where influence can be had for agribusinesses. Or you identify an aspect they are on the cusp of, such as a belief they have that isn’t widely held but they haven’t yet acted on it, and support their actions.

This leads me to the opportunity to add value for agribusinesses:

It’s not just about what farmers want, it’s about anticipating what they need.

This is true in all business. But we often use “farmers don’t want that” to not progressing our offers or not re-assessing traditional approaches to service or business etc - the agribusiness equivalent of “that doesn’t work here”.

Anticipating what farmers will need based on a specific relationships, or anticipating on the macro disproportionately sets agribusinesses up for success. People only want what they can understand. If agribusinesses are constantly learning, anticipating what farmers need and helping them understand why that’s in their best interest, that’s a big opportunity for differentiation.

We often want to data to jump off the page at us before moving in a new direction. But it’s beneficial to remember this statement: No new idea in the history of the world has been proven in advance analytically. Anticipating comes from understanding non-obvious trends and implicit customer needs.

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Semios Raises $100m to Scale Precision Ag Platform with More Acquisitions Likely - AgFunder News

Semios, a leading precision-farming platform and one of the world’s largest independent agtech solutions providers, today announced it has raised $100 million in funding led by Morningside Group, a Boston-based private equity and venture capital firm committed to investing in socially responsible businesses. This funding will enable the agtech provider to accelerate its R&D and deployment of solutions to help growers worldwide reduce chemical inputs, better manage water, organize farming data and improve crop outcomes.

Semios has now raised over $225m in capital.

How might they deploy that capital?

A quote of interest from another article:

“We had a plan to make some acquisitions. I think the thesis on [Morningside’s] side was if we could demonstrate that we could [acquire] well, that they would happily fund the next ones, as well. So we have a mandate to go out and build a platform and make some acquisitions again

Some of these funds will be for internal R&D, but it sounds like we can expect further acquisitions from Semios.

When they acquired AgWorld I wrote about some potential streams they might focus on:

telematics capabilities (for example, Intelliculture)
supply chain management (like a Provision Analytics or FoodLogiQ)
artificial intelligence and analytics capabilities to supercharge their insights

One other area they might be open to looking at is even into ERP’s given the AgWorld focus in the retail world. Semios itself has built out a large direct to farm offer on their permanent crop business. I am skeptical if that approach can work in row crops as a stand alone business. For groups that have went that route in row crops to date it has been an uphill climb.

Within that thought though, a quote from Michael Gilbert:

In fact, Semios has started turning that salesforce to other, third-party products, creating a new source of potential revenue.
Today, a lot of retail channels’ primary focus is not precision ag — it’s chemicals and seeds — and there aren’t a lot of dedicated precision ag retail channels out there. So if there are young companies out there, we’re happy to help,” Gilbert said, adding that these types of partnerships can include customer service and installation too.

When it comes to having a “precision” or “technology” specific distribution channel, there really isn’t one today, although the equipment sales channel has been close to this if anything.

I particularly found this comment noteworthy as well, highlighting the valuation ambition of Semios:

The further we go, honestly, the more ambitious I get. So, now I'm like, ‘Alright, how do we get to $10 billion? How do we go shoulder-to-shoulder with John Deere and DowDuPont?’ That's where my target is now

For more on Semios, here is my write up surrounding them from their acquisition of AgWorld in August

Ag-Analytics Acquires AcreValue, Expanding Capabilities to Unlock Value and Productivity of Farmland - Globe News Wire

Ag-Analytics, a leading farmland data technology software provider, today announced the acquisition of AcreValue, the industry's foremost farmland information and evaluation platform, from Granular, a wholly-owned subsidiary of Corteva Agriscience. The acquisition by Ag-Analytics will build on AcreValue's advanced capabilities for analyzing the value and productivity of farmland with Ag-Analytics' expertise in precision farm analytics, sustainability metrics and GIS mapping technology to deliver enhanced land management tools.

This is an interesting announcement and seems to make a lot of sense for Ag-Analytics, along with Corteva where AcreValue didn’t seem to align with their (and Granular) core value proposition.

At a high level Ag-Analytics have created a system that is capable of integrating data layers together to make sense of what’s happening within a piece of land. Whether it’s profit layers, integration with soil testing partners, UAV services, GIS capabilities and connection into other soil data layers. Now with AcreValue, they have the ability to showcase value of a piece of land and thanks to their new strategic alliance also announced with Farmer Mac, they can streamline access to capital to acquire that land.

Carleton Smart Fertilizer Project Could Be Game Changer for Farmers - Carleton Newsrooms

Smart Fertilizer or Enhanced Efficiency Fertilizers have been around for a while, specifically as it pertains to nitrogen. There are N stabilizers, such as urease inhibitors (eg: NBPT) or nitrification inhibitors (eg: DCD’s. There are also polymer coated fertilizers, like ESN from Nutrien.

These products have subtle limitations:

Stabilizers have a limit on the length of time they can protect nitrogen for, and for good reason, the urea for example needs to be broken down into an available form for the plant to access (eg: nitrate) at some point.

ESN breaks down given soil temperatures and moisture. Temperatures rising tend to align with root growth of the plant, but aren’t perfect either.

An opportunity for N stabilization is what is known as biosensing. A protective layer that reacts specifically to bio signals from the plant, say a specific plant root exudate.

