Agriculture Stocks Wither

Fertilizer and agriculture companies' shares plunged Thursday as fears grew that a weakening global economy will eat away at demand for commodities and that the credit crunch will prevent farmers from buying the equipment they need to survive. Railroad companies suffered as well on concern that commodities shipments will decline.

A negative earnings report late Wednesday by fertilizer maker Mosaic set a bad tone going into Thursday trading.

Shares of Mosaic (nyse: MOS - news - people ) lost $27.86, or 41.3%, to close at $39.65, and CF Industries Holdings (nyse: CF - news - people ) shed $30.64, or 34.6%, to $58.00. Potash (nyse: POT - news - people )'s stock lost $34.53, or 27.0%, to $93.51, and Agrium (nyse: AGU - news - people ) was down by $13.29, or 24.2%, at $41.61. Merrill Lynch downgraded the sector to "underperform" from "buy."

Despite nearly tripled profits at Mosaic, earnings in the company's first 2009 quarter missed expectations and investors were disappointed by the company's plan to cut phosphate production by 500,000 to 1.0 million tons to balance high inventory levels. The company's potash business meanwhile, experienced robust demand, helped by strikes at mines operated by rival Potash. In August, Mosaic said potash inventories hit record lows.

Late Wednesday, Mosaic said earnings in the three months through Aug. 31 nearly tripled, to $1.2 billion, or $2.65 a share, from $305.5 million, or 69 cents a share, a year ago. Gains from foreign exchange effects amounted to $86.7 million, or 13 cents a share, compared with last year's loss of $19.4 million, or 3 cents a share. The company said gains from increased selling prices were offset by higher raw material costs and taxes . Sales more than doubled, to $4.3 billion, from $2.0 billion in the prior year. Analysts expected earnings of $2.94 a share and sales of $4.1 billion.

Citi Analyst Brian Yu said Mosaic was falling on the company's reduced guidance on year-end phosphate sales volume, which it now expects to be in the range of 8.0 million to 9.0 million metric tons, down from 9.0 million to 9.4 million. Yu said he expects fertilizer demand to remain strong given current concerns about global grain and oilseed supply levels and maintained a buy rating on Mosaic.

Merrill Lynch analyst Don Carson said that falling prices for phosphate and nitrogen and a smaller-than-expected rise in potash, a potassium-based crop nutrient, are causing ``considerable uncertainty'' for Potash earnings in the near term. Swiss seed maker Syngenta (nyse: SYT - news - people ) also felt the pressure as declining commodity prices hurt agricultural chemical makers.

However, Potash reaffirmed its plans for expansion on Thursday, and argued that fertilizer stocks had been hit by investor “overreaction” given the financial crisis. The company said the sector is well-positioned for the long term.

Bunge (nyse: BG - news - people ), the biggest seller of fertilizer in South America, and Monsanto (nyse: MON - news - people ), the world's biggest seed producer, tumbled as well. Carson said profit gains from Roundup herbicide, a Monsanto product, will slow. Bunge shares plummeted 20.4%, or $12.84, to $50.16 at the close, while Syngenta sank 9.4%, or $3.78, to $36.61. Monsanto lost 16.2%, or $15.83, to $82.01.

Meanwhile, U.S. Agriculture Secretary Ed Schafer said the credit crunch may impact agricultural production next year. Schafer warned that the costs of farming have soared and without loans it may be difficult to pay for operations. According to the U.S. Department of Agriculture, farm expenses are expected to rise 16.0%, to $294.8 billion this year. (See " Farmer Mac's Amber Waves Of Pain.")

Commodities fared poorly on Thursday. December corn fell 28-1/2 cents on the Chicago Board of Trade, or 5.9%, to $4.55-1/2 a bushel--a nine-month low. November soybeans were down 55 cents, or 5%, at $9.98, below the psychologically important $10.00 level. December wheat fell 32-3/4 cents, or 4.9%, to $6.36-3/4 a bushel, because of ample global supplies this year.

The railroads tumbled on Thursday as worries about decreased demand for commodities, slowing factory orders and increases in jobless claims rocked investors. CSX fell $5.85 or 11.0%, to $47.21, while Canadian National fell $3.13 or 6.6%, to $44.58. Canadian Pacific fell $4.08 or 7.8%, to $48.36, Kansas City Southern slid $7.76 or 17.8%, to $35.85. Norfolk Southern fell $8.40 or 12.9%, to $56.64, Union Pacific fell $7.34 or 10.6%, to $62.10, and Burlington Northern fell $6.49 or 7.3%, to $83.00.