Anxiety Mounts in Agriculture

In October, I pondered whether there was agricultural angst ahead. The sector is seriously sagging -- with the curious exception of Archer Daniels Midland (NYSE: ADM) -- but psychology appears to be the driver here, rather than any real financial fragility.

I've been slowly gathering snippets from players in the space, so let's see if we can't synthesize a bit here.

The most bullish comments I'm seeing in the space are from the seeds and traits sultans like Monsanto (NYSE: MON), DuPont (NYSE: DD), and Dow Chemical (NYSE: DOW). DuPont, which has an extremely broad revenue base, recently forecast weakness across all its end markets, with the exception of agriculture. Dow says that farmers are in a "relatively strong position," and that the long-term fundamentals in the segment haven't changed. Monsanto remains a profit monster.

Engine builder Cummins (NYSE: CMI) saw strong demand for its agricultural wares through the fourth quarter, but most equipment makers have turned rather morose in recent weeks. CNH Global sputtered out, leading to a sectorwide sell-off last month. Lindsay followed up a week or so later, guiding irrigation sales down by 30% to 40% year-over-year. GPS guru Trimble Navigation saw agricultural sales grow by double digits in the fourth quarter, but, given "general nervousness" in the sector, only describes itself as guardedly optimistic today.

Cycling back to Lindsay, the company cited uncertain farm economics, given lower and volatile commodity prices. The firm described farmers' behavior as a deferral of equipment orders, which leaves the door open to an order boost in the following weeks. This is a very similar situation to the one described by the likes of Mosaic (NYSE: MOS) and PotashCorp (NYSE: POT).

Those fertilizer shops make a fair point that farmers can't hold back indefinitely. Mosaic even characterized the situation as a game of chicken. I think that may be a bit unfair, given the wobbly global economy. You can't blame anyone for being overly cautious in this environment, and given farmers' experiences with painful periods of lower crop prices during past cycles, they may have longer memories than most.

I'm afraid I don't have too definitive a conclusion here, but I would suggest that agriculturally inclined Fools keep a close eye on developments as we approach planting season. If farmers really go on a buyer's strike, business for many of the aforementioned firms will be grim. If prices stabilize, however, they may come back to the table soon..fool.com