Knowing when to release nitrogen to the plant is critical to more efficient crop growing. Excess nitrogen in the soil that accumulates when fertilizer is applied to the crop in anticipation of its needs, often gets washed away with rain, ends up in a lake and feeds algae, where it creates an algae bloom or can promote the growth of weeds.
Instead of using excess fertilizer which may result in unintentional environmental issues, the aptamer she created with her team gets coated around the fertilizer and limits the release of fertilizer to only the time when the plant is best suited to pick it up.

An aptamer can be a biosensing mechanism and it is defined as:

short, single-stranded DNA or RNA (ssDNA or ssRNA) molecules that can selectively bind to a specific target, including proteins, peptides, carbohydrates, small molecules, toxins, and even live cells

So if there is a specific exudate from a the crop that signals plants are looking for nitrogen, like L-serine in canola and wheat, there is an ability to create an aptamer that breaks down in response to L-serine, which is what this group of scientists has done.

But just like our current N stabilizing options have small limitations, biosensing has it’s challenges to commercializing as well. For example, not all plants will have the same signal molecule and the rate at which it begins to break down can be time sensitive based on crop needs.

Nonetheless, this type of technology brings up compelling opportunities particularly if there is the ability to formulate specific products that could be coated via an impregnation system for example.

Ceres Imaging Secures $23M in Series C Funding - Yahoo Finance

Ceres Imaging, the precision farming provider that uses aerial imagery and data analytics to help growers improve their farming practices, today announced that it has raised $23 million in Series C funding with investments led by XTX Ventures and Romulus Capital, joined by Insight Partners and B37 Ventures.

This raise brings their total funding to $58.5m according to Crunchbase.

Ceres is focused on making sense of data and providing informed analytics and intelligence for decisions to farmers and crop consultants. There are a number of other organizations that have very similar value props to Ceres that have been in the news lately too.

Ceres has some similarities in product offering and value proposition to IntelinAir who also announced a ~$20m Series B last week and another similar company, Sentera, announced a $25m Series C raise in June. Not to mention Aerobotics raised $17m in January, also with similarities.

These all (outside Aerobotics) come on the heels of the $300m acquisition of Prospera by Valmont in May, another organization who has some analytics capabilities similar to the aforementioned organizations. Given the recent raises, all these companies valuations would be in the 9 figure range as well.

Part of the value of digital agriculture is better decisions at a precise level, which these companies seek to offer. However, the business models as stand alone companies (eg: fee for service in row crops) is challenging.

In talking with some industry contacts, it sounds unlikely that many of the aforementioned organizations have revenue above ~$5million but valuations >20x this. Customer acquisition costs are expensive and so is farmer support of adoption which challenges the unit economics.

These organizations continue to rise in value, but it seems the likely outcome for most is similar to Prospera, exiting to an incumbent - so given that basic assumption the question becomes, how many incumbent organizations are willing to pay $100 million for these organizations? A company like Lindsay Irrigation might be interested in terms of taking a similar route to Valmont with Prospera, but that acquisition may have had some geographic specific business dynamics playing into it too.

It will be fun to watch the future of these organizations progressing forward.

There Are Big Opportunities in Carbon – and Ag Technology Can Enable Them - Crop Life

I thought this was a well done article and particularly as it pertain to the title, I think if carbon opportunities are going to be realized, ag technology is necessary to take advantage of them.

In the September 12th 2021 edition of Upstream Ag Insights I talked about inflection points.

An inflection point is defined as:

an event that results in a significant change in the progress of a company, industry, sector, economy, or geopolitical situation and can be considered a turning point after which a dramatic change, with either positive or negative results, is expected to result

When considering general digital ag (eg: FMIS) adoption rates, they haven’t been exceptional. Part of that has been a lack of direct monetary incentive for adoption.

Carbon market participation, at least to a degree (depending on pricing), could be a monetary incentive for farmers to adopt digital tools in order to capitalize on carbon credits, and therefore drive adoption of more of these digital tools and systems. In other words, it can be the inflection point for many technologies.

When it comes to novel application methods or new approaches to crop production, such as precision agriculture (eg: variable rate capabilities), various types of technology will also be key to unlocking opportunity within carbon and soil health. And when you look at what makes up “precision ag”, according to John Deere CEO it’s:

telematics
guidance
data management
(Note: I’d suggest “agronomy” belongs in there too, or else you just have poor agronomy precisely applied).

Much of this technology will be necessary to begin to take advantage of new practices in order qualify for carbon credits.

Benson Hill Officially Public Via SPAC - PR Newswire

Benson Hill officially merged with SPAC Star Peak Corp II to go public this week.

The company has had a rough start to their public trading, having shares drop almost 40% this week.

One group cited the large drop in price due to concerns over future earnings:

It appears that the Benson Hill stock suffered from a widespread sell-off, spurred by a view that the company’s earnings may be distorted further into the future. The validity of Benson Hill’s projections seem to be under scrutiny from its investors following the merger presentation.

Companies going public via SPAC have not fared well in general this year:

SPAC returns have been weak, especially following deal closure. Weak may be understating it a little. Since its February peak, an ETF of SPACs across stages of the lifecycle (ticker: SPAK) has returned -35%, vs. +14% for the S&P 500

Non Ag Article

Twist Biosciences: the DNA API - Alex Danco

I’m bullish on the capabilities of synthetic biology, specifically the applications to agriculture. I have talked about companies like Gingko Bioworks in Upstream numerous times and a company that has caught my eye as a further enabler of companies like Gingko is Twist Biosciences*.

Alex Danco did a great write up on their business that I think is very well done that I think also brings to the forefront a mental model of how to think about companies.

*Disclosure: I am a shareholder in Twist Biosciences.

Upstream Ag Insights