How Digital Farming Could Hurt Bayer, Monsanto

Digital farming could hurt industry leaders in the crop chemicals sector as it may cut the need for chemicals and fertilizers, Angie Setzer of Citizens Grain Elevator told Benzinga.

"Precision planting was just the first step in increasing technological advances in farming. This move towards more digital production is extremely legit and is definitely the wave of the future," Setzer said.

In a weak agricultural market, Setzer said technologies such as precision planting enable farmers to cut costs, conserve soils and protect waterways all while maintaining maximum yield potential.

Digital farming could hit companies such as Bayer AG (ADR) BAYRY, Monsanto Company MON and E I Du Pont De Nemours And Co DD as they may have to adjust their business models due to the potential shift in the industry demand.

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"[I]t is likely we will see chemical and fertilizer demand decrease as well as a move towards more area-compatible seed," Setzer highlighted.

The Industry And Likely Effects

As a result, the industry expert said the input suppliers such as Bayer, Monsanto and others are buying technology companies, as it will not only offset the potential revenue losses from inputs, but also help them "gain revenue from owning the companies that supply technology to farmers."

In February, Bayer acquired the plant health diagnosis and infection level warning service provider proPlant Gesellschaft für Agrar- und Umweltinformatik mbH. In 2013, Monsanto spent $1 billion on buying Climate Corporation, which analyzes weather conditions. Du Pont is investing in Encirca, whose analytics services enables real-time management decisions for growers.

"If our only goal is to sell as much inputs as possible by the liters of chemicals, I think we would have a real problem going forward," Liam Condon, head of Crop Science at Bayer told Reuters.

"If you only spray half of the field that's much less inputs," Condon added. "The knowledge to get to the fact that you only spray that part of the field – that, you can sell."

In addition, Setzer noted that data mining is the next big thing in agriculture; going forward, farmers need not depend on the "educated guesses" from the USDA.

"Companies have the ability now to know just how many acres of a certain crop have been planting and into what type of conditions. As we move forward we will no longer be forced to use educated guesses by the USDA but will have companies basically in the know when it comes to potential crop production and other important aspects to our supply and demand situation," Setzer noted.

At time of writing, shares of Monsanto fell 2.22 percent to $91.79, Du Pont slipped about 1 percent to $64.05 and ADRs of Bayer dropped 1.93 percent to $111.