Closing Bell - Manifest Space: Space Enabled Farming with Deere CTO 5/18/23

Episode Date: May 18, 2023

Agriculture equipment-maker Deere is betting big on space. The company is seeking to expand into satellite services, with CTO Jahmy Hindman leading the charge. Morgan sits down with Hindman to discuss why the company finding ways to offer more value and services to a global customer base through space. For more Manifest Space, listen and follow here: https://link.chtbl.com/manifestspace

What comes to mind when you think of John Deere? The green and yellow logo? Combines dotting the American countryside? How about space? It's something current board member and former Boeing defense CEO Leanne Corrette discussed on this podcast in April. Deere is, I think, one of the best technology secrets in the world out there. They are, I had the honor of watching, you know, some of the automated planting and the sea and spray technology. It just, it's just absolutely mind-boggling at times what the ability to do is. But you're not going to do that, to your point, without the access to space. Deere is making a big bet on Precision Agriculture, which uses sensors, software and

data analytics to improve crop yields. It's already selling self-driving tractors and other autonomous farming equipment. And now the machinery manufacturer is looking to partner with satellite operators to boost connectivity. The company began eliciting bids for a Satcom's contract last fall. Deal value undisclosed, and Jamie Hindman, Deere's chief technology officer, is the person overseeing the process. We're pretty bullish, actually, on the opportunity that the commercialization of all things space is bringing to agriculture at the moment.

If you think of agriculture, it's largely a rural job, right? 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. And we think satellite communications is a really intriguing and really interesting technology to pursue to sort of solve that communications gap. This speaks to why Deere is a top holding in Cathie Wood's Arc Space Exploration and Innovation ETF, and why a stock long seen by investors as subject to economic cycles is finding ways to offer more value and more services to its global customer base.

On this episode, tilling space to better harvest on Earth. I'm Morgan Brennan, and this is Manifest Space. I would tell you the technology story in agriculture actually started probably 20-25 years ago and it actually started with space. It started with us taking a position in a company. We purchased the company, eventually NavCom, that gave us the ability to have our own real-time connection, real-time corrective signal for GPS so that we could start to use GPS technology to help steer machines and do a bunch of other things that were data-related, things like create yield maps for combines and those sorts of things. So our start in technology

was actually originated around GPS and GNSS guidance, and it was over two decades ago. And since then, we've just been continuing really to grow this state of technology and agriculture, increasing automation in equipment, taking some of the human in the loop out of the equipment so that more people can be used from a labor perspective on the farm. And in addition, we've sort of gotten to the point 20 years later where customers are actually asking us, why am I in this tractor? Why am I in this harvester anymore? This is doing most

of the work for me. So we have sort of reached this point in the last two and a half years where we've introduced autonomy on the farm. And actually space is a significant portion of that as well, because we continue to increase the accuracy of, guidance technology on the farm, in addition to using that technology to really drive to what we're calling plant by plant level management. So the ability to know latitude, long long literally combines and tractors and other types of machines that are operating themselves on farms across the world right now as we speak. Yeah, exactly right. Tractors are the first one that we've done this with. So they're fully autonomous, meaning the human has the opportunity to leave the cab of the machine and the machine can do the job of tillage in this case all by itself. In the other cases, things like combines and crop care equipment, we still put a human in the cab because we haven't solved the perception problem in all those cases yet.

But that human has most of the things, if not all of the things, automated for them. So they're there as a safety perception system, but the jobs themselves are largely being done without human interaction. And now GPS isn't enough. You need more aspects of connectivity and you need more types of data. Yeah, exactly right. So we just announced an RFP in the satellite communications area last September, and we've been in the process of working through that RFP over the last nine months or so, trying

to determine who the best players were and the combination of best players were for us to use moving forward. We're pretty bullish, actually, on the opportunity that the commercialization of all things space is bringing to agriculture at the moment. If you think of agriculture, it's largely a rural job, right? 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. And we think satellite communications is a really intriguing and really interesting the types of things that farmers need to have done in the field. And we think satellite

communications is a really intriguing and really interesting technology to pursue to sort of solve that communications gap, not just in rural America, but if you look around the world at locations that agriculture has done, this connectivity gap is everywhere. It's probably more significant actually outside of the U.S. than it is inside of the U.S., but it's ever-present. And more and more of our technologies, we talked about autonomy as an example, are dependent upon real-time communication, connectivity with the vehicle at all times. And so the customer experience and the benefit that a farmer gets is improved by that connectivity state. And our mission is to try to solve for global connectivity and agriculture, you know, sort of ubiquitously across the planet.

