By: P.J. Huffstutter and Meredith Davis
Monsanto Co's Climate Corp will sell its Precision Planting farm equipment business to Deere & Co for an undisclosed sum, a move that underscores how turmoil in the agriculture sector has made it ripe for consolidation.
For Climate, a unit of the world's largest seed company, the deal marks the latest push to shed businesses that are not focused on either software or services, Climate President Mike Stern said.
Deere, the world's largest farm equipment maker, hopes the deal will create a revenue stream in retrofitting older machinery to help offset slumping sales elsewhere.
With a glut of used farm equipment on the market and most farmers not interested in buying new machinery due to soft commodity prices, both companies are hoping the deal will tempt farmers to update equipment and buy into new farm-data services.
Grain prices are hovering around five-year lows and farm income is expected to tumble 21 percent this year, keeping a lid on spending by farmers and putting pressure on companies across the sector to consolidate and seek cost savings.
Tuesday's deal is Deere's second push into the precision-planting equipment arena this week. On Monday, it announced plans to acquire France-based Monosem. Monosem makes farm equipment known as "precision planters, that use a technologically advanced process in which farmers can specify seed planting depths by crop row.
Last month, Deere entered a joint venture with DN2K to create a software platform for agricultural advisers and consultants.
One key for Climate in the deal is size: Deere controls about 60 percent of the U.S. farm equipment market, according to industry analysts.
Climate said it will have a multi-year, exclusive agreement to move near real-time data between certain John Deere farm equipment and Climate's farming software programs, Climate FieldView.
Deere will take most of Precision Planting's equipment business – which is built on a series of mechanical products that attach to planters and other farm machinery. In addition, the deal also gives Deere all of the company's hardware, sensors and display systems.
Deere will also acquire the Precision Planting brand and facilities and most of its product portfolio, spokesman Ken Golden told Reuters.
Deere plans to run Precision Planting as an independent, wholly owned subsidiary. Deere officials said the deal is expected to close within 90 days, pending regulatory approval.
The deal also is part of a strategic shift for Monsanto, which made its first major move into high-tech farming when it bought Precision Planting for $250 million in 2012.
The seed giant is restructuring its operations to cut costs in a slumping commodity market, company officials and industry analysts say.
The American Farm Bureau Federation, the country's largest farmer group, is monitoring industry moves toward consolidation and will raise any concerns with regulators if its members are impacted, its chief economist Bob Young told Reuters on Tuesday.
"We're going into a phase where there will be a fair amount of consolidation at all levels: input suppliers, equipment makers," Young said. "It won't surprise me to see some of that go on within (equipment) dealerships as well. You may not like it, but I don't know what you do to keep it from happening at this stage."
For central Illinois farmer Steve Moffitt, having different computer systems inside his tractor seamlessly working together would be a relief.
"That is a big issue for us, to share data from one cloud to another becomes tough sometimes," he said on a conference call with Climate executives on Tuesday.
But other farmers feared the deal would slow future innovations.
"Precision Planting was a very innovative company," said Steve Pitstick, who farms about 2,600 acres of corn and soybeans in Illinois. "When they were privately held, they were bringing us two or three new things a year that were great.
"When Monsanto bought them, it was one or two new things a year, and nothing that wowed. Now, I don't know what to expect." (Reporting By P.J. Huffstutter and Meredith Davis in Chicago. Additional reporting by Karl Plume in Chicago; Editing by Jo Winterbottom and Cynthia Osterman)
Originally Published: Reuters