In his groundbreaking 2006 book, “The Omnivore’s Dilemma,” Michael Pollan devoted several chapters to exploring the vast role that corn has come to play in the agricultural economy and in our diets. 

Virtually every processed food contains corn or a corn derivative such as corn syrup. Farmers, taking advantage of $0.50-a-bushel subsidies, have made it America’s largest cash crop. According to the EPA, farmers sold roughly $64 billion worth of corn in 2011 (the most recent data available). That’s roughly twice as much as all of the hay, wheat, cotton, sorghum and rice that is sold — combined. 

So the utter collapse in corn prices, thanks to overplanting and favorable weather, is leading to a sharp drop in farm incomes.

Farmers that split their acreage between corn and soybeans, the nation’s second-largest cash crop, might at least have hoped for some pricing relief from that diversification. But soybeans are selling at two year lows as well. If you’re keeping score, wheat and cotton prices are also slumping badly. 

Though the harvest season isn’t over, it appears that farm incomes will take a big hit in 2014 (though higher yields will offset some of the pain of lower prices). Farmers are already cutting back on spending. Sales of combines fell 25% in June from a year ago, and it may get worse. 

According to analysts at Merrill Lynch, “North American retail sales are likely to remain weak over the coming months as comparatives are very difficult, crop cash receipts are down (year over year), ag commodity prices continue to hit multi-year lows, and ongoing uncertainties over Section 179 extension (which farmers use to rapidly write off purchases).” 

With that in mind, it’s interesting to gauge the impact on share prices of companies that sell into the U.S. agricultural sector. Many of these stocks don’t look especially expensive, but the falling farm incomes suggest that expectations of earnings growth for these firms in 2015 are off the mark. 

Farmers typically alter their spending after tallying up the receipts of the prior year. And as noted, 2014 is shaping up to be pretty lousy. 

Analysts at UBS recently reviewed crop yields for the last week of July and found that a “good corn condition has a positive impact on yields and thus a potentially negative impact on prices. We continue to believe lower corn prices this year could drive a double-digit decline in crop cash receipts and in turn drive a large decline in ag equipment sales. All else equal, we expect the decline in ag equipment sales to be at double-digit levels over the next 12 months.” 

These UBS analysts just completed their 34th annual Agricultural Dealer Survey and found that if corn prices fall below $4.24 a bushel, it “would lead to a ‘significant’ (more than 10%) decline in 2014 equipment sales.” The current price is $3.69 a bushel. These analysts are most bearish on shares of Deere (NYSE: DE), and see more than 10% downside to their $75 price target. 

Merrill Lynch suggests that the only farm equipment stock to buy right now is AGCO (Nasdaq: AGCO), as that firm sells more than 50% of its products (mostly tractors) in foreign markets, where crop pricing dynamics aren’t so severe. These analysts expect AGCO and other to miss 2015 earnings forecasts as the bleak reality of farm economics sets in, but they think in the case of AGCO, such news is already priced in, and they figure that shares will stage a relief rally to $60 (from a current $49) once that happens. 

These analysts are bearish on the outlook for rival CNH Industrial (Nasdaq: CNHI). Though CNH also has exposure to other markets (it owns truck maker IVECO), 90% of the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) still comes from agricultural equipment sales. And they note that CNH’s forward multiple is simply too high in relation to peers like AGCO and Deere. 

Risks to Consider: As an upside risk, farmers may respond to the low prices by reducing plantings in 2015, which would set the stage or firmer corn and soybean prices. 

Action to Take –> If you’re looking to trim stocks form your portfolio, the agriculture-related firms are the ones to cut. Forward earnings estimates appear ripe for a downgrade, which is often a precursor for lower share prices. This then becomes a sector to monitor, because if farm equipment sales slump badly in 2014 and 2015, then they will likely see a powerful snapback in 2016 as aging farm equipment needs to be replaced.

Also, don’t forget the beneficiaries of cheap corn and soybeans. Livestock farms are now paying a lot less for animal feed, and will likely pay even less in the future as corn and soybean prices keep on dropping. Tyson Foods (Nasdaq: TSN) can look to preserve margins by maintaining firm pricing (while its costs are falling), or take market share from beef and pork producers to trim prices and boost volume. Analysts have been steadily boosting their (September) 2015 earnings estimates for Tyson to account for the lower corn and soybean costs. 

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