So you put out this RFP, this request for proposal. To the extent you can describe the types of companies that are interested and putting proposals in front of you, because I realize you're not making a decision yet, but I guess what details can you share? Yeah, we had roughly 40 companies and they're the who's who of satellite connectivity across the globe. They're, you know, all the way from names that are common in the industry. I'll just put it that way. And combinations of those names actually in the industries. Some have constellation capability, some have terminal capacity and capability, some have ground stations, backhaul, etc. So what we were after was

really asking the question, how do we get to the best collective system for agriculture moving forward at a cost? And this is the the important part at a cost that is meaningful for agriculture that we think there's a business case around and i think the the recent commercialization um you know it has driven the cost to a point and is continuing to drive cost to a point that make it really interesting in our industry uh you know we're we're also in the middle of trying to sort through as all of these proposals came in, what orbits are the most interesting for us. We certainly have a benefit in low Earth orbit with latency, reduced latency and higher bandwidth. But the terminal cost, on the other hand, tends to be higher.

As we look at other orbits, you know, we have lower technical capability from a communications perspective, but we have lower terminal costs. So the one-time cost to a customer might be lower as well. So we're trying to rationalize all of those things and where the industry is going relative to orbits and to constellations and capacity. And so we're in the middle of executing some trials as we speak, which is with the last few folks that are in the RFP that have risen to the top. We're putting their equipment on vehicles and we're doing testing and real world applications with real farmers, connecting them across the planet, trying to determine what is real performance that we're going to see in agriculture and what are the use cases that farmers are exposing that might be, you know, different than what we're thinking about relative to their applications and their businesses. I feel like I'm not talking to a major multinational corporation, but I'm talking to a

government contractor right now with this process. What's been surprising about that as you do see some of these, you know, test cases with some of these finalists, for lack of a better term, play out? What's been surprising so far? So we brought all 40 of these companies into central Iowa to a test farm that we have in September of last year. And so we had the who's who that were there, I kicked it off by asking them all, how many of you thought in your careers in satellite communications, you would be in the middle of a farm shed in the middle of Iowa, talking to John Deere about satellite connectivity? And the answer was none of them. Like there was a surprise for all of them that this was a thing. And it also surprised them

sort of the magnitude or the scale of agriculture, the scale of the business potential and the business opportunity as well. And so I think that's been sort of the biggest learning is that, you know, we had this opportunity to bring two industries together, you know, satellite, space communications and agriculture, and push them together and say, what kind of value could we create in this space collectively? And neither one sort of looked at the other as an opportunity space.

I think that's been the most exciting part of this is it is a significant opportunity for the satellite industry. And it will be a significant benefit in agriculture as well. So I'm encouraged by the response that the satellite community has had to the opportunity in this space. And it's been fun to educate them about what agriculture is and just

how high tech it actually is in the last 20 years, what our journey's been and where we're at today along the way. I think it's a tremendous story and it's one that we enjoy telling. When do you make a decision? We'll get through testing. So agriculture is generally by its nature, right, this very annual thing. We plant in the spring, we harvest in the fall. So we're going to test through several phases of the jobs of agriculture. We're starting with planting, obviously, this spring in North America.

And then we'll make a decision by this fall, probably as we get into the harvest operations and start to understand how the technology is used in the harvest job at the very end of the year. And so when you do make this decision, then you start rolling out the... So it sounds like you're going to roll out this service to farmers and to customers that use your machines. Is this going to be sort of like a, like, how are you thinking about it? Is it like a subscription fee? Is it just a value add for newer machines that are going to be offered on the market? Yeah, it's a super good question. I don't have all the answers to it. That's one of the things that we're working with. In addition to

sort of sussing out the technical capabilities of the systems with growers over the next few months, we'll be sussing out the business model that makes the most sense for them as well. I think it will depend a bit on how they choose to consume it. We want to make sure that the business model works for them and in their business, depending on how they want to digest the technology. And it's different, potentially different, depending upon which technology we go with, whether it's, you know, low earth orbit with a higher upfront cost or different orbits with a lower upfront cost. Those two probably play differently in a farmer's business. And so we'll have to sort through that

over the next few months as well. I can tell you that, you know, the response from farmers has been overwhelmingly positive in the sense that for many of them, they're going from, you know, I call it the zero to one problem. They're going from no connectivity in places that they really wish that they had it to full connectivity. Right. In in those places tomorrow and and their ability to sort of think through and process how does that create value on my farm has been really interesting. It's been, we view it from a deer perspective, we viewed that value as the ability to get agronomic data from the farm into the cloud, into John Deere Operation Center so that they can make sense of it and help make better decisions on the farm. They're also using that connectivity in different ways on the farm for just communications purposes, right?

