Technology Meets Agriculture

02/14/2014 10:00 am EST

Focus: STOCKS

Jim Powell

Principal Analyst, Global Changes & Opportunities

An under-the-radar trend that has caught the attention of Jim Powell is the impact of technological innovation on the agriculture sector. The editor of Global Changes & Opportunities Report highlights a trio of firms where high-tech is changing the landscape for the farming industry.

Steve Halpern: We are here today with Jim Powell, Editor of Global Changes & Opportunities Report. How are you doing today, Jim?

Jim Powell: I'm fine, Steve.

Steve Halpern: Well, thank you for joining us. You specialize in uncovering important underlying global trends, often times, transit, or off-the-radar for many other investors. In fact, one fascinating idea you've been sharing with your readers is the long-term impact of technological change on agriculture. Could you expand on the overall opportunity you see?

Jim Powell: Well, we're going to see the same thing happen in agriculture that happened in manufacturing and in other industries where you have productivity expanding exponentially with new technology, especially the smart new technology often married with a lot of sophisticated new sensors, and drones, and artificial intelligence systems that allow farmers to increase their productivity enormously.

This is a really big deal and it's kind of right under everybody's nose and they're not looking at it and I kind of understand that, since we've gone from about, oh, 80% of the population being involved in agriculture 100 years ago to less than 2%.

But what people don't, perhaps, realize is the world population is expanding so quickly and so much of the new population is really quite affluent compared to a few years ago. I mean, with China, for example, and Southeast Asia, people can afford to eat a lot better.

And so food demand is going to go up exponentially and unfortunately, the amount of agricultural land that's available for growing the food that they're going to want is not going up at that speed, so what has to be done is to do things a lot more efficiently, get a lot bigger crops off the land and get them off and processed for a far lower price and that's falling onto technology.

Steve Halpern: Okay, so let's look at the some of the individual plays that you recommend on this trend. One company you like is John Deere (DE). How is that company applying technology to its markets?

Jim Powell: Oh, John Deere is thought of as a stodgy, old tractor company by many people but, in fact, some of their new tractors are just as sophisticated as a Lexus or an Acura, a Japanese car.

They have GPS systems. They can track all of their work in the field within three or four inches. They have sensor systems built into them that will monitor soil conditions, and crop conditions, and also keep track of the statistics that farmers need to understand how well they are doing.

They have remote control systems for, basically, what amounts to drone vehicles that follow along behind the tractors and the harvesters for various purposes.

And, basically, the farmer just goes along for the ride and to make sure that the tractor doesn't somehow go haywire and decide to plow up the freeway, but, yeah, it's really quite remarkable what these new systems can do.

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Steve Halpern: Now you also like the prospects for a Japanese stock, Kubota (KUBTY), I believe it's called. Could you tell about this company?

Jim Powell: Kubota has been around since 1890. Its best known in Asia, but if you look at US construction sites especially, you see a lot of Kubota equipment. What Kubota is really strong in is the same sort of technology that Deere is producing, but in smaller packages for a lot of the smaller farms that you find throughout Asia.

In Thailand, for example, you will find a lot of Kubota equipment on farms as small as five acres, so Kubota is very strong in an area in which Deere is not quite so strong, and so, if you're looking for a companion stock to go with Deere, that would be a good one, but my first choice is Deere.

Steve Halpern: Now perhaps the most unusual one of the recommendations you have is a company called AeroVironment (AVAV), which makes drones; people might be familiar with this company because of its role in the military, but you're looking at this technology and how it has an impact on the agriculture market. It's a fascinating idea. Could you share a little more about that?

Jim Powell: Small scale drones are so useful on the farm, that farmers have not been waiting for FAA approval to start using them, because they really don't need it to stay over their own property and they're buying them on a commercial market.

You can buy a small drone from Apple Computer, for example. Amazon has several. Most of the best ones are called Quadcopters. They are about half the size of a basketball and they have four little rotors on them. They're very easy to fly. They have GPS systems, and they carry cameras, and with various kinds of sensors.

A farmer can fly over his operation and tell much of the information that they need about soil conditions, whether or not they have dry spots in their irrigation systems, they can look at infestations of certain kinds of bugs, because it makes the plants look a little bit different.

There is really no end to what can be done to improve farm efficiency if you can look down on it from time to time from 200 or 300 feet, and, as I say, farmers are buying these drones, and fitting them out themselves.

I think that AeroVironment and possibly John Deere—through a company like AeroVironment—is going to get into this industry in a very, very big way.

Steve Halpern: Well, very interesting ideas. We really appreciate you taking the time to talk about this today. Thanks.

Jim Powell: Well, I'll just say once again this is a lot bigger deal than people realize.

Steve Halpern: Well, we'll definitely keep an eye on it and we'll check back with you in a couple of months.

Jim Powell: Thank you, Steve.

Steve Halpern: Thank you.

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