With the ongoing conflict in Ukraine, widespread drought, and a shrinking group of agriculture producers, grain is becoming increasingly scarce, and that issue is accelerating the development and adoption of futuristic farming technology meant to boost production.
Tractor supply giant Deere & Co (NYSE: DE) is at the forefront of artificial intelligence in agriculture, and it's using some of the same techniques as major technology companies like Apple (NASDAQ: AAPL).
"The more technology we can develop to allow farmers to get productivity out of their land without having to spend so much money on fertilizer and inputs, the better off everybody is," Deere's director of emerging technology, Julian Sanchez, told Reuters.
Deere's current technological advancements include self-driving equipment with a focus on satellite data gathering and analysis. Deere is adopting a subscription service model and developing software for automation in an effort to create a strong recurring revenue source like that already enjoyed by so many tech companies in the subscription service era.
Deere's efforts to boost revenue are now even more essential: on May 20, the company released a quarterly report that it had missed its revenue targets for only the second time in the last ten quarters. Revenue was forecasted to hit $13.2 billion, but the company only brought in $12.2 billion. The report resulted in a 14% drop in Deere's stock price, the biggest decrease the agriculture company has seen in 14 years.
The automation of high-horsepower equipment is still in its infancy, and Deere has a long way to go before autonomous farming truly takes hold. Previously, Deere used the data gathered from their equipment to predict issues and cut downtime, but now the focus is shifting towards agronomic data to help farmers save on supplies and time.
"Everybody in the industry is much more data-focused than we have ever seen them," Purdue University professor Michael Boehlje said. Companies "can do profit projections by geographic space in fields. That takes you to a different level of thinking and analysis."
The new features will be introduced in fall 2022 with the new 8R tillage tractor. The tractor alone retails for $500,000, and the autonomy software is sold separately on a subscription basis. At a recent conference, Deere said it will continue to sell equipment using a "point-of-sale" or traditional model.
"While it may take us a few years to build out a base of recurring revenues, autonomous solutions, on top of our underlying machine forms, will be recurring," Joshua Jepsen, Deere's deputy financial officer, said at the conference.
According to machinery industry experts, the subscription model is a good way for Deere to access higher margins.
"After expenses, every incremental dollar falls straight to the bottom line," said Edward Jones analyst Matt Arnold. "We would expect it to be an attractive offering to farmers given the efficiency it offers them, and lucrative to Deere."
In the past, farmers have been hesitant to give companies access to data about their operations, largely due to security and privacy concerns. Now, with farmers struggling to stay afloat, the money that could be saved by precision agronomic software may be too good to pass up.
"Unfortunately for us it costs more, but hopefully the costs will be paid back in the long run by better efficiency," said fourth-generation Iowa farmer Ron Heck.
Already, Deere has made strides into cloud data storage. The company's Harvest Profit software lets farmers store and access data regarding their Deere equipment. While these options can cost more, farmers have hope that their improvements will more than make up the difference.
"When I look at what precision ag has done for our operations and what we can accomplish in a day's time compared to 10 to 20 years ago, it's so much easier," said Jeremy Jack, Mississippi farmer and chief executive of Silent Shade Planting Co.