Managing a large operation, in some cases, you know, 5,000 acres to 500,000 acres, managing that without the ability to communicate to employees and communicate to the people that are on the farm doing the work is a difficult thing. And so when you open up the opportunity to have communication across the farm, that's a life changer also in the farm business. So that's another way that value can be created. I think it won't be just a technology that we put and deploy on new equipment. There's an intense appetite from customers to be able to update their existing equipment, their installed fleet with the technology as well,

which the satellite industry looks at as very appealing also because, of course, the volumes in the installed base are significant relative to what we produce annually from a new perspective. OK, this might be a really this might be a basic question, but how do you do that with older equipment? Is it that the equipment was manufactured with the anticipation that these types of capabilities would eventually come along? Yeah, absolutely. We've been producing equipment with cellular connectivity and the usual ways of communicating Bluetooth, Wi-Fi, etc. with modems on board the equipment for really the last 12 to 15 years in agriculture. And so there is already the technology sitting on the machine that, for lack of a connection to the outside world, can take advantage of the equipment or the information on the equipment and that is being produced in the job and push it or pull it to wherever is most helpful. And so I guess where are the biggest business opportunities for all of this? I realize stateside there's very rural areas, but I would imagine there are other countries where connectivity issues and the ability to sort of more effectively plant and farm

and harvest go even further. Yeah, exactly right. So maybe a couple of statistics in the US, we would say that roughly 30% of the acres that are farmed are not connected today. So that's the opportunity in the US and Canadian markets. If you look at a place like Brazil, for example, and Brazil is a major player from a global agricultural perspective. In Brazil, it's just the opposite. 70% of the acres are not connected, 30% are. And so we have significant disproportionate opportunities in different locations where the current state of cellular connectivity is poor, Brazil being a really good example of that. And also the sort of the progress of cellular connectivity and the cellular connection networks in those areas is relatively slow. There's just not the population density to drive the business case for telecommunications provider to put up infrastructure for a terrestrial cell network.

And so we don't think that in many of those cases, terrestrial cell will sort of ever be the solution. So you're working with satellite operators. You're going to choose one probably later this year. How quickly does this next level service roll out? And what does that look like, I guess, across the globe in some of these different markets? Yeah, our challenge will be, and so that's somewhat a function of the providers that we choose as well and their ability to operate in the markets that we care about. And all of them are working to secure that capability. But our mission would be to have a solution rolled out so that this time next year, farmers are taking advantage of it and enjoying the opportunity that connectivity presents. So

we're 12 months away from, I think, making a meaningful impact in the market. And how does this stack up against your competitors? Because I know CNH, for example, is making investments around precision agriculture as well, but connectivity seems to be kind of the baseline to realize all of these ambitions. Yeah, I think they're all making progress. I think maybe one of the differences is we've been at this a fairly long time. So we've been putting connectivity devices on equipment, like I said, for 12 or 15 years. So there is a nice installed base of deer equipment that has the ability to take advantage of this technology when we're ready to deploy it. I think that's thing one. Thing two, we're vertically integrated. We design our own GNSS receivers. We run our own correction signal network across the

face of the planet. And we run our own digital backend as well. So there's, I think, a seamlessness that's possible through the Deere technology stack enabled by us having our fingers in the different different portions of the technology stack that makes the customer experience more seamless and less frustrating. So over the long term what does this do to what does this do to the revenue mix at the company how does that change? Yeah to be determined you know It'll be a function, I think, of how the technology wants to be digested by customers in different markets, in different places. It will certainly, I think, change the opportunity relative to for customers to purchase the technology on old equipment. I think that's an opportunity for revenue generation from a deer perspective, but it's also an opportunity for value creation on the customer's old installed fleet. So I think that's one change that will likely happen. And then I think the way it gets digested from the spectrum of sort of one-time purchase all the way through this software as a solution type of service where it's a more periodic charge or a

