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HomeFinanceDeere's future in precision agriculture hinges on space

Deere’s future in precision agriculture hinges on space

Iconic American manufacturer Deere most often elicits images of green tractors dotting crop-filled fields.

But the farm equipment maker has been planting the seeds for an increasingly high-tech and autonomous future – one that critically hinges on space.

“Deere is one of the best technology secrets in the world out there … but you’re not going to do that without the access to space” said Leanne Caret, a Deere board member since 2021 and the former chief executive of Boeing Defense, Space & Security, in an April interview with CNBC’s “Manifest Space” podcast.

Deere, like competitors CNH Industrial and AGCO, has been investing in precision agriculture. The strategy uses sensors, software and data analytics to provide more accurate farming techniques to improve crop yields, from more productive planting to more targeted fertilizing to more efficient harvesting.

The company is also producing and selling tractors that self-drive and other machines with autonomous features.

But connectivity is the linchpin of this vision, and space fills a void left by fiber and traditional cellular signals.

“We’re pretty bullish on the opportunity that the commercialization of all things space is bringing to agriculture at the moment,” says Jahmy Hindman, chief technology officer of Deere, in the interview with “Manifest Space.”

Follow and listen to CNBC’s “Manifest Space” podcast, hosted by Morgan Brennan, wherever you get your podcasts.

“If you think of agriculture … it’s done in rural locations, where terrestrial cell connectivity is not always available, and when it is, it’s not always sufficient to do the types of things that farmers need to have done in the field,” Hindman said. “We think satellite communications is a really intriguing, interesting technology to pursue to sort of solve that communications gap.”

For Deere, the intersection of space and agriculture started two decades ago, when it took a stake in and then, eventually acquired, NAVCOM to enable its own real-time connection signal for GPS to help steer machines and create yield maps for combines.

But GPS is no longer enough, particularly in major markets like Brazil where more than two-thirds of farming acreage has no connection to communications infrastructure.

Last fall the company put out a request for proposal to the satellite communications industry to partner on space-based connectivity services. It hasn’t publicly disclosed the estimated value of the envisioned “SatComms” deal, but the space industry clearly sees dollar signs: roughly 40 companies have submitted bids, according to Hindman, comprising the “who’s who of satellite connectivity across the globe.”

Hindman said Deere is in the middle of executing some trials with certain companies, including the dissemination of some equipment on vehicles to determine real-time, real-world performance.

“We had this opportunity to bring two industries together — satellite space communications and agriculture — and say, ‘What kind of value could we create?'”

Deere will select a partner for the project after bidders have gone through a growing season, with a solution expected to be rolled out to farmers by this time next year. Hindman noted that as the commercialization of Earth orbit drives down costs and increases capabilities, he is looking more closely at other space-based services as well, including Earth observation data.

What’s still unclear: the final configuration of the business model and whether it could be a service subscription, a one-time payment or something else.

It won’t just affect new equipment, either, Hindman said, since there’s an intense appetite from Deere customers for the ability to update existing equipment as well.

Analysts note the value proposition of precision agriculture and connected machines has been spurring demand – and helping the company to realize higher prices.

“It increases Deere’s structural pricing power and … it should have an uplift effect on the valuation multiple,” said Chad Dillard, senior analyst of U.S. Machinery at Bernstein. “It really comes down to the fact that precision ag creates and improves productivity on the farm and it drives that virtuous cycle of higher prices, higher margins and higher multiple.”

That dynamic will be in focus when Deere reports quarterly earnings on Friday. And as Dillard noted, Deere has also talked about the prospect of seeing roughly 10% of sales coming from common recurring software-type services by the end of the decade.

The growing utilization of space-based capabilities also explains why it’s a top holding in Cathie Wood’s Ark Space Exploration and Innovation ETF – a position that had raised some investor eyebrows when the fund first launched two years ago.

“If you have this ability to connect every acre on the farm, you have the ability to collect more prescriptive information … That allows the grower to make better decisions,” Hindman said. “That improves food security in the sense that it produces a better outcome at the end of the year than would otherwise be possible without that information, without that data.”

“Manifest Space,” hosted by CNBC’s Morgan Brennan, focuses on the billionaires and brains behind the ever-expanding opportunities beyond our atmosphere. Brennan holds conversations with the mega moguls, industry leaders and startups in today’s satellite, space and defense industries. In “Manifest Space,” sit back, relax and prepare for liftoff.

This story originally appeared on CNBC

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