Farm suppliers' profits bloom as commodity prices jump

WASHINGTON — Farmers aren't the only ones making money from the run-up in commodity prices. Companies that sell things to farmers, everything from fertilizer to seed to tractors, are reporting healthy profits, too.

Terra Industries (TRA), a major fertilizer supplier, reported that its fourth-quarter 2007 profit jumped by six times over the year before.

Deere (DE)— which makes tractors, harvesters and other farm equipment — reported record quarterly earnings. Agricultural equipment sales were up 33%.

The company could benefit further from a $168 billion economic stimulus package that the federal government recently approved. A provision will allow farmers to write off the value of their equipment sooner and let them keep a greater portion of last year's record income to spend on new machinery.

Monsanto (MON) has raised its 2008 earnings estimate by 8% because of strong seed and herbicide sales.

The list of agribusiness winners also includes names such as Dow Chemical (DOW) and DuPont (DD).

"Following a very strong 2007, 2008 is shaping up to be a spectacular year" for agricultural suppliers, Goldman Sachs analysts wrote this month in a report headlined: "Let the good times roll!" The analysts say the industry's "tremendous fundamentals" are unusual in the current economic slowdown.

Prices for corn, soybeans and other commodities have doubled in the past two years, and that means farmers can afford to pay more for seed and chemicals and buy new equipment. Crop insurers also make more money because premiums paid by farmers rise along with the price of the crop being covered.

Economists are forecasting commodity prices to remain well above traditional levels into the next decade.

The U.S. Department of Agriculture estimates that net cash farm income nationwide will hit a record $96.6 billion this year — up 10% from last year and 40% from 2006 — even with the higher prices being charged by companies such as Terra and Monsanto for fertilizer, seed and other supplies.

A farmer planting corn or soybeans this year would earn up to $500 or more per acre after the cost of seed, chemicals, insurance and fuel is deducted. That's up to five times what the crops returned in 2005, according to a Goldman Sachs analysis.

Farmers are willing to pay more for such supplies when their crop is more valuable, said Ron Litterer, president of the National Corn Growers Association.

Terra's ammonia fertilizer sold for an average of $333 a ton in 2007, up from $315 the year before.

A few farmers have tried to lock in their fertilizer prices for 2009, even though this year's crop isn't in the ground yet, said Joe Ewing, vice president of investor relations and human resources for Terra.

Citigroup estimates Terra's 2008 earnings will reach $3.71 per share and hit $4.11 in 2009, up from $2.45 for 2007.

DuPont's agriculture and nutrition business, which includes Pioneer Hi-Bred, is predicting double-digit earnings growth through 2012 because of the strong farm economy and DuPont's new seed and pesticide products.

Pioneer's worldwide seed sales were up 40% in the last quarter of 2007.
At Pioneer rival Monsanto, 2007 was "absolutely spectacular," Executive Vice President Brett Begemann said.

Agriculture is facing a long-term boom that could be derailed only by a depression, said Bill Doyle, chief executive of fertilizer giant PotashCorp (POT). The boom is being driven not by biofuel production so much as by growth in China, India and other countries, he said.

"It's a demographic switch that we've never seen before. We've always had lots of people, but we didn't have people with money in their pockets," he said.