more periodic opportunity for revenue to occur and for value to be created for a grower is sort of the other end of that spectrum. So I think it sort of has the opportunity to lay somewhere between those two bookends and the customer testing that we'll be doing over the next three or four months, I think is really going to be an opportunity for us to figure out what the best place to play in that spectrum is for both customer and for deer. So I guess over the medium to long-term, what does this do to farming and thus with it, what does it do to food security? What does it do to the cost and the price of food, especially at a time where I realize right now, inflation, food, food inflation is so much in focus, but what does this do to change all of those dynamics? That's a super good question. I love the question. The, I think it, it will only improve

agriculture, right? If you have this ability to connect every acre on the farm, you have the ability to collect more prescriptive information on the farm that allows a grower to make better decisions through the growing season, but then from growing season to growing season as well. And so I think 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. And so I think that's a very positive thing. It also enables certain technologies, things like we would call it in-field data sharing. So the opportunity for two pieces of equipment operating in the same

field at the same time to share their information back and forth one to the other. And so if you think about that in a planting case, that makes sure that you don't plant twice in certain areas, right? If you think about it in a planting case, that makes sure that you don't plant twice in certain areas. Right. If you think about it in a crop care case, it makes it ensures that you don't spray a field twice in the same location with two different machines because you didn't know where the other machine had been. That that coverage mapping, that data sharing portion has an opportunity to significantly reduce the input cost that a grower might have today. And of course, reducing the input costs and reducing things like herbicide, fertilizer, et cetera, and so on, on the input side, improve the economics of the business, but it's also better for the environment. It produces a better outcome for the crops themselves from a harvest and yield potential perspective. And so I think all of those things add up to creating a significant value on the farm that improves the opportunity to produce more,

more whatever the commodity might be, with less from an input perspective. And Deere also has a construction business. So is this going to translate to some of those other parts of the portfolio as well? Yeah, I think it certainly has the capacity to. It's a little bit different industry in the sense that many of the construction jobs that are executed are within terrestrial cell reach, right? They tend to be more urban, less rural, but that's not always the case. So there are construction jobs that happen, forestry jobs that happen, less rural, but that's not always the case. So there are construction jobs that happen, forestry jobs that happen, road building, etc., where connectivity is an issue. And when those opportunities present themselves, we'll use a similar solution, the same solution probably,

in the construction industry as we do in the ag industry. Final question for you. as we do see commercial space continue to evolve and change, how are you thinking about, and I realize you're in the midst of an RFP and teaming up with satellite operators, but longer term, how are you thinking about future ways to continue to leverage all of those possibilities. Yeah, I think another intriguing opportunity for us today is in earth observation. So as earth observation becomes better and more highly precise with different data vectors, different hyperspectral imaging, etc., and so on, the ability for us to know more about the planted crop

increases, right? And that just improves, again, the ability for a grower to have more data at their fingertips for companies like John Deere to create better insights from that data so that a grower can make a better decision. And I think that's a really, no pun intended, fertile ground as Earth observation continues to improve in both resolution and in sort of the data types that become available. Are you already working with Earth observation companies on these types of data? Yeah, we do. the customer-centric hub for where the data that gets created by their equipment in the fields but also different companies that create data can they can pull the farmers can pull their data into operation center so they have sort of this one place that they can view all the information and it's not uncommon for them to pull EO data into operation center today and use it for their farms

and all of them I, would be interested in more highly precise in terms of spatial resolution and the ability to sense things that today they can't sense in any other way other than perhaps being in the field or having a sensor on a piece of equipment in a field. Okay. I know I said final question before, but now truly final question. So in terms of the fleet of agricultural machines, deer machines that are deployed around the world right now, how many of them are actually utilizing some of these services? How many of them are actually connected and actively taking advantage of that capability? Yeah, so in the guidance space, so GNSS equipped machines, an estimate well over a million machines today are operating with some form of guidance on it. We've gone through several generations of that. And then equipment today that is operating from a satellite communications perspective, we're really with just a small sample of machines today as we work through the RFP

with some of the latest hardware available and some of the latest constellations available. So that number is relatively small. Machines that can have connectivity, that benefit from connectivity via terrestrial cell today, but then if you add and layer on satellite communications on top of that, you know, that number is well over a million machines as well. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.