On the surface, the farming business and Silicon Valley don’t appear to have much in common. But dig a little deeper, and you’ll find they’re more connected than most investors think.

The reason? The rise of precision agriculture, which uses cutting-edge technology, like GPS navigation, remote camera systems, analytics software—even unmanned aerial vehicles (better known as drones)—to help farmers squeeze more out of their fields and cut their costs.

The race to boost crop yields is being driven by two main factors: the growing global population and rising wealth in the developing world, which is creating an appetite for more Western-based diets. That includes more meat, which is highly grain-intensive to produce. By some estimates, farm productivity will have to rise 60% if we hope to feed the world’s population in 2050.

Technology will be crucial for hitting that target, and as you might expect, demand for advanced farming gear is growing quickly: according to a 2013 report from Focus Investment Bankers, precision farming is a $1.5 to $2.0 billion business in the U.S., and it’s forecast to grow at an annual rate of 13% over the next five years, to $3.0 to $3.5 billion.

Beyond America’s borders—including in the developing world, which is home to most of the world’s population growth—demand will rise at an even faster rate of 25% annually in that period.

Precision Farming in Action

A good example of a precision agriculture tool is Trimble Navigation’s (NasdaqGS: TRMB) Autopilot system, which uses GPS data to steer tractors, combines and sprayers and calculate their location within centimeters. That helps make activities like planting and fertilizing more precise, reduces overlap, allows for higher speeds and lets equipment stay in the field longer.

Farm equipment maker Deere & Co. (NYSE: DE) also offers a range of precision farming technology, including automated steering systems and equipment that turns sprayers and seeders on and off automatically, depending on where the tractor is in the field.

The technology continues to evolve rapidly. For example, as we reported in a December 2013 Investing Daily article, farmers’ fields are increasingly seen as ideal domains for unmanned aerial vehicles (better known as drones). Right now, a lack of regulations is holding back commercial drone use in the U.S. The FAA is currently working on a framework, but it’s not expected until next year at the earliest.

However, the technology is in midflight elsewhere. Japan’s ministry of agriculture began promoting drone use in the 1980s, and today they spray 40% of the country’s rice crops. Yamaha Motor Company’s (Tokyo: 7272, OTC: YAMHF) RMAX mini-helicopter is a long-time workhorse. Right now, about 2,600 are in use in Japan.

Monsanto Branches Out

One company that recently made a significant move into precision farming is Monsanto Corp. (NYSE: MON), a recommendation of our Personal Finance advisory.

Monsanto is no stranger to agricultural technology, but it’s mainly known for its market-leading genetically modified (GM) seeds—including corn, soybeans and cotton—which are designed to resist insects, herbicides and drought.

The company’s Seeds & Genomics division accounted for 70% of its sales in its 2013 fiscal year; the other 30% came from its Agricultural Productivity division, which supplies herbicides for industrial, agricultural and consumer applications.

Monsanto’s latest move into precision farming came in October of last year, when it announced the acquisition of Climate Corp. for $930 million. Climate Corp. was founded in 2006 by former employees of Google (NasdaqGS: GOOG) and other Silicon Valley firms.

The company’s software analyzes local weather patterns to provide conditions and yield forecasts on what it calls a “hyper-local” (or field-specific) level. It then offers recommendations—such as planting a few days earlier or changing an irrigation schedule—to help boost crop yields.

Monsanto believes the majority of corn farmers are capable of producing an additional 30 to 50 bushels per acre, and Climate Corp.’s tools will help them unlock that value. Climate Corp. also offers weather and crop insurance, based on the highly localized data it collects.

“I like this deal,” BGC analyst Mark Gulley told Businessweek when the acquisition was announced. “It’s big data meets big biotech. It’s a new platform for growth.”

Seed Sales Keep Profits Growing

Meanwhile, Monsanto released its latest quarterly results yesterday.

In its 2014 second quarter, which ended February 28, the company’s overall sales rose 6.6% from a year earlier, to $5.83 billion, topping the Street’s forecast of $5.81 billion. Sales at the Seeds & Genomics division gained 6.9%, thanks in part to a 21% jump in soybean sales. Agricultural Productivity sales gained 5.2%.

On an adjusted basis, Monsanto earned $3.15 a share, up 15.0% from $2.74. That also beat the consensus estimate of $3.06.

The company reiterated its earnings forecast of $5.00 to $5.20 a share for fiscal 2014, up from $4.56 in 2013. The stock trades at 22.4 times the midpoint of Monsanto’s 2014 forecast.

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