There could be a Bloodbath coming for AgTech soon...

November 17th, 2022 - 24th Edition of Easy Observations in Ag

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Opening Thoughts:

Well crap I’m getting behind again on these “weekly” newsletters. I guess for an update it is because I’ve been swamped with my new business called Boundri where I’m printing custom map based products like farm toy play rugs. So there is that and enough of my shameless plug, but if you are interested in my stuff let me know!

Anyway, back to thoughts regarding AgTech this week. I’ll be honest, it has been sort of hard to think of what I want to write about lately as it’s just a weird time of year. Of course there was the recent news of Granular Business selling to Traction Ag which is pretty big. I did put a post on Linkedln so I figure that was enough. In short though I think it’s just a wild story of riches to rags I guess. Best of luck to the Traction guys as I know those them well and they have good heads on them.

So, a Bloodbath you say? Where I’m headed with this is around the issues that are seemingly happening everywhere right now, not just AgTech. Investors are getting squeamish as of late, big tech is laying off tons of people, and the markets are in flux. Now at the same time, Ag is seeing record prices but also crazy ups and downs throughout the world. I guess I just see some big problems arising for very specific types of AgTech groups that rely on large investment and/or the need to sell pretty soon.

Who could be in trouble:

Saying it briefly and broadly, any AgTech company that has raised a ton of money at really high evaluations in the last 2-3 years. Why these groups is because they’ve been given a bunch of money to grow and then sell soonish. Well soonish is coming up for many. I think there are many out there that know they can’t raise another round and have to find a way to sell to appease everyone. The problem is many of those groups don’t have the cashflow they need to match the older evaluations.

It’s a pretty straightforward thought process. Now some of these groups maybe can survive longer if they are at least cash flow positive, but I don’t know many that are. I could be wrong too though I’m just not seeing it. I’m not seeing the big press releases around partnerships or deals being made like before. Maybe some are being more silent about it. I’m not 100% sure I guess.

What I do see though is a pattern of groups being quiet. I see the investment community in Ag slowing their role some. I’m seeing major Ag Corporates being a little more conservative. I’m seeing less AgTech startups becoming reality and less gaining traction. I’m seeing a slow down.

The odd thing is though that there does seem to be a giant influx of money coming into Ag soon with the prices we are seeing. Especially on the commodity side, but even in general with the inflationary price increases going around especially in food overall. That also isn’t just normal inflation, it is becoming price gouging. It’s real folks.

So then I guess the answer is why wouldn’t that money flow into the AgTech sector? I’m not saying some of it won’t, I’m sure a lot will. The thing is it isn’t going to come in the past traditional sense like with investment I don’t think. I think the groups that have shown their value might get more contracts and such. That is a good thing.

Here is the problem, many AgTech groups haven’t proved their value yet I don’t think. Why I say that is because at the root of these AgTech offerings you need someone to want them i.e growers or Ag Businesses. Whether this is direct or indirect it doesn’t really matter. What I’m seeing is farmers and Ag Businesses that help farmers are tired of AgTech as I wrote about recently. It’s not that they don’t want it to work, they are just tired of the narrative and marketing BS.

Can that change? Not very quickly. You see the thing with farmers is when they make a lot of money they like to spend it on physical things like land, machinery, vehicles, buildings, etc… Not AgTech. The rest of the industry will focus similarly with upping fuel, fertilizer, chemical, machinery, land, and building prices to match that want. We are seeing that right now in a huge amount. It’s almost scary. I want to though dive into that more….

The Bloodbath and Why:

As I state above, the bigger issue is that farmers while flush with cash and the same with Ag Businesses for the most part, they just are spending money in different areas. AgTech isn’t really on the top of the list. Why that is is because many out there overpromised and underdelivered. I don’t have to talk about Granular and Farmers Edge all day or other groups that I’ve written about before that did that, but it’s reality and situations and groups like those are helping the cause the problem.

Farmers and Ag Businesses have basically worked the same way for decades or more. They concentrate on the things that they absolutely need to help each other. Farmers need seed, they get it. Farmers need fertilizer, they get it. Farmers need Machinery, they get it. Farmers want a building or bins, they get it.

Now let me change that up a little with AgTech in mind. Farmers “want” autosteer, they get it. Farmers “want” to VRA a field, they can get it sort of though in many different ways. Farmers “want” automated agronomic decisions, they could get something or maybe get screwed. Farmers “want” biological products to reduce fertilizer needs, they’ll likely break even on the product.

Beyond the “get” part where AgTech has failed to some extent, the really bigger thing there is they “want” it vs “need” it. There are aspects that AgTech is becoming ingrained into everyday Ag life like autosteer or mapping, but it’s still not required per say. Now some Ag Business definitely need software these days to be efficient and run their processes. The thing is, they probably already have that now and don’t need anything new or “ground breaking” as some put it.

There is the other elephant in the room, most in Ag Business or farmers themselves have the software or tools they need. It doesn’t need to be the best, but it does what they want-ish. The groups that can provide these things in some cases have existed for decades themselves. A new AgTech software group coming in to say “disrupt” mean very little in Ag these days. You can’t really disrupt it. It’s not how this industry works.

So, to answer the main question here around the Bloodbath is that if you fall in these categories of having likely issues with further investment, negative cashflow, limited want of your product, stale growth, and a lower evaluation of your business you better get ready for the bath to come.

In Closing:

As always, I’m not wanting something like this to happen but I also don’t see how it doesn’t to some extent seeing everything coming to play. It’s not just Ag pushing this general narrative either, the world is shifting and the money around it. The old days (last 10 years) of coming up with an idea, raising a bunch of money, and selling a few years later is in drastic decline.

The crazy evaluations are coming down to reality. The expectations are getting back to where they should have always been. People are just becoming more aware and cheap money has gone away. This is happening everywhere and honestly I think its probably for the best.

You can only grow so fast for so long. Ag has always known this and does for the most part understand that process. Many other industries do as well, but the ones that don’t are the tech industry. AgTech has become just an extension of the Tech boom and industry in general. Very similar tactics, groups, and money are involved.

They are starting to learn the differences though and I can see a big exodus of investment out of Ag because of this. The outsiders that don’t understand Ag will just go somewhere else. Where the next money will come from for AgTech though is a better one. It’s likely going to come if needed from other Ag groups that are making really good money now.

There is the other side of the story. Maybe and finally the money coming into AgTech will come mostly from the ones that should be spending and investing the money in the first place. That is other Ag Businesses and people. It has been happening to an extent, but it was needed more. The days of investment and money from outsiders needs to die or at the very least decline. This industry needs AgTech, but they need help from others from within.

Overall, while the Bloodbath might happen to a greater or lesser extents, its overall probably a good thing for everyone long term. There will be some big falls to come yes, but something greater can come from it too. Time will tell….

Thanks for reading Easy Observations! Please Share, Subscribe, and Comment if you would be so kind. I’d also be happy to get together and meet if you’d like to talk more in-depth about AgTech or Earth Observation in Ag. Feel free to contact me at my website. All the best!