So what is the goal of the farmer when purchasing inputs?
In a very specific sense it's usually something like, "I want 250 tons of soybean meal at a better price."
But this is really just a reflection of one specific point in time of a longer strategy.
They have a goal that they think the product can fulfill. In this case, low cost protein to feed an animal.
But the same can be said for someone purchasing fertilizer or basically anything.
They farmer wants cheap nitrogen or protection against some form of possible damage. They have a specific product they think will do this at a price that provides the proper ROI or arbitrage as far as they can tell.
The real goal is to have the problem solved in the most "risk off" way possible. If you could add stability or predictability into the equation that would be great too.
The most common version of this is hedging products and long term contracts.
A long term contract for soybean meal gives the buyer clarity on what they will be paying to solve their problem, a need for protein, for a long period of time.
For the seller they get to guarantee continued revenue and they likely protect themselves in someway either by owning the production, having inventory, or using contracts in public markets.
This is about as "risk off" as the market provides for solving this goal.
But the farmer isn't just buying one product. They are buying a portfolio of solutions.
This to me already feels like an index fund.
An index fund is just a basket of different assets. For example it lets you bet that in general tech stocks will go up without having to chose if Facebook will outperform Twitter.
When a producer is buying soybean meal they are actually buying an index of nutrients in the best form readily available.
But at any given point in the future the best way to get those nutrients might hop from soybean to canola to flax. Twitter could in fact outperform Facebook.
Prices, availability, and management decisions change the best product to purchase over time.
Almost all agricultural inputs are partial analogs to each other.
The key part is that farmers want to buy a basket of goods that align with their production goals.
Specific products matter less.
In farmings past we didn't have standards that allowed for the fungibility of products. Eventually we made standards that allowed enough trust that a buyer could mostly know that the soybean meal they received was the same as what their neighbor received irrespective of seller.
After standards we created a vast system of manufacturing and contracting that allowed for the highest quality products and best risk tools ever. Farm purchasing got better.
Thats about where we are now.
Platforms are taking the next step in this evolution.
By creating programs that help farmers buy and sell and by curating and market making they essentially smooth out the risk and reduce the size of the decision space for possible input analogs.
They create a higher ROI, more consistent basket of solutions than was available. ( or strive to )
I'm currently reading a great book by Kevin Kelly called "What Technology Wants." In it he has an amazing idea called the "ecology of supporting ideas."
Essentially it proposes the question: Does the cultural substrate of the group have the previous ideas found and implemented to build upon the next layer of innovation?
I currently believe a natural and good future for large scale commodity agriculture that can exist after the digitization of more key parts of the supply chain is the "index fund for farm inputs."
The "Farm Inputs Index Fund" is simple in principle.
A farmer signs up to a specific nutrient portfolio ( or fertilizer portfolio etc ) and an entity aggregates / contracts / curates supply in such a way that the farmer no longer has to become a non emotional sophisticated trader to get the benefits of risk reduced access to controlled cost, predictably delivered inputs.
Other than the largest operators, farmers are generally in a position that an aggregation layer with aligned incentives will always be better at navigating risk management and procurement diligently.
I feel like the word "Flex" i.e. "Flex Feed", "Flex Fert" etc will get PR'd to hell when this happens.
Basically humans are not well equipped to maximize ROI of complex input purchasing as the long future of commoditization grinds along. Humans have much better shit to do!
Farm input purchasing fundamentally working like Wealthfront, a robotically traded index fund, would be a better future for most farmers.
Do you think the index fund abstraction for farm inputs is a good future?
Left Field Thoughts
What if this was a DAO owned by producers?
Maybe it's some sort of crypto native automatic market maker for physical goods?
In my opinion cooperatives have mostly lost their way. Platforms can be great but all businesses have the innovators dilemma problem where their success equals their eventual failure if they have to continue to extract more and more from the customer relationship to get the growth they require. DAO's, I think, can be constructed in a way where that doesn't happen and bureaucratic bloat can be minimized. A real "anti-pop" ( my word for value prop doesn't pop ) organization.
Ag Retail has made it to the age of portals as mentioned previously in "Hub and Spoke Transparency". ( fuck that sounds worse every time I say it. I need to find a Yahoo shirt to wear I think.)
Prompted by some new thoughts from reading "What Technology Wants" we have a while till this future happens. ( I already expected this but my thinking is just less amorphous now )
First come portals. Next we probably get another set of aggregators. Then maybe due to regulation we digitize some supply chains that are not publicly traded like soy and corn. Then we have the environment that exist where value can be properly attributed to goods as they flow through the system, then we can create an independent aggregator that works across suppliers to build an index fund of regionally lower liquidity goods.
Basically even if Carl wants the future now we need to wait for the ag retail zeitgeist to incorporate a few more changes before we have a fruitful environment to run a sales process that works, systems can integrate, and money can be made.