Technological advancements allow farmers to collect data on fertilizer usage, how many seeds were planted and how much was harvested.
With cloud technology, computerized mapping and drones, farmers are quick to use the latest gadgets.
By Debbie CarlsonOct. 7, 2015 | 9:00 a.m. EDT
Midwestern farmland is about as far away from Silicon Valley as can be, but agricultural technology is addressing some big challenges that farmers will face in the coming years, such as climate change and feeding a growing global population.
The technology industry has now discovered agriculture, and some big names are funding startup projects. This May, Google Ventures became a leading investor in a big data company called the Farmers Business Network. AgFunder matches institutional investors with agricultural startup companies, many of them on the technology side.
While it’s nearly impossible for the average investor to buy into a startup, there are several publicly traded agricultural companies that are embracing technology. Investors should realize that the sector is small, and as of now, many companies aren’t pure-play agricultural technology investments. Additionally, agriculture is getting hit by the commodities bust because of reduced demand and bigger supply, so the stocks of many of these companies are down and could fall further.
Farmers are plugged in. Despite the urban person’s sometimes-pastoral view of farming, theagricultural sector has been quick to adopt new technology. Farmers have always been keen to try new ways to boost crop yields, especially if results come quickly.
“This has always been going on, but what’s accelerated it, particularly in the last five years, is the systems approach to agriculture,” says Ned Schmidt, publisher of the Agri-Food Value View newsletter.
In the past few years, cloud technology and computerized mapping technology in tractors and combines improved, allowing farmers to collect data on how much fertilizer was used, how many seeds were planted and where and how much was harvested.
Additionally, Mike Zuzolo, president of Global Commodity Analytics & Consulting in Atchison, Kansas, says combines and tractors use GPS and guidance technology. Guidance technology is much like cruise control in a car, but can almost be self-guided.
“The guidance technology has become so good it’s allowed farmers to work at night and allowed the computer to follow paths they can’t see with their eyes,” he says.
The mapping and the guidance technology is called precision agriculture because it allows farmers to be more precise in the fields.
Justin G. Gardner, associate professor of agribusiness at Middle Tennessee State University, says one company that uses GPS guidance technology and offers several services under the umbrella of precision agriculture is Trimble Navigation Limited (ticker: TRMB).
Drone technology. Many in the agriculture sector say the next step in precision agriculture is drone use. The Association for Unmanned Vehicle Systems International, an advocacy group in Arlington, Virginia, expects that precision agriculture will make up about 80 percent of the known potential commercial markets for drones.
“Drones have the potential to replace agronomists by being able to go into the field, do the analysis and dump the data in a computer,” says Shawn Hackett, president of Hackett Financial Advisors in Boynton Beach, Florida.
Drones can help pinpoint problems in a field, such as insect infestations or fungal problems, Schmidt says. That way, a farmer can spray just a section of the field, rather than all the plants, reducing his expenses.
But investors who want to buy drone companies will have to wait, Hackett says. “Right now, it’s probably too early to figure out which drone companies will help ag,” he says.
One agricultural equipment company that is teaming up with a drone manufacturer is AGCO Corp. (AGCO), which Schmidt calls “an excellent company.”
AGCO is about one-third the size of rival Deere & Co. (DE), but Schmidt says that’s a good thing. “They can innovate on a product and not cannibalize another part of their business. Farm equipment is all integrated, so you have the tractor, combine, etc. ACGO is bringing in the technology. It’s also primarily outside the U.S., as 75 percent of its business is in South America, Africa, Europe, Middle East and China,” Schmidt says.
Hackett thinks Deere is a core agricultural stock to buy for anyone who wants exposure to the sector.
Zuzolo says Deere’s auto-steer technology is “probably the best in the business.” Deere also has a big precision agricultural management center, including Web-based applications. The farm equipment “can collect a lot of data, even as much as what implements you use – whether for corn or soybeans – and how often,” he says.
Big data collection in general is becoming an issue for farmers, Zuzolo says, many of whom feel a bit unsettled by it all. “I’ve spoken to many who wonder, ‘Is it doing me any good?'” he says.
Zuzolo also says the low crop prices of the past few years may mean farmers aren’t willing to shell out for all the bells and whistles on farm equipment like they once did during the commodity boom. Because technology can become obsolete, there’s hesitancy to upgrade quickly, especially since the farming technology is costly.
“It’s not like switching out your smartphone,” he says. “The question is, what will they do for 2016? Will they invest in tech or fertilizer? Technology is good and will pay off down the road, but will they make the upfront payment when prices are low?”
Other technology. Another area of agricultural technology is in verifying where food has been, from farm to fork. One small company, Where Food Comes From (WFCF), traces food’s path. The company produces radio frequency identification chips for cattle, and Schmidt says with the North American cattle herd expected to increase over the next few years, WFCF stock stands to benefit.
The company also audits and verifies foods for organic producers to ensure they are free of genetically modified organisms. “Right now they’re a very small company, so people need to understand that,” Schmidt says.
A Canadian company, Ag Growth International (AFN), helps farmers be more efficient after harvest.
“They do grain handling and storage – every part of the process from harvesting, storage, transporting grain. They do it cheaper, easier and are more efficient. They can monitor temperatures in storage bins to prevent spoilage. They’re a wonderful company,” Hackett says.
“Because of that, sales for some of these companies will be slow. But when corn prices start rising, farmers will have money, and then they like to buy toys,” Gardner says.
This article was published at US News.com and was retrieved on 10/08/2015 and posted here for educational and information purposes only.