A Poor Crop of Ag Earnings

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Pardon me for lumping together a fairly diverse group of businesses, but across the agricultural sector, we're hearing largely similar stories. Farmers are cutting back on all sorts of outlays, which in turn is cutting into most agricultural companies' profits.

Valmont Industries (NYSE: VMI) reported a 50% plunge in irrigation sales, following record prior-year results. The firm said it expects more weakness in the fourth quarter, and that 2010 should rebound somewhat, although "not in any significant way." Fortunately for Valmont, its infrastructure segment cushioned the slump in agriculture.

Competitor Lindsay (NYSE: LNN), whose irrigation revenue in the quarter accounted for three-quarters of its watered-down sales, found itself more exposed to the same trend. To explain its customers' hesitancy, the firm cited a USDA projection that net farm income will come in 15% below the 10-year average. Apparently the situation is more severe than I had previously understood.

Bunge (NYSE: BG), dramatically cutting its forecast for full-year earnings, blamed a softer pricing environment and "lackluster global demand" for fertilizer. Yara International also reported "non-satisfactory" results, which was unsurprising, given that German potash and phosphate fertilizer sales have dropped to their lowest levels since 1950.

Mosaic (NYSE: MOS) reported a tough quarter two weeks ago, and PotashCorp (NYSE: POT) and Terra Industries (NYSE: TRA) acknowledged similar challenges yesterday. PotashCorp saw its realized potash price drop 34% year on year, and dropped its 2010 guidance for global potash volumes to 50 million metric tons, down from a range of 55 million to 60 million tons last quarter. Terra, which is busy fending off persistent suitor CF Industries (NYSE: CF), suffered 50%-plus price declines across its trio of nitrogen products.

What seems to be supporting share prices in the group -- and the fertilizer stocks in particular -- is the hope for a return to a semblance of normalcy in 2010, plus a hearty amount of takeover speculation. With regards to the latter, we got yet another iteration of the "big global miner X wants/ought to swallow big potash player Y" meme, with a Bank of America analyst talking up a BHP Billiton buyout of PotashCorp. Personally, I'm getting kind of tired of this one.