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Upstream Ag Insights: Soil Testing Moats and Evolutions

October 23, 2023

Key Takeaways:
  • Stine Seeds and Pattern Ag have partnered to offer loyal Stine Seed customers access to a subsidized soil pathogen test.
  • Next-generation soil testing capabilities have immense potential for farmers and agribusinesses. However, they haven’t taken off at parabolic rates—assumed to be because of current pricing dynamics and entrenched approaches to thinking about soil testing.
  • There is immense opportunity with Pattern Ag products in North America; however, due to lower soil testing rates in Brazil, their opportunity there is even more significant.

Stine Introduces Prescriptive Pathogen Report - Stine Seed

New for 2024, we are pleased to offer Stine’s Prescriptive Pathogen Report, powered by Pattern Ag. Available at a special discounted price to Stine’s Corn Loyalty level customers, the Prescriptive Pathogen Report is designed to help growers accurately predict their future risk for corn rootworm, one of the most damaging soil-born, yield-robbing pests.

I like this initiative from Stine. I have emphasized the opportunity for companies, such as input manufacturers or retailers, to leverage new soil testing approaches like those from Pattern Ag for years within Upstream.

According to releases, companies like UPL and Syngenta have announced strategic partnerships with Biome Makers, though it has been targeted at the R&D side of the business. CHS announced in 2021 that they would be working with Trace Genomics. Both Trace and Biome Makers have competitive products to Pattern.

Pattern Ag is a “predictive ag company”— they focus on testing the soil's biology, including DNA sequencing, to predict what will happen agronomically on the field that season. These predictive insights include disease and nematode risks, which appear to be Stine's focus since they call it a “Pathogen Report.” Pattern Ag also does traditional soil testing that includes fertility.

Pattern can benefit Stine and farmers by enabling better varietal decisions, or crop protection decisions, that ultimately will help deliver a better outcome for farmers growing Stine varieties. Pattern Ag CEO Rob Hranac has also stated they are working to map the soil genome. For companies partnered with Pattern, we can begin to see how not only does it help them at the field level in working with farmers to get the best results with their current hybrids, but it also can position them to establish better tools for their internal teams in the development of hybrids or the positioning of hybrids by geography.

The price is one of the challenges that has kept the uptake of these testing services from taking off in North America at a faster rate.

According to John Kelly, Director of Strategic Accounts at Pattern, when speaking at Tech Hub Live, a “full biology” test costs $11/ac (MSRP).

Stine is subsidizing the price for their customers, bringing the cost down to $1.50/ac for the farmer, specifically for a pathogen test:

The Prescriptive Pathogen Report is being made available to Stine Corn Loyalty customers for a cost of $1.50 per corn acre planted to Stine brand corn. This is a fraction of the total cost of this service, with the balance covered by Stine

North American farmers have been conditioned to think of soil testing in a commoditized way— test for the basics of N, P, K, S, and organic matter for a cost of ~$30-$100/field, and you are taking proper steps to get the best outcomes for the year. With new technology, this couldn’t be further from the truth.

I am bullish on companies like Pattern Ag because everything starts with the soil. Not only from a fertility perspective but also from a crop protection perspective— root rots, fungal diseases, and nematodes all can be better managed with a deeper understanding of the soil, something Pattern unlocks.

What hasn’t occurred, though, is an evolution in thinking or agronomist training to adapt to these new technologies.

Today, there is a moat around soil testing in North America.

When an individual takes a soil fertility class in college, the emphasis is still on traditional soil testing methods. When an ag retail trains an agronomist, it’s on conventional soil testing methods. Soil fertility and soil testing are complex, so typically, once an agronomist is comfortable with a particular approach, they prefer not to switch labs or testing methods. When agronomists and farmers think about pathogen risk, it is skewed to in-season vs. pre-season— reactionary vs. proactive.

On top of the price, this is another factor that has hindered the utilization in North America to this point. However, I am optimistic we can see a progression because of the obvious benefits to farmers, input manufacturers, retails and agronomists— better conversations with farmers about pest risks, more accurate assessment of crop protection and seed demand, and ultimately better decision-making for the farmer to manage costs and yield/quality outcomes in their fields. There is a strong incentive to adapt across the value chain.

Pattern has partnered with another company, Lavoro, based in Brazil.

Lavoro is the largest Brazilian ag retailer, and they have committed to delivering Pattern Ag soil testing through their 190 retail locations across Latin America (notably, in conjunction with Stenon). The relationship is notable because, as highlighted in September 2022, Lavoro was taken public via a special purpose acquisition company (SPAC) owned by The Production Board, which also happens to be an investor in Pattern Ag (and Stenon).

The opportunity in Brazil is more significant than in North America for Pattern Ag because of the lower testing rates in Brazil.

From a Lavoro investor presentation:

The variance in soil testing dynamics between Brazil and North America reminds me of the payment rails and payment infrastructure variances between China and North America; while an imperfect example, I think it is relevant.

In China, internet companies like Tencent and Alibaba drive 90+% of mobile payments through their companies, WeChat and Alipay. At its most simple, this occurred because China had poor credit and banking infrastructure leading up to the internet boom, which meant things rapidly changed from cash to digital payments, skipping entirely over credit cards. In North America, banks and credit companies like VISA and Mastercard were the first to transition from cash to card decades before the internet or digital capabilities were viable. This meant that most of the payment infrastructure had been built on the back of credit card companies and traditional banks, which is why today, in North America, even though we do things digitally, it is still via credit card and conventional banking companies.

The infrastructure surrounding North American soil sampling, such as knowledge and training along with the lab testing assets, has been focused on basic physical and chemical parameters, and it has gained enough traction to be entrenched in the minds of most farmers and agribusiness professionals. Some labs have attempted to move beyond these areas into soil health tests, for example, but the experience is often fragmented and secondary to the core nutrient testing.

In Brazil, there isn’t a lot of soil testing done, which means Pattern Ag is well-positioned to become the standard— which includes an emphasis on not only biology but pathogens, setting Pattern Ag up to take off more rapidly in Brazil and LatAm more broadly.

The Brazil commentary, I think, illustrates that as uptake increases there, Pattern Ag can potentially get more cost-efficient at the DNA sequencing aspect of their testing, which could lead to better costings in the United States over time and/or increased performance of their models for delivering predictive insights to the USA.

The other takeaway is that for the companies willing to put in the hard work— such as what Stine is doing, to train staff, effectively communicate the technology to farmers, and establish a new mindset when it comes to approaching crop fertility and crop protection through soil testing are going to be in a strong position to deliver better outcomes for their business and farmers.