Falling fertilizer prices, coupled with an-out-of-the-market natural gas hedge and the costs of defending a hostile takeover, have dragged earnings at Terra Industries down by 70%.

The US fertilizer group said revenues fell by 27.0% to $419.8m for the January-to-March period, thanks to a 27% drop in ammonia prices and a slump of nearly one third in volumes of urea ammonium nitrate shifted.

Earnings, however, also felt the pinch of a $1.7m bill for defending the group against a bid by rival CF Industries, which helped raise administration costs by 59%, plus contracts for natural gas, a major raw material, which locked Terra into pre-slump prices.

The forward purchases prevented Terra benefiting from all but 2.6% of a 45% fall in gas costs, leaving earnings at $30.0m compared with $110.2m a year before.

The group said that the contracts extended to roughly one quarter of its gas needs until the end of March 2010, at a cost of $30.8m above current market prices.

Recovery hopes

Nonetheless, the group said it was poised for "much stronger" earnings in the second quarter as US farmers play catch up with planting crops.

"We believe urea ammonium nitrate will again be a premium-value product for growers this spring due to the application flexibility it provides," Terra said.

"We expect the balance of the second quarter will be extremely busy as those applications are completed."

Michael Bennett, the Terra chief executive, added: "We saw positive signals in the overall market as the quarter progressed and international nitrogen prices began to rebound."

Recovery was set to continue in the second half of 2009, when fertilizer volumes should recover to the average of the previous two years, with demand for industrial nitrogen reviving in line with the global economy.

Terra shares recovered early losses to stand $0.20 higher at $27.41 in lunchtime trade in New York.