Fertilizer groups will bear the brunt of European farmers' scramble to cut costs in response to falling crop prices, analysts at UBS have said, downgrading shares in nitrogen giant Yara to a "sell".

The weak grains market looks set to drag profits on European corn down 77% to $0.67 per bushel produced and profits on soybeans by 90% to $0.23 a bushel, UBS said. Wheat growers, who made $2.28 a bushel last year, face a loss of $0.94 a bushel this harvest.

While farmers are attempting to improve their finances by reducing planting acreages by roughly 2%, "fertilizers are most at risk as a means of realising quick and effective cost cuts".

More than half of 522 European farms surveyed by UBS for the report expected to cut fertilizer consumption, with the investment bank expecting sales to drop 15-20% drop by volume.

'No recovery'

However, the findings spelled worse news for Yara, the world's biggest nitrogen fertilizer group, than peers selling potash or phosphate products, UBS said.

Investors had been factoring in resilient demand for nitrogen, given the nutrient's "primary properties" in supporting yield, and the need for annual applications.

In fact, it seemed as though farmers were reducing all three nutrients in roughly equal proportions, supporting stocks of nitrogen fertilizers and depressing prices.

"We expect no recovery in Yara's earnings profile," UBS said, downgrading shares in the Norwegian giant to "sell", from "neutral" and cutting its price target on the shares to NKr129 from NKr140.

Potash resilience

Nonetheless, the bank maintained its "buy" rating on German potash distributor K+S.

"Production cutbacks should support potash levels," the report said.

UBS also maintained "buy" ratings on Monsanto and DuPont, the US seed giants, while raising to "buy" from "neutral" its recommendation on Syngenta, the Swiss seeds and herbicide group which on Wednesday announced resilient first quarter results.