Agri-giant Monsanto‘s stock price has lead materials stocks to underperform the broader market.

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Monsanto is down 11% since August 27 while the SPDR S&P 500 (SPY)was essentially flat over the same period.

Monsanto makes up 13% of the Materials Select Sector SPDR (XLB)which has more recently slid 8% since September 16 compared to a 4% decline for the broader market.  Other XLB components include DuPont,Freeport-McMoRan Copper & GoldDow Chemical and Praxair.

Monsanto and the materials sector survived the financial crisis relatively unscathed compared to other sector ETFs such as the Financial Select Sector SPDR Fund (XLF).  Monsanto’s troubles began in August as the company’s star CFO took an early retirement and the company announced that 2009 earnings would come in at the lower end of guidance.

The final straw that kicked off the decline was the release of a report in late August by the Agriculture Department that projects farmers’ net income will drop 38 percent to $54 billion this year, $9 billion below the average net farm income over the past 10 years.  Dropping incomes mean farmers will have less money to spend on fertilizers.

The government agency also announced that it expects a record soybean crop this year and the second-biggest corn crop ever, further pressuring commodity prices and farmer incomes.

For more ETF investing choices, see the ETF Directory for a complete list of Sector ETFs.